Tucson’s Clustered Connections

Tucson’s Clustered

Connections

Shana R. Johnson

Tucson’s Clustered

Connections

Shana R. Johnson

Major Paper submitted to the faculty of the Virginia Polytechnic Institute and State University

in partial fulfillment of the requirements for the degree of Master of Urban and Regional Planning

in Urban Affairs and Planning

Committee Members: Dr. Heike Mayer, Advisor

Dr. Terry Holzheimer, Second Reader

April 2008 Alexandria, Virginia

Acknowledgements This work was made possible by the patient guidance and support provided in countless conversations with my advisor, Dr. Heike Mayer. Dr. Terry Holzheimer also provided significant support to this project through his helpful critiques and his assistance in contacting interviewees. Finally, I would like to thank my husband David, son Ward, and parents Jessica and David Retherford for their incredible support during the research and writing of this paper. Cover Image Credits: The University of Arizona, James E. Rogers College of Law, Student Life, Downtown Tucson and the Sonora Desert http://www.law.arizona.edu/admissions/studentlife.cfm?page=studentlife IBM Tucson photo album, May 22, 1978, more than 300 IBM Tucson employees gather to celebrate the first customer shipment of IBM 3420 Model 6s. http://www-03.ibm.com/ibm/history/exhibits/tucson/tucson_photo.html The Official Website of the State of Arizona, Arizona State Flag http://az.gov/webapp/portal/displaycontent.jsp?id=1964

Tucson’s Clustered Connections Abstract: Cluster-based economic development has been extensively practiced and studied over the past two decades. Yet our understanding of how cluster policies have (or have not) contributed to economic growth remains limited. This article analyzes the outcome of cluster policy in Tucson, Arizona. Arizona was an early adopter of a widely well regarded statewide cluster policy. Today only in Tucson do elements of its original cluster policy successfully survive. This paper argues that the selective success of Arizona’s cluster policy occurred in a regional economy that was first primed in its industrial structure to produce small, entrepreneurial firms. The cluster working groups were created at a time when there was an uniquely unmet need for an associational format under which these small firms in regionally emerging industries could build the relational assets that are key contributing factors to economic growth. Keywords: Industry cluster, cluster policy, relational assets, associations, networking, economic growth, bootstrapping, civic entrepreneurs

Table of Contents Introduction ..............................................................................................................................1 Porter’s Diamond Model of Competitive Advantage............................................................. 8

Tucson’s Experience ............................................................................................................ 12 Economic Building Blocks ...........................................................................................................13 The Defense Sector ...................................................................................................................................... 13 The University of Arizona: BioIndustry and Optics ...................................................................... 15 Bootstrapping: IBM and Burr‐Brown.................................................................................................. 15

The Entrepreneurial Bug: Towards a Small Firm Town....................................................17 Aerospace, Manufacturing and IT ......................................................................................................... 19 BioIndustry ..................................................................................................................................................... 20 Optics................................................................................................................................................................. 22

Producing PublicPrivate Synergy.................................................................................. 24 Birth of a cluster policy.................................................................................................................25 Associations: responding to a need..........................................................................................28 Network Economy Principles ................................................................................................................. 30 Playing with the big boys.......................................................................................................................... 32

Civic Entrepreneurs Leading the Way .....................................................................................33 The Post Cluster Era............................................................................................................. 35 Limits to the Porter Model...........................................................................................................36 Tucson v. Porter............................................................................................................................................ 38 Global to Local ............................................................................................................................................... 38

A Transitional Policy .....................................................................................................................40 What’s Next? Redefining the Role of Government..................................................... 43 Works Cited ............................................................................................................................ 44

Tables and Figures Table 1 Twenty Years of Arizona Economic Development ..................................................... 4 Table 2 Evolution of Arizona's Cluster Organizations............................................................... 5 Table 3 Selected Firms and Employment in the Tucson Aerospace and Defense

Sector, 2008 .....................................................................................................................................19 Table 4 Public Sector Support of Arizona's Cluster Organizations, 2008.......................28 Table 5 Selected Academic Criticisms of the Porter Model...................................................37 Figure 1 Porter’s Diamond Model of Competitive Advantage 8 Figure 2 Hughes Aircraft Recruitment Team 14 Figure 3 Biotech Lineage in Tucson 22 Figure 4 From Geographical to Functional, Global Clusters 39

TUCSON’S CLUSTERED CONNECTIONS 1

Introduction Industry cluster-based economic development has been one of the most

ubiquitous economic development policies of the past two decades. At least 40 U.S. states have had an industry cluster policy. Nine state legislatures have written the practice of targeted industry or cluster-based economic development into law (Akundi, 2003). In 2003 Barcelona-based The Competitiveness Institute, an organization that serves cluster practitioners, published The Cluster Initiative Greenbook which included a survey of 238 cluster initiatives and identified more than 500 cluster initiatives (Solvell et.al, 2003). The U.S. Department of Housing and Urban Development (HUD) promoted the use of cluster-based economic development in all of their economic development programs in the 1990s (Gonzales, 1996). Institutions including the Organization for Economic Cooperation and Development, World Bank, national governments, regional development agencies, and U.S. states and local entities all implemented cluster policies with great enthusiasm throughout the 1990s (Asheim, Cooke and Martin, 2006). Martin and Sunley (2003, pp. 6) were correct in stating that “clusters , it seems, have become a world-wide fad, a sort of academic policy fashion item.”

Yet despite the widespread and longstanding application of cluster policy, do we really understand how it has (or has not) contributed to economic growth? According to Asheim, Cooke, and Martin (2006), most cluster policies have been a disappointment to policy makers in their inability to create new firms or improve the growth rate of existing firms. They find that it is difficult to gauge the impact of a typical cluster policy at the regional, cluster or firm-levels, and that “it is probably only at the very narrowest margin that the impact of typical cluster policy support for better networking, joint marketing or common purchasing initiatives can be measured, and then only at the level of firm performance aggregated up to cluster performance” (ibid, 2006, pp. 21).

This paper aims to take on the challenge of assessing how one cluster policy, that of Tucson, Arizona, has or has not improved its regional economy. To do this it examines the impact of three industry cluster groups on their member firms: the optics industry and the Arizona Optics Industry Association (AOIA), the aerospace and information technology sectors and their Arizona Manufacturing and Information Technology (AMIT) organization, and the bioindustry sector and their BioIndustry Association of Southern Arizona (BIO-SA). These three industry cluster groups were chosen as they are the only surviving organizations from the state of Arizona’s original cluster strategy.

The key finding of this paper is that AMIT, AOIA and BIO-SA were successful where the other cluster working groups were not in that they fulfilled an unmet need in emerging industry sectors in Tucson for an associational format in which small tech firms could build relational assets and access state resources. This analysis finds that as suggested by Ashiem, Cooke, and Martin (2006) the major benefit of cluster policy that accrued to firms in these cluster organizations was an increase in their ability to network and exchange information with each other regarding market opportunities or state assistance. The ability of firms to effectively communicate and network with each other is critically important to economic growth and innovation, and to the extent that AMIT, AOIA and BIO-SA have enabled their member firms to do this, they have enabled

TUCSON’S CLUSTERED CONNECTIONS 2 growth. Understanding the circumstances that allowed only AMIT, AOIA and BIO-SA to be successful gives us greater understanding of how cluster policy can be effective.

