States understandably focus economic development efforts within their borders. But industry cluster strategies and greater collaboration across borders could do more for individual states and boost New England’s ability to compete globally.Industries - New England ; Economic development - New England

Michael Gurau

English

Research Papers in Economics

Communities & Banking    3
S
by Michael Gurau 
Clear Venture Partners
States,  by  definition  parochial,  focus  their  economic  development  efforts  within 
their borders and strive to keep their graduating students and company owners from 
leaving. 
A  few  New  England  states,  however,  have  initiatives  to  invigorate  instate 
economies  differently.  When  it  comes  to  infrastructure  sectors  like  telecom, 
broadband, transportation, and energy, they recognize that their interests are aligned 
with neighboring states’ interests—and that it can make sense to address economic 
development  distress  by  applying  industry  cluster  strategies  in  partnership  with 
neighbors.1 Cluster initiatives can boost innovation; facilitate diversification; generate 
New England
    through 
       Industry 
           Clusters
A Stronger4   Fall 2009
employment  opportunities,  higher  wages, 
and productivity; stimulate regional entre-
preneurship; and improve regional sustain-
ability.2
Introducing Industry Clusters
Clusters come in two primary flavors. With 
local clusters, products and services are trad-
ed  within  local  borders.  Health-care  ser-
vices,  tourism,  retail,  and  transportation 
are  typical.  Oklahoma’s  hospitality,  recre-
ation, and tourism cluster and South Caro-
lina’s tourism initiative are examples.3 With 
traded clusters, commerce occurs across local 
borders. Traded clusters that serve growing 
and global markets create potential to drive 
economic  development  in  whole  regions. 
Companies in traded clusters—technology, 
life sciences, consumer products—often fit 
the traditional venture capital model and so 
can be more rapidly developed. 
Clusters are characterized by the rela-
tive proximity of suppliers, producers, and 
distributors. Although they are not entirely 
self-contained ecosystems, they derive con-
siderable power from ease of participation in 
trade associations, networking events, and 
cluster-specific meetings. A cluster may be 
centered on a single city (Hartford: insur-
ance and finance) or may be linked to adja-
cent cities or counties within a state (North 
Carolina: Research Triangle Park).4 
Sometimes clusters span multiple states. 
The Northwest Food Processors Association 
(Oregon, Washington, and Idaho) launched 
a multistate initiative in 2005 out of con-
cern about thin profits, overcapacity, poor 
return  on  assets,  erosion  of  margins,  and 
industry consolidation. In another example, 
officers of metals companies in western Min-
nesota and eastern North and South Dako-
ta  organized  the  Tri-State  Manufacturing 
Association to promote common interests.5 
Similarly,  the  Northern  Border  Regional 
Commission  of  Maine,  New  Hampshire, 
Vermont,  and  New  York,  although  char-
acterized as a sector-based initiative rather 
than a cluster initiative, intends to leverage 
existing sectors that span 
all  four  states,  such  as 
agriculture  and  the  cre-
ative economy.6
Multistate  cluster 
strategies—coupled with 
states’ internally oriented 
cluster  activities—may 
provide  greater  growth 
potential than the state-
based  model  alone.  In 
the current climate, col-
laboration that can lever-
age  limited  federal  and 
state  resources  makes 
sense.
New England 
Clusters
Several  New  England 
states  have  recognized  the  utility  of  clus-
ters for economic development. Massachu-
setts—particularly  east  of  Route  495—is 
furthest along in activating a cluster-based 
economy.7 Worcester, in central Massachu-
setts, has developed a life sciences cluster 
to which it has dedicated real estate, incen-
tives, university partnerships, and the like. A 
cluster outlook also meshes with Vermont’s 
economic  development  strategy,  which 
embraces such diverse sectors as green tech-
nologies and cheese making.8 
In Maine, a 2006 state-funded Brook-
ings Institution economic development report 
included a cluster analysis.9 Cluster expert and 
former venture capitalist Karen Gordon Mills 
was chairing Maine’s Council on Jobs and the 
Economy at that time and worked with pub-
lic- and private-sector leaders to implement 
the recommendations. She helped to secure a 
$15 million federal grant to support the boat-
building  cluster.  Additionally,  in  her  affilia-
tion with Maine’s CEI Community Ventures 
(a for-profit subsidiary of Coastal Enterprises 
Inc.), she helped to catalyze development of a 
specialty-food cluster.10 
A Super-Regional Approach
Historically,  U.S.  cluster  initiatives  have 
been conducted with support from an eco-
nomic  development  agency  at  a  level  no 
higher  than  a  state.11  But  in  the  current 
economy, states might consider the poten-
tial of multistate efforts and try to identify 
cross-border opportunities. 
Cities in Connecticut and Massachusetts 
formed  the  Hartford-Springfield  Econom-
ic Partnership in 2000, aiming to “advance 
projects with regional implications and fur-
ther the economic progress of the interstate 
region by capitalizing on historic economic, 
natural,  and  cultural  ties.”  Similarly,  com-
muting  patterns  (say,  between  Worcester 
in Massachusetts and Providence via Route 
146)  could  give  other  economic  develop-
ment agencies ideas for potential cross-bor-
der activity beneficial to each side. 
With  government,  the  private  sector, 
foundations,  and  individuals  pulling  back 
in  varying  degrees  from  funding  entrepre-
neurship  and  start-ups,  multistate  partner-
ships could make scarce resources go further. 
If two states are developing competencies in 
