Matt Ringelstetter: How do we build more globally competitive communities? What can we learn from regions where economic growth has already taken place? And how do we measure economic development in a more holistic way? In this month’s podcast, I talk about these issues with Mr. John Fernandez, Assistant Secretary of Commerce for Economic Development. Mr. Fernandez has earned a reputation as a strategic thinker, and a creative problem solver, and for the U.S. Department of Commerce’s Economic Development Administration, he promotes innovation and grassroots leadership, preparing American regions for growth and success in the global economy. For this podcast, Mr. Fernandez explains the formation of what he calls “regional innovation clusters.” Listen to his take on why place matters.
Matt: Now first off, your Administration [Economic Development Administration] has been talking a lot lately about regional innovation clusters as a way to stimulate industrial commercial growth. Can you explain to us what a regional innovation cluster is?
John Fernandez: Sure. This is a concept that’s been around for a number of years now, and we’re just trying to organize it better at the federal level, but regional innovation clusters are essentially geographically bounded networks of similar or complementary organizations that leverage a region’s competitive strengths for job creation. Typically, they involve a range of integrated businesses, they can be a mix of manufacturing and service providers, but they’re all associated around a particular field. For example, you may have a really strong medical device cluster, where there are a number of manufacturers; there’s research components; there’s linkages to the community college system; there’s an entire vendor network and other suppliers. So you build up an entire, I guess, network of these groups working actively together to support their industry.
Matt: Now how does the EDA [Economic Development Administration] help these regions, or these areas, start to develop these innovation clusters?
John: Well, there’s a number of different ways that we can be of help, because there’s clusters that are formed and there’s networks that are in different stages of their development. So for example, if there’s an obvious cluster that’s not been networked, for example, what we would do is that we would work with the leadership in the public and private sector to help seed the organizing entity. The organization that would pull everyone together to start identifying common issues, common opportunities, other policy issues that they could collectively work on that would support the entire cluster, or their infrastructure investments they could make. But we can fund that initial research and technical assistance, and maybe even we’d include gap analysis of what do they need to make their cluster even stronger. So we can provide that kind of technical support. If it’s a more developed cluster that there’s already an entity in place, we can supplement their activities with additional technical support, resource support, or they may have some specific infrastructure investments or training investments that they’ve already identified that we could also co-invest in as well.
Matt: So it sounds like you’re looking at an area that already has these resources in place, and perhaps providing strategy for them, in order to utilize what they have?
John: Help them develop their strategy, and that’s an important point is that most clusters, they’re not a top-down entity where the federal government parachutes in and says, “You all have these parts together here, and here’s the strategy that’s going to make you the next Silicon Valley.” These things tend to be much more organic and bottom-up, where the businesses are already working together, they’re already tied together with their institutions of higher learning or other educational providers. And they start identifying what some of their common issues are, their common needs are, and it becomes much more of a bottom-up strategy, rather than a top-down.
From a federal perspective, it’s our view, and I think that the research supports the notion, that when you look at areas that have defined, well-organized clusters as an economic unit, there tends to be better performance of the companies within the cluster. On average you’ll see higher wages within the cluster, and most importantly, you see a much stronger globally competitive region. And so while we can’t mandate or do top-down cluster development, what we can do is shine a light on the fact that as an economic unit, there’s a lot of value in well-organized clusters, and then we can accelerate by co-investing, providing technical assistance, gap analysis, we can accelerate the development of these clusters to help build more globally competitive communities.
Matt: Now, what, in your experience, is the role of place or environment in fostering innovation?
John: We think it’s very important. Place matters. Again that’s part of the regional component of regional innovation cluster, is that folks who, whether you’re an inventor, the entrepreneur, whether you’re the VC or the productions folks, folks want to be around each other where they can get some of that shared energy and creativity. And so I think location does matter in the concept of innovation, and creating that more robust ecosystem is a very important strategy. There’s certainly some of the technology-based components of this, the innovation components, but if you want to look at more broadly—and this is where I put on my old mayor’s hat—place matters in the sense of, people want to live in locations that have a high quality of life, that have the whole package in terms of a great place to be creative and develop ideas, and create jobs, but also places where there’s a good quality of life in terms of lifestyle choices, I think place is very important.
One example that obviously pops up is Austin. It’s a hotbed for a lot of technology companies, new, small start-ups, there’s also a strong medical industry there, biotech. They’ve got their whole brand around being a cool place to be. There was the whole campaign about “keeping Austin weird.” So I mean, I think that’s a great example of where you see that kind of energy around an ecosystem that makes it a great place where people want to be to be creative, to create economic opportunity, but also have a good quality of life. There are many others, big and small.
Matt: And once these strategies are in place, how do you measure the success of a place, in regards to innovation?
John: Now that’s a very good question, and one where, candidly, we need to do more work. Most of the traditional success measures for economic development, in my judgment, are antiquated. They’re too narrow in regard to just measuring the number of new jobs, or the amount of private investment, and in fact we’re having a very broad discussion, not just within the EDA, but with our stakeholders around the country, on developing a more robust, holistic set of measures that truly capture the total, I guess, benefit of our economic development initiative.
There’s different approaches. We certainly want to get a better set of metrics and measures related to regional innovation clusters, but I think there’s also a broader question of almost a triple-bottom-line approach to economic development, so that you’re not looking just at the economics, but you’re also looking at the ecological impact, the environmental impact, the equity issues in terms of social equity. But that’s something that’s on our agenda, is to develop a more robust, contemporary set of metrics that can help guide policy in a more holistic way.
