Policy should cultivate, not design, industry clusters

Governments should cultivate emerging clusters of technology-based industries, not design them from scratch, says Athar Osama.

In the 1980s and 1990s, Silicon Valley propelled us into the computer and Internet age. It captivated the world’s imagination as a model for organising economic and innovative activity in a region.

Since then, leaders around the developing world have tried to create their own innovation clusters, such as Cyberjaya in Malaysia, Education City in Qatar and Knowledge Village in Panama, as a way of generating economic growth through science- and technology-based entrepreneurship.

Yet despite their widespread popularity and prevalence, it is hard to identify even one successful cluster that was created by decree. Techno-economic clusters seem to thrive almost by serendipity. Planned ones rarely work, developing slowly, fading quickly or seriously failing to achieve their objectives.

There is no certain recipe for successfully creating and sustaining clusters of technology-based industries.

Yet time and again new initiatives are announced. They purport to create synergies and efficiencies, share best practices and reduce the overall cost of doing business. Yet many of these are little more than glorified real-estate projects designed to attract foreign investment or empty sloganeering aimed at gaining political mileage. Few come to fruition and even fewer can claim to have mirrored Silicon Valley’s success.

Taking a fresh look

This poor record does not mean the concept itself should be rejected. But a change in approach is needed.

Policymakers should focus on helping clusters develop naturally, rather than attempting to create them from scratch.

This means targeting investment and resources on clusters where the essential ingredient of regional competitive advantage already exists. This is especially important in developing countries, where scarce resources often means that investment in one area comes at the cost of another.

A pertinent example is Pakistan’s efforts to develop a software cluster, which has yet to materialise. The country would do better to focus on more competitive areas, such as textiles, sports goods and surgical instrument manufacturing.

Policymakers and analysts should also invest time and resources in better understanding how clusters form. Despite considerable research over the past couple of decades, our appreciation of this is patchy at best.

For example, we still do not know exactly what triggers clusters, why some industries cluster while others do not, or how various factors within clusters interact. Cluster policy needs to be built on empirical evidence of what really works.

Clusters are partnerships

Clusters are public-private partnerships that require serious commitment of financial and human resources by both parties. But while governments can ‘prime the pump’ by building broad-based support, funding coalition-building and strategic planning activities, and adopting supportive policies, the real wealth creation must happen in the private sector.

Involving the private sector and maintaining its faith in the initiative is crucial for a successful cluster. This means government strategy must be open and transparent in the way policies are made and communicated, and how industry’s expectations are managed.

How the strategy will actually be implemented is as important as the strategy itself. Governments must ensure that the organisations implementing cluster policies will be impartial facilitators. They need enough stature and influence to involve all stakeholders, and the knowledge, resources and incentive to understand how their policies will affect individual clusters.

Flexibility is key

When implementing cluster policies, governments must allow ‘learning by doing’. In this age of fast-changing economic landscapes and fortunes, policy flexibility and adaptability is crucial to continued success.

This can only be achieved if performance goals are set and monitored continuously. Yet governments in developing countries often shy away from investing in evaluation and monitoring — frequently seen as an unnecessary and unproductive expense. This deprives policymakers of crucial information that could be used to keep policies on course.

There is no reason why cluster policies should be buried in the graveyard of ineffective policy instruments. Analysing clusters provides a useful and holistic way of looking at a region’s economic landscape. But successfully fostering them requires thoughtful planning, clever institutional design, and seamless execution. It will also require going beyond the fad and bringing more rigor and evidence to bear on the policy itself.

Athar Osama is a senior executive at ANGLE plc., an international technology management and ventures firm.