Economic Development

Michael Porter: Cluster Power

At first glance, Michael Porter's key insight, that the ability to compete is the key to business success, doesn't sound all that relevant to state and local policy.
by | April 2000

At first glance, Michael Porter's key insight, that the ability to compete is the key to business success, doesn't sound all that relevant to state and local policy. It's a familiar enough insight: Porter first made it in the 1980s in his books, "Competitive Strategy" and "Competitive Advantage," now required reading in business schools, and the idea helped launch Porter on a lucrative couple of decades as a guru to multinationals and other large firms. But applying it to government might seem a bit of a stretch.

In fact, though, Porter believes, it's not that big a step from corporate competition to the competition among cities and metropolitan areas. And so the 52-year-old economist, Harvard Business School professor and international consultant is spending much of his time these days in places like Chattanooga, Tennessee, and Jackson, Mississippi, helping them figure out the best way to make their local economies thrive in a global market.

Porter advises his clients on how to nurture "clusters"--regional constellations of businesses and the research facilities, government agencies, trade associations and other groups that support them. He has launched an effort to describe and map existing clusters all across the United States, in order to help communities and regions better understand their own economies; his work with states and cities has already transformed the way some of them think about economic development. Meanwhile, his Initiative for a Competitive Inner City is working to apply the same cluster idea to the task of revitalizing poor urban areas.

The first challenge, he tells clients, is to recognize what actually makes a region competitive. "We're never going to build a competitive economy by driving down wages," he says. "That's not the goal--the goal is the opposite, to support higher wages. To build a more productive environment, where people get things done faster, where there are not unnecessary costs or delays, where the regulatory environments are conducive to change, where people have access to properly skilled employees."

The Porter doctrine is not always an easy sell to legislators, economic development professionals and others who are accustomed to thinking solely in terms of job creation. "It takes constant re-saying and re-educating people who come in: Your goal is not new jobs, your goal is a higher standard of living," says Mary Jo Waits, of the Morrison Institute of Public Policy at Arizona State University, which has done extensive research on clustering in that state.

Arizona has sought to develop clusters around its existing software and optics industries. The state now structures its school-to-work and job-training programs expressly around the cluster concept. Other places are doing the same thing. In Connecticut, the state economic development department has helped cultivate clusters around tourism, aerospace and "bioscience," and the legislature recently passed measures reshaping the state's research-and-development tax credits to help the businesses in its various clusters.

Cluster theory is, at the moment, just that--a theory. And as he refines his work based on his experiences, Porter has discovered that translating theory into practice demands more than simply passing ideas along. "What separates success from failure is not the ability to grasp the ideas," he says, "but to mobilize action. In this arena, you have to cross lots of lines: get government involved, business involved, community organizations involved, and you have to get universities to see themselves differently."

Neither Porter nor anyone else has discovered a magic potion that can make all those things happen. But the places he's working with are happy to let him experiment. "We don't mind being a case study for what he's up to," says James Abromaitis, Connecticut's economic development commissioner. "It will only benefit all of us."

Rob Gurwitt  |  Former Correspondent

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