PHASE ONE REPORTS

Generating LocalWealth, Opportunity,and Sustainabilitythrough RuralClustersRegional Technology Strategies

March 2009

Wealth Creation InRural Communities

Wealth Creation in Rural America

This report is part of the Wealth Creation in Rural America initiative, funded by the Ford Foundation. The aim of the initiative is to help low-wealth rural areas over-come their isolation and integrate into regional economies in ways that increase their ownership and influence over various kinds of wealth. The initiative has produced nine previous papers, which can be found at http://www.yellowwood.org/wealthcre-ation. aspx. The goal of this report is to advance the initiative’s broad aim of creating a comprehensive framework of community ownership and wealth control models that enhance the social, ecological, and economic well-being of rural areas.

Author Organizations

Regional Technology Strategies, Inc. (RTS) builds and accelerates regional competitive advantage by encouraging higher value-added commerce performed by highly skilled people. As a non-profit, RTS assists governments, foundations, and other organizations in creating, implementing, and evaluating innovative regional economic development strategies.

Contact:205 Lloyd Street, Suite 210Carrboro, North Carolina 27510Phone: (919) 933-6699Fax: (919) 933-6688Web Site: rtsinc.org

Generating Local Wealth, Opportunity, and Sustainability through Rural Clusters

Generating Local Wealth, Opportunity, andSustainability through Rural Clusters

Supported by the Ford Foundation

MARCH 2009Regional Technology Strategies, Inc.

www.rtsinc.org

Copyright © 2009 Regional Technology Strategies, Inc.205 Lloyd Street, Suite 210Carrboro, North Carolina 27510http://www.rtsinc.orgMarch 2009

ISBN 1-931613-07-9

Ford cover photographs: Clockwise from upper lefthand corner, heavy-lift helicopter cluster in southern Oregon, courtesy of EriksonAir-crane; wind turbine cluster in southeastern Minnesota, Dodge Center, courtesy of Burke Murphy; WallaWalla Community College’s Center for Enology & Viticulture, courtesy of Walla Walla Community College;leather cluster in Sheridan Wyoming, King’s Saddlery, courtesy of Stuart Roenfeld; hosiery cluster in Hickory,North Carolina, courtesy of the Manufacturing Solutions Center at Catawba Community College.

Table of Contents

Prologue 7

I. Introduction 9A. Pursuing triple bottom line outcomes 10B. A larger context 10

II. The evolution of cluster strategies 12A. Adapting industrial districts to rural America 12B. Comments on the evolution of clusters 13C. Initiatives to grow and support clusters 14D. Restructuring rural clusters for the 21st Century 15

III. What firms cluster in less populated regions and why? 17A. What’s rural and what isn’t? 17B. What’s a cluster and what isn’t? 18

IV. Describing rural clusters 21A. Detecting rural clusters 21B. The organization and structure of rural clusters 23C. Trust, social capital, and community 24D. Connections to urban areas 25

V. Impacts of climate change, globalization, and digitalization on the location, functions, and forms of clusters in rural areas 27A. Functioning under new conditions 27B. Implications for rural clusters 31

VI. Rural clusters and the triple bottom line 36A. Addressing triple bottom line outcomes 37B. Achieving triple bottom line outcomes 38C. Local circumstances and policies 41

VII. Recognizing and measuring triple bottom line outcomes 43A. Economic outcomes 44B. Social inclusion and expanded opportunity 44C. Environmental outcomes and sustainability 45

VIII. The potential for rural clusters, communities, and people for prosperity and quality of life 47A. Assets 47B. Liabilities 48C. Investments that are needed 49

IX. What next? 52

Acknowledgements

MMaannyy RReeggiioonnaall TTeecchhnnoollooggyy SSttrraatteeggiieess rreesseeaarrcchheerrssccoonnttrriibbuutteedd ttoo tthhiiss rreeppoorrtt.. Jana Shannon andUniversity of North Carolina graduate studentsZakia Barnes and Sarah Waterman conducted anumber of the case studies in the compendium.Jenna Bryant contributed to the organization ofthe report, and Robert Donnan edited the finalreports.

This report was supported by a grant from the FordFoundation. Wayne Fawbush was instrumental inhelping to shape the project and maintain its focuson the triple bottom line and wealth creation.Shanna Ratner, who is managing the integration ofthis with four other, complementary projects, alsocontributed to the organization and focus.

A number of people contributed to, corrected, and

commented on drafts, including Sergio Arzeni,OECD, France; Ifor Ffowcs Williams, ClusterNavigators, New Zealand; Deborah Markley, Centerfor Rural Entrepreneurship, North Carolina; DevonWiney, Mt. Auburn Associates; Tim Wojan, U.S.Department of Agriculture, Washington, DC; PhilCooke, University of Wales, United Kingdom; DavidWolfe, University of Toronto, Canada, Burke Murphy,Department of Employment and Economic Develop-ment, Minnesota; and Rod Brown, editor of TheCockatoo: Industry issues – a bird’s eye view formCanberra and beyond, Canberra, Australia.

We also would like to acknowledge the assistance ofBarbara J. Bardin, Chief Fantasy Officer of Let’s Pretendin Burlington, Vermont, for catering and hosting themeetings, and Bill Mitchell of the Intervale Centerfor showing us their land sustainability/farming program.

Stuart RosenfeldProject Director and Primary Author

March 2009

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Sergio Arzeni, OECD, Paris, FranceJason Bailey, MACED, KentuckyChris Beacham, Regional Technology Strategies, Carrboro, NCGreg Bischak, Community Development Finance Institutions, Washington, DCBill Bishop, Daily Yonder, Austin, TexasDan Broun, Regional Technology Strategies, Carrboro, NCDeborah Clayton, Commissioner of Economic Development, Frankfort, KYPhil Cooke, University of Wales, United KingdomWayne Fawbush, Ford Foundation, New York, NYEd Feser, University of Illinois, Springfield, ILRory Fraser, Alabama A&M, ALAmy Glasmeier, MIT, Boston, MAChris Hayter, National Governors’ Association, Washington, DCDeborah Markley, Rural Policy Research Institute, Chapel Hill, NCHeike Mayer, Virginia Tech, Blacksburg, VABurke Murphy, Department of Employment and Economic Development, MN Shanna Ratner, Yellow Wood Association, VermontStuart Rosenfeld, Regional Technology Strategies, Carrboro, NCDevon Winey, Mt. Auburn Associates, Boston, MAEmily Wise, Lund University, SwedenTim Wojan, US Department of Agriculture, Washington, DCDavid Wolfe, University of Toronto, Canada

Participants,Burlington, Vermont, September 21-24, 2008.

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Prologue

IInn SSeepptteemmbbeerr 22000088,, aa ssmmaallll ggrroouupp ooff rreesseeaarrcchheerrss,practitioners, and officials from across NorthAmerica and Europe met on Lake Champlain inBurlington, Vermont to address the development ofcluster strategies in less populated regions from anew perspective. The economic value of clusters as afocus for economic development had been wellresearched and widely acknowledged.

But given the effects of globalization, immigration,and environmental degradation on rural communi-ties and people, we wanted to see which cluster ini-tiatives would lead to sustainability and inclusivity.What kinds of companies tend to cluster in ruralareas, why, and to what extent do they pursue,intentionally or unintentionally, “triple bottom line”outcomes that result in increased local wealth that isinclusive and sustainable?

Burlington and the entire state of Vermont in manyrespects epitomize the triple bottom line outcomesunder discussion, with state and local policies inplace for decades that have economic, social, and

environmental objectives. Thus, the setting there onLake Champlain was conducive to the deliberations.

Even though the participants came from differentparts of the world and had very different experi-ences and views of both rural development andrural clusters, we were able to come to agreementon the basic parameters of rural clusters and theimportance of raising the bar for our expectationsof how rural clusters address social and environ-mental issues as they pursue their primary econom-ic outcomes. Can clusters build wealth for all seg-ments of the community in ways that are environ-mentally sustainable, and what kinds of interven-tions can help them succeed at all levels?

To help inform our discussions, we compiled a setof 50 vignettes of rural clusters from around theworld. Each vignette includes descriptions of place,origin, context, interventions, and impacts.

The following document summarizes our delibera-tions, discussions, and recommendations.

Stuart RosenfeldMarch 2009

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B

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I. Introduction

SSiinnccee tthhee mmiidd--11998800ss,, cclluusstteerrss aanndd tthheeiirr cclloossee kkiinn ——agglomerations, sectors, industrial districts, andnetworks — have become a cause celebre for ruraldevelopment. In the recession of the early 1980s, theeconomic gains towns and small cities had beenexperiencing since the 1960s and 1970s quicklyeroded. Rural areas were losing their edge in manu-facturing to western European and Japanese compa-nies, causing plant closings; small farms were beingsubsumed by agribusiness; and the new high techcompanies were flocking to the cities.

Advocates believed that clusters and networks couldlead to renewed economic growth and sustainedcompetitiveness in less populated areas. Networksand clusters were initially presented as prescriptionsfor rural economic recovery, as collective solutionsto problems endemic to rural areas. They were tar-geted at a broad range of economic and, in someinstances, social problems. At the first internationalconference on networks (and implicitly clusters)held in Lisbon in 1993, a more modest expectationviewed clusters as “an excellent way to simultane-ously promote the competitiveness of companiesand cohesion of regions.”1

Private foundations and public sector agencies con-cerned with distributional and social outcomes alsotook an early interest in clusters. The AppalachianRegional Commission, The European Union’s SocialFund, and the World Bank got on board early, hop-ing that clusters would spur growth in economicallydistressed regions and communities and bring morejobs to marginalized populations.

Much of the interest in cluster approaches was dueto their reliance on collaborative and cooperativeactivities. These concepts, ultimately accepted asfundamental to the success of clusters, reinforcedthe progressive predilection for an economic systemthat balanced competition with cooperation, indi-vidualism with collectivism, and growth with equi-ty. They also appealed to systems analysts becauseclusters are in effect regional production systemsthat include all of the companies and institutions

that explain the economic behavior of a place and“represent a distinct way of organizing economicdata and viewing the economy.”2

Initially, however, clusters initially were viewedthrough a single lens, one that saw economic out-comes—growth in jobs and enterprises and com-petitiveness. Although inclusivity, the second lens,was not an explicit goal of early network and clusterefforts, the populations targeted often were the leasteducated, least mobile, and lowest paid, and theplaces targeted were those with the fewest resourcesand amenities and least likely to capture their shareof the emerging technology-based growth opportu-nities. The new cluster strategies were opportunitiesto reach out to the most disenfranchised people andplaces to generate employment and entrepreneurialopportunities.

The third lens, environmental sustainability, wasnot yet in the line of sight. It was just beginning tobe noticed, but due more to scarcity — as expressedin the Club of Rome’s 1972 warning of an irre-versible depletion of natural resources — than itwas to the environmental degradation RachelCarson warned of in Silent Spring in 1962 or TomPaxton sang of in his prescient 1969 song “WhoseGarden Was This?”

In the 1990s, as clusters became better understoodand more widely promoted by consultants, clusterstrategies entered the mainstream of economicdevelopment and emerged on the agendas of gover-nors, ministers, and other political leaders. But thestrategies also became more oriented more towardcompetitiveness and innovation, which led them tofavor technology-intensive—and generally metro-politan—regions and industries. The series of“Clusters of Innovation” studies conducted with theCouncil on Competitiveness all focused on largemetropolitan areas.3 Public attention and resourceswere disproportionately targeted to new, hot, andprimarily urban high-tech clusters like biotechnolo-gy, telecommunications, and information technolo-gy as well as to research universities.

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A. Pursuing the Triple Bottom Line OutcomesWhile the economy still sits on top of politicalagendas, most leaders now recognize the interde-pendence of jobs and the environment and, as theworkforce ages, also the importance of the potentialworkforce represented by immigrant and underedu-cated populations. This project provides an oppor-tunity to develop a new framework for designingand evaluating cluster strategies, one that focuses oncommunity and regional wealth, on using threelenses, and on valuing and achieving the three fol-lowing sets of “triple bottom line” outcomes simul-taneously to increase and retain local wealth.

• Conventional economic outcomes that increasewealth in the aggregate.

• Social cohesion that expands economic oppor-tunity and access to wealth.

• Environmental outcomes that produce moresustainable economies and healthier communities.

Economic outcomes completely dominated theobjectives of clusters and networks until veryrecently. Nearly all funding agencies—even thosethat supported cluster strategies for low-incomeregions or populations—measured success in num-bers of jobs created or saved, numbers of new enter-prises, and growth in average wages.

The two other outcomes, however, also are rootedin those places that fomented cluster policies. Thecommunity-based industrial districts of northernItaly that were ultimately retrofitted into the moreuniversal model of clusters used in the U.S. havealways had a social dimension. In many Europeandistricts, business and community values and inter-ests have long been in sync. The EuropeanCommission’s Directorate for Regional Policy andCohesion was a relatively early adopter of clusterstrategies in its programs for less favored regions.4

Members of Italy’s industrial districts are mostlylocally owned and handed down from father to son(and recently daughter), enabling cooperation andcompetition to co-exist. Firms develop a deep senseof social and environmental responsibility becausetheir actions can directly affect the health of theirfriends and families. According to Guide to theItalian Districts, 2005-2006:5

The district is not just a model of production. It is anexpression of a territory. Therefore the entire territorymust feel it is involved and not just a plain specta-tor but a player, capable of modifying and develop-ing its distinctive traits, its distinguishing features.

Most industrial district imitators in the U.S., how-ever, lack the homegrown infrastructure of theItalian communities or the resources of theEuropean Union’s Social Fund. The social outcomesof most public sector cluster strategies were prima-rily secondary effects. They were derivative oropportunistic outcomes resulting from membercompanies facing labor shortages or the govern-ment or foundations making available funds withsocial objectives. Interventions supported by foun-dations or public agencies with social objectivesstrove directly for more social benefits and inclusiv-ity, but most proved too small in scale for long-termimpacts on clusters.

Environmental impacts have received the leastattention in cluster strategies until quite recently,when funders became more aware of the environ-mental consequences of economic activity, busi-nesses began facing rising energy and transporta-tion costs and acknowledging the impacts of cli-mate change, and governments discovered the eco-nomic opportunities associated with protecting andcleaning the environment. In most developedeconomies awareness has been a slow process,building with mounting evidence of the conse-quences of ignoring the issue. The dangers, howev-er, also are creating opportunities for new clustersand new markets.

B. A larger contextThis report is part of a larger effort supported bythe Ford Foundation that includes three additionalstreams of analysis focused on rural areas. The firstis entrepreneurial activity, the second is rationaliz-ing value chains that reach rural areas, and the thirdis delivering financial and technical assistance tosmall rural businesses. Whereas the rural clusterrepresents a model of how a regional economyworks and is not a particular intervention,6 the fourelements are interlocked, interdependent tracks.Entrepreneurship is an intervention that has driventhe formation of virtually all clusters but generally

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without any intentional cluster-specific strategy.Value chains are integral to the definition of clustersand are often, based on input-output analyses, usedby economic development agencies to identify com-panies to recruit in order to fill perceived missinglinks.7 Financial and business services also havebeen used as cluster interventions that, if special-ized, support the expansion of a cluster throughimproved access to investment and working capitalresulting from greater familiarity with the firms andtheir business operations.

The missing piece of the cluster strategy picture inrural and low-income areas is the skilled workforceand the system needed to develop it. The outmigra-tion of talent from rural areas over the past centuryhas been a continuing concern and barrier togrowth among rural regions, especially for buildingtechnologically advanced clusters.

This document draws primarily from the discussionsthat took place at a workshop of 20 experts andpractitioners who met in Burlington, Vermont inSeptember 2008, from background papers preparedby participants, from summaries of 50 rural clusterscompiled for this project, and, selectively, from theliterature on clusters, rural development, and sus-tainability. It addresses the following five questions:

• What types of businesses function as clusters inless populated regions today, and how are theyfaring?

• How has a “flatter, warmer, and more crowded”world affected the location, structure, andprospects of rural clusters?

• What clusters have been best and least able toaddress triple bottom line outcomes, and why?

• What forms of cluster interventions have been

most successful in meeting triple bottom line goals?• What cluster strategies and local policies can

most effectively address triple bottom line out-comes, and what conditions are necessary?

We attempt to develop a compelling case for treat-ing economic, social, and environmental outcomesas interdependent. Economic outcomes are affectedby the quality of schools, civic environment, andsocial infrastructure. People pay more attention toenvironmental issues when they have good jobs andare invested in their communities. Companiesaccept social and environmental goals when theyalso fulfill personal or business needs. Clusters arein sync when they address all three to produce sus-tainable growth and increase local wealth.

The prototypical clusters on which so many con-temporary policy makers and researchers cut theirteeth in the 1980s were most prominent in northernand central Italy. These regions are dotted with spe-cialized industrial districts that are composed ofmostly very small, flexible, and networked artisanfirms. More often than not, the districts are locatedin towns or small cities. Industrial districts are, ineffect, local production systems that over time havedeveloped the expertise in, knowledge about, andreputation for a certain set of products. AfterMichael Piore and Charles Sabel published TheSecond Industrial Divide in 1984, these districts andthe flexible specialization they embodied becamepopular benchmarks for industrial modernization.They later became the idealized models frequentlycited in the 1990s to demonstrate the economicvalue of specialization within a regional economyand of aggregation at a time when the conventionaleconomic development attitude favored diversifica-tion and addressing individual firms’ needs.

1. Portugal Ministry of Industry and Energy, Cooperation and Competitiveness: Inter-firm cooperation-a means toward SME

competitiveness, Proceedings of an International Conference, Lisbon, Portugal, October 6-8, 1993.

2. Michael Porter, “Clusters and Competition: New Agendas for Companies, Governments, and Institutions,” in On

Competition, Michael E. Porter, Cambridge, Massachusetts: Harvard Business Review Books, 1998.

3. Michael Porter, et al. Clusters of Innovation: Regional Foundations of U.S. Competitiveness. Washington, DC: Council on

Competitiveness. 2001.

4. Stuart Rosenfeld, Creating Smart Systems: A guide to cluster strategies in less favoured regions, Luxembourg: Office of

Official Publications of the European Community, 2002.

