"So all the energy that we've poured into entrepreneurship over the last 30 years - incubators, education, special funding - hasn't moved the needle"   Wall Street Journal, Aug. 12, 2011

It's logical that the longest recession in seventy years would stimulate public scrutiny about the job generation process. A feature article in the Wall Street Journal on August 12 entitled "Shrinking in a Bad Economy: America's Entrepreneur Class" looks at the role that startups play in job creation. Most of the economic development profession accepts without question that small businesses and entrepreneurial startups are driving job generation in the US economy, as reported by David Birch in 1981. We accept it because we continue to hear it from our professional associations and in our training courses. The mounting evidence collected from new BLS data overturns Birch's findings. The Wall Street Journal article brings the discussion into the mainstream business media.

What are the facts?  

 Click here to read the entire article.

The above is the catchy headline from an article in the Economist, April 16^th edition. The article describes many of the 100 clusters that speckle the boot of Italy in such industries as tiles, sofas, brass valves and jewelry. The report discusses the challenges that these clusters are facing from Chinese competition. Diversification strategies in brass companies like Giacomini "means that its links to the cluster look increasingly less relevant to its future." The takeaway for developers is that your industrial companies might not, in the future, see your cluster development program as a strategy that benefits them. We found this true in the polymer industry in Mississippi, where global sourcing strategies had eroded any competitive advantage that companies could enjoy from production by local suppliers.

Another academic study released since our last newsletter challenge one of the core underpinnings of the cluster theory. A study of 1,604 companies in Norway by the Centre for Economic Policy Research, as reported in the Toronto Globe and Mail on March 18, found that regional and national clusters were "irrelevant for innovation", one of the central benefits touted by Michael Porter and the other cluster advocates in academia. The analysts found that "global pipelines" were the main driver of innovation among Norwegian companies. Companies with more international partners were the most innovative in Norway. Knowledge drawn from international partners wasn't shared at the local level with other firms. "Even worse, clusters in relatively small cities run the risk of circulating stale ideas", said Dahl Fitjar, the principal investigator.

We have often touted the value of a diversification strategy for economic development rather than a focus on clusters. We published an article summarizing that view on the News and Reports page of our website. The evidence is mounting that clusters might not be the silver bullet for economic developers that their proponents have touted. Is it time to rethink your community and region's approach?