Methodological note This research is based on interviews and correspondence conducted in October

and November 2007 with 3 Tucson cluster organization members, 1 Tucson local economic development official, and 2 national consultants that have extensively worked on Arizona and Tucson’s economic development policies. It also incorporates interviews of Arizona technology entrepreneurs and policy makers done by Dr. Heike Mayer on the topic of the emergence of Phoenix as a second-tier high tech city and Arizona’s economic development policy.

TUCSON’S CLUSTERED CONNECTIONS 3 Arizona’s Cluster Policy

Launching their cluster initiative in 1992 with the Arizona Strategic Plan for Economic Development (ASPED) made Arizona an early adopter of cluster policy. ASPED, initiated as a response to slower growth in the state and nationally, was developed through a process that included an initial in-depth economic assessment of the state’s economy followed by an extensive public participation process that included, 1 statewide town hall, 18 regional town halls and 6 public forums (Waits 2000). Over 4,000 Arizona residents across the state were involved in the ASPED development process or received feedback on ASPED (ASPED Coalition 1992). ASPED identified 8 industry clusters for the state (information, health and biomedical, transportation and distribution, business services, tourism, aerospace, minerals and mining, and agricultural and food processing). Three additional industry cluster groups (environmental technology, software, and senior living) were later incorporated in the policy (Waits 2000). The Governor’s Strategic Partnership for Economic Development (GSPED) was formed to implement ASPED in June 1992. GSPED’s membership included the state’s governor, industry leaders, state legislators, state and local economic development professionals, and representatives from higher education institutions. Its initial challenge was to convene the cluster working groups for the identified clusters, something few regions had done proactively at that time. Cluster working group chairs were charged with discovering what was critical to growth in their industry in addition to recruiting membership (Breault et. al, 1996). While the cluster working groups originally began as statewide associations they quickly devolved to the state’s regions where it was possible for members to physically meet on a regular basis (Interview A, 2007).

Arizona’s broad-based active and inclusive cluster policy created through a synergy of public and private actors was very highly regarded. Former HUD Secretary Henry Cisneros visited Tucson in the mid-1990s to meet with its cluster working group leaders to learn from their efforts (Gonzales, 1996). Waits (2000) studied the use of clusters as an analytical tool to study the economy, as an organizational tool to involve the private sector in regional development strategies and to improve communication between firms in and across clusters, and as an economic development service delivery tool in Arizona. Waits detailed how the ASPED development process aided in enlightening public policy makers on the overarching issues influencing economic development in the country (globalization, technological change etc.) and focused them on the how the state could aid the development of its identified industry clusters to improve their economic performance. Waits also examined the activities of the industry cluster working groups, which were created by the ASPED process to aid with economic analysis and continued under GSPED “to aid in strategy development and implementation” (Waits, 2000, pp. 42). Waits (2000) comprehensive analysis of Arizona’s cluster policy sought to identify best practices for cluster-based development strategies from Arizona’s experience, acknowledging that most cluster strategies were too new to have yet produced economic impact. This article’s focus is not only on analyzing Arizona’s cluster policy from the perspective of how it has impacted the practice of economic development. Indeed many of the positive effects, such as the broadening the perspectives and practices of economic development professionals in Arizona, that Waits documented remain today. The article’s attention squarely focuses upon the impact of the remaining groups under study

TUCSON’S CLUSTERED CONNECTIONS 4 and the failure of the celebrated policy to sustain itself in this decade. This analysis differs from that of Waits’ in several ways:

1) It does not accept Michael Porter’s (1990, 1998, 2000) model of clustering either as a true depiction of the organization of all regional economies or as a suitable mechanism for fostering economic development.

2) It focuses only upon the only surviving original industry cluster working groups of AOIA, AMIT and BIO-SA in Tucson, Arizona and their role in fostering firm growth and entrepreneurship in that region.

3) It charts the development of the industry cluster working groups and why this key component of Arizona’s cluster policy was so selectively successful in the groups under study in Tucson.

Arizona has largely moved on to a focus on the “fundamentals” and innovation.

Table 1 Twenty Years of Arizona Economic Development

1988 Alan Hald begins informal meetings of Phoenix area tech entrepreneurs to discuss economic development issues

1992 Arizona Strategic Plan for Economic Development/Governor's Strategic Plan for Economic Development

1995 Arizona Technology Summit (Focus: Tech Transfer) 1998 Arizona Office of Workforce Development Cluster Strategy 2000 GSPED disbanded; Southern Arizona Technology Council, Proposition 301 2002 Flinn Foundation Bioscience Roadmap; Translational Genomics Research

Institute/International Genomics Consortium; ASU New American University - Arrival of President Michael Crow

2003 Arizona State Legislature authorizes $440 million in spending on state university research facilities; Governor's Council on Innovation and Technology; Arizona Biomedical Collaborative (Arizona Board of Regents)

2004 $100 million approved by voters for biomedical training at Maricopa Community College

2005 Small Business Capital Investment Incentive Passed; Meds and Eds Study; Critical Path Institute

2006 Science Foundation Arizona/Arizona 21st Century Fund, Piper Chairs in personalized medicine

2008 One Arizona Plan, Greater Tucson Technology Alliance (planned) By 2007 the majority of the cluster working groups launched to implement

ASPED in 1992 no longer existed. The exceptions to this, again, are found in three emerging industries in Tucson: Aerospace/Information Technology (AMIT), BioIndustry (BIO-SA) and Optics (AOIA) that are the subject of this paper. In Tucson, several new organizations have joined the cluster structure (table 2).

TUCSON’S CLUSTERED CONNECTIONS 5 Table 2 Evolution of Arizona's Cluster Organizations

ASPED/ GSPED Cluster

2008 Tucson Organization

2008 Phoenix Organization

Similar External Organizations

Health/ Biomedical

Bioindustry Association of Southern Arizona (BIO-SA)

Arizona BioIndustry Association (ABA)

None

Optics Arizona Optics Industry Association (AOIA)

None

Aerospace Aerospace, Manufacturing & IT (AMIT) - formed in 2005 through a merger of the Southern Arizona Industry & Aerospace Alliance (SAIAA) and the Information Technology Association of Southern Arizona (ITASA)

Arizona Technology Council (not a ‘cluster’ organization)

Arizona Association of Industries (1964) – Also the state affiliate of National Association of Manufacturers; American Electronics Association (AEA) - Arizona Council

Information Same as Aerospace Same as Aerospace

Same as Aerospace and Arizona Telecommunications & Information Council (ATIC) - former Information/Communications Infrastructure Foundation

Ag, Food Processing, Forestry

None None Agri-Business Council of Arizona (1978)

Business Services

None None

Minerals and Mining

None None Arizona Mining Association (1965)

Transportation /Distribution

None None

Tourism and Experience

None None Arizona Office of Tourism, Arizona Tourism Alliance (1996)

Senior Living None None Arizona Association of Homes and Housing for the Aging

Other relevant groups include: Arizona Chamber of Commerce and Industry (1974), which lobbies the state for pro-business measures; Arizona Small Business Association, Community Information and Telecommunications Alliance.


The key as to why these organizations – AOIA, AMIT and BIO-SA - have persisted lies in an industrial and social structure unique to Tucson that made their creation beneficial.

• A regional economy that produced the conditions for the emergence of a nascent

entrepreneurial dynamic in several high tech sectors prior to cluster policy. • An unmet need for an associational format, the cluster working groups, to

connect firms in emerging industries. • The ability of the cluster working groups to foster relational assets between firms

over time that has lead to increased economic opportunities and encouraged entrepreneurship.