5. San Pauolo Impresse, DistrettItalia: Guide to the Italian Districts 2005-2006. Montepuliciano, Italy: Le Balze, SRI, 2007.

6. http://www.competitiveness.org/cid/cilist

7. In the Ford project, value chains are applied primarily to agricultural products and intended to foster collaboration and

improve triple bottom line outcomes along the chain.

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A. Adapting industrial districts to ruralAmerica

IInn tthhee mmiidd--11998800ss, it was becoming apparent tosome rural economic development agencies thatthey could no longer rely on their traditionaladvantages of low taxes, low wages, and surpluslabor to attract and keep manufacturing to sustaintheir economies. New competition—mainly fromJapan and Western Europe, which were adoptingmore advanced technologies and producing higher-quality goods—neutralized the comparative advan-tages of rural communities.

Studies, including a Ford Foundation-supportedstudy of the rural South’s manufacturing by theSouthern Growth Policies Board8 and a major studyfor the National Academy of Sciences,9 highlightedthe lack of both technology among small and mid-sized enterprises (SMEs) and the skills to use it.Among the many places studied were Europe’sIndustrial Districts, as researchers sought to under-stand how they are able to effectively diffuse tech-nology and modernize industry, as well as the rolesof collaboration and associations. These approachesquickly became models for rural areas.

With support from the German Marshall Fund ofthe United States and other foundations, dozens ofstates and regions sent teams of representatives ofbusiness, education, and government to study poli-cies and industries in Europe—most often in thethriving economies of Italy, Denmark, Germany,and the Netherlands. The northern Italian “flexiblemanufacturing network” became the accepted modelfor helping small firms survive in increasingly com-petitive global economies. Their stories were takento heart and supported by a raft of public policiesaround the world. Gradually, environments thatincreased cooperation among businesses became amodel to which much of rural America aspired.

But only a small number of places could boast ofthe degree of specialization, recognized brand, andmarket dominance associated with northern Italy’s

industrial districts. Carpets in Dalton, Georgia,hosiery in Hickory, North Carolina; motion furni-ture in northeastern Mississippi, and sports apparelin Eugene, Oregon could all claim to be similar toindustrial districts, although in each region officialsstill pursued industrial diversification as protectionagainst downturns in markets. Most places had toapply very loose definitions of scale and similarityto be able to claim a cluster.

To apply industrial districts to the U.S.—and tomany other industrialized nations—the perceivedstrengths of the industrial districts were dividedinto two separate policy streams. The first was a setof policies to promote interfirm cooperation. Thesecond was an array of policies to support industry“clusters,” a term used initially to designate groupsof interdependent companies and institutions thatstood out because of their relative scale or potentialfor scale in a geographic area. Workshops and studytours sponsored by the German Marshall Fund ofthe United States promoted the first, and MichaelPorter’s 1990 book, The Competitive Advantage ofNations, set out a model and strategy for the second.10

Over time, however, the two variations melded intoa single comprehensive strategy. Networks began toresemble associations that represent clusters, andclusters turned more to strategies that promote thenetworking tendencies of companies in clusters. In1998, Phil Cooke and Kevin Morgan developed aframework for associative behavior, finding that “eco-nomic activity is increasingly based on notions ofcollective learning and that competition increasing-ly involves partnership and interactive innovation.”11

Those who trained or became the early networkbrokers later became “cluster facilitators,” and theearly activities of The Competitiveness Institute, anorganization to promote clusters formed in 1998 inBarcelona, Spain focused on facilitators as the foun-dation of most cluster initiatives. (See Table 1 forclarification of terms.)

Strategies to develop interfirm collaboration seemed

II. The evolution of cluster strategies

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to be adopted more readily in rural areas than inurban areas of the United States, perhaps becauserural areas were more desperate to stop the hemor-rhaging of jobs to foreign countries, and becausetheir labor force lacked the skills needed to attracthigher-technology growth industries.

Adversity became a stimulus for cluster initiatives ascompanies and communities found strength innumbers and cooperation. The economic collapseof a key industry, closing of a major employer, orpersistent unemployment or underemploymentpaved the way for new approaches, and rural devel-opment agencies, community organizations, andother intermediaries introduced clusters and net-works as alternatives to recruitment.

B. Comments on the birth of clustersIt is not our intent to delve very deeply into howrural clusters are born, grow, evolve, and mature.Given the current policy popularity of cluster stra-tegies, there already is a massive body of literaturethat covers those topics in great depth. But it maybe useful to mention some highlights drawn fromthe discussions in Vermont, the compendium of ruralclusters, and selected rural development literature.

The origin of most rural clusters is traceable tosome set of historical antecedents (path dependen-cy) and accidental events (serendipity). Among the50 clusters summarized in the Rural ClusterCompendium, 26 began as chance events and onlyeight were planned. The development of rural clus-ters has relied heavily on entrepreneurship, which is

one of the four components of Ford Foundation’srural wealth creation project. Northern Alabama’s19th Century steel cluster, for example, led to ametalworking cluster, which in turn attracted anautomotive cluster. A metalworking cluster alongthe Connecticut Valley flowed out of the weaponsclearinghouse at the Springfield armory, and a luxu-ry houseboat cluster in central Kentucky emergedfrom the two original boatbuilding companies.

The evolution, and sometimes reconstruction, ofrural clusters almost always builds upon existingcompetencies and connections. They either emergeas an offshoot of cluster products or technologies,spin out new clusters that build on strong elementsof its supply chain, or generate new demandsamong the existing customer base. Almost everyrural cluster was conceived from a local innovationor single company. It expanded as skilled and entre-preneurial people took advantage of the innovationor left the company by choice to start up new firms,to compete with or complement the original firm—or by necessity when laid off. Some developed froma craft or subsistence tradition that was taken to anew scale or as the result of residents developingnew products for niche markets that built upon andexpanded existing competencies.

As competencies develop and reputation grows, thecluster is predisposed to follow a path that builds onits prior knowledge and skills.12 The hosiery clusterin the northern Italian town of Castel Goffredo wasthe result of a large German hosiery firm closing inthe 1920s and skilled workers purchasing equip-ment and setting up their own shops. The furniture

Table 1: Definitions of models

AAgggglloommeerraattiioonn Geographic concentration of companies without respect to relationships

NNeettwwoorrkk Formal and closed alliance of companies with common purpose

SSeeccttoorr Companies with the same North America Industry Classification, generallydefined at 2-, 3-, or 4-digit level.

IInndduussttrriiaall DDiissttrriicctt Geographic concentration of networked companies specializing in various parts of the value chain in a particular product line

IInndduussttrryy CClluusstteerr Geographic concentration of interdependent companies across multiple industryclassifications and their supporting institutions and organizations

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cluster in northeastern Mississippi flowed out of asingle company setting up to mass produce furni-ture in 1948. Mississippi’s catfish cluster developedas a result of J.B. Williamson digging the first com-mercial catfish pond in Humphries County in 1965.

Among the 50 clusters summarized in the compen-dium, the origin of:

• 22 evolved from a single company;• 14 resulted from a developed set of skills in

the region; and• 9 came about as the result of a natural resource.

Among these, 13 resulted from a new technology orlocal innovation, either in the original company orin the workforce. Motion furniture’s success wasbased on the application of mass production tech-niques to handcrafted furniture and Italy’s successwith ceramic tile was due to a single glaze process,new dyes, and then automation.

Further, among the 50 clusters:

• 6 were the result of an industrial recruitmenteffort, including Mississippi attracting FutorianFurniture; Northern Alabama getting Daimler-Benz and Honda assembly plants, and GeneralElectric Plastics moving into the Berkshires.

• 40 were started by local firms, such as CrowleyFarms in Vermont. Cheese cluster, J.B.Williamson’s catfish farm in Mississippi, orNational Log Construction in Montana’s loghome cluster.

• 4 were intentional state government strate-gies—Casinos in Tunica, Mississippi and winein the North Carolina’s Yadkin Valley

C. Initiatives to grow and support clustersMost clusters have been boosted by some variationon one of two types of strategies. The first, “special-ization,” influences the use of public or private sec-tor resources or services in ways that make themmore directly relevant to a particular kind of indus-try. The second, “association,” tries to influence rela-tionships and increase interactions among firms.

Specialization affects business and technical assis-tance, research and development, market assistance

and information, and—often most importantly—education and training, shaping it to the particularneeds of the companies in the cluster. Associationencourages and facilitates business networks andcluster-specific business associations by supportingfacilitators and collaborative projects. It assumesthat firms operating in a strong associational envi-ronment will discover shared interests and compe-tencies, that they will aggregate their resources andcollectively express their needs, and that their scalewill give them greater visibility as a cluster and their brand.

These two strategies were considered the funda-mentals of the many U.S. and international networkprograms supported by national, state, and regionalgovernments and by private foundations in the 1990s.

In almost all instances, cluster initiatives have been

Northern Alabama’s automotive cluster isanchored by Daimler Benz, Honda, and Hyundaiassembly plants. The northern part of the state hasabout 150 suppliers of transmissions, exhaust sys-tems, stamping and casting, and engine parts andcomponents. Daimler Benz opened its plant inHuntsville in 1998, and Honda opened in the morerural Lincoln in 2001. Although recruited and heavi-ly subsidized, the basis for this cluster was thestate’s older steel and metalworking cluster. Foryears, Birmingham and the surrounding countieswere synonymous with the steel industry, datingback to the 1860s when they supplied theConfederate army with ammunition. After WorldWar II, Japanese competition took over much of theindustry, but the region retained a large number ofmetalworking companies. That led to an engineplant, strong training programs for the metalsindustry, and ultimately the fastest growing auto-motive cluster.

Rural Cluster Compendium, pg. 107.

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aimed at overall wealth generation, not at impactson the community or environment. The survey ofinitiatives and outcomes of 250 clusters worldwidedescribed in the Cluster Initiative Greenbook,13 pro-duced by the Competitiveness Forum in 2003, listedno activities aimed at social or environmental goals.

Any progress in social or environmental ends hasbeen the by-product of competiveness-driven initia-tives, in most instances driven by resources directedtoward those ends by agencies and foundations con-cerned with equity issues, by recognition of themarket value of socially responsible or green prod-ucts, or by the explicit purpose of the cluster itself(e.g., alternative energy or organic foods).

As the 20th Century came to a close the rhetoricbegan to change. The threat of climate change wasmore widely recognized by industry (and clusters),the press, and most citizens, if not by government.Clusters began to (a) add environmental and energyissues to their agendas and (b) cluster around theeconomics of energy or the environment. MichaelPorter told New York Times columnist TomFriedman that “pollution is simply a waste….Companies that eliminate such waste will be usingtheir capital, technology, and raw materials moreproductively to generate maximum value and,therefore, will become more competitive.”14

Between 2006 and 2008, it seemed that nearly everymajor periodical published a list of ways to save theEarth, and many of the answers depended onchanging economic activity in rural areas.

In 2007, 2,500 companies published a sustainabilityreport, 10 times as many as in 1995.15 The U.S., thelargest consumer of energy per capita, lagged farbehind every other industrialized nation in reportsper capita, with more than 60 percent fewer reportsper capita than any other industrialized nation andonly one-sixth the rate of the United Kingdom.

Interest in inclusivity grew more slowly but surelyin places with an aging workforce and immigrantpopulation. Only a decade ago, Lewiston, Maine, aformer mill town that had been unable to reinventitself after the mills closed, was a dying community.An influx of entrepreneurial Somalis and Bantuswith good trading connections has revived and

reshaped its economy. The head of the local growthcouncil said, “It’s been an absolute blessing in manyways…just to have an infusion of diversity, an infu-sion of culture and of youth.”16 Labor force needsare changing the views of many clusters towardwho’s in and who’s out.

The information collected for the compendium of50 rural clusters provides evidence of the followingtypes of interventions, with education and trainingthe most common form.

• 28 Networking• 39 Education or training• 25 Services including entrepreneurial• 25, Research and technology development• 26 Marketing• 17 Capital or infrastructure

D. Restructuring rural clusters for the21st Century

While clusters remain a popular way to look ateconomies in both rural and urban areas, manyindividuals worry that concentrating on one set ofcompanies might represent an overreliance on aparticular industry that may not maintain a high-growth trajectory. Regional officials’ fears of over-specialization have not been without foundation.A number of conditions, which will be described in more detail in Section IV, have converged to alter the landscape and climate of rural economies.These include the newly emerging technologicalcapabilities of less developed countries; digitaliza-tion of communications and automation of pro-duction; changing consumer preferences for prod-uct and location; increased ethnic diversity; andenergy shortages co-existing with climate change.All of these conditions pose new challenges for less populated regions.

At the same time, there is a new set of opportuni-ties, particularly for new and emerging clusters noteasily identified by existing industry codes.Improved access to information and marketsthrough digital communications, the convergenceamong technologies and industries, and a desireamong families with children and older populationsfor a smaller city lifestyle have given rise to new clus-

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ters in places able to provide the necessary amenities.

Thus, it’s time to reexamine the concept of industryclusters in less populated regions and to explaintheir new structures and competitive advantages,find out what policies affected them and how, andwhat impacts they are having on the economy, com-munity, and environment.

A more basic question that was raised at the work-shop, however, was: Are clusters fundamental toeconomic development plans? Would a differenteconomic development approach eliminate the needto detect clusters entirely while also being consistentwith the common assertion that the most competi-tive clusters “self-organize?” Once a cluster becomeslarge enough to detect with the crude techniquesand information at our disposal, Ed Feser pointedout, it already may be well into the process of mor-phing into a different kind of cluster entirely.

The evolutionary nature of clusters implies thatcluster strategies implemented comprehensively and from the top down are more likely to con-tribute to adverse lock-in effects than promotegrowth. As Maryanne Feldman,17 David Wolfe,and others have shown, most clusters are formed by entrepreneurs based on a natural resource, par-ticular local assets, or serendipitous events, and they continue to develop along paths that that areshaped by their past economic activity and expert-ise. Depending on how the cluster uses its knowl-edge and skills, this path dependency can becomean opportunity to morph into new growthprospects. In some places, for example, innovativefarmers were able to shift from commodity agricul-ture to new clusters through bioagriculture, agri-tourism, alternative energy, or organic and specialtyproducts. Resistance to change, however, can lock aregion into outdated ideas and a downward spiral.

8. Stuart Rosenfeld, Emil Malizia, and Marybeth Dugan, Reviving the Rural Factory: Automation and Work in the South,

Research Triangle Park, NC: 1988.

9. Manufacturing Studies Board, Learning to Change: Reactions of Small Machine Shop Owners to the Automated

Manufacturing Research Facility at the National Bureau of Standards, Washington, DC: National Academy Press, 1985.

10. Michael Porter, The Competitive Advantage of Nations, New York: Basic Books, 1990.

11. Philip Cooke and Kevin Morgan, The Associational Economy: Firms, Regions, and Innovation. Oxford: Oxford University

Press, 1998.

12. David A. Wolfe and Meric S. Gertler, “Local Antecedents and Trigger Events: Policy Implications of Path Dependence for

Cluster Formation,” in Pontus Braunnerjelm and Maryann Feldman, Cluster Genesis, Oxford Press, 2006

13. Orjan Solvell, Goran Lindquist, and Christian Ketels, The Cluster Initiative Greenbook, The Competitiveness Institute,

Stockholm: Bromma tryck AB, 2003.

14. Tom Friedman, Hot, Flat, and Crowded, New York: Farrar, Straus, and Giroux, 2008. p. 273.

15. PricewaterhouseCoopers, American Perspectives, 2008.

http://www.pwc.com/extweb/home.nsf/docid/22343647E2458221852574B10053860E

16. Jesse Ellison, “The refugees who saved Lewiston: A dying Maine mill town gets a fresh burst of energy,” Newsweek, January

26, 2009.

17. Maryann Feldman and Johanna Francis, “Homegrown Solutions: Fostering Cluster Formation,” Economic Development

Quarterly 18 (2004), 2:127-137.

16

TThhee iissssuuee ooff tthhee iiddeennttiiffiiccaattiioonn ooff cclluusstteerrss in lesspopulated and disadvantaged places raises a num-ber of fundamental questions. It depends on theability to articulate the characteristics that are typi-cally used to define clusters—the critical mass ofsimilar and complementary firms, geographic prox-imity, and interdependencies. It also, of course,depends on what is designated as rural. Saxapahaw,a rural community of 1,400 in North Carolina, is aneasy commute to Chapel Hill or Durham and partof a thriving metropolitan area. It is quite differentthan Malta, a slightly larger but more isolated townlocated in northeastern Montana.

A. What’s rural and what isn’t?In order to make sense of rural clusters, we have to assign some sort of parameters to “rural,” oftencalled “less populated regions” in Europe, whererural is associated with agriculture. Rural sociolo-gists, geographers, and funders have wrestled fordecades with the many distinctions between urbanand rural and among the different types of ruralcommunities. Though distinctions are largely sub-jective, they are important so far as they affect thedesign and outcomes of interventions. New Yorkersconsider Asheville in western North Carolina to berural even though it is a metropolitan area; Spring-ville, Arizona is far more isolated than Lucedale,Mississippi, even though they have comparablepopulations.

The share of the U.S. population that is rural ranges from 17 to 49 percent, depending on the definition used.18 Although the term “rural” refers to the population of a community, almost allnational data, and therefore all economic analyses,use the county as the unit of analysis. AndyIsserman has shown that definitions of rural differsignificantly from the predominant definition ofrural as non-metropolitan, at least in the U.S.19

Some researchers have further refined the definitionby adding levels of urban population or distancefrom the nearest metropolitan center.

In 1975 Calvin Beale at the U.S. Department ofAgriculture, for example, devised a scale with ninedifferent county classifications—six for non-metrocounties—that are based on the size of the county’surban population and whether it was adjacent to ametropolitan county. The addition of the classifica-tion “micropolitan” in 2003, which includes coun-ties with cities with populations from 10,000 to49,999, helps further to differentiate the very ruralfrom more urbanized nonmetropolitan counties.

The geographical units used to collect economicdata largely determine what is considered rural.Technical difficulties aside, since the companies that comprise clusters generally cross politicalboundaries, a precise definition is less importantthan understanding the effects of diseconomies of scale and distance. Some rural places actually are tightly integrated with metro centers, such that observed local “rural clusters” are more or less satellite production centers for industries or clusters elsewhere.

