A Concentration of Firms In One Industry Seen Spurring Jobs, Growth
Russell Gold

06/06/2001
The Wall Street Journal
Page B11
(Copyright (c) 2001, Dow Jones & Company, Inc.)

EVERYBODY WANTS clusters these days. The problem is how to get them.

State and local officials, seeking to bolster their economies, are rushing to identify and then build a concentration, or cluster, of companies and other ventures connected to a single industry. The thinking is that industry clusters stimulate regional job growth as more companies move in and established companies spin off new ventures.

"It's the new thing," says Anita Morrison, a principal in Bay Area Economics, a Berkeley, Calif., consulting firm that has studied a dozen regions looking for potential clusters.

Clusters have always formed naturally around certain local industries, such as the oil-and-gas cluster in Houston. But these days cities are looking to consciously create them out of an often-small starting base. The hottest cluster industry at the moment is life sciences, such as medical and agricultural biotechnology, medical devices and pharmaceuticals. The attraction: high-paying jobs and tremendous growth potential.

In Missouri, St. Louis is pitching its newly formed "BioBelt" while Kansas City has proclaimed itself the heart of "Biomed Valley." In April, Michigan announced it was creating special taxing zones to develop incubators for fledgling companies and other infrastructure for a "life-sciences corridor" stretching from Detroit to Grand Rapids. "We feel very strongly that clusters are a very powerful economic force," says Doug Rothwell, chief executive of the Michigan Economic Development Corp.

To help identify the ingredients for success, Harvard University professor Michael Porter is leading a study of five industry clusters, including a hub for pharmaceutical and biotech research firms in San Diego. Mr. Porter says that "the biggest pitfall" in building clusters is regions all going after the same industry. For example, the superstar of clusters -- the San Francisco Bay area's Silicon Valley -- spawned two Silicon Forests, three Silicon Prairies, a Silicon Mesa and a raft of now-forgotten high-tech hopefuls.

And it appears that's exactly what's going on now with life sciences. "The question is -- is your community capable of [succeeding], or are you just kidding yourself," says Jeffrey Finkle, president of the International Economic Development Council in Washington, D.C.

Here, then, is a quick look at what has helped one life-sciences cluster stand out, and what two other cities are trying to emulate that success:

SAN DIEGO

Over the past decade, as the Southern California city has reduced its reliance on tourism and aerospace, it has built a critical mass of firms and researchers in life sciences. In 1997, the last year the federal economic census was taken, San Diego had 27,299 people employed in life-science research and development, or 3% of its work force. And employment in the cluster is estimated to have grown by 17% since then, according to trade group Biocom/san diego.

That growth was prompted in part by a common ingredient for success: a large research university or center nearby. In 1979, two professors from the University of California at San Diego founded Hybritech Inc., a biotechnology firm. When it was sold to Eli Lilly & Co. in 1986 for $345 million, many Hybritech scientists stayed in the area and formed new companies. In turn, the region attracted more scientists, venture capital, suppliers and specialized services such as accountants and lawyers with biotech experience.

Another key to San Diego's success is the creation of "connective institutions" that bring parties together. For example, UCSD Connect was created in 1985 by the president of UC-San Diego to facilitate university-business interaction. Other forums focus on connecting venture capital to new companies and teaching university researchers how to prepare business plans.

ST. LOUIS

In September, the St. Louis Regional Chamber and Growth Association unveiled its effort to build a plant- and life-sciences cluster, which a $200,000 study identified as a regional strength. "We didn't want to be one more knockoff of Silicon Valley," says the association's president, Richard C.D. Fleming. "St. Louis can lead the nation and the world in plant sciences and be top-tier in life sciences."

The region does have a solid starting point. Monsanto Co. is based in St. Louis, and the company's main research facility, employing 960 scientists, is in a western suburb. The city's Washington University was one of the few locations where research on the international Human Genome Project occurred. And a new $146 million nonprofit plant-science research center, created jointly by academic and business interests, is set to open this fall.

But the area's employment base in life sciences is still small. In 1997, just 11,932 people, or 1% of private-sector employment, were in life sciences. And Mr. Fleming says growth since then has been "modest." To accelerate St. Louis's emergence as a cluster, Mr. Fleming's association will spend up to $2 million a year to promote the region's "BioBelt" image with a marketing campaign, launched in April with a full-page ad in Fortune magazine.

The association also is lobbying lawmakers in Missouri and Illinois to create a research-and-development tax credit for university-industry partnerships and to fund a technology-financing authority. Last month, Missouri earmarked $22 million of its $374 million tobacco settlement to be spent on life-sciences research in the fiscal year starting July 1.

KANSAS CITY

Business leaders here think they have a rare opportunity to jump-start a cluster. While Kansas City also would benefit from Missouri state funding, the real impetus is a contribution from a local couple, Jim and Virginia Stowers. Their gift created the $200 million Stowers Institute for Medical Research, an independent medical-research center opened in November. It also will fund a $1.6 billion endowment to support up to 60 labs and 600 researchers.

There have been doubters from the beginning. When the Stowers began planning their gift, their financial advisers suggested it made more sense to build the institute on one of the coasts. "They said we wouldn't be able to do it in Kansas City; the scientists wouldn't come," says Mr. Stowers, founder and chairman of American Century Cos., a mutual-fund firm in Kansas City. But Mr. Stowers persevered.

Now, the Kansas City Area Development Council, a business-led economic-development group, is trying to raise $300 million through state funds and foundation grants to build new facilities, hire researchers and develop a program to find commercial applications for research.

"I don't know if [the gift] gives us a competitive edge," says Dennis McKee, president of the County Economic Research Institute Inc., a nonprofit economic consultant in Overland Park, Kan., "but it gives us a reason for being in the game."

Coaxing Clusters

St. Louis and Kansas City hope to match San Diego's successful life-sciences cluster. One key will be to attract more biomedical-research funding from the National Institutes of Health, but they have a ways to go.

Source: National Institutes of Health

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