• The willingness of key civic entrepreneurs to give generously of their own time and effort to make cluster policy in Tucson work for small tech firms. Unlike the other cluster working groups created by ASPED, AOIA, AMIT and

BIO-SA were the first organizations of their kind of for their respective industries. These groups, particularly optics, are composed of firms that prior to the cluster policy didn’t even realize that they were an industry in the Tucson region (Waits, 2000, Interview D, 2007). Composed primarily of small firms, AOIA, AMIT and BIO-SA have allowed for firms to develop working relationships that otherwise may not have occurred, to:

“focus more their efforts on being successful as a company and not spend so much time trying to identify and tap in – for a small business trying to tap into the university, or Raytheon, or Fort Huachuca, or even making connections with other small businesses here, it is really tough, it is not an easy thing to do. Some of these working relationships develop over a period of years, they just don’t happen over night” (Interview A, 2007, 2007).

This is significant because the development of networks of business relationships have come to be seen as a key component to economic growth in the last decade.

“The focus on the mechanics of economic development must now be complemented with another focus, where the guiding metaphor is the economy as relations, the economic process as conversation and coordination, the subjects of the process not as factors but as reflexive human actors, both individual and collective, and the nature of economic accumulation as not only material assets but as relational assets” (Storper, 1997, pp. 28). Despite an increasing focus on business networks in academic literature, in

economic development practice the realization of the importance of networks has lagged. “Most economic development people are still sort of stuck in a physical world, and they think it is about land, they think it is about property, they think it is about capital, physical capital, and a lot of them understand human capital, intellectual capital, the flow of people – they are just not quite there yet. So when they look at an economy they say well okay we’ve got to get companies to move here, tax incentives, we’ve got to move things around, and they don’t completely understand that what really grows a high value economy are the people. So what is going to connect the people is the environment that they live in. So you want to have all the things, creative place, the networks” (Interview D, 2007).


While Waits (2000) acknowledged that networking and collaboration between the industry cluster working groups was an integral component of Arizona’s cluster policy and she highlighted the success of AOIA in this respect, she did not focus on how these aspects functioned to foster growth. A 1995 survey of the cluster working group activities found that the two areas most cluster organizations were often engaged in were to co-inform and to co-learn (Waits, 1996).1 Yet to co-inform and co-learn were termed the “low end of the collaboration spectrum” (Waits 2000, pp. 44). It is not surprising that cluster practitioners and analysts in Arizona would concentrate more effort on the provision of economic development programs provided to the cluster firms via the cluster working groups as the main benefit of their cluster policy. Michael Porter’s theoretical perspective of clustering that underlies most cluster policies, including Arizona’s, ascribed some importance to the role of information flows in cluster competitiveness, but it emphasized the role of local competition and rivalry.

1 In this survey to co‐inform included things such as a cluster organization publishing a newsletter, commissioning in‐depth cluster studies, and publishing cluster directories and to co‐learn included the presentation of educational and training programs, seminars, conferences. These definitions recognize only the formal mechanisms through which information and learning are transmitted between economic actors.

TUCSON’S CLUSTERED CONNECTIONS 8 Porter’s Diamond Model of Competitive Advantage

Although the idea of the ‘clusters’ of industrial activity is nothing new, Michael Porter (1990, 1998, 2000) is often credited with the popularization of the use of industry clusters as an economic development strategy in the 1990s. In his 1990 book The Competitive Advantage of Nations, Porter introduced his “diamond” model of competitive advantage (figure 1) to demonstrate how co-location among related firms generates competitive advantage. The elements of his diamond (2000, pp. 20) include four elements reinforce each other over time to induce locational industrial specialization. Figure 1 Porter’s Diamond Model of Competitive Advantage

Graphic Source: Porter, 2000

While the basic tenets of the diamond have remained over time, Porter’s explanations of clustering have shifted in their perspective. In The Competitive Advantage of Nations Porter’s focus is on how nations generate advantages over one another and the role of geographic clustering is just one aspect of a set of determinants of national advantage. In accordance with his national focus Porter describes his perspective as “Ricardian, in that I view trade (and foreign investment) as determined most importantly by productivity differences, here broadened from Ricardo’s theory to include differences in technology, factor quality and methods of competing (ibid, 1990, pp.173).

In his 1990 work Porter focuses more on the functional relationships (vertical and horizontal linkages) between firms in clusters. He described any type of business

TUCSON’S CLUSTERED CONNECTIONS 9 network among firms, including, among other examples, keiretsu networks in Japan or the family or quasi-family ties of business networks in Italy, as clusters. Porter (1990, pp.151) describes the advantages of clusters as:

“The presence of an entire cluster of industries magnifies and accelerates the process of factor creation that is present where there is a group of domestic rivals. Firms form an entire group of interconnected industries and human resources, and numerous spillovers occur. The scale of the entire cluster encourages greater investment and specialization.”

Porter (1990) claimed that there was not a widespread recognition of how often

competitive industries are found to cluster in single regions within nations. He ascribed their tendency to cluster as an initial reaction to favorable factor conditions in his diamond model, and thereafter as a self-reinforcing mechanism through external economies of scale (he broadly credited Marshall (1890/1920). However, Porter emphasized that most important to a cluster’s function as a source for competitiveness was its ability to influence innovation by providing a social context for rivalry – as Porter (ibid, pp.157) believes that “rivals located close to each other will tend to be jealous and emotional competitors.” As part and parcel of how clusters influence competition, Porter (1990) ascribes a pre-eminent role in how well clusters perform in their ability to transmit information.

“Mechanisms that facilitate interchange within clusters are conditions that help information to flow more easily, or which unblock information as well as facilitate coordination by creating trust and mitigating perceived differences in economic interest between vertically or horizontally linked firms” (ibid, pp.153).

Porter provides several examples of how clusters facilitate information flow:

“personal relationships due to schooling or military service; ties through the scientific community or professional associations; community ties due to geographic proximity; trade associations encompassing clusters; and norms of behavior such as a belief in continuity and long-term relationships” (ibid).

He also noted that geographical proximity increases information flow speed: The process of clustering, and the interchange among industries in the cluster also works best when the industries involved are geographically concentrated (Porter, 1990, pp. 157). By his 1998 book, On Competition, Porter had changed his conception of clusters

to one that emphasized their geographical concentration. Porter (1998, pp. 199) defined clusters as “a geographically proximate group interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities The geographic scope of clusters ranges from a region, a state, or even a single city to spanning nearby or neighboring countries” and also as “a system of interconnected firms and institutions whose value as a whole is greater than the sum of its parts” (Porter 1998, pp. 213). Clusters are not just composed of different sub-sectors of an industry and related industry sub-sectors, but in Porter (1998) clusters cut across industry designations. Clusters can occur in many different sectors, small or large, and even in local service industries including things such as restaurants or car dealerships. Clusters can occur in

TUCSON’S CLUSTERED CONNECTIONS 10 both rural and urban areas, and the component industries of a cluster are variable over time as industries decline or arise (Porter, 1998). Geographical proximity serves to increase competition and the subsequent specialization of home market demand and locational factor inputs:

“Competition is dynamic and rests on innovation and the search for strategic differences. Close linkages with buyers, suppliers, and other institutions are important, not only to efficiency but also to the rate of improvement and innovation. Location affects competitive advantage through its influence on productivity and especially on productivity growth. Generic factor inputs themselves usually are abundant and readily accessed. Prosperity depends on the productivity with which factors are used and upgraded in a particular location” (Porter, 2000, pp. 19).