Regardless of the precise definition, according toalmost all measures of well being, places called ruralfare worse than places designated urban. Whilethere are some very prosperous rural areas withstrong economies, on average rural places haveslower population and job growth, less per capitaincome, a smaller number of educated citizens,fewer patents per capita, and rely more on transferpayments.20 Rural places also have less access to cap-ital, public transportation, and the Internet. Evenso, the designation of rural covers places fromHazard, Kentucky to the ultra-wealthy East Hampton,New York. The Carsey Institute provides a usefultaxonomy for distinguishing among rural areas andthe types of cluster they develop. This taxonomyincludes amenity-rich, declining resource-depend-ent, chronically poor, and amenity/decline places.21

III. To be or not to be:Clusters in less populated regions

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B. What constitutes a cluster and what doesn’t?

Assigning a precise set of parameters to the term“cluster” is even more challenging than definingrurality. Although there are many definitions ofclusters, most include something on the order of “ageographically limited critical mass (i.e., sufficient toattract specialized services, resources, and suppliers)of interdependent companies. The challenge, ofcourse, is to assign meaningful criteria for definingcritical mass, interdependence, and geographic limits.

The definition of a cluster is further complicated bythe common use of other terms that apply to someaspect of the definition (Table 1). Agglomerations,for example, are geographically bound concentra-tions of companies without requiring specific inter-dependencies. Sectors refer to industry classifica-tions but have no geographic limits or value chaininterdependencies. Industrial districts are clustersbut generally encompass a range of related indus-tries, have more stringent requirements for degreesof concentration, specialization, and geographythan do clusters.

The term “cluster” is further clouded by its use as averb, “to cluster.” As a noun, it requires criteria thatset it apart from a non-cluster — measures of scale,concentration, and geography. As a verb, however,clustering describes the process of businesses net-working with regard to business relationships, notindustry classifications. It also can indicate busi-nesses forming a cluster or joining together toaggregate strengths or needs.

The lack of standard definition for rural clusters,fortunately, has not deterred practitioners from act-ing on them. Most have applied judgment and arationale. The U.S. Department of Commerce hasendorsed what is in effect the Lake Wobegon criteri-on, with any group of related firms that are aboveaverage—i.e., with an above average concentra-tion—designated as “star” clusters if becomingmore specialized or as “mature” clusters” if becom-ing less specialized.22

1. What critical mass is necessary to be considered a cluster? According to most reasonable measures, require-

ments for critical mass or scale would seem to ruleout almost all clusters in sparsely populated areas.If the criteria are relaxed, then what scale must acluster have to generate synergies? It may seem surprising that given the large volume of empiricalwork on agglomeration economies, no one has satisfactorily identified that level of activity thatachieves significant economies of scale and synergyamong members.

The advantages of agglomeration vary widely byindustry, but they also represent a continuum; thelarger the scale of demand, the deeper access to specialized services and resources becomes. Thecritical mass necessary for one type of resource may be less than that for another. A community college may offer specialized programs for a certaincluster, even one lacking sufficient scale, if it candraw students from other regions or industries with overlapping needs. Piedmont CommunityCollege in Yanceyville, North Carolina has pro-grams in film and multimedia that draw from thenearby Piedmont Triad and Research Triangle areas.

The number of interdependent enterprises neces-sary to be considered a cluster depends in part onthe size of place and level of market penetration. Inless populated areas, smaller numbers of similarcompanies — such as the 11 houseboat buildersaround Lake Cumberland, Kentucky that dominatethe high-end boat market — constitute a significantlocal cluster with a very specific product and mar-ket. As few as two companies have been designateda recreational transportation equipment cluster innorthwest Minnesota. Two large manufacturersemploy about 3,200 people in this rural area, uselocal suppliers, and have a demanding local snow-mobiling culture to drive innovation.23 Thus, for themost part, one knows sufficient critical mass whenone sees it or one names it, and a precise definitionis not possible—and perhaps not even necessary.

Further, needs for critical mass depend in part onwillingness of companies to cooperate. The greaterthe willingness to cooperate, to intentionally pursueeconomies of scale, the smaller the numbers offirms needed to have “critical mass.” Companies cannetwork, for example, to acquire shared services orresources, all of which might be available without

18

cooperation in a region with more companies pro-ducing greater demand.

Despite the difficulty, most analyses do in fact setsome criteria that must be met to be considered acluster. But many simply use the term cluster as away to group, or “cluster,” value added sectorsaccording to relationships, with every firm partici-pating in some cluster. The taxonomy developed bythe Boston Consulting Group, cited on the U.S.Department of Commerce rural cluster website,considers any grouping with an employment pro-portion greater than a national average for that setof industries (1.0) to be a cluster, but it differenti-ates between those experiencing growth (“star” clus-ters) with those in decline (“mature” clusters).Groupings with proportions less than the nationalaverage can be considered either “emerging” clustersif growing or “transforming” clusters if in decline.

Those who use the term cluster to require somelevel of specialization generally apply one of the following four criteria:

1. The relative proportion of total employment—usually compared to the same proportion nationally.A high ratio may be the result of one large employer,which may or may not have a local supply chain.

2. The relative proportion of total establish-ments—usually compared to the same proportionnationally, the location quotient.This is undervalued if the major employers are large,if it omits self employment, and if data are suppressedto ensure confidentiality.

3. The presence of cluster organization that pro-motes networking, with some minimum number of members.This could be a closed and limited purpose networkthat may or may not be the foundation for a cluster.

4. The presence of some set of specialized assets,such as research or technology centers, often calledinnovation clusters.These are generally linked to research universities orgovernment funded centers and their successes, espe-cially those with international reputations, may notresult in local jobs or businesses.

2. What defines interdependence? The source of interdependence among co-locatedfirms can arise from the similarities of their prod-ucts; their common need for a possibly scarce, localraw material; the externalities derived from theirneed for the same set of specialized suppliers andservices; their reliance on the same labor pools; orfrom the value of shared knowledge, either inten-tionally or unintentionally via knowledge spillovers.

The most common clusters are defined by commonproducts, such as catfish farms in Mississippi, chairsin Udine, Italy, or scotch in Scotland. NorthernAlabama’s automotive cluster, however, with twolarge final assembly plants, and Sudbury, Canada’smining clusters are defined by the firms in theirsupply chains, and Oregon’s wood products clusterby a common dependency on locally sourced lum-ber. These interdependencies produce the synergythat gives clustered firms a competitive advantageover more isolated firms.

It is not necessarily the case, however, that synergiesare always manifested between firms with similarproducts, processes or resources. One of the greatadvantages of large cities is that large populationsoffer the potential for industrial diversification thatdrives synergies of divergent origins. Conversely, inless populated regions, sources of interdependencecan be somewhat more generic, possibly based onthe use of certain common platform technologiessuch as information technologies, on entrepreneur-ial needs, on certain skill sets, or on common mar-kets. Fairfield, Iowa’s technology cluster is based onthe use of information technologies, and marinetrades in Eastern North Carolina are based on thecluster’s access to the sea.

3. What mix of industries or companies constitute a cluster?In practice, clusters in North America are describedby combining sectors as defined by North AmericanIndustrial Classification System. The intensityassigned to interdependencies determines thebreadth of the cluster and the sectors that define it.Clusters range from very tightly defined—such asmen’s hosiery in the Catawba Valley of NorthCarolina or Parmigiano cheese in Reggio Emilia,Italy—to the very broad “business services,”

19

“advanced manufacturing,” or “agricultural” clusterclassifications used by many consultants. A moregeneral title can boost the scale of the clusters butreduces the level of specialization and uniqueness.

An important distinction between a sector and clus-ter is the range of sectors that are combined. Sectorsare aggregated upward within their primary classifi-cation. Clusters cut across classifications. The clus-ter in the panhandle of northern Florida represent-ed by the Technology Coast Manufacturing andEngineering Network includes metals, plastics, elec-tronics, and research businesses. The glue that bindsthem is that they are all defense contractors andthat they serve the needs of—and draw upon—theresearch at Eglin Air Force Base, Pensacola NavalStation, and the federal labs.

Researchers have tried to establish a common set ofclusters that could apply to any place and any situa-tion. The Institute for Strategy and Competitivenessat the Harvard Business School, for example,grouped traded sectors (e.g., sectors that bring newwealth into a region) into 41 clusters, which theyfound includes 64.2 percent of all rural employ-ment.24 The project that produced a county levelnational database of rural clusters for the U.S.Department of Commerce used 17 clusters, but itfurther subdivided manufacturing into six sub-clus-ters. The Monitor Group produced data on 20 trad-ed clusters with proprietary compositions in eachstate for the National Governors’ Association.

These cluster categories are necessarily very inclu-sive. For example, the “Advanced Materials Cluster”includes everything from soap and detergent manu-facturing to surgical and medical instruments. Obvi-ously, as the number and range of sectors included

in the cluster grows larger, interdependencies getweaker, location quotients approach 1.0, and the localor regional branding value of a “cluster” diminishes.

4. How do geographical boundaries denote rural clusters?Cluster geography, in its loosest sense, is defined bythe distance and time that people are willing to travelfor employment and that employees and owners ofcompanies consider reasonable for meeting andnetworking. But geography is influenced by factorssuch as travel conditions, cultural identity, and per-sonal preferences. In places where people are accus-tomed to driving long distances, as in the Midwestand Plains states, boundaries can stretch as far as100 miles. Metal manufacturing companies in west-ern Minnesota and eastern North and South Dakotadrive that far to attend meetings of their Tri-StateManufacturing Association. In places where ruggedmountains or forests divide towns and travel isslow, as it is in many parts of Appalachia, 15 or 20miles might be might be the maximum distancethat people are willing to regularly travel.

Whatever their boundaries, virtually all clustersinclude some more distant companies that havespecial relationships with and are treated by clustermembers as “insiders.” Political considerations alsoinfluence cluster boundaries. Even where clustersspill across political borders, government data arecollected by political jurisdictions, and funds mustbe used within certain jurisdictions.

Among the 50 rural clusters summarized:• 12 were defined by a community,• 18 by a county or county and immediately

adjacent areas, and• 20 by a multi-county region.

18. John Cromartie and Shawn Bucholtz, “Defining the ‘Rural’ in Rural America,” Amber Waves 6(June, 2008).

19. Andrew Isserman, Edward Feser, and Drake Warren, “Why some rural communities prosper while others do not,” Report

to USDA Rural Development, Washington, DC: U.S. Department of Agriculture, May 2007.

20. USDA Economic Research Service, 2008.

21. Lawrence Hamilton, et al, Place Matters: Challenges and Opportunities in Four Rural Americas, Durham, New Hampshire:

The Carsey Institute, 2008.

22. Unlocking Rural Competitiveness: The Role of Regional Clusters, Washington, DC: U.S. Department of Commerce, 2006.

http://www.ibrc.indiana.edu/innovation/reports.html.

23. Lee Munich, Ed., Knowledge Clusters and Entrepreneurship as Keys to Regional Development, Minneapolis: University of

Minnesota Hubert Humphrey Institute, 2005.

24. Christian Ketels, Kaia Miller, and Richard Bryden, Competitiveness in Rural U.S. Regions: Learning and Research Agenda,

Cambridge: Harvard Business School, 2004.

20

RRuurraall cclluusstteerrss ccaannnnoott bbee ffoorrcceedd ttoo ffiitt aa ffoorrmmuullaaiicc cclluusstteerrmmoolldd.. Even if we can answer the questions posed inthe previous section about critical mass, interde-pendencies, and geography, rural clusters would beoverlooked. Many have grown as place-based clumpsrather than industry-based clusters, with interde-pendencies based on common skills or resourcesrather than value chains or products. Others crossofficial borders, and most encompass large numbersof small and unreported micro-businesses.

Very few rural places that are not embedded inurban regions show up on analysts’ “bubble charts”that plot concentration of standardized clusters,scale of activity, and growth rates—that is, apartfrom the classic and common rural clusters, as verified in the U.S. Department of Commerce’srural cluster database, of agribusiness and food processing, mining, and forest and wood products.25

Rural clusters require different measurement sys-tems and more creative discovery processes. Theyalso have different social structures and increasinglytighter relationships to large population centers.Identifying them can be like poring over a puzzle ina children’s book, searching for common everydayobjects hidden within densely illustrated vegetation.

A. Detecting rural clustersUsing standardized data and algorithms to identifyrural clusters, their incidence is quite low. Someeven contend that the term “rural cluster” is an oxy-moron, that less populated regions lack the scale tosupport such a cluster’s existence. Under that inter-pretation, clusters are not a useful focus of nationalor state rural development policy, even though theymake sense for emphasis in local development poli-cy in the places where they are found.

More often, the problem lies with the data, not clus-ter criteria. Albert Einstein had a sign hanging in hisPrinceton office that said, “Not everything that canbe counted counts, and not everything that countscan be counted.” An excessive dependence oncounting, quantitative methodologies, and stan-

dardized data make rural clusters seem rarer thanthey are. Many of the most promising clusters inrural areas cannot be defined by existing industryclassification schemes, overlap political jurisdic-tions, and are dominated by microenterprises andself-employment. Just a few of the “counting”problems include:

• Suppressed data for many sectors in rural coun-ties, in that most states are reluctant to releasedata that may compromise a company’s confi-dentiality;

• Rigid industry classifications that force companiesto chose one category when they may fit many;

• Clusters that overlap county boundaries;• Classes of companies common in rural areas

but not identified by existing industry codes,such as alternative energy, composite materials,holistic health, and motorsports;

• Reliance on databases drawn from unemploy-ment insurance that omit self-employed work-ers, a large share of jobs in many rural counties(In North Carolina, half of all those employedby landscape architects, more than two-fifths ofthose employed by photo studios, and 95 per-cent of artists, artisans, writers, and performersare self-employed); and

• Use of location quotients to measure employmentconcentration compared to a national stan-dard—industries may have highly skewed dis-tributions so that clusters can be “below aver-age” yet in the top quintile among all counties.

An alternative, or supplemental, method to thealgorithmic approach for identifying clusters is theheuristic approach. This is not a “seat of the pants”methodology; it relies on observation, case studies,and local experience to discover clusters that aresmall, bridge political boundaries, or are based onunrecognized businesses or unrecorded interdepen-dencies. It also allows groups of companies withcommon interests that have developed a collectiveidentity to demonstrate that they have the attributesof a “cluster.” Gathering this information requiresgoing into communities and talking to people, the

IV. Describing rural clusters

21

work of what New Zealand’s Ifor Ffowcs Williamscalls “cluster musters.”

A heuristic approach layered over a data analysiscan be used to make modifications to the data thatare often are large enough to alter the significanceof a cluster. For example, many companies do notuse industry classifications that match their rela-tionships to a cluster. Companies with classifica-tions that meet supply chain requirements in anauto cluster may have nothing to do with the autoindustry, and vice versa. In the creative enterpriseclusters, many glass, leather, and ceramic artists areclassified with mass-produced glass, leather, andceramic manufacturing industries, not as artists,and freelance writers are classified as consultants.

Even careful, heuristic approaches may miss manyimportant but perhaps unorthodox clusters—espe-cially if they represent newly emerging industriesthat lack classifications or are dominated by free-lance, part-time, self-employed, or misclassifiedworkers. The large and growing alternative andcomplementary health cluster around Asheville,North Carolina; organic agriculture in Vermont;creative enterprises around Sheridan, Wyoming;alternative energy in southwestern Minnesota;

heavy lift helicopters in southern Oregon; maplesyrup in Vermont; bison in Montana; and windenergy in Texas are regional clusters that lack indus-try classifications and defy easy quantification.

Creative enterprises as an economic engine, as dis-tinct from a cultural attraction, include any compa-ny for which the primary value of its products orservices is rooted in their emotional and aestheticappeal to the customer. The creative economyincludes artists and artisans; digital, media, andgraphic arts; architectural, landscape, and graphicdesign; advertising; interior decorating; fashionapparel; and fine furniture, plus all the sectors thatsupply, support, reproduce, distribute, and markettheir products. Some have called the creative clustera “keystone species” because its impact on a regionis disproportionate to its size. It influences overallquality of life, residential desirability, and the area’soverall creative and innovative milieu

Green clusters are equally hard to classify andlocate. Green companies cluster around their func-tion, which can include environmental conserva-tion, renewable energy, environmental services, orgreen products, with a special brand that providesa primary value to goods, similar to aesthetics, authen-ticity, and emotional appeal. Few of these clusterscurrently have industry classifications that wouldindicate a green focus. They require special knowl-edge about place-based economies and local companies.

Table 2 provides one way to distinguish the way thatclusters affect their local economy and influencetypes of interventions. A cluster of distinction hasestablished a recognized brand for a place. The sus-tainability of such clusters depend on their use oflocal resources and their ability to remain flexibleand not locked in to overly narrow characteristics.The recreational vehicle clusters in Oregon andIndiana are facing a challenge of a dramatic drop indemand, worsened by their focus on high-end,energy-consuming products. A cluster of competencepossesses scale and synergy but is not so dominat-ing that it defines a local economy. The biotechcluster in Montana is important but not a dominat-ing force in the economy. Clusters of opportunityrepresent a chance to intervene early to influencethe ways the cluster affects the community and

Defense contractors clustered in and around FortWalton Beach, Florida, represent an array of met-als, plastics, electronics, and engineering compa-nies that all serve the needs of and draw on theresearch and technologies of Eglin Air Force Base,Pensacola Naval Station, and the nearby federallabs. The precise number in the cluster is unknownbut more than 30 have organized themselves intothe Technology Coast Manufacturing andEngineering Network. What unifies them into acluster is their market and special requirements tobid on military contracts. They self-identified as acluster in 1990 after learning about how northernItaly’s industries cooperate.

Rural Cluster Compendium, pg. 91.

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environment. Renewable energy, high-fashion homefurnishings, adventure tourism, and specialty foodsare emerging clusters that can be planned for sus-tainability. The ultimate goal is the cluster inbalance, one that is profitable, expands opportuni-ties, and is sustainable. These types of clustersrequire maintenance and support but can becomethe benchmarks that others try to emulate.