Matt: Can you say some more about how the ingredients, talk about the ingredients, in this innovation ecosystem?
John: Yes, probably there’s a number of things that have to happen. But you’ve got to have a—it’s almost like an entrepreneurial culture and society that people can thrive in. So you need to have certainly the human talent that’s there to support new ideas, new innovation, translating existing businesses into more competitive businesses. Having access to seed capital, that early stage money, is an incredibly important ingredient in an entrepreneurial society, and having that as part of your ecosystem is incredibly important. Having connections to a thriving business community is important part of it as well.
So the infrastructure that you need in a 21st-century economy, it can be very broad, from the traditional hard infrastructure of roads and water supplies and broadband, to our softer infrastructure of having access to capital, early stage capital as well as later stage capital. Having access to talent of all levels to support a growing industry. And putting that all together where there’s really a culture that celebrates risk-taking.
Matt: Yes, of course, that’s a huge part of all of this.
John: So I mean, that’s really part of the entire ecosystem, where you’ve got sort of the secret sauce all together.
Matt: It sounds like these things just sort of have to happen organically. They have to be there on some level before you can provide any ideas and strategy to them. You can’t just force all of these little pieces into it, can you?
John: You can’t force it, but you can accelerate investments in it. So for example, if there’s a community or region that has an idea that they want to bring forward, we typically get lots of grant applications, right? So we can assess those grant applications, say, “You know, as we look at this system, here’s some of the missing pieces.” So we do a lot of work in the area of funding incubators. Well, an incubator, if it’s not part of a broad ecosystem, then it’s just subsidized office space. So we’ll look at an investment like that and say, “What are the other elements of a successful innovation ecosystem that will really ensure that the return on investment for that incubator are going to be maximized?”
And if the key elements don’t exist, rather than funding that project immediately, we might make suggestions to the community on the other pieces that are missing, to help create that broader ecosystem.
So we can’t, you’re right, we can’t force it, but we certainly can help leverage investments. We can help build those networks to ensure that pieces of the ecosystem are actually interacting. A lot of times, you’d be surprised how the pieces may all exist, but they’re not connected. So an important role that our agency typically plays is the convener. We become the catalyst that gets all these parts together, where they all of a sudden start recognizing their mutual interests, their opportunities to collaborate more effectively, and in the process we help accelerate the creation of that more competitive environment where communities can be successful.
Matt: How do you think collaboration and competition affects today’s global economy? Or the nature of collaboration and competition.
John: I think that it’s very relevant, and what we try and say, at least when I’m out talking to economic development organizations and city and state officials, anyone who will listen, is that our old model has been very much focused on communities competing against each other within our own borders. If we’re going to be competitive in the global economy, communities have to actually become collaborators, and compete in a cooperative way with regions around the globe. And we don’t quite do that nearly as well as we should. And I think a lot of communities recognize that they’re going to have a whole lot more strength if they collaborate and bring their comparative advantages together in a way that actually shine a light on what the opportunities are in their region vis-à-vis their international competitors.
We’ve come out of a, we’re coming out of a incredible economic shock, and the question is, are we going to just go back to business as usual? Or are we going to apply smarter practices that can help ensure that we have a more sustainable competitive economy? While the system, in terms of economic development, is not completely broken, there are opportunities here to do things better, more effectively, and ultimately more competitively, but we’ve got to help regions and communities collaborate. And I think that’s a very relevant role for the federal Economic Development Administration, to help be that catalyst, convener, whatever you want to call it, to get these groups moving forward together.
Matt: Now the President is talk – the President has spoken quite a bit recently about innovation. How does the EDA and these clusters fit into his efforts to implement a new national innovation policy, as he calls it?
John: They fit in very well, in fact, as the President talks about the innovation strategy on a national level, and economic, sustainable economic growth on the national level, he specifically talks about the importance of strong competitive regions. In our last, our 2009 fiscal year budget, as well as the 2010, and what’s proposed for 2011, there’s specific language about accelerating the growth of these regional innovation clusters. That’s specifically because the President recognizes that this is a smart way to organize our strategies to build competitive regions. That’s part of this broader national innovation policy. Once we do the R and D investments, once we develop many of the other pieces of the innovation strategy, you’ve still got to have really strong, competitive regions to actually implement that policy and turn it into businesses, jobs, for people here in the United States, and economic opportunity for communities.
California as a state has been very focused on many what they are calling their iHub program, looking for other hubs of innovation. If you look at on a small scale, certainly there’s an aviation cluster up in Deluth, Minnesota. If you look at Ohio, they’ve got a very aggressive program building technology hubs. Some are in the renewable energy, solar, applied material science. There are many areas that are focused on regional innovation cluster development. Where I’m from [Indiana], there’s certainly a very strong bioscience, biotech cluster that has been pretty strong. And you could say the same thing for up in Minnesota as well.
Matt: Medical Alley.
John: There are a number of entities that have grown, none that’s gotten to the point, I believe, as being as branded as the Silicon Valley, but there are many examples around the country where you do have strong clusters operating very effectively.
Matt: I’d like to thank Mr. John Fernandez for taking the time to be with us. If you enjoyed this podcast and would like to hear more, check out the audio and video section of our website, invention.smithsonian.org. You can leave feedback on our iTunes page, take an anonymous survey on our website, or send an email to email@example.com. For the Lemelson Center and the Inventive Voices podcast series, this is Matt Ringelstetter. Join us again next time as we take another look into the people and places in the world of invention and innovation.