Niches within tech clusters

One of the great traps of technology-based economic development is the herd mentality. Everyone wanted to be like Silicon Valley. Then everyone want to be the leader in bio-tech. Then nano-tech. Now its “green.” The simple fact is that not everyone can be a leader in the hottest fad. In fact, chancing the hottest technological fad is a sure way to accomplish nothing.
But, there are still specific parts of any new technology where localities can gain an edge. One example is high-tech in New York City — sometime incorrectly referred to Silicon Alley when it should be called Digital Alley. As a recent story in the Economist notes:

Today, much tech innovation focuses on the media and advertising industries–both of which, for all their recent troubles and changes, remain lucrative and largely New York-based. That is why, for example, the bulk of Google’s 500-odd advertising staff, the source of a large chunk of its profits, are in New York, not in the Googleplex in Mountain View, California.

DC, for example, has a nascent social media technology cluster — in part because of the area’s strength in government contracting and public relations/political activities.
As MaryAnn Feldman pointed out some time ago in her paper (see her presentation to Athena Alliance) Constructing Jurisdictional Advantage, a localities advantage “is typically the result of specific unique characteristics that are built up over time to form a coherent place specific activity set that is not easily transferred or replicated and forms the basis for sustainable advantage for both firms and industries.” Localities need to build upon those characteristics in new ways and in directions rather than try to create something completely new.
She also pointed out how these clusters of innovation are different from concentrations of production:

Whereas the geographic concentrations of production is often due to the location or natural resources, ease of transportation or historical inertia, the location of innovation is due to knowledge externalities and subject to increasing returns. While innovation yields greater productivity and the increases in wages that jurisdictions seek, jobs associated with routine production remain geographically in place as long as the physical investments are economically viable. Once physical assets are depreciated or obsolete, if the market changes or costs become uncompetitive, these locations are easily abandoned. As a result, property values fall and the jurisdiction suffers.

In contrast, innovation clusters don’t easily move as costs shift. Since they are based on intangible assets, they are much more rooted in the location — as long as they continue in their primary function of innovation. And part of that innovation is the ability to adapt to changing circumstances. The history of Silicon Valley (where almost no one deals in silicon any more) and New York City are examples of that adaptation.
The Obama Administration has pickup up on this idea of regional innovation clusters as part of their innovation agenda and as a center piece of their FY 2011 budget . It was also included in the reauthorization of the America COMPETES Act.
If those efforts are to succeed, however, it will be important for each region to build upon its existing intangible assets. Rather than trying to follow the “next big thing,” this clusters should try instead to create it – or at least a lot of interesting next small things. That is how the I-Cubed Economy will prosper.

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