The 50 clusters summarized in the Rural ClusterCompendium have the following characteristics:

• 18 are distinctive enough to brand an area.Walla Walla’s wineries, Seagrove’s potters,Branson’s music, Dalton’s carpets, and Udine’schairs dominate their local economies and areinternationally recognized in the marketplace.

• 25 represent competences but are not strongenough to define a place. Coastal Maine’s aqua-culture, New Zealand’s seafood processing, andthe Northern Florida’s defense contractors havehistoric strengths but share the economic spot-light with other strong clusters.

• 7 are opportunities still being developed.Montana’s biotechnology, Minnesota’s windenergy, and Iowa’s renewable fuels are promis-ing opportunities with the attributes of clusters

B. The organization and structure of rural clusters

Clusters have evolved into a variety of forms.Some act as kingdoms,26 organized hierarchicallywith large corporations in the drivers seat, dictatingstandards and prices to subsidiary firms. Othersresemble republics, organized horizontally with alarge number of firms of varying size, withoutdominant firms.

Automobile industry clusters have tended to behierarchical, with large original equipment assemblyplants and some first-tier suppliers setting standardsand schedules and driving down costs. Wood prod-ucts clusters, in contrast, tend to be represented bylarge numbers of smaller companies with diversecustomer bases. In all cases—but most emphaticallythe latter—an organization that represents themembers strengthens the cluster’s market positionand political impact and can provide its memberswith lower-cost services than they could get individ-ually. Therefore, almost every cluster initiativebegins with a “mobilization strategy.”

These strategies are often more familiar to ruralcommunities, many of which are more tightly knitand have a history of cooperatives, granges (150-year old rural agricultural education organizations),and farmers’ alliances. That doesn’t mean ruralcommunities don’t have social and economic hier-archies, but there is more likely to be more commu-nication and interaction across strata.

Clusters, in recent years, have become virtually syn-onymous with membership organizations designatedto represent them, whether called councils, associa-tions, partnerships, or networks. These organizationshave become powerful voices for their members, mech-anisms for engaging industry and aggregating needsand demands, pipelines for information to membersand to government, platforms for networking andlearning, and, in some cases, pathways of public moniesinto the cluster. As such, they have become very im-portant to the success of some clusters—if they leadto cooperation and represent a community of interests.In situations, however, where individual interestsgain the upper hand over those of the community,territories differentiate and clusters disintegrate.

.27

Table 2: Classes of Clusters

Clusters of Distinction Quintessential clusters that both define and brand a local economy and particular place.

Clusters of Competence High concentration of companies, skills, and specialized support but lack-ing uniqueness and operating within a more diversified regional economy.

Clusters of Opportunity Seeds of clusters of sufficient size and resources to portend growth, ordeclining clusters with the foresight and capacity to reinvent themselves.

23

Although Arizona and Oregon were the first statesto support cluster associations, in other regionsassociations were forming spontaneously. In someplaces, the catalyst was isolation from sources ofinnovation and markets; in others, it was real orperceived external threats to an industry. A smallgroup of metalworking companies in westernMinnesota formed the Tri-State ManufacturersAssociation to discuss common concerns and soonattracted more than 100 member companies, reach-ing into eastern North and South Dakota, that hadsimilar needs.

The other structural change now underway is in the functions being performed within the cluster.As outsourcing and off-shoring grows, clusters canremain firmly entrenched by concentrating onresearch, design, logistics, administration, advertis-ing, and other key functions that depend on experi-enced employees who understand the culture of thecluster. This may confound data-driven analysis, aswhen Oregon’s sports apparel cluster appeared todecline because the industry classification shiftedfrom apparel manufacturing to headquarters.

Among the fifty clusters in the compendium, 22had formal organizations representing the cluster,24 had networks or cooperatives and informal rela-tionships that encouraged cooperation and sharedknowledge, and 4 were primarily competitive, withlittle evidence of trust or cooperation.

C. Trust, social capital, and communityWhich people and businesses gain and which lose in the economy depends to a large extent on con-nections, relationships, and trust. These factorsaffect the exchange of knowledge—about innova-tions, markets, and job opportunities — and theyaffect collaboration. The real strength of clusters lies in the tacit knowledge that resides within theemployees of companies in the cluster and its dis-persion across companies and institutions.

Those companies and those employees who are inthe loop have a decided advantage. The Walla WallaValley Wine association in the state of Washingtonhas increased the willingness of wineries to shareequipment and markets and to help fledgling com-panies. Various evaluations of collaborations con-

ducted in the 1990s all concluded that knowledgesharing was the most highly valued outcome.28

Trust is built on a history of reciprocation or uponshared values and interests. “Civic capital,” as DavidWolfe puts it, “consists of interpersonal networksand solidarity within a community based on sharedidentity, expectations or goals, and tied to a specificregion or locality.”29

Networking and exchange are most likely to occur(a) when price is not the primary basis of competi-tion among firms or (b) when more is betterbecause it creates a brand and attracts more cus-tomers. For instance, a rural tourism cluster com-posed of small bed-and-berakfasts, independentretailers, and local tour guides is more apt to shareinformation and collaborate than one that is domi-nated by branches of global hotel chains. Hay-on-Wye in Wales became an internationally knownbook town/cluster with shops that support oneanother by recruiting competitors to reach a scalethat created a reputation and buzz.

The more proprietary and related to a particularmarket advantage the information is, the strongerthe necessary levels of trust. Since companies oper-ate in a competitive environment, they want to holdon to their comparative advantages—until themoment when they perceive greater advantage inunity, cooperation, or reciprocation. NorthCarolina’s hosiery cluster contained firms that werefiercely independent and secretive until the 1980s,when they faced a crisis, realized the value of work-ing together, and formed an association. The firmsnow proudly proclaim “There are no secrets in ourbusiness.”

Social capital also influences an individual’s employ-ment and advancement opportunities. Employment,promotions, and deal-making all are very depend-ent on interpersonal relationships and word-of-mouth communications. Most employers, especiallyin small companies, rely on referrals and recommen-dations from people they trust rather than takingthe time to sift through the massive informationavailable in job banks or employment services.30 Em-ployees in northeast Mississippi’s furniture clustersare constantly changing jobs based on opportunitiesthey hear about from friends and acquaintances.

24

A high level of social capital alone does not guaran-tee inclusivity. Not all clusters benefit equally frombusiness associations. Even “open” membershiporganizations tend to be self-selecting. If membersare able to choose to associate, they often pick thosethey feel most comfortable with, and if power andconnections are unevenly distributed, diversity ismost important in those social structures that wieldthe power, influence policy, and have the connec-tions. The European Union “pathways” program tobuild social capital found that just building strongerrelationships within communities of interest orgeography was not sufficient without links to thelarger power structure.31

D. Connections to urban areas The interdependencies among urban and rural clusters grows stronger as urban sprawl expandsinto the countryside, large cities draw more of theworld’s talent, and transportation costs rise. Withrural populations in decline nationally, the region is replacing urban and rural areas as targets forpublic policy. Minnesota, where more than halfthe population resides in the Twin Cities metroarea, views its regions as multiplexes that eachinclude urban and rural areas.

In many ways both urban and rural areas serve asnodes in cluster supply chains. Some clusters havealways relied on suppliers in rural areas — initiallyfor commodities, later for lower-cost supplies, andmore recently even for highly skilled productionwork that can be accomplished at a distance.According to the Brookings Institution’s metropoli-tan policy program, “globally competitive major-metro firms depend on small-metro and rural operations.”32

Even though supply chains are now global, there areadvantages to being closer to a supplier in terms ofreduced shipping times, greater flexibility, andtighter control. For example, containers typicallychange hands 17 to 24 times crossing a 7,000 mile

supply chain, introducing risks of loss, deliverydelays, and bottlenecks.33 Meyer and Provo writeabout “farmshoring,” in which large cities look totheir outlying rural areas for outsourcing as criticallinks in their value chains.34

“…Lately firms are not just looking overseas, but tolow-cost communities in rural areas in the UnitedStates. Opportunities in domestic outsourcing orfarmshoring are driven by needs like lower costs,data security, skilled and stable labor forces, andgeographic constraints. Firms are building the busi-ness case for ‘going to the farm,’ moving differenttypes of work to diverse rural areas.”

The growing activities increasingly sent out ofthe U.S.—such as accounting, data processing,and programming—can be done in rural areas that can offer unique contributions to a company.Virginia has set up such a program, matching companies with rural firms or individuals that can supply needed services.

The flip side of farmshoring may be cityshoring.Some clusters that are centered in rural areas maylook to nearby urban areas for sources of capital,research, skilled workers, or specialized supplies.They have the economies of scale to provide busi-ness services, entertainment, and retail goodsunavailable in smaller communities.35 In 2000, 51percent of people living in rural communities werewithin metropolitan areas.

A potential negative effect of proximity to urbanareas is the increased tendency of youth to migrateto cities, especially in the poorest regions. Metroareas have gained college educated youth at theexpense of rural areas. Between 1970 and 2000, theSouthern and Northern Plains states experiencedthe highest rates of loss, and within them, non-metro areas adjacent to metro areas fared worst.New England and amenity-rich rural areas provedthe exceptions, on average gaining talent.36

25. Unlocking Rural Competitiveness: The Role of Regional Clusters, Washington, DC: U.S. Department of Commerce, 2006.

http://www.ibrc.indiana.edu/innovation/reports.html

25

26. Robert Howard, “Can Small Business Help Countries Compete?” Harvard Business Review. November-December, 1990, 4:8.

27. Peter Maskell and Leila Kebir, What Qualifies as a Cluster Theory? DRUID Working Paper No 05-09, Aalborg University, 2005.

28. Stuart Rosenfeld, “The Social Imperative of Clusters,” in Landabaso, Kuklinski, and Roman(Eds), Europe-Reflections on

Social Capital, Innovation, and Regional Development, The Ostuni Consensus, Recifer Eurofutures Publication Serices,

Wyzsa Szkola Biznesu National-Louis University, Poland, 2007.

29. David A. Wolfe and Jens Nelles, “The Role of Civic Capital and Civic Associations in Cluster Policy,” in Charlie Karlsson,

ed., Handbook of Research on Innovation and Clusters, United Kingdom: Edward Elgar, 2008, 374:392.

30. Robert Reich, The Future of Success: Working and Living in the New Economy. New York: Vintage Books, 2000.

31. Karen Hibbitt, Peris Jones, and Richard Meegan, “Tackling Social Exclusion: The Role of Social Capital in Urban

Regeneration on Merseyside—From Mistrust to Trust,” European Planning Studies, Volume 9 (2, 2001), 141-161.

32. Metropolitan Policy Program, MetroNation: How U.S. Metropolitan Area Fuel American Prosperity” Blueprint for

American Prosperity, Washington, DC: The Brookings Institution, 2007, p. 35.

33. Phil Psilos, “Reassessing Firm Benefits of Clustering in Light of Globalization and Offshore Outsourcing,” Sources of

Regional Growth in Non-Metro Appalachia: Appendix C: White Papers, Washington, DC: Appalachian Regional

Commission, 2006.

34. Heike Meyer and John Provo, Farmshoring in Virginia: Domestic Outsourcing Strategies for Linking Urban and Rural

Economies in the Commonwealth of Virginia, Blacksburg: Virginia Polytechnic Institute, April 2007.

35. Metropolitan Policy Program, MetroNation,” The Brookings Institution, 2007.

36. Georganne Artz, “Rural Area Brain Drain: Is it a Reality?” Choices, 4th Quarter 2003.

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IInn tthhee wwoorrlldd ooff cclluusstteerrss cciirrccaa tthhee 11998800ss, successdepended heavily on developing a collective effi-ciency in a place in which innovations spread byobservation and word of mouth, the public sectorwas a partner, and relationships were primarilylocal. While always a somewhat idealized and sani-tized version of the real world that encompassed amuch larger source of innovation, distant suppliers,and extended relationships, the soul of clusters wasnevertheless locally rooted.

Today, globalization is more the rule than theexception. Most competitive clusters have extensivevalue chains that spread the production functionsacross countries and continents. These value chainsact as sources of knowledge and learning, some-times on demand depending on the power relation-ships along the value chain. Those lower in the sup-ply chains are at the mercy of their customers; theymeet demands or risk losing orders. Some of therequirements undercut the social outcomes of clus-ters by reducing labor costs, but others supportenvironmental outcomes by requiring less waste,packaging, or energy use.

Until recently, most of the research that had drivenrecent cluster strategies was based on a 1980s modelof the world economy. The elements that supportedclusters in the popular “Porter Diamond” included,among its four corners, “sophisticated local” demand,local suppliers, and local competition (with virtual-ly no value attributed to cooperation). Globaliza-tion was widely interpreted in the 1990s to meantaking advantage of new export opportunities todeveloping nations.37 Threats to competitive advan-tage coming from other advanced regions could beovercome with modernization and skill develop-ment. Supply chains were assumed to be local or, atthe very least, an opportunity to localize and in-fillby recruitment. In the 1980s and early 1990s, Chinawas not even in the picture as an important poten-tial market, much less an economic competitor.

The advantages of clusters were thought to comefrom externalities derived mainly from reduced tran-saction costs, based on better access to services, cus-tomers, and collective skills and assets. The Italians,however, viewed the advantages of industrial dis-tricts somewhat differently, placing a much higherpremium on intangible externalities associated withthe diffusion of tacit knowledge and networking.

A. New challenges facing rural clustersIn the 21st Century, clusters operate in a differenteconomic environment. Globalization has taken on a different meaning for clusters and localeconomies. The market opportunities are still there,but the threats to employment can no longer bemet with new technology and higher productivity.Scores of regions around the world now are able toacquire advanced equipment and have a work forceskilled enough to use it. Overnight deliveries com-bined with the Internet have elongated and extend-ed supply chains. An increasing number of suppliersare global—particularly those that require littleface-to-face interaction and whose tasks can be cod-ified and transmitted electronically.38 Information isaccessible and shared on the Web in milliseconds.Technology and capital are highly mobile. Evenmuch of the research and development thatAmericans once thought was the nation’s lastingcore strength is being outsourced.

Some of the new influences on rural clusters arecompetition from less advanced regions; global sup-ply chains and increased functional integration;energy costs and environmental concerns; immi-grant workforce and more heterogeneous commu-nities; consumer preferences for product and loca-tion; expanding digital communications networks;and new products and emerging markets.

1. Global Competition and Off shoringTwo consequences of globalization have been the

V. Impacts of climate, globalization, and digitalization on the location, functions,and forms of rural clusters

27

relocation of many industrial low-added-valueactivities from advanced economies—often in ruralareas— towards even lower-cost regions endowedwith cheaper factors of production and the modu-larization of value chains. In the United States, forinstance, these processes have been the cause of thedecline in employment of many rural areas that hadbenefited from the migration of industry to ruralareas in the 1950s, 1960s, and 1970s.

In China each year Datang produces nine billionpairs of socks, Chaozhou makes 510 million wed-ding and evening gowns, and Shengzhou manufac-tures 300 million neckties.39 Just two years ago, itseemed as if American manufacturing competencieswould shrivel to specialized niches, high-tech prod-ucts with large entry barriers, and large bulky prod-ucts, all somewhat insulated from global competi-tion. Most of the mass production that led to theeconomic recovery of the rural South, pessimistswarned, would be lost for the foreseeable future.Even the production that had moved further southof the border to Mexico was now moving to Asia.

The trends toward manufacturing off shore isshared by many European countries. For instance,the northeastern Italian region of Veneto, whichhosts industrial districts in the textile and clothingsectors, has seen massive relocation to Romania, tothe symbolic point where the annual meeting of theregional industrial association was held a few yearsago in the Romanian city of Timisoara. Morerecently, however, the ability of low-cost regions toattract investments has not only concerned low-val-ued-added stages of production, but increasinglyalso more highly skilled functions. This has beenthe result of countries such as India not only havingcheap unskilled labor but also a reasonably inex-pensive qualified workforce, especially in scientificand technological fields.

The second consequence, the globalization and modu-larization of value chains, has altered the local func-tions of carried out inside regional clusters. Someindustries that have moved production to low-wageregions still operate as “command and control cen-ters, retaining key functions such as design, market-ing, logistics, administration, and non-routine re-search.40 While the total number of jobs decreases—

often those jobs that were most likely in to locate in rural areas—large numbers of white collar andtransportation jobs remain, which represents a formof global functional systems integration. The major-ity of the 20,000-plus jobs at Wal-Mart in northwestArkansas are in logistics, and Lego retains morethan 1,600 jobs out of 4,000 in the city of Billund incentral Denmark after having moved its productionto Mexico and the Czech Republic.

2. Uncertain energy costsCluster advocates failed to foresee the skyrocketingcosts of energy. Even though costs dropped precipi-tously in the last quarter of 2008, concerns aboutlong-term energy supply, about transportation coststhat may not reflect the lower fuel prices, and aboutthe potential for global warming are likely to haveconsequences for rural areas. In June, the New YorkTimes reported that “with relatively low wages andhigh use of pickup trucks and vans, rural familiesspend up to 13 percent of their income on fuelwhile the national average is only 4 [percent].”41 Fora while the cost-benefits began to justify bringingsome goods back. IKEA announced its first USmanufacturing plant, to be located at the interfaceof declining furniture clusters in rural southernVirginia and North Carolina’s Piedmont region.“Shipping IKEA’s popular Expedite bookshelves tothe United States, for example, costs more than itdoes to make them,” according to Joseph Roth, thecompany’s U.S. public affairs manager.42

Food costs also are disproportionately higher forresidents living in rural areas. For the averageAmerican, food accounts for about 13 percent ofhousehold spending, while rural residents spendupwards of 20 percent of their income on food.Long distances to food supplies and a lack of retailalternatives increase the cost of food in rural areas.Rising energy prices simply exacerbate this situa-tion.43 Those living in rural areas also tend to payhigher prices for electricity due to long distancesbetween population settlements and variations interrain, which add to transmission costs.44

The other impact of the spread of broadband accessinto rural areas is the opportunity for telecommut-ing, highly touted in the 1980s but not really feasi-

28

ble before broadband was accessible and new gener-ation employees began to demand more flexibility.Large corporations like Best Buy have formal poli-cies for flexible working arrangements to keep tal-ented staff. Rural telecommuters, however, willappear on the employment records of the companybased on the location of its offices, not where theylive and work, undercounting rural employment.

