• Harvard Business School’s Bill Kerr discusses tech (and talent) clusters and the innovation and investment this can bring to an area.
• Scale and linked activities are key components of a cluster. A mass of nearby, related or linked activity creates a productive advantage. But you also need to be at the frontier edge of technology. This has shifted across the US over the decades.
• Tech clusters are not fixed in time or definition (it is possible to leave). There is a debate on whether Wall Street is a tech cluster given engineers now dominate in banks and hedge funds.
• Clusters need longevity as the nature of technology changes. New ideas tend to spring up near old ideas as often it’s a re-combination of ideas and building new businesses around that. Local diversity can help facilitate this.
• Cities tend to self-declare the existence of a tech cluster (eg. Silicon Roundabout in London). Political and economic benefits to declaring such as attracting investment and future jobs generation. Studies show five spill over jobs for every job in the tech sector, 2-3 times higher than in manufacturing.
• What makes clusters succeed? Sector level bets rather than company specific. Cities can gear policies towards certain industries (finance and fashion in NYC) but this risks missing the new big thing. Also needs an eco-system, create infrastructure (office space, housing, university). Boston’s innovation district is a successful example.
• Not all good news. Negative impacts arise for the local population (rising housing costs, loss of local culture) as well as for business (competition for workers). Trade-offs must be considered.
• Less sensitivity to one specific industry can make clusters more robust. Talent clusters can arise with multiple successful sectors and are more likely to generate long-term benefits, with a less transient workforce and generate related infrastructure.
Why does this matter? Lessons from studying the success (and failure) of tech clusters is relevant for regional development. The UK government’s pledged to invest more in the regions and level up the productivity differential with London will need the infrastructure, or eco-system, discussed above to be a success. Given the prolonged weakness in UK productivity growth a successful effort to create new clusters could provide a much-needed boost to economic growth. [Potentially bullish UK economic growth]
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