Clusters can add significant advantages for industry and government that learn how to develop and use them wisely to spark wider innovations. Such innovations impact intertwined industries in a way that improves regional economic and social health. Because these clusters grow faster in comparison to the rest of the economy they can sometimes impact the local, regional and national development. Cluster generated innovations often lead to butterfly adjustments in a regional/national network due to new research, patents, product development, skill development and market solutions. Other industries adapt useful innovations throughout the nation's business networks to develop their own financial prospects. Nations become stronger from successful redevelopment from one economic homeostasis/platform to the next (Hunter-Gatherer, Agrarian, Industrial, Post-Industrial. Digital, etc.). Developing rapid innovation means thinking about what components lead to development. Research on economic clusters helps us better see the complex information from a more manageable sample.
Regional and National Impact of Clusters
When clusters obtain resources and tap local markets they have a much wider influence on the regional economy. As these economic vines reach into the micro level various nook and cranny aspects of local economies these clusters have a wider impact on regional markets as they procure supplies, marketing, employment, education, infrastructure, etc. one might go down to the micro transactions that lead to economic growth if they had the metrics and time.
Growth requires a level of resource procurement and utilization of those resources in a way that pushes supplier to become increasingly efficient and effective. Product outputs from using those resources well pushes innovation to the market through new products, discoveries, and ideas. It is a process of preadaptation, adaptation and re-adaptation to create integration and efficiencies in the the supply chain that further integration systemic innovations.
The stages of integration mark a level of development from initial stage to more advanced or declining stages. One might expect an initial economic bump from new infrastructure investments, a secondary bump from integration of knowledge to efficiency, and possibly a third bump from cross-infrastructure synergy/parity derived from deeper socio-cultural-economic change of microtransactions. A concept called Creative Destruction by Joseph Schumpeter (1942) helps understand the base catalyst that launches change but the path of that change in a Digital Era are not fully defined.
Macro transactions create momentum to grow while micro transactions integrate those network vines into local and regional systems to create efficiencies. As an example, macro transactions fostered by something like a new rail line or airport expansion in a small town leads to many new businesses, social exchanges, contracts, etc. People seek to enhance their business and personal prospect by using these new infrastructure lines in a way that increased economic reach. The resource vines create millions of smaller micro transactions that act as the foundation of socio and economic choice for the rest of the economy.
Furthermore, deeper integration of these economic vines will create efficiencies in product and service development and movement. The active coordinating of various infrastructure advantages to maximize their collective advantages and outputs could create synergy of advanced development and potentially new industries (As an interesting side note you can read What is Emergence in Complex Systems). The unique way in infrastructure and related micro structure interact and enhance the whole is unique to each nation and not easily copied. Each cluster and region can become defined by their localized capacities.
Scientists often break economic development into easy to define categories but living and functioning systems respond holistically to development through millions of large and small transactions. Because of the broad reach of such vines a level of development at the root will impact elements in many areas. The efficiency and connectivity of micro-transactions within a cluster can come to define that cluster itself in terms of capacity and profitability.
The Wider Multiplying Effect of Economic Activity
One might use a multiplier to determine the potential value of growth for regional economies when clusters are successfully created. Indiana University provides multipliers as one explanation of how economic activities in one locality can impact the economic activities in another. As economic activity is imputed into the local economy from a cluster (i.e. jobs) it would then have a multiplier effect on job creation in other areas as well (Slaper & Ortuzar, 2015). Clusters rely on their environments and have an impact on those environments.
Regional stakeholders might consider the benefits of collaborating to create clusters. Clusters may have the potential to push growth in key industries that create economic foundations for the rest of the nation. That foundation is needed as emerging market driven new product and services reorient toward profit on a grander scale. When clusters are placed strategically in industries that have high global demand, they can lead to reorienting larger global supply chain vines back to the U.S. where the environment fosters the most innovative and lucrative products.
Those localities that create innovation and new product ideas will draw new resources in the modern Digital Age where information and rapid developing leaps in science are likely to change the economic landscape. Clusters can be build organically or created by government-industry-community partnerships but they must ultimately find a type of homeostasis with the market. They further will continue to adjust and change as the need for those products adjust and change with the time. Some vines may decline, others find new sources, and some strengthen in search for business efficiency. A type of Schumpeterian Creative Destruction is at work reorienting resources to their best use.
Key Points:
-Clusters grow faster than the rest of the economy.
-Clusters can impact other industries, areas and regions.
-Clusters are made of many microtransactions.
-Clusters can be mapped and their economic impact measured by multipliers.
-Regions can build and benefit from clusters.
-Clusters can provide bumps to economic development.
(While this isn't necessarily part of the book it is still a good reference to see the original book. If you have time you can read it because many of our economic assumptions are part of this and a few other books. We are developing new economic assumptions due to the advancement of a Digital Era/Information Age that comes with more virtual and non-tangible products. Creativity becomes a commodity.)
References:
Brookings Institution (March 2006). Making Sense of Clusters: Regional Competitiveness and Economic Development. Discussion Paper. The Brookings Institution Metropolitan Policy Program. https://cge.fresnostate.edu/oced/documents/Brookings_Making%20Sense%20of%20Clusters.pdf
Daniel, et. al. (Nov. 2023). Selecting the Righter Clusters for Economic Growth. Boston Consulting Group. https://www.bcg.com/publications/2023/how-to-create-an-economic-growth-plan
Federation of American Scientists. (01/12/2023) 'Cluster Development as the New Economic Development'. https://fas.org/publication/cluster-development-is-the-new-economic-development/
Silva, G. (July 28, 2024). What is Emergence in a Complex Systems- And How Physics can Explain It. Forbes https://www.forbes.com/sites/gabrielasilva/2024/07/28/what-is-emergence-in-complex-systems---and-how-physics-can-explain-it/
Schumpeter, J. (1942). Capitalism Socialism and Democracy. Harper & Brothers Publishers, NY. https://archive.org/details/in.ernet.dli.2015.190072
Slaper, T & Orutzar, G. (Spring, 2015). Industrial Cluster and Economic Development. Indiana Business Review. https://www.ibrc.indiana.edu/ibr/2015/spring/article2.html
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