3. Accelerating DigitalizationClusters once derived much of their value from theease of communications among employees and own-ers of companies with similar interests and problems.The café, piazza, and clubroom were where relation-ships were built, deals made, knowledge transferred,and ideas developed. Today, you see many of thesesame people alone in cafés wearing headsets, phon-ing, web surfing, emailing, tweeting, text messaging,or blogging. The technologies are quickly penetrat-ing even poor nations and rural regions. In 2008,three-fourths of the population of North America,three-fifths of Oceania, and almost half of Europe,including children, were Internet users, and morethan 3 billion mobile phones were in use.

How has a digitalized world affected the locationdecisions of companies and the value of clusters?The most obvious effect is that firms need broad-band access, and most rural areas today have suffi-cient access. It’s opened new economic possibilities,as illustrated by Lumberton, New Jersey (see inset).45

But it also changes the nature of relationships andlimits access to tacit knowledge. Although early re-ports of the death of distance have been overstated,and bonding social capital, or strong ties, may beweakened, new generations are using the technolo-gies to expand their weak ties to a much larger andmore diverse population.

It may be that even in the 21st Century wired world,“local buzz” keeps ideas flowing and companiesinnovating. What was once simply “in the air” is just more confined—to cafés, coffee shops, and conference hallways.

4. Increasing workforce diversityThe composition of the workforce in less populatedareas also is changing. Whereas immigrants once

flocked to the cities looking for work, many of theless skilled migrant workers are now coming to lesspopulated areas in much greater numbers hoping tofind more stable and consistent work, and they arecreating their own communities. These communi-ties are made up of a combination of legal and ille-gal immigrants with varying levels of English lan-guage fluency and very different levels of education,from functional illiteracy to high levels of technicalproficiency. It’s no longer only Spanish; in additionto Spanish, Minnesota has school districts wheremore than five percent of their students whose firstlanguage is Hmong, Somali, Russian, German, andChippewa. The new immigrants often separatethemselves from the original majority population—sometimes by choice, sometimes by lack of aware-ness or capacity in communities for outreach, andsometimes due to discriminatory practices.

All of this gives “community” a different meaning.The passing on of tacit knowledge — along with the cohesion (and feuds) that came from long-timefamily and community relationships and generatedvarious forms of social capital—often excludes thenew populations. North Carolina, for example, is in the midst of a battle over whether illegal immi-grants should be allowed into degree programs at

E-Commerce Marketing Cluster- Lumberton, NewJersey, a former lumber mill township that hasgrown to about 12,000 people, is the nation’s mostactive community of eBay buyers and sellers. Morethan 3,000 people in the Lumberton postal codehave e-Bay operations, mostly mom and pop auc-tioneers not registered as businesses. Starting outas mostly part-time sellers, the profile has shiftedto people who make their living on eBay, almostoverwhelming the local post office. In recognitionof their work, eBay contributed $10,000 to the localanimal shelter.

John Beer, “A New Jersey Town Emerges as Hub of e-Commerce,” New York Times, March 20, 2007.

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its community colleges. As of the end of 2008, theofficial answer was “no.”

Immigrant populations also are a source of newentrepreneurs. In the U.S. in 2005, 42 percent ofventure capital backed high-tech companies werestarted by immigrants.46 Multicultural understand-ing is a new goal in the workplace and community.Forty percent of the nation’s scientists and engi-neers with PhDs and 35 percent with Master’sdegrees are foreign-born. Most, however, receivedtheir education in the U.S.; fewer than seven percentof immigrants arrive with any post-secondary edu-cation. While a small proportion achieve post-grad-uate degrees, many more end up in rural areas inlow-wage jobs with few, if any, benefits and fewprospects for advancement. At the same time, ruralcommunities are faced with the problem PresidentTheodore Roosevelt’s Carnegie Commission on RuralLife identified in 1908—the continual out-migra-tion of the most educated young people from ruralareas. While immigrants arrive, the best studentsleave for college and often don’t return, becominginstead part of an increasingly mobile, even interna-tional labor pool.

5. Changing preferences for place and productThe values and preferences of both consumers andemployees—especially more educated young peo-ple—appear to be shifting away from just functionto meaning. Larger segments of the population arewilling to pay more for products that are moreauthentic, that reflect values or specific places, orthat provide a locally rooted experience. Experience-based products often are connected to a specificplace, and particularly young, educated people arechoosing their work environment carefully, tradingoff salary for places that provide the kind of cultur-al and recreational amenities they seek.

Richard Florida contends that “where we live is acentral life factor that affects all others—work, edu-cation, and love follow.”47 Here, he argues, the worldis not flat but spiky, with talent clustering and cen-tralizing in certain—almost exclusively large metro-politan—innovation mega-centers. Rural commu-nities are dismissed as outliers. The terms “rural”and “non-metro” do not even appear in the index.The reason for the bias, of course, is in the measures

used: patents, well-educated young people, and lev-els of post-graduate education. Less populatedplaces do attract talent, but not in concentrationsthat do not create spikes on a world map, and theycan attract innovators, but only if they have a mod-icum of urban amenities to go with the recreationaland natural environments that influence the choicesof this newly footloose workforce.

Place also still matters to companies, but for differ-ent reasons than in the industrial economy whensurplus labor, facilities, taxes, and business climatewere the main considerations. Intangible factorssuch as access to tacit knowledge, experiencedworkers, sources of design and innovation, oppor-tunities to network and collaborate, and culturaland recreational amenities have become a moreimportant reason for clustering than the tangiblefactors associated with the proximity of suppliersand customers. Where community cohesion growsout of shared values, towns have been able to rein-vent themselves, as New York Mills has done inMinnesota around the arts.

Market preferences also are changing, with a largershare of the population, even in developing coun-

Hosiery in the Catawba Valley: North Carolina’sthreatened hosiery cluster has been hit hard bypressures from big boxes to cut prices and takeback unsold goods and buy new foreign competi-tion from China. The cluster’s response has been tomove upscale and develop more appealing nicheproducts, such as Thurlo’s differentiated actionsocks or the Vermont “Sock Lady’s” mismatchedpairs of socks. An association-sponsored trip tosimilar clusters in Italy (Castel Goffredo) openedtheir eyes to the potential of design and resulted inchanges in their Hosiery Technology Center at thecommunity college to include testing, quality stan-dards, and increased emphasis on expandingdesign capabilities and markets.

Rural Cluster Compendium, pg. 97.

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tries, choosing to pay more for the aesthetic, emo-tional, or value-based appeal of a good or experi-ence or for a sense of authenticity that comes frompersonally knowing the producer or being familiarwith the source. Local food markets and farmers’markets, which appeal to a certain niche of con-sumers, are growing faster than stores with moreconventional standardized brands. Crafts and artsales appear to have held up well during the currentrecession. Prior to the recession, these markets inNorth America and Europe were bifurcating, withsales up at the low and high ends, causing firms tomove up- or down-market to compete.48

6. Global warming and sustainability“The global demand for energy is increasing at astaggering rate, particularly as growing countriessuch as India and China develop at an unprece-dented pace. The capacity of conventional resourcesto meet this growing demand for energy is in seri-ous question. The composition of future energy sup-plies now dominates the international energy dis-cussion, as it is formative of economic security anddevelopment. The influence of energy supply onglobal relations cannot be overemphasized, and theaddition of billions of new energy consumers toalready strained conventional energy supplies willfurther exacerbate energy related tensions.”

49

Climate change is affecting rural clusters in two ways.The first, increased regulation, is perceived as a neg-ative effect by many companies that compete onprice, because it places greater restrictions to com-ply with standards, legal requirements, and increas-es costs. Particularly those who do not believe thescientific evidence of global warming protest, lobby,and look for ways to get around regulations.

The other and much more potent effect is an emer-gent opportunity to create a new market demandand branding formula for products that are green.A set of new clusters may arise, based on alternativeforms of energy such as biofuels, wind and solar,recycling, or restoration. The EnergyXchange inYancey County, North Carolina, which uses meth-anol produced by a landfill to power pottery kilnsand ovens, represents efforts by a local crafts clusterto conserve its energy requirements. Wood County,West Virginia has 2,710 jobs and three establish-

ments producing components similar to thoseneeded by the solar PV industry.

Grundfos, a rurally based yet global, firm in Jutland,Denmark designed a green ambient pump and lob-bied Danish and European Union (EU) legislaturesthrough their respective pump Industry associationsfor high environmental standards in pump produc-tion and pump performance. When the EU laterintroduced the standard, Grundfos stood ready tomarket the “A”-grade green pump. The standardsnegated the cost disadvantage for users.

B. Emerging opportunities for rural clustersThe effects of climate change resulting fromincreased energy consumption, the impact of thenew industrial competencies in previously lessdeveloped regions, and the accelerating use of digi-tal communications and the Internet are having aconsiderable impact on rural clusters in terms of:

1. The value of proximity2. Taking advantage of convergence and new

interdependencies3. Becoming distinctive4. New sources of competitive advantage5. The business side of sustainability

1. The value of proximityThe most important assets of clusters today areintangible, not easily captured by balance sheets orprofit and loss statements. Intangible benefits haveproven to be stickier than tangible benefits, less sus-ceptible to outsourcing or importing. A region’sflow of tacit knowledge and know-how, sharing ofinnovation, ease of benchmarking leaders and com-petitors, and experience of the work force are thekey factors that determine a cluster’s competitive-ness. Despite all the technological advances thatconnect people and move capital across vast dis-tances with instant messaging, virtual relationships,and overnight deliveries, most researchers find thatplace still matters. They understand that informa-tion is not knowledge and that access to informa-tion is not learning.50

Companies want knowledge and informationbeyond what they can get from the literature,Internet, and telecommunications, the kind of

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informal knowledge transmitted by what has cometo be known as knowledge spillover or, more collo-quially, “local buzz.” One of the most importantadvantages of proximity to companies in similarforms of business, and to suppliers and customers is the ability to pick up bits of knowledge frominformal gatherings and casual conversations, toacquire this tacit knowledge that is held in theminds of individuals and the routines of organiza-tions and not easily transmitted through the writ-ten word in manuals or articles. 51

That importance of face-to-face interactions alsohas influenced access to venture capital. Even thoughfiber networks crisscross the world the globe hasbeen flattened and national boundaries obliterated.In Silicon Valley, the place that is responsible morethan any other for supposedly rendering geographyirrelevant, physical distance is very much on theminds of venture capitalists. If a start-up companyseeking venture capital is not within a 20-minutedrive of the venture firm’s offices, it likely will notbe funded,52 a major barrier for rural locations.

“Buzz” sometimes includes unintended but valuable(to the cluster) flows, or leaks, of knowledge amongcompanies. It can happen, for example, by “swap-ping of employees within a common pool of skilledand technical labor developed around the region’score technology.”53 But companies know they gainmore than they lose. One Montana wood productscompany owner remarked in a focus group that “we used to think we were all enemies…now thebest thing about our organizations is learning whatsomeone else is doing and what may be beneficial to you. We still compete, but understand the valueof cooperation.”

2. Taking advantage of convergence and new interdependenciesMany of the technologies currently used to defineclusters are in fact “platform technologies” that cutacross a number of industry clusters. The mostobvious are adaptive technologies; informationtechnologies, nanotechnology, and environmentaltechnologies are all critical ingredients of manydiverse industries. One reason that it’s so difficult todetermine the scale of a cluster with industry codesis because the dominance of the technology can beobscured by the end use of the product. A company

that creates web-based advertising, for example, isclassified as advertising, not information technology.

Green products, in particular, are proving to be highlyconvergent, as they become a defining characteristicof firms, for example, in architecture, processedfoods, building materials, construction, design, andconsumer electronics companies. Food processingconverges with energy in areas such as biomass, bio-fuels, and ethanol; pulp and paper converge withbiochemistry, bio-refining, and biomass power gen-eration; waste recycling converges with energy, oil,cement, plasterboard, biotechnology, and aquacul-ture—all in industrial symbiosis clusters.

Convergence gives new meaning to clusters if thecommon technology, technique, or product charac-teristic becomes the competitive advantage of theset of firms and the most important connectiveforce. Phil Cooke describes how Kalundborg inDenmark became the first Closed Loop City torecycle its waste water and convert this innovationinto a form of mini-cluster—but one that wouldnever be discovered though industry clasifications.The eco-system involves voluntary cooperationamong the city and five industrial waste enterprises,a coal fired power station, and major manufacturersincluding Novo Nordisk, Gyproc wallboard, and aPortland cement factory. Waste from one sitebecomes an input to another.54 This kind of urban-rural symbiosis is yet another example of urban-rural interdependency.

3. Amenities and distinctionThe economic value of amenities has been recognizedfor some time. In Europe, it is a central plank of theOECD’s program on Territorial Development inRural Areas. Although this work acknowledges thepotential for drawing skilled workers back to ruralareas as an added benefit of an amenities-basedstrategy, the principal focus has been on the val-orization of amenities by boosting rural tourism orby connecting place attributes to goods sold in themarket through protected designations of origin.

Empirical evidence isolates the role of particularnatural amenities in attracting population and tal-ent, but it is much more difficult to measure theimportance of cultural amenities. Proxies are poor

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because a structure such as a museum or a concerthall tells us little about the activity that surroundsit. More importantly, the true value of cultural ame-nities comes from the interaction they engenderwithin the community. Using concentrations ofartists as surrogates for knowing a creative placeshows that places with a relative surplus of artistsexperience faster growth in number of establish-ments in rural areas.

Much of the evidence for the value of amenities isanecdotal, based on the performance of places thathave been able to create the amenities that attracteducated young people and businesses. Paducah,Kentucky used traditional incentives to attract artistsand establish galleries and theatres revive a depressedpart of the city and stimulate the economy. Fairfield,Iowa used bike paths, nature walks, ethnic restau-rants, galleries, holistic health centers, and profes-sional organizations that matched the culture of theMaharishi University Business School and its stu-dents to attract and retain high-tech entrepreneurs.

4. New sources of competitive advantageThe advantages of rural areas for most of the pasthalf century have been natural resources, land, andlow-cost labor. Most rural clusters were based oncommodities or value-added production fromfarming, forests, or mining, or by recruiting branchplants. Those rural areas fortunate enough to have

exceptional natural amenities may also have devel-oped clusters around tourism or transportation,and the few that are home to research universitiesmay have developed some form of technology clus-ter. But for the most part, innovation-based andtechnology-based clusters have formed in andaround urban areas.

The effects of globalization and conservation arealtering the rural cluster landscape. Commoditiesproduce and retain too little local wealth, and ruralwages are not nearly low enough nor skills highenough to compete with labor for manufacturing innewly developed economies across the Pacific.Efforts to raise wages and to add and keep morewealth in a community countered with the migra-tion offshore of labor intensive businesses, frommanufacturing to call centers, have caused ruralareas to come up with new competitive advantagesand new clusters.

Among the most obvious are those that convertnatural rural resources into clean energy, with bio-mass, biofuels, or wind. These are all high growthsectors with a tendency to cluster around industryleaders and innovators, companies that produce the equipment, and firms that distribute the ener-gy. Owensboro, Kentucky is making its mark withplant natural foods, organized through the GreaterOwensboro Life Science Partnership. Though asmall metropolitan area, many of the businesses in

Texas has been the largest producer of wind power in the nation, with the power capacity exceeding 5,300installed megawatts. The cluster spans 22 counties in the Texas Panhandle, Rolling Plains, Permian Basin, andTexas Mountains. It can trace its roots to 1994 when the first wind farms, Wind Power Partners and Buffalo Gap II,went on line. The state’s Renewable Portfolio Standard, which mandated the construction of certain amounts ofrenewable energy generation, was the catalyst for the cluster. After implementation, Texas wind corporations andutilities invested $1 billion in wind power. The wind turbines have caused some social disruption by pitting farm-ers against farmers. Some believe that if tax subsidies ends, the communities will be left with thousands of“monsters”. To meet hiring demands, Texas State Technical Community College West Texas offers two certificatesand one AAS degree in Wind Energy Technology to meet hiring demands. Average industry pay is 2-3 times high-er than the local average wage.

Rural Cluster Compendium, pg. 45.

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the cluster are in fact farmers in surrounding areas.

Another example builds on the growth of the experience economy, with rural areas seeking somedistinguishing feature that brands their communityor economy and attracts a certain customer base or industry. Western North Carolina has used itsAppalachian crafts and music heritage to replace its disappearing industrial base. Fairfield, Iowaattracts business people inclined towards transcen-dental meditation.

A third is response is to focus on consumptionrather than exporting. Economist Ann Markusenargues that consumption is as likely to be an engineof growth as exports. Portland, Oregon’s micro-brewery cluster began as an experiment for localmarkets and grew into a major export cluster onlyafter it became so popular locally. “Providing betterconsumption opportunities locally”—from the artsand culture, according to Markusen—“will thenalter the consumption patterns of residents andresult in a form of import substitution.”55

5. The business side of sustainabilityWith mounting and increasingly undeniable evi-dence of global warming, the private sector and theclusters they represent are beginning to acknowl-edge the vital need for conservation. Farmers havelong understand the importance of conservationand of crop rotation, as well as the consequences ofdepleting soil nutrients. But minerals and energywere once seen as inexhaustible. The predictions inthe 1970s about an impending depletion the world’ssupply of natural resources proved to be Malthusian,56

and with energy costs relatively cheap, businesses

grew nonchalant about conservation.

But skyrocketing energy prices compounded byshortages—at least for a time—refocused businesson the environment. As Tom Friedman writes,“Green is the new Red White, and Blue.” A growingnumber of industry leaders are beginning to realizethat conservation is an asset, not a cost. Companiescompete for degrees of “green” or smallest “carbonfootprints,” and major magazines now routinelypost their top 10 or 50 green companies. Some ofthe largest corporations, even those that have hadmarginal or poor records on many measures ofequity, are turning green with massive recyclingprograms, energy conservation, and packagingreduction policies. In 2007, according to the U.S.Patent and Trademark office, “green” was the singlemost trademarked term.57

Simultaneously, governments are taking actions that are creating opportunities for rural clusterdevelopment, and most of it is in rural areas. Iowa,Minnesota, Oregon, and Texas are just a few stateslaying claim to one or more renewable energy clus-ters. Most states now have set targets for renewableenergy production or use and more than 30 areproducing wind-generated electricity. As of 2008,six states already were getting more than a third oftheir energy from renewable sources.

