Comments on Clusters

Note: In the original blog, I do not have time to properly cite all my sources. I therefore acknowledge these borrowed thoughts from classes and readings that will be referenced in a couple days, most notably where I have put in a placeholder of “CITE PENDING .” Thank you for your patience...

Dear Sustainable Designers,

Two days past a grip of us sustainable designers (i.e., the MBA290T.4 class) had the fortune to discuss Michael Porter's concept of clusters and its impact on economic development. Presenting was the President of The Economic Competitiveness Group (ECG), Alec Hansen. Of particular note was a debate over “the role of social capital in economic development” (one of Alec’s specialties... as ECG consults for governments on cluster development). If we can agree that government’s role is to provide underpinning institutions and infrastructure that helps facilitate economic growth, what is the dividing line of how they foster that institutional foundation? In many developing countries, government identifies “good” and “bad” industries and then decides to protect its fledgling industries through quotas, subsidies, or import taxes (often called “industrial policy.” [CITE PENDING.]

But is that the most efficient use of resources? What may be painful on a personal level to some shopkeeper – overwhelming foreign competition – may be good for the country’s long-term development if it forces the local companies to “raise their game.” [CITE PENDING] The notion arises that a government would be better served to respect its natural advantages by creating a foundation for better innovation and competition in industries where it has some competitive advantage and would naturally thrive anyhow. [CITE PENDING.] Perhaps this can be called “honoring your economic geography.” (But in truth I’d have to defer to my cousin who is currently writing a paper on economic geography and the stimulus package because I don’t really understand the term at all.)

But I think you get the idea on the basic implications. Similar to the gray-shaded area of when to enforce intellectual property rights and when not to. This area spurred a bunch of topics I intend to blog on in this “cluster thread”: thoughts on design of clusters, looking at clusters and disruptive technology, impacts of cluster theory on new product development and open innovation, and a review of CA energy regulation as a case study. You can look forward to those blogs during this upcoming week. So before we move on, below are a few interesting resources for you to review on the basic concepts.

• “On Competition” by Michael Porter (referenced by Alec Hansen, Flavio Feferman

• “The Competitive Advantage of Nations” also by Porter (I can’t distribute this as it is a Harvard Business Review Article from March-April 1990… but if you want to discuss, I have read it from a previous class – it’s a more detailed discussion of what goes into Porter’s Diamond and how clusters arise.)

-Stan