Cluster-Based Grow Your Own Strategy: A New Approach to Inner-City Economic DevelopmentJuly 2, 2015
The use of entrepreneurship-based economic development strategies, or grow your own, continues to spread across the United States and, in the process, reveal different ways in which they can be used in local communities. These grow your own strategies use the creation and growth of local entrepreneurs and small businesses as a primary strategy to achieve economic growth. One potential model that may have promise is a cluster-based grow your own strategy. This model focuses support on inner-city entrepreneurs within a targeted industry.
Cluster-based development theory was introduced in the early 1990s by economist Michael E. Porter of the Harvard Business School. In this model, regions examine the businesses within a targeted area that have strong growth, connected supply chains and dense social capital networks. Within the traditional cluster-based model, a strong focus on recruiting additional businesses and capital into the regional cluster is one of the key goals
Nebraska, for example, has examined its local clusters and found that the financial industry cluster within the state is very strong. As a result, one growth strategy now employed by Nebraska economic development entities is to target finance-related businesses and their supply chains.
Although opinions are mixed about the cluster-based model, it is worth considering how inner-city communities could combine cluster-based and grow your own models. The underpinning of most grow your own models is the cultivation of a local entrepreneurship ecosystem. Features of this ecosystem are the development of financial capital, business owner skills, social capital through networks, a strong entrepreneurial culture and supportive policies.
Public developments in inner-city communities often serve a dual purpose. The first is to serve the public good by building public infrastructure or institutions, such as roads or schools. A frequent secondary goal is to support the local economy. This is often accomplished by making contracting opportunities available to women and minority owned firms within the community where the development work occurs. In many inner cities, however, while such contracting opportunities exist, the supply of capable local businesses is lacking. This is where a cluster-based grow your own approach to attract and nurture such capable businesses may be effective.
One example of this is occurring in Omaha, Neb. Over the next 15 years, a combined $3 billion worth of public construction is planned. Many of these projects, however, are struggling to find capable participants among minority and local inner-city businesses. To address this challenge, one inner-city organization, Black Men United, is taking a cluster-based grow your own approach to developing a minority and inner-city contractor ecosystem.
Black Men United is working with local inner-city contractors, philanthropists and policymakers to create a contractor-specific ecosystem. Together they seek to boost the supply of capable contractors and address the demand of public entities for increased participation by such contractors. The organization is also working with other local and citywide organizations and policymakers to design networking opportunities and training and skill enhancement courses for new and existing minority contractors. In addition, the group is developing a centralized bid notification system and working with local government to help design better policies.
This strategy, still in its infancy in Omaha, could be a model for other inner-city communities. Many inner-city communities across the nation feature growth clusters to which this strategy of entrepreneurship-based economic development could be applied. This may be an effective way to introduce the emerging strategies of entrepreneurship-based economic development to communities that are unfamiliar with or hesitant to adopt such strategies.
If you are using a grow your own strategy of development in your community, the Federal Reserve Bank of Kansas City wants to hear from you. Share your entrepreneurship ecosystem initiatives by emailing Dell Gines.