Recognition of the potential for “green jobs” has ledto increased business activity in nearly all states, anddespite the ubiquitous nature of the businesses, cer-tain types of businesses do tend to cluster in partic-ular places, associate with one another, and operateas a regional system.

37. See, for example, William Nothdurft, Going Global: How Europe Helps Small Firms Export, Washington, DC: Brookings

Institution, 1992.

38. Richard Baldwin, The Great Unbundling(s), Brussels: European Union, Prime Minister’s Officer, Economic Council of

Finland, 2006.

39. David Barboza, “In Roaring China, Sweaters are West of Socks City.” New York Times, December 24, 2004.

40. Timothy J. Sturgeon, “What Really Goes on in Silicon valley? Spatial Clustering and Dispersal in Modular Production

Networks,” Economic Geography, 3 (April 2003).

41. Krauss, Clifford. Rural U.S. Takes Worst Hit as Gas Tops $4 Average. 9 June 2008

http://www.nytimes.com/2008/06/09/business

42. Ylan Q. Mui, “Ikea Helps a Town Put It Together: Manufacturing Jobs Come Back to Southern Va.” Washington Post, May

31, 2008. http://www.washingtonpost.com/wp-dyn/content/article/2008/05/30/AR2008053003244.html?nav=emailpage

43. Food store types; availability and cost of foods in rural environments, Nutrition Research Newsletter, December, 2007

http://findarticles.com/p/articles/mi_m0887/is_/ai_n27485588

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44. Freshwater, David, Stephan Goetz, Scott Samson, Jeffrey Stone, Tulin Ozdemir Johansson and Monica Greer. The

Consequences of Changing Electricity Regulations for Rural Communities in Kentucky, College of Agriculture, University

of Kentucky, December 1997.

45. Jonathan Berr, “A New Jersey Town Emerges as a Hub of E-Commerce,” New York Times, March 20, 2007.

46. Stuart Anderson and Michela Platzer, American Made: The Impact of Immigrant Entrepreneurs and Professionals on U.S.

Competitiveness, Arlington, VA: Venture Capital Association, 2007.

47. Richard Florida, Who’s Your City, New York: Basic Books, 2008, p. 6.

48. “The disappearing middle market: The urge to scrimp and splurge,” The Economist, May 20, 2006, p. 68-69.

49. Amy Glasmeier, Energizing Appalachia: Global Challenges and the Prospect of a Renewable Future, Unpublished Paper,

Washington, DC: Appalachian Regional Commission, September 2007.

50. Bent-Åke Lundvall, The University in the Learning Economy, Danish Research Unit for Industrial Dynamics, DRUID

Working Paper No 02-06, Aalborg University, Denmark, 2002.

51. Kevin Morgan (2001) The Exaggerated Death of Geography: Localized Learning, Innovation and Uneven Development,

Paper presented at the Future of Innovation Studies Conference, Einhoven University. September 20-23.

52. Randall Stross, “It’s Not the People You Know. It’s Where You Are,” New York Times, October 22, 2006.

53. Peter B. Doeringer and David G. Terkla, (1995) “Business Strategy and Cross-Industry Clusters,” Economic Development

Quarterly 9 (August) 225-237.

54. Philip Cooke, “New Insights into Socio-Technical,” Unpublished paper, Centre for Advanced Studies, Cardiff University &

Development Studies, Aalborg University, July 20208.

55. Ann Markusen, “A Consumption Base Theory of Development: An Application to the Rural Cultural Economy,”

Agriculture and Resource Economics Review, 36 (No. 1, 2007).

56. Donella Meadows, et al, The Limits to Growth, Universe Books, 1972.

57. Thomas Friedman, Hot, Flat and Crowded, New York: Farrar, Straus, and Giroux, 2008. p. 204.

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IInn tthhee 2200tthh CCeennttuurryy, clusters were perceived almostexclusively in terms of competitiveness and nearlyalways “measured” by job growth or retention, eco-nomic growth and market share. The actual impactof interventions, often quite small in scale, of coursein most cases can only be estimated or declared. Themost common acknowledgment of inclusivity wasto include raising average wages or generating newjobs with higher than average wages as measures.

In 2004, a group of researchers and practitioners ina Ford Foundation-supported project reexaminedclusters more closely in terms of social responsibili-ty and outcomes and concluded that cluster-baseddevelopment strategies do “not necessarily directlybenefit low-income people, small businesses, or dis-tressed regions…Left to their own devices, clustersdo not explicitly pursue social goals.”58 Most publicsector cluster programs begin by encouraging firmsto formally organize, if not already represented by alocal or regional business or trade association, andto set their priorities and articulate their needs. What

factors or conditions induce the companies in clus-ters to collectively look beyond their short-term selfinterests and to assume greater social responsibilities?

The term Corporate Social Responsibility (CSR) is gaining sufficient support to be called a “move-ment.” It greatest strength is among the world’slargest corporations who have the greatest impacton equity and environment and are most concernedabout public perception and customer loyalty. AVermont-based organization to promote CSR has aweb site, events, and educational programs.59 Theconcept has gained added legitimacy when theHarvard Business Review connected corporate socialresponsibility to competitive advantage. In 2005“360 different CSR-related shareholder resolutionswere filed on issues raging from labor conditions toglobal warming.”60

Dow Jones now has a sustainability index that men-tions “integrating long-term economic, environ-mental and social aspects in their business strategies

VI. Rural clusters and the triple bottom line

Ecofish and the environment in Queensland, Australia: Tropical North Queensland, 1,000 miles from the statecapital, Brisbane, is an advanced rural region with a high-performing fisheries cluster that employs about 1,600and injects $150 million into the economy. In 2001, a regional cluster called Ecofish TNQ was established to repre-sent the seafood and marine industry and ensure its long-term survival. Members were a mix of fishers, fishprocessors, wholesalers, retailers, chandleries, slipways, engineers, paint and fuel distributors, and other supportservices such as legal and financial. The commercial fishing industry had to respond to pressures from environ-mentalists, government and the recreational fishing sector. Virtually all members are now voluntarily pursuingnew practices. Rather than rely on legislators to dictate the future of environmental by establishing Environ-mental Management Systems (EMS) for their cluster. Recognizing that environmental certification would becomemandatory, Ecofish TNQ identified actions to pursue the world’s best ecologically sustainable fishing practices,improve industry training opportunities, and develop environmental safeguards such as by-catch reductiondevices and turtle exclusion devices—now mandatory features of trawl management plans. Ecofish membershave set themselves up as experts in the field, adding to their competitive advantage as other countries adoptstricter environmental regulations.

From Rod Brown, Editor, The Cockatoo, 2009

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while maintaining global competitiveness andbrand reputation” but for the most part it’s aboutbusiness, customer, and labor relations and is aimedat investors, not the public good.61 Whereas leanmanufacturing was the new trademark of successfulU.S. businesses, IndustryWeek titled its article aboutthe latest Census of U.S. Manufacturers, “Lean Greenand Low Cost.” They found that 56.1 percent hadrecycling/reuse programs, 43.6 percent listed envi-ronmental management and 32.8 percent listedenergy management as strategic practices—all higher percentages than in 200662 suggesting a growing awareness of the benefits of green manu-facturing practices.

Although not always complying out of altruism,companies are responding to stockholder and cus-tomer pressures. Corporate social responsibility ismost effective when doing things that are close totheir shareholders; interests.63 Some companiesand some clusters score high on one dimension ofTBL but low on others. Nestle won recent awardsfor conserving water but rates low on contaminat-ing foods. The logistics cluster in northwestArkansas anchored by WalMart and Tyson rateshigh on green issues but low on fair labor practices.

A. Clusters successful in addressing triplebottom line outcomes.

Certain characteristics of clusters have led them topay attention to the triple bottom line (TBL) out-comes. The most common reasons clusters take onTBL outcomes appear to be due to at least one ofthe following:

• Defines the objectives of the cluster • Cluster leadership sets the tone by assuming a

moral responsibility on behalf of communityand society

• Adds an economic value or brand to cluster’sproducts or services

• Overcomes existing or potential shortage ofresources or labor

Defines objectives of cluster: The most obvious rea-son for clusters to focus upon TBL outcomes iswhen social or environmental objectives define theirproducts or services and generate positive economic

outcomes. These clusters derive competitive advan-tage from how effective or efficient they are inachieving their goals. The clusters that are based onenvironmental industries—such as companies pro-ducing wind energy, providing holistic health, mak-ing fair-traded products, or cleaning up the envi-ronment—depend on achieving social and/or envi-ronmental outcomes. The renewable fuel cluster innorthern Iowa and wind energy in various regionsof Minnesota are budding clusters that embody, ifnot specifically articulate, TBL outcomes becausetheir reliance on foreign-born labor requires a moreinclusive labor market strategy and and very pur-pose of the cluster is the impact on the environ-ment.

Cluster leadership sets the tone: Some businesseshave accepted a social responsibility to their com-munity, even if the actions do not produce short-term economic outcomes. Most businesses, howev-er, believe that the strength of their improved repu-tations will ultimately strengthen their businessposition. As a rule, clusters dominated by locallyowned businesses are more likely to address TBLoutcomes as a result of community goals and peerpressures than distantly owned branch plants. Whatentices companies to put a broader dispersion ofwealth or a healthier environment above the pureprofit motive? Often it’s part and parcel of a chosenlifestyle. The Vermont Environmental Consortiumincludes not just environmental companies buteducational institutions and employers committedto conservation, such as Ben and Jerry’s, ChelseaGreen Publishing, and Precision IndustrialMaintenance. As a result, “green” has permeatednearly all of Vermont’s clusters.

Economic value of brand: Green and local are prod-uct descriptors that attract a certain growing seg-ment of the population that is willing to pay a pre-mium to improve social or environmental condi-tions. With growing public concern over energy andclimate change, companies can get a competitiveadvantage from products that, for example, are veri-fiably green, locally sourced, fair-traded, or pro-duced under stringently regulated working condi-tions. The carpet cluster in Georgia, hosiery clustersin North Carolina and Lombardia, Italy, and furni-ture in Lahti, Finland are all seeking a green brand

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that can meet customers’ expectations and addvalue to products. Walla Walla, Washington’s winecluster combines efforts to market local wine andfood, and art. The small locally owned cheese orwood products clusters in Vermont take environ-mental responsibilities seriously, as part of theirbranding.

Existing or potential shortage of resources or labor:Other clusters have taken on social responsibilitiesbecause it’s good business practice. The fisheriescluster in Nelson New Zealand and aquaculture incoastal Maine, both concerned about overfishingand polluted waters, want to be good stewards ofthe environment. North Carolina’s hosiery clusterdeveloped training programs combined with Englishas a second language, primarily to meet its laborneeds from its immigrant Hmong population. TheRenewable Energy Marketplace in Southwest Min-nesota is developing training programs for Spanish-speaking workers for work in renewable energy clusters.

The first two categories generally apply to a clusteras an economic entity. The last three may apply tosome companies in the cluster but not all. The eco-nomic success or failures of the adopters can set thetone for others, leading to imitation or rejection.

Many other clusters have not yet been willing toincur the perceived costs necessary to become greenor socially responsible. They still compete on thebasis of lowest cost, which translates into keeping

labor costs as low as possible and avoiding environ-mental regulations. For instance, catfish farming inMississippi, offers jobs in areas of high poverty butalso has been accused of taking advantage of lowwages and poor working conditions to compete.The cluster now faces competition from Vietnamand is under even greater price pressure. New regu-lations for labeling country of origin, or for makinga distinction between farm-raised or wild, maychange buying habits. Similarly, a successful turkeyproducers cluster of small marginal farmers inIowa, who in 1996 collectively purchased and nowmanage their own processing cooperative that todayproduces more than 120 million pounds of meat ayear, was assessed a penalty by the EnvironmentalProtection Agency in 2001 for polluting the localwater.64

The largest group of clusters, however, falls some-where in between, with many clusters assumingresponsibilities for TBL outcomes that easily trans-late into competitive advantage, such as energy con-servation and waste reduction or higher wages toattract employees while others, feeling the cost pres-sures from overseas, cut corners wherever possible.

B. Cluster initiatives that achieve triple bottom line outcomes.

Having established that most cluster initiatives areeither about organizing businesses or targetingresources and services, which ones have proven

Table 3: Characteristics of clusters that meet TBL outcomes

Condition Examples Place

Based on TBL sectors Wind energy Western TexasLocal food chains Southeastern Ohio

Advantage from TBL Artisan Cheese VermontFurniture Lahti, Finland

Strong local commitment Hosiery Central North CarolinaCarpets Northern Georgia

Socially responsible Electronics Southern Denmarkbusiness leaders Aquaculture Maine Coast

Source: Rural Cluster Compendium, 2008.

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most effective in achieving greater sustainability and social inclusivity within rural economies?

Since no definitively quantitative assessments of thetriple bottom line for clusters have been found, theanswer is largely subjective, based on assumed orself-reported outcomes. It’s difficult to identify eco-nomic outcomes that cannot be directly attributedto a specific intervention. Only a few studies havecompared urban to rural outcomes, and those haveonly looked at outcomes at a highly aggregatedlevel, not for specific places and clusters. The Har-vard rural cluster study compared macro-outcomesof rural clusters and counties, finding that ruralclusters had only 52 percent the average wage, 75percent of the wage growth, 88 percent the estab-lishment growth, and 35 percent the patents peremployee as urban clusters.65 Using the most basicdefinitions of clusters, studies in the U.S have shownthat places where industries are concentrated per-form better on economic outcomes that those thatare more diversified.

It should be no surprise that the most successfulinterventions aimed at social or environmental out-comes have been either

• Initiatives that are supported and/or funded byorganizations and agencies organized to addresssocial or environmental issues or

• Clusters for which social or environmental out-comes are critical to their success.

The former includes private foundations and federaland state agencies that target distressed economiesor certain marginalized or disadvantaged popula-tions. Many of the interventions are work forcetraining initiatives. These often are carried out by anonprofit to prepare income and undereducatedresidents for jobs, often labeled sector strategies.Others are helping disadvantaged populations startnew businesses related to the cluster that may beprimary or secondary sources of income.

The latter includes clusters with labor market short-ages that need to expand their work forces, clusterswhose products or services are social or environ-mental, or clusters whose reputation and branddepend on meeting their social and environmental

responsibilities. Some of those most successful ini-tiatives are listed below.

1. Organizational initiatives Networking entrepreneurs: In Iowa, the FairfieldEntrepreneurs Association operates as a network tosupport the largely information technology relatedcluster. Formed in 1989, the association helpedestablish Fairfield as the “Entrepreneurial Capital of Iowa” and led to Fairfield’s selection as the 2003winner of the Grassroots Rural EntrepreneurshipAward by the National Center for Small Commu-nities (NCSC). The Entrepreneurial League Systemthat operates in central Louisiana has created a net-work of entrepreneurs, many of them interdepend-ent, and uses American baseball analogies to coachthem and help them move towards the major leagues.

Collaborating on sustainability plans or hiring prac-tices: More and more companies are beginning tohold themselves accountable for sustainability. DowJones reports that in 2007, 2,500 companies world-wide published sustainability reports, ten times asmany as in 1995.66 While this may be too difficultor costly for small companies, clusters have the po-tential for helping their member develop collectivereports. Coastal Maine’s aquaculture cluster, throughthe Maine Aquaculture Innovation Center, pub-lished a 14-point set of environmental principles for sustainable fisheries. These plans, however, arestill exceptions and not common. They generallyoccur when there is pressure from community orcustomers to meet or raise standards, and they often rely on help from consultants or nonprofits.

Including nonprofits in the cluster: Nonprofits, insome instances, have been the catalyst for organiz-ing clusters and promoting clustering, or network-ing. The food-processing cluster in AppalachianOhio provides a case in point. ACENet, a local non-profit, organized the growers and small food pro-cessing companies, taught entrepreneurial skills,started a kitchen incubator, and helped local peoplelearn how to market their specialty food products asplace-based goods that used labels and stories toadd to their market value. Another local cluster ini-tiative was started by Sohodojo, a nonprofit organi-zation in Iowa. It organized the Chandler Guild for

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the scores of soybean wax candle makers and thefarmers that raise the soybeans, and published ahandbook to help businesses with business andmarketing issues. In rural West Virginia,Appalachian by Design aggregated the productionof a network of home knitters and provided train-ing, marketing, and design support. Its ultimategoal was to reduce poverty and unemployment.

Changing relationships in value chains: Some inter-ventions are designed to either increase local sourc-ing of goods or to change the nature of relation-ships along supply chains so that responsibilitiesand value added is more evenly shared. SustainableFood Laboratories in Vermont works in agriculturaland food processing clusters to convert their valuechains into collaborative entities that producehealthy, sustainable final products for market.Wales, one of the first regions to receive funding todevelop a regional innovation strategy from theEuropean Union’s Social Fund, chose to developsupply chain associations to improve relationshipsand develop cooperative training programs.

Developing trails for place-based clusters that alsohave tourist appeal: The book Craft Heritage Trails ofWestern North Carolina, now in its third edition,maps and describes sources of handmade goods,galleries, and bed-and-breakfasts in western NorthCarolina. It not only has led to greater sales of localgoods but also has increased tourism. Surveys haveshown that 94 percent of those taking the recom-mended wayfinding routes make a purchase, and 70percent spend more than $100 on craft. The successof the trails has led to a similar garden trail bookand spawned imitators across the country in placeswith high concentrations of arts. The Blue RidgeMusic Trail across parts of central Appalachia,Minnesota’s Renewing the Countryside cultivatedGreen Routes, Vermont’s marble trail, andLouisiana’s Culinary Trail are other examples ofpath-defined clusters that cross community, andsometimes state, boundaries but operate as a singlecollective entity.

