'Clusters' pave the way for economic vitalityFor those living and working in areas with growing economies, it's important that such growth not be simply taken for granted - a lesson that becomes clear in times like these, when the economy is in the midst of a major slowdown. Our attention quickly turns to the needs of the economy during these slowdowns. But it's important to not lose this focus in times when the economy is growing, if not growing rapidly.I have worked as a practicing economist for almost 30 years, often in various roles working with local areas, communities and regions on how to best go about "economic development" or what I prefer to call "economic positioning." Two important lessons have emerged from this experience. One is that it is much easier to positively influence the direction of a local area economy during times of growth. In areas where there is little or no growth, economic development strategies oftentimes must be made from "whole cloth," and oftentimes seem to have very little impact. Fortunately, Billings is a community in an area that has been seeing significant growth and is very likely to continue to do so well into the future, recognizing there will be periodic but short slowdowns, as at present. The second most fundamental principle of local area economic development is that efforts to advance the economy must rec-ognize and work with growth. This may seem self-evident and obvious, but it's important to point out that many economic devel-opment efforts and strategies, particularly ones at the state level, focus much of their attention and resources on what are consid-ered to be the "biggest problems" in an economy - areas of decline. This thinking, again quite prevalent in state-level economic development thinking in some areas, seems to be predicated upon the notion that scarce public resources for economic develop-ment are best spent when focused on big problems, even ones that are often endemic in nature, where such spending will have little impact. What's more, this mentality can prevail to such a degree that very little attention may be given to areas of "greatest opportunity" - areas in the economy that are growing and will continue to grow. The thinking is that areas of "strength" in the economy can "take care of themselves." Let's apply this thinking to a business, say one with five divisions, three that are profitable and two that are unprofitable and likely to remain so. Let's say this business decides to spend most of its scarce investment capital in its divisions that are losers. Where will such a business be in the future? Probably not around. For an individual business to survive and prosper, it must invest its limited capital into areas providing potential returns - it must invest in growth. The same is true of communities and of public bodies charged with area economic development. This does not mean problem areas and areas of decline must be ignored. But it does mean they can't be the narrow focus of economic development efforts. So, it is important to focus on growth and on where the economy wants to go or can go in the future. If you want to advance your economy into the future, you must position yourself - your businesses, your workforce, your schools, your governments, your family, etc. - for anticipated future growth in ways that can best take advantage of that change. It is not where your econ-omy has been that matters as much as where it may be going. Unprecedented growth The personal income base of Yellowstone County slowly grew from $2.4 billion in 1980 to a little over $2.6 billion in 1988 - a period of economic stagnation. However, since then, the area has experienced virtually uninterrupted and unparalleled growth, with income rising to over $5 billion in 2007 prior to the recent slowdown. Most of the area's income growth has been through gains in employment earnings or what is referred to as labor income, as shown in the chart below. The area's income grew by $720 million between 1997 and 2002 with $590 million in this growth coming from gains in employment earnings. And in the five-year period from 2002 to 2007 income grew by $963 million with nearly $640 million of this gain in additional labor earnings. So how will area decision makers help to insure the Billings economy will continue to grow? By investing in growth and op-portunity. And how can this best be done? By knowing your economy intimately and by knowing your important "clusters." Fueling the Future Stuart Rosenfeld, an international guru when it comes to strategies for area economic advancement, has said: "Clusters are made up of businesses and employers who have access to bankers and accountants who understand their needs, marketing and advertising companies that know their markets, and small-business assistance centers that know how to help them. They are firms and institutions that are located in somewhat close proximity and that have common interests and needs. Clusters have become the pot of gold for economic development. Places that don't have clusters, per se, are claiming to have them anyway, or aspire and plan to get them. Virtually every nation, every U.S. state, and every large city has conducted an analysis of its clusters." By knowing your clusters, Rosenfeld says, "You can better know how to grow your economy." To best grow your economy, two things are essential: well-designed programs and initiatives for work force development, training, and education and well-designed programs for business assistance. When it comes to these types of programs, one size does not fit all. These programs must be customized for particular businesses and for very specific areas of the economy. Workforce development and business assistance programs must be designed and customized for each of an area's most important clusters. What are Billings' clusters? Do you know? Can you afford not to know? Without knowing them intimately, how can you know how to best grow your economy? You can't. As a starting point toward identifying your most important clusters, you can simply separate the economy into its parts or de-construct it and then arrange these parts into groupings. One way this can be been done is through the use of the North American Industry Classification, or NAIC system. The chart which follows shows all of the pieces of the Billings area economy (Yellow-stone County), not only organized by individual industry or business type, but also grouped by major sector or cluster within the economy. The figures in the chart show how much each sub-sector grew during the six-year period between 2001 and 2007. So the chart serves to not only visualize how the area's economy is organized by major sector or segment, but also allows one to simultaneously focus upon where growth in the economy itself is most heavily concentrated. When you look at the economy of Billings, what the chart tells us is that a wide array of business and professional services, shown in the color teal, are an extremely important overall segment of the economy and there are likely to be strategic clusters of businesses within these. These include professional and technical services (lawyers, accountants, engineers, computer techni-cians, etc.), administrative services, financial services, insurance services, and others. The sub-sector providing the single largest increase in area labor earnings was professional and technical services, growing by $86 million. We know that health care is a very important segment of the Billings economy and the various pieces of this sector are shown in the chart in royal blue. These include not only hospitals with labor earnings up by $72 million, but earnings by persons em-ployed in ambulatory health care services, nursing and care facilities, and various types of social assistance aimed at improved health. The city's health care sector will continue to grow and hopefully in ways to the strategic advantage of the area economy as a whole. We know that Billings is a growing trade center serving a large trade region and the grouping of sub-sectors in the chart shown in orange make-up the area's overall cluster or segment of retail trade and traded services. There are many kinds of busi-nesses within this large trade sector, both large and small, and they require different kinds of treatment when it comes to business development and workforce needs. The sub-sectors shown in dark red are ones where real estate related income is generated, including Realtors and also rental and management companies. The ones shown in light red are the various segments of the city's overall construction sector - another segment of the economy requiring specialized attention when it comes to economic development. Elements of the area's manufacturing sector are shown in black, except for petroleum refineries which are shown separately, and parts of the area's transportation sector are shown in white. And pieces of the mining and ag sectors are shown at the bottom of the chart. What this chart is meant to illustrate is that we can deconstruct our area economy into important elements and we can organ-ize these into groupings that allow us to begin to sort out how our economy works and how we might best position ourselves across many fronts using a variety of measures to advance ourselves over time economically. And as we push further, we will need to know our clusters, and by knowing them figure out ways to advance them one by one. There isn't one way to do area economic development. But in order to do it well, we must know our economy and we must understand where our growth is occurring and likely to occur in the future. This isn't easy and it certainly doesn't happen by itself. It takes work and focused attention by area leaders participating in well-designed and managed community and region learning processes. Economic development is never complete. It can only be a continuing work-in-progress. In this process, it is always important to simply determine and focus upon "what is" the local economy and what is growing. Then, as best you can, find ways to invest in this growth and opportunity, making it both better and more sustainable. Larry Swanson is an economist and director of the O'Connor Center for the Rocky Mountain West at the University of Montana in Missoula. |
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