With Professor Maryann Feldman
One of the myths surrounding the I-Cubed (Information, Intangibles, Innovation) Economy is that “place” – the physical location of economic activity – no longer matters. With the “death of distance” we are told that economic activity can occur anywhere – as the current debate over offshoring illustrates. But, in a highly interconnected global economy, place may become even more important. In response to criticisms of offshoring, we hear over and over from corporate leaders that they must go to where the resources and the talent are located. Local intangible assets are becoming key factors in a company’s competitive advantage. And the uniqueness of those local assets becomes ever more important.
Drawing on theories of corporate competitive strategy, Professor Maryann Feldman outlined a new approach to local economic development based on a community’s unique characteristics—arguing that jurisdictional advantage is established through a strategy of differentiation rather than low costs. Professor Feldman is the Jeffery S. Skoll Chair in Technical Innovation and Entrepreneurship and Professor of Business Economics at the Rotman School of Management, University of Toronto. Prior to joining Rotman, she held the position of Policy Director for Johns Hopkins Whiting School of Engineering. She was also a research scientist at the Institute on Policy Studies at the University. Her research focuses on the areas of innovation, the commercialization of academic research, and the factors that promote technological change and economic growth. A large part of her work concerns the geography of innovation – investigating the reasons why innovation clusters spatially and the mechanisms that support and sustain industrial clusters.
Professor Feldman was introduced by Dr. Kent Hughes, Director of the Project on America and the Global Economy at the Woodrow Wilson Center.
In her presentation, Professor Feldman focused on the need of cities and economic regions to construct a jurisdictional advantage, a deliberate and unique construction of social, economic, and political assets that help the city gain competitive and innovative advantages. If she had been running in a political race her campaign slogan probably would have been “it’s the location, stupid.”
Professor Feldman noted how companies built a competitive advantage by either developing a unique product or service or by using a low cost approach to providing a product and service. By low cost, she stressed that she did not mean cutting prices and hence profit margins. For example, she pointed to Southwest Airlines’ business strategy that built an entire, complex system to create their low cost advantage. To meet their price, a company essentially had to master and either duplicate or improve on their total system.
In Professor Feldman’s view, cities and regions needed to learn from the strategies of successful companies. She recognized that corporate strategies were relatively simple – their principal goal was profit maximization. Cities have broader goals that included quality of life, security, and protecting the environment, as well as fostering economic growth and job creation.
It was in terms of generating growth that she felt the cities had most to learn from the business approach. Just as she did not see a future for companies that simply cut prices and profits, she did not see long-term success for cities or regions that relied on low wages or luring industry with tax breaks and other incentives. When economic conditions change, the lured company is often the first to leave.
In terms of a strategy for growth, Professor Feldman rejected both the laissez faire approach of passively waiting for the magic of the market place and the kind of active industrial targeting that attracted attention in the United States in the early 1980s. In her view, technology simply changed too rapidly and unpredictably for industrial targeting to work.
Instead, she encouraged cities and regions to focus on constructing a jurisdictional advantage, a unique system that would allow them to capitalize on new innovations while staying flexible to market changes. Before active “construction,” a city or region had to assess it current assets and strengths. The next step would be to build on their current competitive advantages. In most cases, a city or region will find local industries that have already stimulated the development of activities that create a supportive cluster.
She gave two examples of how a specific industry had encouraged the formation of related activities in a city or region and then, in turn, been strengthened by them. Her first example was Hollywood. Citing recent work by A.J. Scott, she noted that it was not the weather but rather an innovative approach to filmmaking that helped break the New York monopoly on film production. “The New York based Motion Picture Patent Trust priced films by the foot” regardless of quality. In Hollywood, Thomas Ince pioneered the development of shooting movies in discreet segments that were reassembled later, thus lowering costs and eventually giving rise to the studio system. The innovations in filmmaking led to an increased demand for actors, technicians, craftsmen, and managers, among others. The Academy of Motion Pictures Arts and Science also played a critical role in training talent, and thereby supporting the industry’s growth.
In New York, Professor Feldman pointed to N.M. Rantisi’s work on the fashion industry where a series of complementary industries, services and educational institutions developed that helped the garment industry to move to high value added production. Other cities’ everyday garment districts failed to develop their own market niche and withered under first southern and then international competition.
In some cases, a low cost strategy may be successful. But a low cost strategy is not the same as a strategy built on low wages. Rather, it is a strategy of providing the needed economic infrastructure and services at a lower cost. The example of the educational system (K-12) in Edmonton, Canada is one where providing a high quality jurisdictional service at low cost has helped promote economic development. However, to be sustainable any low cost strategy must be used to create unique assets that can not be easily replicated by other jurisdictions.
Because economic activity is often path dependent (where you are depending on where you started) many cities attempt to lure key industries to their jurisdiction. Professor Feldman argued that by the time it was clear that an innovation was going to be a market force that a city or region might desire it is already embedded in a supportive cluster elsewhere. She again stressed the importance of building on existing strengths and, where necessary, focusing on attracting the missing industries to complete a cluster. To continue to build on their existing strengths, city and regional governments must communicate effectively and regularly with their business stakeholders to ensure that regulatory requirements are not constraining further growth.
Professor Feldman closed by noting that she will be going to India in the near future to add an international dimension to her work.
The discussion was moderated by Dr. Kenan Jarboe, President of Athena Alliance. During the discussion, a number of participants noted other studies and research that parallels Professor Feldman’s work. It was especially noted that her work essentially bridges the gap between Michael Porter’s thinking on corporate strategy with his (other others) work on economic clusters in a new and insightful way.
Part of discussion focused on how communities could identify their unique advantages and turn disadvantages into advantages. It was noted that the social infrastructure and the entrepreneurial culture of an area play a large role in helping a community identify opportunities based on their local strengthens. Serial entrepreneurs are able to switch from business to business as the opportunities change.
The issue of the current bandwagon effect of focusing on one or two supposedly key industries also came up in the discussion. As one participant put it, cities and regions go looking for the magical White Buffalo and end up with a White Elephant. Professor Feldman noted that one of the most important aspects of the work may be a greater understanding of what not to do.
Finally, participants raised the issue of states versus local regions. It was noted that while states may be the controlling political jurisdictions, the loci of economy activity is the local region – which may span state boundaries, as does the Washington DC metropolitan region. Professor Feldman stressed the importance of a regional strategy for competitive advantage. Simply limiting the strategy to existing political boundaries ignores the nature of the regional economic linkages.