Cluster Allow for "Job Creation on a Budget," Finds Report

With the fears of rising state deficits and high unemployment, states must make tough decisions regarding their economic development efforts in the coming years. Researchers at the Brookings Institute contend that states should focus on regional economic clusters because it provides a "low-cost means" to reignite innovation, entrepreneurship and job creation. "Organic" job growth should be the focus of state economic development, according to the report — Job Creation on a Budget. The researchers say, "Some 95 percent of all job gains in a year in an average state come from the expansion of existing businesses or the birth of new establishments (i.e., organic factors of job growth)." These efforts also take significantly smaller financial commitments by the state and provide a more streamlined approach to achieve meaningful job growth than other more conventional economic development efforts.

However, many states continue to focus their economic development efforts on the costly practices of tax credits, R&D training programs and physical infrastructure. The authors point out that only 2% of job creation can be attributed to business relocation. In a time of limited resources, they contend that these practices for business attraction are an inefficient allocation of resources. In many cases, states commit significant time and monetary resources that have little to no impact on the state's overall economic growth.

For states considering the clustering approach, the report provides a brief discussion of benefits and shortcomings of current regional clustering efforts. The authors provide a brief economic overview of the impact of successful regional clusters across the country including a spotlight on state-supported clustering efforts in Maine and Ohio. However, the authors also identify several shortcomings of current clustering efforts. They include:

• Focusing too broadly;
• Failing to use rigorous data and analysis;
• Remaining overly top-down;
• Continuing to focus on business attraction; and,
• Remaining divorced from other relevant state programs.

To rectify many of these issues, the authors provide three policy recommendations that states should adopt to strengthen their regional cluster-focused economic growth. State efforts should:

• Use data and analysis to identify valuable clusters, inform initiatives and track performance;
• Target modest resources to address discrete gaps in cluster performance; and,
• Employ cluster data and paradigms to better inform, link, leverage and align existing programs and offerings across state agencies.

The authors contend that these three policy recommendations will lead to a "streamlined state economic development policy for maximum efficiency in an era of scarce resources." Read the report ..