Economic development efforts in the U.S. have typically focused on cutting taxes and regulation, or giving incentives to individual companies.
None of this works, according to Michael Porter, a strategist at Harvard Business School who spoke Monday at the University of Minnesota.
What drives high-wage job growth, higher patenting rates and economic resiliency is industry clusters, Porter said, and government should be investing in them by helping to launch training initiatives, for instance.
“That’s the fundamental role of government, is to invest in things that are a public good,” Porter said.
Porter was in the Twin Cities to help roll out a new online tool created at the Harvard Business School with the backing of the U.S. Economic Development Agency.
The tool allows anyone to sift through and map 50 million economic data records, then build and download their own reports. Its creators hope it will help decisionmakers easily figure out what industries are already strong in their region and come up with better strategies for expanding those clusters.
The volume and accessibility of the data will be valuable to policymakers, and the site will enable people to network with each other and with industry, said Matt Erskine, chief operating officer of the U.S. Economic Development Administration.
“When this president came in, he and his team saw the limitations on how economic development was done, and that led to the new approach on focusing on regional innovation and regional clusters,” Porter said.
The Twin Cities and the University of Minnesota have been pioneers in this type of strategic economic development. U researchers played key roles in building the taconite and medical device industries, for instance. Medical devices remain Minnesota’s key specialized cluster, though the region also is strong in marketing, insurance, and IT.
“I’m just so pleased that we can do this here, today, not in Washington, because actually it should be done here,” Porter said. “It’s people like the leaders and the faculty at the Humphrey School, it’s the Minneapolis-St. Paul region that’s been so willing to take responsibility for its own development and its future.”
But the trajectory of the U.S. economy is dire, Porter said, and Minnesota is not immune. Extremely high-skill workers are rewarded handsomely, and middle-skill workers are not. Even wage growth for college graduates has essentially halted over the past 12 years.
“This economy is on a very unhealthy path,” Porter said. “It’s on a path that’s creating inequality between the average person and the people with a lot of skill and ability and capital, and that inequality is going to tear us apart if we can’t reverse the trend.”
Porter divides all business in a region into the “local” and “traded” economies. The “local” economy provides the types of jobs that all cities have — jobs at restaurants, gas stations, doctors’ offices, stores and auto shops. The traded economy is global, often specialized and depends on exports.
Wages are stagnant for so many in part because the U.S. has not been doing well in the traded global economy. Net growth in those types of jobs have been flat for two decades.
“We have no strategy as a country, we have made no progress in Washington on any significant economic issue in at least a decade,” Porter said. “You know who’s going to have to do it, if we’re going to change the path of the U.S. economy? You. Us. The mayors, the governors, the private sector, local economic development officials.”