Porter (2000, pp. 21) delineated three ways in which clusters aid in increasing competitive advantage “and amplify the parts of the diamond:

• increasing the current (static) productivity of constituent firms or industries, • increasing the capacity of cluster participants for innovation and productivity

growth, and; • stimulating new business formation that supports innovation and expands the

cluster.”

The ways in which clusters achieve these advantages broadly fall again to two phenomena: local rivalry, and of less importance, information flows. In Porter (1998, pp. 213-214) cluster competitiveness “depends to some extent...

• on personal relationships • face-to-face communication, and • networks of individuals and institutions that interact.”

But, Porter (ibid) does not regard the presence of these types of information flows

as critical to the functioning of a cluster. Often cluster members may never have even met, making associations a ‘nice to have’ but not a must for Porter:

“Although the existence of a cluster makes such relationships more likely to develop and become effective, they are far from automatic. Formal and informal organizing mechanisms and cultural norms often play a role in the functioning and development of clusters.” Somewhat in contradiction, Porter (2000, pp. 30) does however find that formal

organizations are often “necessary” to the development of the cluster, and allow for their member firms to exercise a more powerful collective voice.

“Individual companies can independently influence cluster development, but the importance of externalities and public goods means that informal networks and formal trade associations, consortia, and other collective bodies often are necessary and appropriate. Trade associations representing all or most cluster participants can command greater attention and have greater influence than do individual members, and an association or a collective body (e.g., joint research center, testing laboratory) creates a vehicle for cost sharing.” The role that information flows and relationships play in Porter’s work would

seem almost at odds with his overarching emphasis that it is local rivalry and competition among local firm that spurs continual innovation, the centerpiece of his argument. Porter

TUCSON’S CLUSTERED CONNECTIONS 11 (1998) claims that cluster theory connects network theory and competition. Porter (2000) notes that most cluster participants are not direct business rivals and that competition and cooperation can exist together. He claims that even among local firms that are not direct competitors that rivalry exists because of a desire to be held in high esteem in a community and a strong desire to do better than others.

“It should be clear that clusters represent a combination of competition and cooperation. Vigorous competition occurs in winning customers and retaining them. Because of the presence of multiple rivals and strong incentives, the intensity of competition among clusters often is accentuated. Yet cooperation must occur in a variety of areas I have identified. Much of it is vertical (buyer/supplier), with related industries, and with local institutions. Competition and cooperation can coexist because they are on different dimensions or because cooperation at some levels is part of winning the competition at other levels” (ibid, pp. 25).

Tucson’s experience implementing a cluster policy more clearly involves cooperation and a response to a need for a c ollective body than rivalry.


Tucson’s Experience To understand why cluster policy has been successfully applied in the aerospace/information technology, bioindustry and optics sectors in Tucson, one first has to understand the regional economic context in which these industries emerged. Tucson is not generally considered as a leading region in the knowledge economy, and the City of Tucson itself lags behind national indicators for income and educational attainment (Interview A, 2007). Yet despite the humble state of the region’s economy it has stimulated an emerging locally-grown set of tech entrepreneurs through a combination of luck and history. The foundations for a technology economy in Tucson were laid decades ago. The concept of path dependent development demonstrates how a regional economy is influenced and even “locked in” to a certain development trajectory based on its historic economic capacities. Often historic economic capacities are determined by chance events in a region’s history (Dicken, 2003). Tucson’s strengths in aerospace/information technology, bioindustry and optics did not arise in isolation but were developed over decades via the University of Arizona, Fort Huachuca, and major corporations such as Raytheon, IBM and others locating in Tucson for unrelated reasons. The economic crisis of the late 1980s and early 1990s produced a period of economic opportunity for Tucson techies. The same downturn in the national economy that spurred Arizonans to adopt cluster policy stimulated entrepreneurship in Tucson. Tucson’s large tech firms shed thousands of jobs during this period. Since several of its large tech firms (Raytheon, Honeywell) have the Department of Defense as a key customer, the downturn in defense spending in this period also spurred layoffs in these sectors in Tucson. There is anecdotal evidence that some of those who lost their jobs during this period chose to remain in Tucson and start their own businesses. Tucson’s emerging industry tech firms have benefited from their own market niches and are largely characterized as small entrepreneurial ventures. Tucson’s tech industries have not grown through imitation of others or generic capabilities, but rather are specialized in areas that have evolved from the development of these industries unique to the region.

In an era where economic development planners often hope to grow the next big industry we may lose sight of the importance of history and chance. Cluster policy didn’t create tech industries in Tucson nor was there any other miracle policy that did so. Ultimately, the cluster working groups of AMIT, AOIA and BIO-SA may have been successful in Tucson because they responded to a very specific set of circumstances that were giving rise to a technology-based economy.


Economic Building Blocks If one wished to apply a theoretical model to Tucson’s tech economy

development at first glance the famed “triple helix”2 of higher education, industry and government collaboration might work. The region is home to The University of Arizona and strong defense sector employment. But Tucson’s entrepreneurial high tech and bioindustry firms have roots not only in the defense sector and the university, but also in firms that located in Tucson without regard or relationship to the university or defense. The bootstrapping model for the development of high tech sectors in the absence of a major university through “parent” firms incubating high tech talent, exemplified by regions such as Boise, Kansas City, Portland and Phoenix (Mayer, forthcoming), is seen to a lesser extent in Tucson with Burr-Brown (now Texas Instruments) and IBM serving as their own “surrogate” universities incubating the region’s tech talent. Arguably, Tucson has three distinct high tech firm lineages, defense and the university (being rather independent of each other) and “parent” firms like IBM and Burr-Brown.

The Defense Sector Not unlike accounts of the role of defense spending in aiding Stanford’s and

MIT’s or Silicon Valley’s high tech led growth (Leslie, 1992, 1993) the presence of major military research facilities and defense contractors have perhaps played the largest role in seeding Tucson’s emerging tech industries. A 1995 study found that Arizona tech firms depended on the U.S. Department of Defense (DOD) for 25 percent of their sales. In 1994 the state had more than 95,000 high tech workers, concentrated in industries largely serving a defense market, including: electronic components and computers (49 percent), aircraft and missiles (20 percent), scientific instruments (including optics) (18 percent), computer software and services (8 percent), research services (3 percent), and chemicals (including biotechnology products) (2 percent) (Charney and Leones, 1995). In Tucson today Fort Huachuca and Raytheon Missile Systems are perhaps the most prominent defense sector entities in an array of actors (see table 3). Fort Huachuca, located 74 miles south of Tucson, was established in 1877 as a by-product of the Indian Wars and was an active military post through World War II. Following World War II the post was given to the state of Arizona, and that could have been the end of Fort Huachuca had it not been re-acquired by the military during the Korean War. In 1954 Fort Huachuca was put under the control of the U.S. Army’s Chief Signal Officer, who found Tucson endowed with a climate favorable to the development and testing of electrical equipment and aircraft. The future importance of these technologies was not apparent at the time. The post became the home of the U.S. Army Strategic Communications Command in 1967 (today the U.S. Army Information Systems Command) and in 1971 the U.S. Army Intelligence Center and School. In 1990 the U.S. Army Training and Doctrine Command became the “host command” for the post (U.S. Army, 2008A, para. 1-10). Today the post is also home to the Joint Interoperability Test Command, the U.S. Army Electronic Proving Ground, and the U.S. Army Network 2 For more information on the ‘triple helix’ theory see: Etzkowitz, H. (2008). The Triple Helix: Industry, University, and Government in Innovation. London and New York: Routledge.