2. Allocation-based initiativesIncentives for collaborative behaviors that serve thepublic interest: Most of the grants made by privatefoundations are directed to poor or economically

distressed rural communities or people. Examplesof foundation grants include grants to organize andsupport cooperation among small companies orself-employed people around food processing inlow-income parts of Appalachian Ohio, wood prod-ucts in the Upper Peninsula of Michigan, after itsbase closed, and apparel in rural West Virginia. Pub-lic sector funds have gone to wine clusters in NorthCarolina, apparel in the Highlands and Islands ofScotland, and furniture in western Denmark. Minne-sota has a grants program called Framework for In-tegrated Regional Strategies (FIRST) that supportsintegrated and representative leadership based oncluster boundaries. Four FIRST grants have been for renewable energy in rural Minnesota.

Supporting targeted training programs: Given theimportance of the labor force to clusters, it’s notsurprising that many of the interventions haveinvolved educational institutions. Among the 50rural clusters in the Rural Cluster Compendium, 39are involved in some type of education or training.Minnesota’s State Colleges and Universities(MnSCU) are targeting the state’s environmentalclusters, developing specialized programs at both

Mining in Sudbury, Canada- Local smelting of theore releases sulfur into the atmosphere where itcombines with water vapor to form sulfuric acidand contributes to acid rain. As a result, Sudburywas for many years considered to be a wasteland.In parts of the city, vegetation was devastated bothby acid rain and logging to provide fuel for earlysmelting techniques. In 1992, however, Sudburywas one of twelve world cities given the LocalGovernment Honors Award at the United NationsEarth Summit for its community-based environ-mental reclamation strategies. More recently, thecity has begun to rehabilitate slag heaps that sur-round the Copper Cliff smelter area with the plant-ing of grass and trees.

Rural Compendium, p. 43

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Minnesota West and Dakota State CommunityColleges and Minnesota State University, underMnSCU’s Initiative for Renewable Energy and theEnvironment. The training was boosted by a $5million collaborative and industry-driven, multi-county grant from the U.S. Department of Labor’sWorkforce Investment in Regional EconomicDevelopment (WIRED) that targets biofuels andrenewable energy. In December 2008, a Green JobsWorkforce and Training Sub-Committee of the statelegislature recommended eight-to-twelve-weekintensive training programs, dual track certificationprograms, and apprenticeships. In Oregon, the RVcluster received a grant for a training consortiumfrom the Governor’s set aside in the WorkforceInvestment Act.

Introducing environmental issues in community col-leges: Green is quickly working its way into commu-nity college curricula and continuing educationprograms. These institutions are best able to achieveenvironmental and social outcomes, because theyrepresent the principal path to employment fornon-traditional, disadvantaged, immigrant, andunemployed learners, and because their overall mis-sion is to serve the community. By definition, theyhave social goals and, increasingly, as a result of stu-dent and employer demand, environmental goals.Mount Wachusett Community College in Gardner,Massachusetts has a Forest and Wood ProductsInstitute to help companies move to higher-value-added production and to use biomass as an energysource. The college now relies almost entirely onbiomass for its energy.

Supporting programs for immigrant and low-incomepopulations: Rural areas, which have had a dispro-portionate share of low-income populations, arealso now attracting the immigrant populations thatonce migrated principally to America’s large cities.Rural residents on average have lower levels of edu-cational attainment than their urban counterparts.In addition, the vast majority (93 percent) of immi-grants have no postsecondary education, and manyhave poor English language skills. The tourism clus-ter of casinos in Tunica, Mississippi provides oppor-tunities for a very poor African American popula-tion, opening up new jobs and career paths. Thesepopulations generally need special efforts to help

them acquire the skills and, where they are a newminority, become integrated into community life.

Providing capital: Rural clusters generally are under-served by financial markets, in part because of dis-tance from the financial centers and venture capitalbut also because the type of industries that tend tocluster in rural areas are not in technology-basedgrowth sectors. Local banks have been more apt torespond to needs of rural clusters and, in someplaces, consider themselves part of the cluster. AHickory, North Carolina bank officer participates inthe hosiery association events and knows the com-panies in a personal basis. Nonprofits and commu-nity development banks have been instrumental ingetting capital to rural clusters. ShorebankEnterprise Cascadia provides operating and start-uploans to small businesses and enterprises in theforestry sector that help family-owned businessesstay afloat and help small enterprises develop newmarkets. Coastal Enterprises, a CDFI in Maine, pro-vides loan products to support the seafood andaquaculture cluster. In its FISHTAG program, fish-eries that receive loans must send data to scientistswho then help develop management strategies toinsure the long-term health of the cluster.

C. Local circumstances and policies thataddress triple bottom line outcomes.

The political and social environment, communityvalues, and economic development practices allhave major impacts on the degree to which clusterscan and do act responsibly toward their communityand environment.

The social environment in the region, or degree andtype of social capital, often holds the key to realiz-ing TBL outcomes. Cynthia Duncan’s study of threepoor rural regions found that “lack of trust and co-operation in the community’s social climate infectsformal and informal relationships at all social lev-els...Nothing is based on merit, everything dependson whom you know and whom you owe…A clearerunderstanding of social capital will facilitate effortsto ameliorate persistent poverty and underdevelop-ment…” Some rural communities have developed atwo-tier social system, with those that control thecapital holding the power over others. In otherplaces, the inmigration of people from other re-

41

gions with different values, ideas, and customs havedivided communities. Part of the task of a clusterorganization is use a shared goal to help differentfactions reach a common understanding.

For example, economic developers that emphasizeindustrial recruitment are more likely to want toreduce regulations to make it as easy as possible for industry to operate at the lowest cost ands withfewest restrictions. In these situations, it will take a market demand for TBL outcomes—either fromcompanies being recruited, from the talent they will need to operate, or from the recruitment ofgreen industries.

Communities in which residents are more mobileand there is more churning are less likely to be con-cerned about long-term effects. Even though ruralareas tend to be more stable, the loss of youth to thecities discourages long-term investments.

Politics also is a factor. The more conservative the

community, the less likely local businesses may beto assume social responsibilities. In some places,fundamental religious conservatism rejects humanresponsibility for the environment and climatechange. Rural communities, on average, are morepolitically conservative, although there are majorexceptions, especially in amenity-rich areas such asthe mountains, coastal areas, and college towns.Even though the more conservative rural communi-ties reject too much government regulation, anincreasing number—in some places led by progres-sive church leaders—will accept voluntary effortstoward sustainability and equity.

Clustering can raise local consciousness of the valueof cooperating in social as well as economic activi-ties. A cluster management organization may cometo be seen as the ‘honest broker’ among firms andcommunities, distinct from the old, sometimesdebilitating ties to established local institutions andorganizations.

58. Stuart Rosenfeld, Just Clusters: Strategies that reach more people and places, Carrboro, NC: Regional Technology

Strategies, 2004.

59. http://www.csrwire.com/profile/7596.html

60. Michael Porter and Mark R. Kramer, “Strategy & Society,” Harvard Business Review, December 2006.

61. http://www.sustainability-index.com/07_htmle/sustainability/corpsustainability.html

62. David Blanchard, “Lean Green and Low Cost,” IndustryWeek, October 2007.

63. “History shows the Anglo-Saxon corporation to be far from heartless,” The Economist, December 12, 2002.

64. Iowa Turkey Growers Cooperative, West Liberty Foods, U.S. Environmental Protection Agency. Docket No CWA-07-2001-

0052, CERCLA-07-2002-0009, June 29, 2001.

65. Christian Ketels, Kaia Miller, and Richard Bryden, Competitiveness in Rural U.S. Regions: Learning and Research Agenda, 2004.

66. American Perspectives, PricewaterhouseCoopers, 2008, pg. 62.

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Figure 1: Examples of cluster initiatives that produce each TBL outcome.

SSiinnccee cclluusstteerrss ccaann rreepprreesseenntt aa llaarrggee nnuummbbeerr ooffeenntteerrpprriisseess tthhaatt hhaavvee aa vvaarriieettyy ooff nneeeeddss, they oftendepend on resources and assistance from many dif-ferent sources. This multiplicity of actions with awide range of objectives confounds efforts to evalu-ate the independent impacts of specific interven-tions—usually retroactively. Moreover, it is evenmore difficult to gauge the collective impacts of theinterventions. Measures of process are usually easierto obtain, such as people trained, investments lever-aged, or business contact hours. The best measuresof effectiveness usually are estimates that relateintent to very general observed, estimated, or docu-mented outcomes.

Part of the difficulty of measuring the outcomes ofcluster initiative is that they are intended either toinspire or offer incentives for other companies toalter their behavior, to act in ways they might nototherwise act in hopes that the value would makethe behaviors become habit-forming and commonpractice. This is particularly true of initiatives toencourage clusters to pursue triple bottom linegoals. Examples of outcomes of cluster initiativesthat drive the three sets of TBL goals are shown in

Figure 1. Initiatives that generate new products orlower costs, for example, produce economic out-comes. Those that create market advantage, leadcompanies to self-regulate, or improve quality oflife for family and friends achieve environmentaloutcomes. Initiatives that offer financial incentives,increase customer loyalty, or address communityinterests result in social outcomes.

In late 2008, FORA, a Danish research agency, pro-duced a Green Paper on international best practicesin cluster strategies for the European Union.67 Thereport was based on a roundtable held inCopenhagen just days prior to our Burlington,Vermont rural cluster workshop. The resulting pub-lication included a detailed classification of meth-ods that was intended to standardize the clusterprocess enough to allow benchmarking amongregions. These methods covered data collection andoutcome analyses of clusters and cluster initiativesthat were based on available data focusing on, forexample, workforce, establishments, R&D spending,and patents. It also presented information thatcould be obtained from interviews and surveys ofbusinesses about quality of life, the cultures of com-

VII. Recognizing and measuring triple bottom line outcomes

Environmental sustainability • Quality of life• Economic opportunity• Compliance with laws and standards• Self-regulation to avoid regulations• Market advantage

Economic outcomes • Lower costs• Expanded markets• New products• Higher productivity• New enterprises

Social inclusion• Financial incentives• Customer loyalty• Community responsibility• Peer pressure• Social consciousness• Labor market needs

43

petition and collaboration, and government respon-siveness–all factors that affect the economy and thebusiness environment. To the extent that environmentand inclusivity were considered, each was examinedthrough the regulatory environment (which couldhave positive or negative effects on the environment),quality of life, and talent attraction.

A. Economic outcomesEconomic outcomes, as described in FORA’s GreenPaper have been the driving force for support ofcluster initiatives by most public sector agencies.These interventions are expected to result in increas-es in jobs, businesses, investment, incomes, andsales. All of the goals in a survey of more than 250clusters conducted for The Competitiveness Institutein 2003 were economic. Among the means to achiev-ing those economic ends, however, networking, asocial factor, ranked highest.68 Michael Porter’sbook, The Competitive Advantage of Nations, definedclusters purely as a national or regional economicdevelopment strategy, and its progeny in the publicsector and consulting world chiefly have focused oncompetitiveness issues. Porter’s recent support forsocial responsibility frames it in terms of competi-tiveness and economic outcomes.

Among the three overarching TBL outcomes, eco-nomic goals are the most easily verified (with theexception of “jobs retained”), but these outcomescannot be easily attributed to specific initiatives.Standard data allow the measurement of changes inemployment, productivity, and wages for a cluster.Surveys, which are costly and rarely random, canreveal more detailed and nuanced information. Butwithout knowing what might have occurred in theabsence of the initiatives or control groups, inter-pretations of the survey and interview data arebased just in what appears to work. The measuresmost commonly used are shown in Table 3.

B. Social Inclusion and expanded opportunitySocial capital has become a common cluster charac-teristic and a frequent metric of cluster vitality.Consequently, strategies that support social infra-structure as a means to build social capital, whichtypically is represented by some type of cluster-spe-cific organization, are among the most popular ini-

tiatives. Of the 250 clusters surveyed in 2003, 89percent included a person designated as “clusterfacilitator” to connect the dots representing themembers of the cluster. That person could be thekey to ensuring that the social structure is inclusiveand representative. Under the best of conditions,social capital increases trust and expectations ofreciprocity and generally produces behaviors thatincrease economic efficiency.

Measuring social capital much less genuine inclusiv-ity, however, has proven difficult. Robert Putnam,

Table 3: Measures of economic outcomes from data and/or surveys include:

Changes in sales across cluster

Changes in employment

New investments

New enterprises started

Change in average wages

Changes in aggregate profits

Evidence of increased competitiveness

New products

New markets

Table 4: Potential measures of social outcomes include:

Low income citizens and/or displaced workerstrained and employed

Abundance of jobs with good pay and benefits

Inclusivity of and diversity within associations

Accessibility of cluster leadership

Business support for philanthropy and activitiesthat benefit the community

Increased networking and evidence of trust

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who popularized the concept of types of social capital in the 1990s,69 has used 11 proxies thatappear to favor smaller cities and older large cities,largely because the method omits informal forms of social capital that characterize younger popula-tions and high tech industries. North and SouthDakota, Montana, and Vermont rank highest on his state social capital indices while places that aregrowing the fastest rank low. Table 4 offers someideas for measuring the effects of social capital onsustainability and equity.

C. Environmental outcomes and sustainabilityEnvironmental outcomes are the most recent addi-tions to cluster interventions in the U.S. Untilrecently, most efforts to achieve sustainability havebeen informal, based largely on building awarenessbusiness by business, community by community,region by region. The arguments for taking action,however, have been mainly rooted in cost savings:reduced liability, reduced costs of materials andmanufacturing, reduced waste, reduced energycosts, and fewer regulations. Up until the past fewyears the environmental movement was predomi-nantly white, middle class, and activist. It was nottaken seriously by corporate America and not par-ticularly relevant to the needs and interests of low-income and minority populations.

As the evidence mounts pointing to the likely effectsof global warming on future generations and publicconcern expands, climate change is very rapidlybecoming a mainstream concern. Corporations areundertaking sustainability plans, governors arelooking at the issue from an economic growth per-spective, and marginalized communities are begin-ning to view “green” solutions as a new opportunityfor better jobs.

Clusters provide an opportunity to reach and influ-ence larger numbers of employers and people andto scale up environmental practice. They can usepeer pressure in business associations to shareresponsibility for common problems and to agreeon effective practices. Those with large numbers ofsuppliers can require them, as Wal-Mart has done,to reduce their energy consumption and packaging.

Table 5: Potential measures of environmental outcomes include:

Reduction in energy use

Reduced toxicity of inputs or waste

Reduced and/or recyclable packaging

Production of renewable energy for local consumption

Land stewardship

Systems thinking

Reduction of “carbon footprints”

Industrial ecology—recycling waste

Firms producing renewables and clean technologyfor export

Green institutions for advice, research, and skills

Table 6: Summary of outcomes

Type Positive Neutral or Unknown Negative

Economic 50 0 0

Opportunity/Inclusivity 26 18 6

Environmental/sustainability 17 36 7

* This assessment is largely on anecdotal evidence.

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Sustainability also represents a potential to build of new clusters to address environmental problems,such as cleanup, new technologies, green materials,and alternative sources of energy (Table 5).

D. Results from the Compendium or Rural Clusters

Based on anecdotal evidence from the 50 rural clus-ters summarized and our best judgment (since no

cluster actually measured non-economic outcomes),Table 6 shows what impacts the cluster or clusterinterventions produced. The large number ofpositive outcomes for expanded opportunity andinclusivity were biased toward international clus-ters and U.S. clusters with foundation support.The positive environmental outcomes were influ-enced by cluster that branded themselves as greenor local.

67. Emily Wise, Lotte Langkilde, and Marie Degn Bertelsen, The Use of Data and Analysis as a Tool for Cluster Policy,

Copenhagen, FORA, November 2008. Emily Wise also participated in the Burlington rural cluster workshop.

68. Örjan Sölvell, Gören Lindquist, and Christian Ketels. The Cluster Initiative Greenbook. Barcelona: The Competitiveness

Institute, 2003.

69. Robert Putnam, Making Democracy Work, Princeton: Princeton University Press 1994.

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GGiivveenn wwhhaatt wwee’’vvee lleeaarrnneedd ffrroomm oouurr oowwnn eexxppeerriieenncceessaanndd tthhoossee ddooccuummeenntteedd aanndd aannaallyyzzeedd bbyy ootthheerrss,how can cluster initiatives that, for the most part,have been driven mainly by economic gains, bemodified so that they also support inclusivity andsustainability? Even though companies, like individ-uals, take monetary gains into account in their busi-ness decisions, they rarely choose paths that exclu-sively maximize their financial gains.

Attitudes and values also shape decisions. Most youth,for example, do not choose the educational path to careers that necessarily will earn them the mostmoney, and businesses increasingly make choicesabout where, how, and with whom to do businessthat meet needs other than the financial bottomline. Corporate balance sheets even assign a numberto “goodwill,” which is an intangible inserted toreflect the real but uncountable value of reputation,brand, and customer loyalty. It’s why so much atten-tion recently has been paid by the business press toholistic measures such as a nation’s “gross nationalhappiness” and to various “happiness indices.”

For all these reasons, the time may be propitious tointroduce to clusters—and have them taken serious-ly—decisions that address social and environmentalinterests. The very nature of clusters leads compa-nies to weigh the value competition against the ben-efits of collaboration and the interests of the singlefirm against the greater good of the cluster andcommunity. Some decisions may represent highercosts to the firm in the short run yet profit the larg-er community and sustainability of the cluster inthe long term. We suggest that clusters in rural areashave certain assets upon which to build, liabilities tobe overcome, and investment opportunities.

A. AssetsWhile urban areas seem to hold the right cards andthe highest growth clusters, rural areas have decided

advantages for certain clusters and people. Somepeople prefer the lifestyle and amenities associatedwith smaller cities, and some clusters require theresources or assets of, or simply prefer, a location inless populated areas. For these individuals and clus-ters, the nature of the experience tells the story.Some of the advantages to which rural clusters canaspire are as follows:

1. Natural resources: Rural areas, being moredependent on their natural resources, are moreapt to want to preserve and sustain them. Themost egregious depletion often occurs when such resources are not locally owned, a fact made obvious in the impact of strip-mining inAppalachia, clear-cutting forests for lumber, orover-fishing, all of which can result in long-termenvironmental degradation.

