CREC Project News and Updates

Regional Innovation Clusters: Federal-State Economic Development Collaborations

December 9, 2015
  • Topic Overview

Regional innovation clusters represent concentrations of companies that develop innovative products and services, along with specialized suppliers, service providers, universities, and other associated institutions. The idea that this concentration of activity is important as a foundation for economic growth has been well known for decades by academics and was one of the founding priniciples for the U.S. Economic Development Administration in the 1960s. The idea was brought forward as a popular policy device in 1990 with Michael Porter’s publication of the “Competitive Advantage of Nations.”

Clusters are fundamental to regional economic growth because the confluence of these activities provides a network hub, and the proximity of similar companies, experienced entrepreneurs, talented researchers, skilled workers, and unique innovators result in tacit knowledge that is shared continuously and in a variety of ways. As a result, companies and institutions are exposed to more funding, procurement, and supply-chain opportunities than would otherwise be available. Industry experts and innovators share ideas that result in promising new technologies. Skilled workers cross-pollinate in companies advancing state of the art practices and technical expertise.

  • Federal Role & Priorities

States have long understood these prinicples, but during the past few years, the federal government has actively sought to develop federal-regional partnerships that encourage the growth and development of regional innovation clusters. The goal is to create and retain jobs within the cluster, foster entrepreneurship, grow small businesses, and form new or more competitive industries.

Federal programs have focused assistance on existing and emerging regional industry clusters to help them mature in ways that will transform markets, industries, and technologies. The services provided include assistance with planning and structuring the cluster, recruiting participants, building capacity, and securing the sustainability of institutions that will support the cluster. The primary goals of federal cluster initiatives are to increase opportunities for small business participation in industry clusters, promote industry innovation, and enhance regional economic development and growth. Responding to a National Academies STEP Board report, the Federal agencies seek to help leverage local strengths, encourage clusters to self-organize, pool funding resources, grow the talent pool, connect clusters with local universities and labs, provide long-term commitments, provide public incentives, and monitor and measure performance.

  • Major Federal Programs & Activities

Over the past several decades, federally funded research and military procurement and congressional legislation (e.g., the Bayh-Dole Act of 1980) have both played a major role in the formation of regional industry clusters near research universities and the commercialization of federally funded research. More recently, the federal government has become much more engaged in regional cluster development with the passage of new legislation, such as the America COMPETES Act and American Recovery and Reinvestment Act of 2009. The departments of Energy, Commerce, Defense, Agriculture, Labor, and Education now all have programs devoted to regional innovation clusters. Notable programs include:

  • The U.S. Small Business Administration (SBA) provides technical assistance in support of 14 clusters through the Regional Innovation Cluster Initiative, launched in 2010.
  • Since 2010, the EDA’s i6 Challenge program has provided matching support to innovative initiatives that propose to accelerate technology commercialization, new venture formation, job creation, and economic growth in U.S. regions.
  • The Economic Development Administration (EDA)’s Office of Innovation and Entrepreneurship leads the Regional Innovation Strategies Program competition. The program is authorized through the America COMPETES reauthorization Act of 2010, and received a dedicated appropriation for the first time in FY 2014.
  • In 2011, the Obama Administration launched the Jobs and Innovation Accelerator Challenge, an inter-agency initiative that offers a combination of $37 million in funding and technical support to support 20 competitively-selected industry clusters in urban and rural regions across the nation. The Administration launched the Advanced Manufacturing Jobs and Innovation Accelerator Challenge in 2012 to support the development of advanced manufacturing in high-growth industry clusters. This initiative provides a total of $20 million across 10 projects selected through a competitive multi-agency grant process.
  • In 2012, the multi-agency Rural Jobs and Innovation Accelerator Challenge was launched to bolster economic growth in embattled rural communities. It offers a combination of $15 million in funding and technical support from multiple agencies.
  • The U.S. Cluster Mapping Project is a national economic initiative that provides over 50 million open data records on industry clusters and regional business environments in the United States. The project is led by Harvard Business School’s Institute for Strategy and Competitiveness, in partnership with the U.S. Department of Commerce and EDA.
  • State Role                       

A growing number of state and regional agencies are engaged in cluster-development initiatives, with notable examples in New York, South Carolina, Ohio, New Mexico, and Michigan. State and regional governments are investing in universities, public-private research partnerships, workforce training, prototyping facilities, and early-stage capital funds. However, many of these efforts have been occurring on an ad-hoc basis outside of a formal federal policy.

For most federal initiatives, agencies provide funding and/or technical assistance to public or private recipients at the state, regional, or municipal level. For example, the SBA’s Regional Innovation Cluster Initiative provides awardees with $500,000 for the base year of the contract, with four option years to be exercised at the SBA’s discretion, for a total of up to $2.5 million per cluster initiative over five years, with no match funding required. SBA funding is provided to each cluster’s organizing entity to be used for providing mentoring and counseling services, mentor-protégé and teaming programming, and showcasing and pitching events to prospective investors and public-private sector adopters of new technology. In the most recent year of the program, around three-fourths of funding was spent on providing services, with the remainder going to cluster management.

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About the Client

Appalachian Regional Commission

The Appalachian Regional Commission (ARC) is a regional economic development agency that represents a partnership of federal, state, and local government. Established by an act of Congress in 1965, ARC is composed of the governors of the 13 Appalachian states and a federal co-chair, who is appointed by the president. Local participation is provided through multi-county local development districts.