TUCSON’S CLUSTERED CONNECTIONS 14 Enterprise Technology Command, which employ a number of highly skilled engineering, science and computer science U.S. Army soldiers, Department of Defense civilian employees and private defense contractors (U.S. Army, 2008B, para. 1).

For a state in which the real estate business has featured so prominently, it is fitting that a Tucson real estate developer, Roy Drachman, was the one responsible for bringing what is today Tucson’s largest employer to the region. In 1950 Drachman learned that Hughes Aircraft Company was searching for a location of a new inland manufacturing plant. Drachman led a group of a few other local leaders in successfully lobbying Hughes to locate the plant in Tucson. The unit of Hughes Aircraft Company that became Hughes Missile Systems Company manufactured missiles in Tucson for the defense department through the 1980’s, but its engineering and research and development functions in were in California. During the DOD downsizing of the early 1990s Hughes acquired General Dynamics missile business and relocated both their manufacturing and engineering functions from to Tucson (Hughes Missile Systems Company, 1997). In 1997 Raytheon acquired Hughes Aircraft in transaction valued at $9.5 billion (Raytheon Company, 1997). Hughes Missile Systems Company became Raytheon Missiles Systems. The firm now engineers and manufactures “next generation” missiles and related technologies for the defense, homeland security and space exploration markets in Tucson (Tucson Regional Economic Opportunity [TREO], n.d.). In 2007 Raytheon Missile Systems increased its Tucson payroll by nearly 12 percent, to 12,515 Tucson employees. However, it is not its manufacturing workforce that Raytheon increased, but it is its engineering staff. Raytheon Missile Systems is currently continuing to actively recruit engineering talent for its Tucson operations (Gillum, 2008).

Figure 2 Hughes Aircraft Recruitment Team

This front page photo from the Feb. 3, 1951, Tucson Daily Citizen, depicts the team that brought Hughes to Tucson. The group is gathered at the home of Monte Mansfield (far right), president of the Tucson Airport Authority, who holds a copy of the final agreement with Hughes. The other men are (from left) Roy Drachman, realtor; J. Homer Boyd, chairman of the county board of supervisors; Mayor J.O. Niemann; and C. Edgar Goyette, manager of the Tucson Chamber of Commerce. (Tucson Daily Citizen) (Photo and Caption Source: Hughes Missile Systems Company, 1997).

TUCSON’S CLUSTERED CONNECTIONS 15 The University of Arizona: BioIndustry and Optics Tucson is fortunate to have a large, public research university. The University of Arizona, which held its first classes with just 32 students and six teachers in 1891, today has 36,805 students and 14,466 employees and is a “Research 1” (R1)3

institution. In fiscal year 2004 the university had $478.6 million in research expenditures (The University of Arizona, 2007). Two locally important industries, optics and bioindustry, had their genesis in the university (Interviews D, E and F). Many of bioindustry firms in Tucson are spinoffs from the University of Arizona, or spinoffs of spinoffs. These firms also tend to hire talent from the University of Arizona (Interview E, 2007). Figure 3 gives a partial map of Tucson’s bioindustry firm lineage, with all firms on this map having their roots in the University of Arizona. While most of the bioindustry firms in Tucson remain very small, one early 1980s era-spinout from the university, Ventana Medical Systems, now has more than 600 employees and several offices outside of Tucson (Interview F, 2007). Another university spinoff, Selectide, was bought by the transnational corporation Senofi-Aventis, and they are growing their operations in Tucson (Interview E, 2007).

The optics industry was born in Tucson in 1942 out of the area's large number of telescopes and its traditional strength as a center for astronomical study (Catts, 1999). The University of Arizona’s Optical Sciences College (OSC) was established in the 1960s at a time when there were very few people trained in the field of optics. The lack of optics professionals was deemed such a national crisis that the U.S. Air Force Institute of Technology and the Optical Society of America assisted with the proposal for OSC’s creation (College of Optical Sciences, n.d.). The optics industry grew as OSC professors who had ideas that they wanted to pursue outside of the university launched their own private ventures. (Interview F, 2007). The University of Arizona is known to have produced 40 optics firm spinoffs, however, the industry has moved beyond its roots in the university. Breault Research Organization (BRO), an optics software firm and University of Arizona spinoff itself also has 22 of its own spinoff firms (Interview D, 2007). While one cannot characterize the University of Arizona as an economic “seed” of Tucson’s high tech economy as a whole, it has seeded the growth of Tucson’s bioindustry and optics sectors.

Bootstrapping: IBM and Burr-Brown IBM Tucson’s operations in data processing and storage and Burr-Brown, a semiconductor firm, have in common that they were both became important incubators for attracting and cultivating technology talent in Tucson. IBM originally bought land in Tucson in 1969, acquiring more land in the city in 1974, but without any specific plans for development of its site. It wasn’t until 1977 when Tucson was chosen as the location in which the firm would reunite its General Product’s Division’s development functions from Boulder, Colorado and manufacturing functions from San Jose, California in a new facility in Tucson (IBM, n.d.) In a 1979 issue of the IBM employee magazine Think, William Ross, then Real Estate and Construction Division program manager of site

3 Research 1 University is a designation of the Carnegie Classification of Institutions of Higher Education that includes those universities that received the highest amounts of federal research funding. See http://www.carnegiefoundation.org/classifications/ for more details.

TUCSON’S CLUSTERED CONNECTIONS 16 selection for IBM, explained the firm’s reasons for selecting Tucson:

"It has good transportation, climate, housing and a good educational system at all levels. It's an

attractive area -- about one thousand miles from both Boulder and San Jose -- for our people to work in. There was space available for the construction of temporary buildings, and utilities were available on land already zoned for manufacturing/laboratory operations. So while we were preparing a master plan for the permanent location, we put up buildings at the temporary airport site" (Stegmann, 1979).

According to IBM’s Tucson Reference website, John Carter, General Products Division Tucson’s first general manager recalls the selection of Tucson as a site as:

"Tucson had a number of advantages that made it attractive for a plant/lab site. It was located relatively near the GPD headquarters in San Jose. It had excellent educational institutions. The climate, housing and transportation were all good. And it was an attractive area for our people to live" (IBM, n.d.). The impact of IBM’s arrival and that of many new highly-skilled workers to

Tucson was felt immediately. IBM employees became active participants in Tucson’s social and networking events, creating a “synergy” that lead to greater research and development taking place. At peak employment IBM Tucson had 5,500 workers (Tivu, 2005A). Although the General Products Division of IBM was phased out in 1990, IBM Tucson remains the home for the development of IBM’s storage operations, employing highly skilled engineers and managers (IBM, n.d.). In 2006 IBM Tucson staff were awarded 150 patents, up from 60 in 2003 (Pallack, 2007). The firm employed 1,457 people in 2007, a decrease of 293 employees from 2006 (AZ Star, 2008).