2. Community colleges: Community colleges havebecome critical resources for rural clusters. Theyare valued as accessible and affordable sources ofpostsecondary education, for their worker andmanagement training and technical expertise, andas community centers. The colleges play crucialroles in many rural clusters, either as a responseto business demand, as Itawamba Communitycollege responded to Mississippi’s furnitureindustry and Catawba Valley Community Collegeresponded to the hosiery cluster, or as a catalystto help shape a cluster, as West MinnesotaCommunity College is to the wind energy indus-try, Gadsden Community College’s AdvancedManufacturing Centers is to Alabama’s automo-tive cluster, and EUC-Syd is to Sønderborg’s electronics cluster.

3. Distinctiveness and sense of place: Small commu-nities, which lack the scale of amenities that citiescan provide, have more reason to find a distin-guishing brand that sets them apart from otherplaces. In Galax, Virginia and in Mountain View,

VIII. The potential for rural clusters,communities, and people for prosperity and quality of life.

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Arkansas, this distinctiveness derives from tradi-tional music; in Fairfield, Iowa, it’s transcendentalmeditation; and in Husavik, Iceland, it’s whalewatching. Each is a result of specialized assetsthat also represent a wellspring for a rural cluster.

4. Closer relationship to land and environment: Ruralpeople are more apt to have some sort of directrelationship with the land, either because it’s thesource of their income or that of their relatives orfriends, or because they simply are more aware ofits inherent power. A direct relationship with theland provides obvious opportunities in tradition-al resource-based businesses, and this fact applieseven with regard to new technologies. Windfarms, for example, seem to be more efficient ascommunities—or clusters—of small farm-basedunits, with several small installations making bet-ter use of wind power than one large installation.70

5. Gemeinschaft: Relationships are more importantin rural communities, where individuals appearto be just as oriented to large associations as theyare to their own self-interests. The long-time tra-ditions of the Grange and cooperatives have estab-lished a community-based tradition of sharedresponsibility that still exists in many rural com-munities. That’s chiefly why business network ini-tiatives have been disproportionately applied toand successful in small cities and rural areas.

6. Relationships to urban areas: With expandingurbanization, more of rural America, or ruralEurope, finds itself within an easy drive of a metropolitan area but with certain advantages in land availability, costs, and lifestyle. This couldenable an urban cluster to develop a rural satel-lite, as did North Carolina’s hosiery cluster inRandolph County, to employ people who may be able to work at a distance most of the week.Urban clusters also may extend their boundariesto include more distant firms.

7. Lower costs: When applied to the individual,lower costs can mean more value for the dollar;when applied to a cluster, it can mean low wagesand poor benefits. Low costs have been used fordecades to attract businesses to rural areas on theassumption that low-wage work is better thanlower incomes and subsistence living, and clusters

have formed around these labor markets. Wagegrowth has happened through entrepreneurshipor through education and transition into higherskilled occupations and higher wage clusters.

8. Increasing social responsibility: There does appearto be a change in the mindset of a growing num-ber of businesses, in part driven by the businesspress and some progressive CEOs. In 2005, aleading North Carolina business magazine, in anissue devoted to “green,” wrote that “the integrat-ed approach to sustainability has led to a newbottom line for business leaders to consider: Thetriple bottom line, which looks at businessreturns [and] shareholder value as well as thehealth of the environment and communities.”71

A set of business champions for triple bottomline goals may be able to influence clusters inways that nonprofits and governments cannot.

B. LiabilitiesThe following conditions are generally liabilities toenabling clusters in less populated areas to achievetriple bottom line outcomes.

1. Scale: Less populated regions, even where indus-tries cluster, have smaller numbers to offset fixedcosts. It is more difficult to reach critical massthat attracts specialized services without signifi-cantly extending the cluster boundaries.

2. Outmigration of youth: The brain drain of youngpeople from rural areas is nothing new and is un-likely to change, especially as levels of educationalattainment rise and youth who feel their oppor-tunities are limited locally increasingly are able totest other locations. Most rural places will have toconcede the loss of large numbers of their bright-est youth and concentrate on attracting them backas they begin to raise families. Rural communitiesalso may need to find replacements among immi-grants and dissatisfied urban dwellers.

3. External ownership of resources: The consequencesof external or absentee ownership are well knownin rural areas, visible in the obliterated moun-taintops of West Virginia or the boarded-upmanufacturing plants in South Carolina. It is dif-ficult to create the same degree of responsibility

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toward the community and its environment fromthe absentee landlord as from the second- orthird-generation local owner who attended thelocal schools.

4. Distrust of newcomers: The same more stable andhomogeneous nature of rural communities thatcreates gemeinschaft, also makes it more difficultfor outsiders to be accepted. Many rural commu-nities experience some form of the “town andgown” divisions that often split college towns.Such strife worsened in the 1970s, when the coun-terculture migrated from cities to rural areas; inmany locales, a residue of distrust from thoseconflicts still persists. In other places, it’s the newerimmigrants who must win the trust of earliergenerations of immigrants who are now settled in as the resident population.

5. Preoccupation with megapolitan regions: The riseof the knowledge economy has been accompa-nied by a shift in attention from the public sectorto large urban areas, perceived to be the sourcesof innovation, at least when measured by patentsper capita, and magnets for talent. As traditionalmanufacturing continues to decline, attention torural areas reverts to its natural resource andagricultural base.72 The January 2009 special issueof Newsweek, authored by staff of the BrookingsInstitution’s Metropolitan Program, highlightsthese urbanization patterns. States appear to bepreoccupied with research-driven clusters, withthe exception of renewable energy.

6. Political conservatism: Rural areas are more likelyto be “red” and cities, “blue.” Political conser-vatism, even where populist, has a basic distrustof big government and regulations as well as bigbusiness. Concern for the environment can belimited when it competes with earning a living,as in Oregon where loggers fought efforts to savethe spotted owl,73 and across the West, where thewood products industry opposed efforts to con-serve old-growth forests.

7. Regional insularity: The most successful clustersinclude at least a few “lead” firms that are part ofglobal networks and thus exposed to global mar-ket opportunities and best practices. These firms

regularly benchmark themselves against the bestpractices anywhere, including those companiesand clusters that are pursuing sustainability.Because knowledge comes from very diversesources, the wider that communities cast the net,the more likely they will find good ideas. Butpoor regions and small companies all too oftenhave limited access to these benchmark practices,innovations, and markets. Without wider access,companies are limited to learning only withintheir regional borders.

C. Investments that are neededAlthough rural clusters can do much on their owninitiative, external investments are often needed tobring about substantive changes in behavior andoutcomes—especially in weak economies. Hosierycompanies in western North Carolina and theMetalworking Connection in Arkansas both usedthe political clout they were able to muster throughcooperation and building an association to acquirespecialized services from their state legislatures thatpreviously had been beyond their reach. The smalland mid-sized enterprises and communities thatdominate rural clusters need help if they are to beexpected to take on new responsibilities that theymay view as economic risks.

1. Amenities: In the competition for talent andgrowth industries amenities, as demonstrated in the research of David McGranahan and TimWojan, are more important than ever before.Communities are beginning to recognize that a historic and distinctive downtown is moreimportant than a big box retailer to potentialinvestors and residents. Sheridan, Wyoming hasrestored the architecture of its Main Street,proudly displaying fully restored version of theoriginal Penny’s Store, Mint Bar, saddle shops,Buffalo Bill’s home, and art deco Wyo Theater.A few states, like Maine and Vermont, that haveresisted the big box stores, are investing heavily in rural communities. Others, however, are justbeginning to pay attention to the value of place.

2. Education and Training: The most obvious, andeasiest investments to justify are for workforceskills development. Lack of education has always

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been seen as a reason for low incomes in ruralareas, while more education has been viewed asthe salvation for rural economies. The same holdsfor rural clusters. Virtually all clusters requestsome form of initiative aimed at the workforce,but most such efforts lack sufficient scale to havethe desired effect. The need for additional educa-tion and training resources is greatest in placesthat have had a history of low educational attain-ment and with large immigrant populations.Community colleges and universities that offereffective education and training provide newopportunity while also addressing the need for askilled workforce. In addition, despite decades ofefforts to equalize educational expenditures,spending on rural children still lags behindspending in urban schools.

3. Cluster initiatives directed at supporting triple bottom line outcomes: Existing cluster-based serv-ices, where they exist, are quite traditional, focus-ing on technology, business, and training. Exceptin those instances where the cluster itself address-es the environment, there are few cluster initia-tives that address either equity or environmentalissues. In some places, it will be up to communi-ty-based organizations to fill the gap, but they’llneed support to encourage businesses to takerisks associated with new approaches to achieveTBL outcomes.

4. Technical and business assistance: Less populatedareas are less likely to be served by the govern-ment or private services that depend on scale fortheir sustainability. They may get occasional visitsby extension agents but do not yet receive thesame level of services that cities get. One of themost effective sources for clusters in rural areas isthe community college, which in many statesstrive to offer cluster-specific services

5. Venture and working capital: If rural clusters areto grow, they will need ready access to start-upand operating capital. The availability of bothtypes depends on the presence of financial insti-tutions that are specifically geared towards serv-ing the needs of lower-wealth regions. Commu-nity Development Financial Institutions (CDFIs)are able to offer smaller amounts of working

capital loans that can have dramatic impacts onsmall businesses capacity to continue operations,but they lack the volume to serve the capitalneeds of rural areas that are necessary for a ruralcluster to grow.

6. Eco-services: Climate change policy is raising thevalue of eco-services for preserving natural capi-tal and ensuring the sustainable flows of services.It highlights how the lack of market price forthese services presents a valuation challenge forimplementing policy. Substantial progress hasbeen made in developing methods to assign value

to methods for allocating various tax credits, andconservation incentives for carbon sequestration,ecosystem investments for climate change mitiga-tion, sustainable energy development, and othereconomic processes. Eco-services also are apotential cluster in rural areas, which are reposi-tories for the natural systems from which thestocks and flows of vital ecological services reachthe economy. In 1994, for example, an environ-mental technology cluster was born in Oak Ridge

Half of Australia's thoroughbred foals are bornaround Scone in the Hunter Valley NSW, a ruralcluster that exhibits a combination of world-classinfrastructure—the right type of land, quality racetrack, training tracks, equine research centre, con-vention centre, training centre, and easy access toNewcastle and Sydney. The triggers, decades ago,were the vision and funding of local councilors andbreeders. The federal and state governmentshelped fill the infrastructure gaps. Now vets, feedsuppliers, local and Arab breeders, trainers andhobby breeders compete and collaborate in adynamic environment. There are regular shuttleservices of stallions between Kentucky studs, andother in the UK and Ireland during the northernhemisphere quiet period.

From Rod Brown, Editor, The Cockatoo, 2009

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when networks of companies organized to cleanup the formidable radioactive and other haz-ardous waste created by the Oak Ridge Labor-atories. The cluster included the environmentaltechnology companies, sources of capital, lawyers,and accountants.74

7. Opportunities to benchmark and partner: Ruralcommunities need resources to overcome isola-tion barriers, to be able to observe benchmark

companies and clusters, find new markets, hearabout new ideas, observe how other place areaddressing issues like the environment and socialinclusion, and build working partnerships withother similar clusters. The practices of clustersthat have had the opportunity to travel interna-tionally have been dramatically affected. Forexample, Kentucky’s equine cluster has been ableto build connections to similar clusters in Scone,Australia and Newmarket, United Kingdom.

70. Joe Provey, “Building Wind Communities: Why Small Might be Better.” E Magazine. 20 (January-February), 32:33.

71. Thomas Beam,”Sustainability: Business Practices to Meet the Challenges of the 21st Century,” Business Leader, 17

(November 2005).

72. Robert Lang and Dawn Dhavale, Beyond Megalopolis: Exploring America’s New “Megapolitan” Geography, Metropolitan

Institute Census Report, Blacksburg: Virginia Tech, 2005.

73. Bill Bishop, The Big Sort,” New York: Houghton Mifflin, 2008.

74. Pat Dusenbury, ”Beating Swords into Plowshares,” Firm Connections, Regional Technology Strategies, 5 (No 1. 1997).

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IX. What next?

TThhiiss ppaappeerr rreeaallllyy aaddddrreesssseess ttwwoo qquueessttiioonnss.. First, areindustry clusters still relevant to the growth of ruraleconomies in a global and digitally connected econ-omy? Second, are clusters an effective medium foralso addressing social and environmental issues?

The first question requires weighing the benefits ofspecialization against diversification and examiningwhy people and companies choose rural areas. Whilemost regions are able to find a compromise betweenspecialization and diversification by claiming orestablishing multiple clusters, the most successfulclusters are those sufficiently dominant to establisha strong local or regional brand. The recent declineof strong recreational vehicle clusters in Indianaand southern Oregon demonstrates the danger ofhigh degrees of specialization. These particular clusters, however, are dominated by a small numberof large employers. Most rural clusters have morediversified markets with larger numbers of smallfirms that, if they have the foresight, are able to shift into new lines and markets.

The second reason for relevance is that rural areasstill attract certain types of businesses. In the early1980s, journalist and author Joel Garreau noticed in the Ozarks that even the “lack of progress was anenormous attraction to retirees, from the cities thatring the mountains, young people who, fancyingthemselves “homesteaders,’ wished to apply theirurban educations to the problems of going “back tothe land,” and light industries that could locate any-where there was an interstate highway and a WATSline.”75 And that was long before the Internet vastlyexpanded business rural opportunities! The growthof the “experience economy also is accelerating inter-est in places that can provide special experiences.

While high-growth companies and clusters appearto favor cities—comparatively speaking, based onthe raw numbers—an increasing number of smalland mid-sized firms actually are leaving urban areasfor lower costs and different lifestyles. The Economistcalled the exodus of high-tech companies to thecentral mountain states the “Californication of the

Rockies.” This trend contributed to the formation of a nucleus of Montana’s biotechnology cluster,which may be small by national standards but it isvery significant with respect to the state’s economy.Those places with sufficient amenities—or withsome special resource or well-established marketniche—can and do attract businesses that find andvalue interdependencies. New residents also bringnew ideas, connections, and sometimes renewed ordifferent values to existing clusters.

Finally, clusters are still growth models but underdifferent conditions. Communities and countieshave to think—and organize—regionally but actglobally. With much easier access to informationand people, the balance of interdependencies shiftsfrom traded to untraded transactions. The func-tions that unify clusters may be as abstract as com-mon values, which are part of a common identity.76

The second question is more complicated becausethe desired outcomes—wealth, inclusivity and sus-tainability—do not always go hand-in-hand. Manyof the most stable and economically successful ruralclusters, whether mining, fisheries, or textiles, broughtlow-wage work and did little to improve skill levelsand economic opportunities. Overdependence onnatural resources, primary industries, and branchplants—all of which pay relatively low wages—hasled to wealth being drained from rural communitiesand diverted either to others farther up the valuechain or to external owners.

Even the new green clusters don’t guarantee goodjobs, significantly improved economic opportunities,77

or the best use of farmland. Regarding wind powerturbines dotting the landscape, the emergent clustermay not preserve scenic beauty. Where social andenvironmental outcomes do become integrated, it’susually due to a set of core overlapping values. Placesconcerned about the environment often are con-cerned about social issues and equity, and vice versa.

Both social and environmental policies can be drivenby the private sector, through responsibility; by the

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public sector, through incentives; or non-profits,through support. The sector strategies supported byprivate foundations through non-profits have givendisadvantaged populations entry into career pathsin certain clusters. Inclusivity is most commonwhere there are labor market shortages that canonly be met by extending opportunities to newpopulations. Over the past decade, construction,landscaping, large-scale agriculture, and factorieshave depended on immigrant labor.

The fastest growing opportunities, however, are inclusters representing renewable energy, energy effi-ciency, and environmental clean-up opportunities.Nearly every state is looking to green businesses andjobs as major sources of new growth. One study—conducted for a professional industry organization—estimated that these industries represented almostfour million jobs in 2007.78 A large portion of thebusinesses will be in rural areas and, based on recentexperiences, will certainly cluster. Clusters are devel-oping around wind farms in parts of Texas, Colo-rado, Montana, and northern California; biofuelsare booming in selected regions of Minnesota andIowa; forestry-based biomass in central Massachusetts;and there is an emerging Solar Valley in Saxony-Anhalt, Germany. In Wyoming, there are eight windassociations—many of them cooperatives—that arenudging the ranching culture of independence and

self-reliance toward ongoing collaboration.79

Most clusters are not yet thinking about triple bot-tom line outcomes. When that does happen, it’salmost always the result of a market opportunity,not social responsibility. To move clusters in the di-rection of TBL outcomes, it will take information,assistance, incentives, and persuasion.

One of the keys to adapting to a changing world inless populated and accepting new challenges andresponsibilities is the nation’s community collegesystems. These institutions are close to their com-munities, accessible and open to new populations,and responsive to economic opportunities andsocial barriers. In the past, community colleges haveplayed lead roles in rural development, particularlyin networks, clusters, and industrial modernizationand, based on evidence over the past few years,moving quickly into the environmental arena.

For most clusters, moving forward will be a balanc-ing act, weighing their anticipated long-term againstshort-term income, individual versus communityinterests, sourcing local versus shopping lowestprice, hiring workers who look alike or are different,and using renewable or consumable resources. Mostclusters will take small steps, with guidance, in theright direction.

75. Joel JarreauGarreau, The Nine Nations of North America, New Boston: Houghton-Mifflin, 1981.

76. Michael Russo and Jennifer Irwin, Sustainable Values and Behavior: Familiarity and Local Purchasing in the Portland

Sustainability Cluster, Portland: The Competitiveness Institute annual conference paper, September 2007.

77. Phillip Mattera, et al, High Road or Low Road: Job Quality in the New Green Economy, Washington, DC: Good Jobs First,

February 2009.

78. Roger Bezdek, Green Collar Jobs in the U.S. and Colorado: Economic Drivers for the 21st Century, American Solar Energy

Society, , January 2009.

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Since 1991, RTS has been developing, analyzing, and implementing strategies to create high wage jobs and wealth in communities. RTS, a 501 (c) (3) nonprofit located in Carrboro, North Carolina, builds regional competitive advantage through economic and work-force development policy and practice. RTS pays special attention to disadvantaged places and populations.