clean technologies, why not look at how both 
could gain, rather than have one “win” at the 
expense of the other? Instead of competing 
for every business to locate within their bor-
ders,  states  should  appreciate  that  when  a 
business settles on one side, commuting resi-
dents may offer benefits on the other side—
property tax revenue and local consumption. 
Of course, finding ways to ensure that a giv-
en cluster provides fairly balanced benefits to 
all parties is also important. 
Although  it  might  seem  daunting  to 
Cluster initiatives can boost innovation;  
facilitate diversification; generate employment 
opportunities, higher wages, and productivity; 
stimulate regional entrepreneurship; and  
improve regional sustainability.Communities & Banking    5
try  to  coordinate  efforts  with  competi-
tive  neighboring  states,  a  super-regional 
approach would likely be a capital magnet 
for federal programs and, over time, should 
make a region more competitive in the glob-
al economy. New England is less than the 
size of California. If New England were to 
pursue multistate initiatives in addition to 
in-state initiatives, each state and the region 
as a whole could benefit more.
Finding the Right Cluster 
Whether  local  or  traded,  rural  or  urban, 
clusters need to be properly researched and 
activated. Not every region is a Greater Bos-
ton with access to core cluster elements such 
as broadband, a highly trained workforce, 
and capital. 
To  find  the  most  suitable  model,  a 
region should first evaluate its assets. Mon-
itor  Group’s  report  on  entrepreneurship 
development,  which  defines  four  cluster 
models, may be helpful.12 In the classic mod-
el, intellectual property gets developed by 
individuals or a university, then funded by 
angel investors or venture capitalists. In the 
anchor-firm model, new companies emerge 
from a larger existing company. The event-
driven model emerges from a major indus-
trial or economic event that throws people 
out of work, forcing a search for solutions. 
The  local-hero  model  arises  when  a  local 
entrepreneur gains national or international 
prominence and catalyzes an entrepreneur-
ial network and culture. 
The U.S. Department of Commerce’s 
Economic  Development  Administration 
has long used cluster theory as part of mak-
ing grants to stimulate economic activity; 
the new administration also is supportive of 
regional clusters. Moreover, now that Karen 
Gordon Mills heads up the U.S. Small Busi-
ness  Administration,  clusters  may  receive 
more attention in economic initiatives.  
Michael  Gurau  is  the  managing  general 
partner of Clear Venture Partners, a New Eng-
land venture capital fund-in-formation. Clear 
Venture Partners, www.clearvcs.com, is based 
in Freeport, Maine. 
Endnotes
The  Northern  Borders  Regional  Commission—a 
1 
Maine,  New  Hampshire,  Vermont,  and  New  York 
initiative  to  address  economic  development  malaise 
in  the  states’  northern  counties—is  seeking  federal 
funding  to  address  outmigration  of  young  college 
graduates, the aging population, and ways to replace 
dying industries.
Clusters are defined as a group of companies, related 
2 
economic  actors,  and  institutions  located  near  one 
another and drawing productive advantage from their 
mutual  proximity  and  connections.  See  Council  on 
Competitiveness, Cluster-Based Strategies for Growing 
State-Based Economies (National Governors Association: 
Washington,  DC,  2006);  and  http://www.nga.org/
Files/pdf/0702innovationclusters.pdf.
See 
3  http://staging.okcommerce.gov/test1/dmdocu- 
ments/Hospitality_Recreation_Tourism_Cluster_
Report_3006051541.pdf  and  http://www.scprt.com/
our-partners/competitivenessiniative.aspx.
See http://www.rtp.org.
4 
See http://www.tsma.org.
5 
Cluster-based  economic  development  represents  a 
6 
more holistic approach than sector-based development, 
taking into account the ecosystem of suppliers, trade 
associations, and universities.
In  1991,  Governor  Weld  created  the  Council  on 
7 
Economic  Growth  and  Technology,  an  outcome 
of  Michael  Porter’s  state-funded  The  Competitive 
Advantage of Massachusetts. 
State  of  Vermont:  Strategic  Plan  for  Economic 
8 
Development,  http://www.thinkvermont.com/Portals/ 
0/Stategy-doc-booklet2.pdf.
Charting Maine’s Future: An Action Plan for Promoting 
9 
Sustainable Prosperity and Quality Places (Washington, 
DC:  Brookings  Institution,  2006),  http://www.
brookings.edu/reports/2006/10cities.aspx.
CEI Community Ventures collaborated with Mills 
10 
to launch a Food for Thought Forum, which brought 
together nearly 100 participants interested in mutually 
advantageous,  coordinated  efforts.  A  food  industry 
cluster  award  was  granted  by  Maine  Technology 
Institute in February 2009, partly as a result of that 
event.
The  U.S.  Department  of  Commerce’s  Economic 
11 
Development  Administration  has  helped  to  fund 
cluster research. The Obama administration proposed 
additional funding.
Path to Prosperity: Promoting Entrepreneurship in the 
12 
21st Century, http://www.compete.monitor.com/App_
Themes/MRCCorpSite_v1/DownloadFiles/NED_
report_final.pdf.
Although it might 
seem daunting to try 
to coordinate efforts 
with competitive 
neighboring states, a 
super-regional 
approach would 
likely be a capital 
magnet for federal 
programs and, over 
time, should make a 
region more 
competitive in the 
global economy.
This Communities & Banking article is copyrighted 
by the Federal Reserve Bank of Boston. The views 
expressed are not necessarily those of the Bank or 
the Federal Reserve System. Copies of articles may 
be  downloaded  without  cost  at  www.bos.frb.org/
commdev/c&b/index.htm.

A stronger New England through industry clusters

http://www.bostonfed.org/commdev/c&b/2009/fall/Gurau_regional_clusters.pdf

A stronger New England through industry clusters

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