The founding of the microelectronics firm Burr-Brown in Tucson in 1956 occurred quite by “serendipity”, according to the firm’s founder, Tom Brown (Brown, 2002). Brown was an MIT-trained engineer and Harvard MBA turned Tucson real estate developer until a friend, Paige Burr, induced him to start a company based on his idea for a transistor. Three years after founding the firm, Brown bought Burr out of the business, and the firm grew from a garage-based business to reach a peak employment of 1,300 (Tucson Citizen, 2007). A firm with an entrepreneurial spirit, during the 1980s Burr-Brown launched three internal, independent entrepreneurial ventures (Davis, 1989). The firm grew greatly in the 1970s and 1980s, in part thanks to its early penetration of overseas markets and its ability to seek out profitable market niches, including producing the first single-chip IC for the compact disc player. Although in the 1990s Burr Brown continued its steady growth, there was some concern among analysts that its isolation from Silicon Valley may have disadvantaged the firm’s ability to read its market (References for Business, n.d.). In August 2000 Texas Instruments acquired Burr-Brown for $7.6 billion (Tucson Citizen, 2007). In 2007 Texas Instruments employed 643 people in Tucson, a decrease of 457 workers in the past 5 years (AZ Star, 2008).

While IBM and Burr-Brown are a shadow of their former selves in Tucson their legacy in the region is strong. Both firms have been important to the growth of the University of Arizona. The University of Arizona’s Eller College of Management’s management information systems (MIS) program received $1 million from IBM in the early 1980s, which “opened the door” to the college’s MIS program receiving nearly $50 million in additional funding from other institutions, increasing Eller’s credibility. IBM

TUCSON’S CLUSTERED CONNECTIONS 17 Tucson has also donated a range of computer equipment to the University of Arizona over the years (Vitu, 2005A). In 2007 the Thomas R. Brown Family Foundation, established by Tom Brown, the late co-founder of Burr-Brown, donated $4 million to the University to endow two faculty chairs, one in engineering and one in management. The foundation is a strong supporter of both the engineering and management programs at the University of Arizona (University Communications, 2007).

The Entrepreneurial Bug: Towards a Small Firm Town Were the Tucson economy merely made up of a few branch plants of

transnational corporations or large institutions it would have a base of high tech employment, but arguably it couldn’t be considered a “high tech economy.” Since the 1970s there has been recognition that sustained economic growth is created through endogenous development (Eraydin, 2005). The issue of how to move from an economy with few sources of endogenous growth to one of sustained growth, entrepreneurship and innovation confronts many regions. Feldman (2001) identified how the Washington, D.C. region made this transition from an economy dependent upon large sources of institutional employment (the Federal government) to one of homegrown entrepreneurship and broader-based tech employment. Feldman (ibid) demonstrated that D.C. developed the attributes – access to venture capital, supportive social capital or support services or networks for entrepreneurs – that have been considered prerequisites for the development of a tech economy only after its entrepreneurial culture had been generated. In the D.C. region entrepreneurship was first sparked by the downsizing of the federal governments, a crisis for many whom had hitherto enjoyed reliable employment and were socially embedded in the region, and it was aided by the substantial increase in federal outsourcing. Mayer (forthcoming) highlights how in smaller emerging technology regions the crisis of a layoff at a major tech employer precipitated entrepreneurship among highly-skilled workers that wanted to stay in their home region, and for whom other employment options in their region are limited or non-existent. Stam (2007) has shown that early in an entrepreneurial venture’s life a very important constraint on locational choice is where it is socially embedded (although this constraint dissipates as the firm develops). It is the decision of individuals to become entrepreneurs that seed external support services and the development of high tech clusters (Feldman, Francis and Bercovitz, 2004). Tucson shares the experience of a series of layoffs and downsizing in major employers spurring entrepreneurship. From 1987 to 1992 the state of Arizona lost 15,000 high technology jobs from its large high tech employers alone. Arizona was not only subject to the general economic downturn of the late 1980s and the early 1990s but was also hit hard by the defense spending decrease that accompanied the end of the Cold War (Charney and Leones, 1995). In 1988 IBM Tucson announced it would layoff 2,800 of its 5,500 employees, and by 1994 IBM employed just 850 people in Tucson. In 1994 the IBM campus was in large part given to the University of Arizona, where it has become the university’s Science and Technology Park. IBM remains located at the site, and alongside Raytheon is a major tenant of the park. By 2005 more than 7,000 workers and 30 firms occupied space at the park. Since the University of Arizona took control of the tech park it has added an average of 500 employees a year to the site (Vitu, 2005A).

Even beyond the tech park, however, the legacy of IBM’s precesne in the region

TUCSON’S CLUSTERED CONNECTIONS 18 is strongly felt. During the major downsizing of the firm in Tucson in the 1990s a lot of former IBMers chose to stay in the town and form their own businesses. Many stayed because the liked the quality of life in Tucson and were established in the region (Interview A, 2007). During the IBM downsizings the company offered training and buyouts that included two years of salary and $25,000 which helped start their own businesses. While no data exists on how many former IBMers started businesses in Tucson it has been estimated that it was upwards of 100, including former manufacturing and other low-skill employees, as well as more highly-skilled ones. Some entrepreneurs continued to do what they did at IBM and have found that their credentials as former IBM employees and skills they received in IBM’s internal training programs have helped them succeed. John Carter, IBM Tucson’s first general manager from 1977 to 1987, was chief executive and quarter-owner of a firm that assembled IBM tape cartridges, Qualtronics, and then was chief executive at Burr Brown. He was quoted in a 2005 article as saying, "IBMers liked it here. They tried to move me on and I decided not to go" (Vitu, 2005B). A similar phenomenon of former employees staying in the region and starting businesses has occurred with Fort Huachuca. Former military members working in the post’s high-level software development and intelligence command functions have often after leaving military service stayed in the region and started their own businesses, often based on some of the things they were doing in Army (Interview F, 2007).

Burr Brown’s dramatic downsizing following its acquisition by TI also had a silver lining. The reductions in the TI workforce in recent years have come as TI consolidates its manufacturing in Texas, but it is keeping 300 engineering and development jobs in Tucson (Tucson Citizen, 2007). Burr Brown’s role in incubating talent for the region was extremely important. Jim Strickland, a former Burr Brown executive, is the founder Tucson’s Coronado Venture Fund. Coronado Venture Funds was an important funder of local bioindustry powerhouse Ventana Medical Systems (Interview F, 2007). Coronado Venture Funds is an organization that services 4 venture capital partnerships with $10 million. Its focus is on tech firms in Arizona and neighboring states (Governors Council on Innovation, n.d.). Strickland is also involved with the Desert Angels, a group of Tucson Angel Investors (Interview F, 2007). Founded in 2000, the Desert Angels now has more than 70 members and reviews over 100 firms as a year as possible investments (Desert Angels, n.d.).

The talent brought to the region has thus been important not only to the work they are doing at a firm, but in sparking third-sector support and funding resources for potential entrepreneurs. In addition to the Desert Angels, Coronado Venture Fund, and the cluster organizations, Larry Heckler, a local attorney, hosts a well attended annual seminar, IdeaFunding, to get people to better understand the process of the different avenues of funding an entrepreneurial ventures (Interview F, 2007). IdeaFunding began in 1998 and is supported by the cluster organizations as well as other regional partners (IdeaFunding, n.d.).

