[Innovation Cluster Theory ]Fields of Dreams – by Karen Mazurkewich (National Post/December 1, 2009)

The National Post is Canada’s second largest national paper. This column was originally published in the Financial Post Magazine on December 1, 2009.

Economic shifts and recession have brought innovation cluster theory to the forefront. Will it deliver? Entrepreneurs, venture capitalists and governments are saying, ‘yes’

It was the little conference that could.

On a cloudy day this past June, a tight group of technology nerds met in Stratford, Ont., to discuss their ambitious new digital media plan. What started as a small meeting of minds mushroomed to 1,000 delegates as momentum gathered. “It surprised us, it snowballed,” organizer Tom Jenkins, executive chairman and chief strategy officer of Kitchener-Waterloo, Ont.-based Open Text Corp., would later comment. Whether motivated by fear over where the economic crisis was taking the country, or simply the chance to hobnob with Canada’s top innovation executives like Michael Lazaridis, president and co-chief executive officer of Research in Motion, the conference ended on a high with a proclamation from above: the gurus — Jenkins and Lazaridis — decreed that this pastoral town (known mostly for its annual Shakespeare festival) would be transformed into Canada’s new digital media centre. Just as they had built nearby Kitchener-Waterloo into a vibrant hub for information and communication (ICT) technologies, they now planned to reshape Stratford, starting with the construction of the proposed Stratford Institute, a digital media innovation centre to be housed at the University of Waterloo.

It was as if the local dream team were channelling fiction by positing: “If we build it, they will come.” Only in this case the “they” are entrepreneurs, and the “field of dreams” a vibrant new industry to help drive the faltering economy in southern Ontario. Even the chosen leader of the project, Ian Wilson, a 66-year old retired librarian and archivist who has never written a line of code, is an unlikely saviour. But he has a vision that the new technology push into interactive digital media will be driven by creativity not just algebra. “[Firms like Open Text] know that the future means they need employees that have both the creativity of an artist and the knowledge of technology,” says Wilson, the former chief librarian and archivist of Canada, who embraced a Sisyphean task of digitizing all national publications.

On the surface, the bold initiative in Stratford smacks of an upstart community grasping at straws. But in fact, there is already a large body of academic research to suggest that the engine of economic growth lies in local co-operation– even rivalry. Michael Porter, who now leads Harvard Business School’s Institute for Strategy and Competitiveness, first proposed his community cluster theory in 1990. In his book, The Competitive Advantage of Nations, Porter chronicled how the geographical concentration of firms working within a particular field raised productivity, innovation and competition. At the heart of his thesis was the idea that innovation could be cultivated in key geographic regions through creative collaboration between universities and the private sector. By leveraging shared advantages in labour, research and networks, these communities could create engines of growth, whether it be information technology in Silicon Valley, medical devices in Minneapolis or life sciences in Massachusetts.

Some countries have been quick to embrace the innovation cluster theory. South Korea has made it central to its industrial policy, and in the European Union, 26 of 31 countries have cluster initiative programs in place, according to an April 2008 report by the Brookings Institution. In North America, however, it has largely survived underground for the past decade, out of the business limelight and in the realm of academics and policy wonks. But a revival is in the works. The economic crisis has quashed the notion that financially engineered deals create growth. It’s back to the basics for the economy, and governments are warming to the notion that real growth comes from entrepreneurs who are supported at a grass-roots level through regional universities, incubation centres and venture capitalists.

The existence of innovation clusters is well documented.

“What is new is how government can work to consciously focus on the creation of shared advantages to create jobs, create businesses, and of course, stimulate long-term economic growth,” according to Jonathan Sallet and Ed Paisley, in their recent publication, The “Geography of Innovation,” for the Centre for Science Progress. In it, they argue that while the U.S. boasts a series of successful clusters, their true potential has not been fully realized. What’s needed is a wake-up call. U.S. President Barack Obama has requested that US$100 million be appropriated in fiscal year 2010 for the Economic Development Administration of the Department of Commerce to support regional innovation clusters.

Support for cluster initiatives is also making a comeback in some mainstream political circles in Canada. Perhaps it’s the unequivocal success of the Waterloo region, home to RIM, Open Text and Christie Digital Systems Inc. The region of 150 start-ups and over 20,000 jobs in the high-tech sector has become the poster-child for cluster theory. Or blame the over-exposed academic Richard Florida, who has unrelentingly promoted his sister theory that the creative classes are the new economic drivers in urban centres.

Whatever the case, in key sectors such as manufacturing — where job losses have hit 218,000, representing an 11% drop over the past 12 months — innovation clusters are being viewed as an economic lifeline. Stratford is just one of the new cluster darlings. Digital media has been seen as the next technology boom, with a potential global market of US$2.2 trillion by 2012. As a result, the Ontario Ministry of Research and Innovation and the local municipality have each parceled out $10 million to build the new institute that will focus on growing our expertise in the sector. Other recent news includes a provincial commitment of $26 million to Waterloo’s new Communitech Hub: Digital Media & Mobile Accelerator, $5 million to the Institute for Chemicals and Fuels from Alternative Resources at the University of Western Ontario, as well as other initiatives in Kingston, Windsor and Ottawa.

On the municipal side, Toronto Mayor David Miller has thrown his weight behind the WATERFRONToronto initiative, which aims to invest between $27 billion and $34 billion in public and private dollars to turn 2,000 acres of downtown waterfront land into a “cluster within a city.” The goal will be to create 40,000 residences and 40,000 new jobs in the knowledge-based industries, including digital media and smart grid systems in building automation.

The recipe for success or failure of these clusters, however, lies in an examination of some of the federal initiatives. Twenty years ago, Canada was at the forefront of cluster analysis. The same year Michael Porter wrote his seminal book, the feds hired him to look at the Canadian economy. Porter’s 1991 report on Canada held few surprises. It analyzed our private sector’s poor track record in investing in technology, but it fell into a few traps of its own making. Although Porter’s theory states that rivalry and competition creates innovation, he suggested that Northern Telecom was perhaps the “case that proves the rule.”

As we now know, it wasn’t. Northern Telecom Ltd. — later renamed Nortel Networks Corp. — imploded over the past year leaving behind an industrial crater. Not only have thousands of jobs been lost, but Nortel fed a bigger eco-system in Ottawa. Over the years, dozens of companies and jobs flourished and faded under its canopy. There’s been Terry Matthews’ Mitel and Newbridge Networks, as well as other high-tech spin-offs such as Cognos Corp., now owned by IBM. Yet, for decades, Nortel remained the anchor — the terra firma of the telecom industry. It defined this high-tech cluster. Now its collapse is a stark reminder that no company is an island. If it takes a village to raise a child, perhaps it also takes a community to sustain an industry.

In many ways Ottawa epitomized Porter’s cluster theory — innovation can be cultivated through creative collaboration between the government, universities, private capital and the private enterprise. But it has also showed us the pitfalls.

It’s been almost two decades since Porter submitted his report and a decade since the National Research Council identified 12 unique centres across the country and began pumping in $700 million into new institutes and start-ups. While some centres, like the fuel-cell cluster in Vancouver, have not taken off because the technology was overtaken elsewhere, a handful of clusters are gaining traction. It’s clear that there is no “cookie-cutter approach” to innovation clusters, says Rob James, director general, policy at the Science and Innovation sector of Industry Canada.

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