Developing an inclusive economic growth strategy should be an important goal for all city leaders given the rise in urban income inequality. At a recent roundtable discussion in Washington, D.C., hosted by JPMorgan Chase & Co., ICIC joined a prominent group of discussants that included the SBA’s new Administrator, Maria Contreras-Sweet, Senator James Risch, Senator Maria Cantwell, and over 40 leaders from public and private sectors, to better understand the power of clusters to promote small business growth and job creation. At ICIC, we have spent the past two decades studying how clusters create economic opportunities for residents of inner cities, the nation’s most economically distressed urban areas.
In ICIC’s new research report, supported by the JPMorgan Chase Foundation, we analyzed traded clusters, small business development strategies and economic growth in America’s ten largest cities.
Traded clusters—groups of industries that export goods and services out of the region—are particularly important for economic development because they are associated with greater growth in business establishments, wages, innovation and productivity and represent a region’s specific competitive advantages.
Research suggests that city leaders interested in fostering inclusive economic growth would do well by focusing their small businesses support in traded clusters that can effectively leverage inner city assets. In the ten metro areas that we analyzed, we found six traded clusters that had a greater-than-proportionate share of the metro area’s employment and total establishments in their inner cities. They are: apparel, education and knowledge creation, environmental services, footwear, recreational and small electronic goods, and water transportation. Los Angeles’s inner city as a whole, for example, represents eight percent of the metro area’s employment and eight percent of its total establishments. For the apparel cluster specifically, however, Los Angeles’s inner city represents 44 percent of the metro area’s employment and 54 percent of its total establishments in that cluster.
These six clusters may benefit from the competitive advantages of inner cities. For example, the apparel, footwear, and recreational and small electronic goods clusters include manufacturing, a sector which typically has a strong presence in inner cities. This is due in part to the proximity of many inner cities to a variety of transportation options, including water ports, intermodal facilities, and airports. Per square mile, the average inner city has roughly 100 times as many of these assets as the rest of the U.S. ICIC research shows that manufacturing and other industrial jobs, in turn, are particularly important to inner cities because they offer livable wages with relatively low educational barriers.
The education and knowledge creation cluster includes colleges, universities and junior colleges, which also are concentrated in the inner cities. For example, in New York City, 29 colleges, universities and junior colleges are located in its inner city. ICIC research shows that some 925 colleges and universities, or roughly one in eight, are based in the 100 largest inner cities.
To maximize the impact of small business growth and job creation in inner cities, regional cluster strategies must incorporate an inclusive approach. An inclusive regional cluster strategy supports traded clusters that both leverage inner city assets and complement the growth of strong local clusters. Such a strategy also would create strong connections to inner city anchor institutions, such as universities and hospitals, and minority-owned business enterprises.
Eight out of the ten cities that we studied have relatively robust initiatives that support minority- and women-owned business enterprises (MWBEs). We also found examples of programs for MWBEs connected to cluster growth strategies. Most focus on the construction and contracting industry. The Federation of Women Contractors in Chicago, Kingdom Builders Construction Contractors’ College’s program in conjunction with Capital One in Houston, and Blueprint for Success in New York City were all cited as effective examples. Because the strength of women and minority-owned businesses is especially important in inner cities, cities should align their programs that support these businesses with those clusters that find competitive advantages in inner cities.
Our analysis of the nation’s 10 largest cities shows that clusters are important drivers of urban economic growth, and also suggests that city governments play a prominent role in driving cluster growth. All 10 cities include a cluster growth strategy as part of their current economic development plans, although the implementation and integration of these strategies greatly varies. In order to create an urban economic development plan that benefits all urban residents, city leaders need to make sure that their cluster strategy is designed to directly impact their inner city.
Visit www.icic.org to access the complete report, The Missing Link: Clusters, Small Business Growth and Vibrant Urban Economies.
Kim Zeuli is the senior vice president and director of the research and advisory practice at the Initiative for a Competitive Inner City (ICIC), a national nonprofit founded in 1994 by Harvard Business School Professor Michael Porter known as the leading authority on U.S. inner city economies and the businesses that thrive there. At ICIC, Kim designs and oversees a research agenda to promote business development and job growth in U.S. inner cities. She holds a master's degree and a doctorate in applied economics from the University of Minnesota.