The downsizings experienced by the hallmark large Tucson technology employers of the past have thus seeded what is today a small firm town. Tucson has a plurality of small technology-based businesses that offer a more diverse technology base than the town had in the past. The entrepreneurs that responded to the layoff crises are also joined by those who were natives of Tucson or graduates of the University of Arizona who chose to stay or return to the town for their love of the region, and started their own tech

TUCSON’S CLUSTERED CONNECTIONS 19 businesses in the face of a lack of other employment opportunities. These entrepreneurs have built avenues of small business support for knowledge and funding, including the cluster organizations, that have added a support structure for entrepreneurship.

Aerospace, Manufacturing and IT A 2006 analysis of Tucson’s Aerospace/Defense cluster ranked it 5th in the nation.

Aerospace jobs alone in Tucson account for 55 percent of the region’s total high tech employment. The sector is dominated by Raytheon Missile Systems which employs 60 percent of the region’s aerospace workers, and 4 of 5 Tucson Aerospace engineers. Tucson’s aerospace firms primarily serve a national and international market and are highly embedded in extra-regional relationships, they spend only 8 percent of their procurement budget in the region (TREO, 2006).

Table 3 Selected Firms and Employment in the Tucson Aerospace and Defense Sector, 2008

Firm/Institution Type Arrived/Founded Employees Raytheon Missile Systems (formerly Hughes Aircraft)

Branch 1951 12,515

Honeywell Aerospace Branch 760 Bombadier (formerly Gates Learjet)

Branch 1976 581

Evergreen Maintenance Center Inc.

Branch 400

B/E Aerospace Inc Branch 2002 General Dynamics Information Technology

Branch 978

Science Applications International Corp.

Branch 390

Northrop Grumman Corp. Branch 550 Abrams Airborne Manufacturing Inc.

Branch 1965 240

Manson Co. Inc Local firm 1948 Universal Avionics Systems Local firm 1981 450 Sargent Controls & Aerospace Local firm 1990

(Moved to Tucson) 261

Global Aircraft Solutions (formerly Hamilton Aircraft Company)

Local firm 1947 155

Davis-Monahan Air Force Base

Military Base 1925 7,701

U.S. Army Intelligence Center and Fort Huachuca

Military Base 1877 6,701

Data Sources: AZ Star, 2008. TREO. (n.d.). Aerospace. Retrieved September 2, 2007 from http://www.treoaz.org/Industry-Strengths-Aerospace.aspx.

TUCSON’S CLUSTERED CONNECTIONS 20 Tucson’s information technology (IT) firms have a very different mix and makeup. Tucson’s IT businesses grew primarily because of the growth of small, local firms. Between 1990 and 2004 Tucson’s IT firms collected 729 patents, more than any other industry sector in the region. In this time period software-related employment virtually entirely accounted for the growth in the sector, and the software sub-sector employed the vast majority of the region’s IT workers. Tucson’s IT firms serve both regional and national markets in equal shares (TREO, 2006).

The Aerospace, Manufacturing and Information Technology cluster was created in 2005 through a merger of the Southern Arizona Industry & Aerospace Alliance (SAIAA) and the Information Technology Association of Southern Arizona (ITASA) (TREO, 2006). AMIT regards itself as “the central voice for over 800 companies and 15,000

professionals in Southern Arizona.” With 89 member firms its primary function is networking and knowledge sharing. AMIT’s industry networks connect those in the aerospace, manufacturing and IT sectors individually, while its has peer networks that allow for chief executives, “one man band” or 1-2 person firms, and sales and marketing firms to also meet together in a focused setting (Aerospace, Manufacturing and Information Technology[AMIT], n.d.).

BioIndustry

“We don’t have any expectations of being San Diego or Seattle in the foreseeable future, but it is an outlet for technologies spinning out of the university, it does contribute to economic development” (Interview E, 2007).

Since the founding of Ventana Medical Systems in the 1980s, Southern Arizona has

gained some momentum in bioindustry. Excluding hospital employment, the sector increased employment by 22 percent between 2001 and 2004, despite slow growth in the sector nationally. While as a share of the region’s employment, excluding hospitals, the bioindustry accounts for just 1 percent of private employment, the sector is growing. Southern Arizona has particular strengths in biological research, testing laboratories and medical device manufacturing (Battelle, 2006).

The University of Arizona remains important to the growth of the BioIndustry sector in Tucson. The Board of Regents that govern Arizona’s higher education system

Aerospace/Defense • 200 local companies • 20,000-30,000

employees • $5-6 billion in revenues

Information Technology • 1,200 local companies • 50,000 employees • $4 billion in revenues

1990-2004 Job Creation • Aerospace/Defense

11,640 (top regional job creator)

• IT 819 (software driven) Source: Tucson Regional Economic Opportunity, 2006

AMIT Peer Network Purpose: • share common challenges

and obtain insight on innovative solutions

• develop perspectives on issues that affect competitiveness

• network with others who are making advances in and providing support to the technology industry

Source: AMIT, n.d.

TUCSON’S CLUSTERED CONNECTIONS 21 have instituted an “Enterprise Model” of development, which acknowledges that in an environment where state funding for higher education will not increase significantly that alternative revenue streams must be found. Concurrently, private sector interest in industry-relevant activity in the university has increased. This situation has generated an increased interest in the commercialization of technologies developed in the university that will probably continue for some time (Interview E, 2007). Between 1997 and 2004 life science research (including medical research) grew by 108 percent at the University of Arizona. Life science research is now more than half of the university’s research funds (Battelle, 2006). Funding agencies of life science research, in particular the National Institute of Health, are also dictating more applied, industry-oriented research, which increases opportunities for BioIndustry firms in Tucson to grow from or partner with the University of Arizona (Interview E, 2007).

In addition to the University of Arizona, in recent years Tucson has benefited from the addition of two local institutions relevant to bioindustry and a broader statewide focus on fostering bioindustry as a source of economic growth within Arizona. A few of these contributing organizations are:

• C-Path: The Critical Path Institute (C-Path) was founded in 2005 as a partnership between the

University of Arizona, the Federal Food and Drug and Administration and SRI International to facilitate faster ad safer development and commercialization of drugs and medical devices (Arizona Daily Star, 2007).

• BIO5: Created in 2001 using funds from a voter-approved tax the purpose of the BIO5 Institute is to aid interaction between University of Arizona faculty and industry. The institute was named BIO5 after the five academic disciplines its work encompasses: science, agriculture, medicine, pharmacy, and engineering (BIO5, 2008).

• Flinn Foundation Bioscience Roadmap: In 2002 the Bioscience Roadmap was launched by Phoenix-based Flinn Foundation with consulting assistance from Battelle Memorial Institute. The roadmap created a 10-year strategy intended to accelerate Arizona’s private-sector bioscience capacity (Flinn, 2007). In 2006 the Flinn Foundation and Battelle provided a Bioscience Roadmap that focused on Southern Arizona (Battelle, 2006).

• Science Foundation Arizona (SFAz): Phoenix-based SFAz is a non profit organization created in 2006 by industry-sector leadership groups from Flagstaff, Phoenix, and Tucson (Southern Arizona Leadership Council) to build on the efforts of the Flinn Foundation’s Bioscience Roadmap. Among other activities, SFAz makes grants in areas deemed to be of strategic research interest to the state and encourages research partnerships between the private sector and the state’s academia (SFAz, 2006).

• Translational Genomics Research Institute (TGEN): Also a non-profit based in Phoenix, TGEN was created in 2002 under the leadership of renowned former-NIH scientist Dr. Jeffery Trent. TGEN’s focus is on “developing earlier diagnostics and smarter treatments” (TGEN, n.d.) Trent is a graduate of the University of Arizona, and at least one TGEN official holds a professorship at the University. A professor from the University of Arizona has also worked at TGEN (M. Berrens, personal interview).

The BioIndustry Association of Southern Arizona (BIO-SA) currently lists 89 members. BIO-SA’s mission is to promote “regional bioindustry through community building and business enablement” (BIO-SA, 2005). BIO-SA serves as a format in which to connect members of Tucson’s emerging bioindustry sector:

“I get lots of calls from people looking for a particular technology or some expertise and one of my roles is to try and put the right people together, so that both companies if you like, or the company and the university can both benefit” (Interview E, 2007).


BIO-SA participates in state trade missions, national bioindustry conferences, and partners with its Phoenix counterpart (although the 120 mile distance between Phoenix and Tucson limits their interaction). BIO-SA has been credited with creating a “synergism” that has helped enhance innovation. The culture of BIO-SA and Tucson’s BioIndustry sector is congenial, not openly competitive. There is a good amount of trading of firm management and talent (Interview E, 2007).

As a part of Battelle and the Flinn Foundation’s Southern Arizona Bioscience Roadmap prescriptions for growing bioindustry in the Tucson region they recommend strengthening BIO-SA by providing funding for a professional staff so they can increase the networking opportunities they offer, as well as increase other specialized services to bioindustry firms (Battelle, 2006). Battelle has mapped out a partial lineage of bioindustry firms in Tucson (figure 3).

Figure 3 Biotech Lineage in Tucson

Optics “If it is from Tucson, if it’s optics, it’s holy” (Interview D, 2007).

Tucson’s lead in creating a center for the study of optics has arguably propelled

the region into industrial prominence in the field. Revenue for optics firms in Tucson grew from $500,000 dollars in the early 1980s to $750 million in 1998 (Barber, 2001). Arizona optics firms surveyed in 1995 and 1999 increased their employment by 42

Vega (closed)

1

Protein Technologies (Rainin Instruments) 1

Protein Therapeutics 1

ImaRx Pharmaceuticals (DuPont) 3

ImaRx Therapeutics 3 Ventana Medical Systems 2

Selectide (4)

SIDDCO (ChemRx – closed) 4

High Throughput Genomics 4

NanoSyn (Relocated)

Encore (RIP)

Torviq (Relocated))

U. Arizona Niadyne Prolx Melanotan Amplimed Cyternex Sabino Biosystems

Cord Blood Registry

Integrated Biomolecule

Graphic Source: Battelle, 2006

Sanofi-Aventis

Biotech Lineage in Tucson Companies with less than 10 Full Time Equivalent (FTE)

employees are in bold All companies have connections with UA

TUCSON’S CLUSTERED CONNECTIONS 23 percent in 4 years. Median firm employment among surveyed firms grew from 6 to 12 full time equivalent employees (Catts, 1999). It is estimated that 770 optics employees work in firms employing a total of 100 people or fewer (Young, 2007). Due to a vertically-linked local supplier network nearly 40 percent of revenues for optics firms are generated from local sales, although optics firms are well connected and engaged in business with firms and institutions across the globe (Catts, 2001, Interview D, 2007). A 2006 survey of Arizona optics and nanotechnology firms found that the largest impediments to further growth included a dearth of qualified employees, networking opportunities and funding (Wiggins, 2007).

The Arizona Optics Industry Association (AOIA) was founded in 1992, the same year that the magazine Business Week in a cover article famously declared Tucson “optics valley” (Interview D, 2007). AOIA is often deemed to be the most successful or active of the clusters (Interview F, 2007, TREO, 2006). While the organization remains a statewide cluster, the locus of its activity is in Tucson. AOIA’s strategic objectives (marketing, networking, strategic partnering, education and representation) are achieved through the collaboration of over 300 member firms across Arizona (TREO, 2006). A founder and long-time leader of AOIA, Dr. Robert Breault, has traveled the world helping other optics cluster organizations get started and to promote Tucson’s optics cluster, generating significant amounts of new business for his own firm as well as others (Interviews C, D). As a result of the cluster’s activities the optics industry in Tucson has become very branded internationally, and optics firms (not always “good” ones) have relocated to Tucson. AOIA members collaborate informally and formally in business, helping startups with their business plans or finding funding (Interview D, 2007), and they have worked together to win business contracts that otherwise they wouldn’t have been able to get individually (Waits, 2000). AOIA has used its brand reputation and the power of its large membership to secure in-kind donations of advertising for the cluster in trade magazines and to persuade larger corporations financially sponsor its events (Interview D, 2007).

Perhaps more than anything else however, AOIA benefits its member companies by serving as a conduit for informal information exchange and networking. As a result of AOIA’s efforts to connect through various venues to other optics firms across the world and to market itself the organization has become the go to resource for the industry. With one call to an AOIA member a firm from Tucson or from across the world can send out a request for work to all AOIA members or solicit recommendations of a firm qualified to do work with them (Interview D, 2007). While prior to the founding of AOIA no recognition of an “optics” industry in Arizona existed, today the optics industry with the help of AOIA has become an important contributor to economic growth in Southern Arizona (Waits, 2000).

Optics Industry Highlights Tucson and Southern Arizona

• 150 local companies • 4,573 employees in

Pima County • $650 million in revenues

(Source: TREO, n.d.)


Producing Public-Private Synergy Although the circumstances that led to Tucson’s development of an emerging tech economy and surrounding the creation of its cluster policy may be unique to the region, there are aspects of Tucson’s experience that can inform economic development policy more broadly. Arizona’s cluster policy was private-sector lead. Arizona is unique in that its cluster policy was not initiated by the state, but rather was a grassroots business initiative that grew to encompass the public sector. In Arizona private sector leaders were ahead of their public sector peers in identifying what was needed for the state’s technology businesses to grow. Tucson’s small tech firms had an unmet need for formal state and informal (peer) assistance and information. Prior to the implementation of the cluster working groups no association existed to network those in the bioindustry, optics and aerospace, information technology and manufacturing sectors in Tucson. Firms in these sectors were unaware of what work was being done by other firms in the region. In the ‘new economy’ the exchange of information and know-how facilitated by interpersonal networks are important contributors to innovation and growth, and the creation of AMIT, AOIA and BIO-SA met this need. Small tech startups also had difficultly accessing assistance or information from the state. The state lacked information about the needs and character of its small and medium sized tech firms. Civic Entrepreneurs are essential for any policy to be effective. Without Phonix-based software entrepreneur Alan Hald Arizona’s cluster policy probably never would have come to be. Yet Hald’s vision to strengthen Arizona’s economy through cluster-based economic development was achieved through his ability to involve other leaders, “civic entrepreneurs,” who were motivated by their own experiences doing business in Arizona and their desire to improve their state to devote significant amounts of time and effort to the cluster working groups.


Birth of a cluster policy Among the hundreds of state and local cluster policies created over the last two

decades Arizona’s is in one important respect unique; it was not initiated by public policy makers. Instead ASPED was the brainchild of a single man, technology entrepreneur Alan P. Hald, co-founder and then President of Phoenix-based technology firm MicroAge, Inc. and a graduate of Harvard Business School. Hald played a critical and catalytic leadership role when the economic downturn of the late 1980s and early 1990s was compounded in Arizona by the fact the state was experiencing a concurrent political leadership crisis that included the impeachment of a Governor (Interview C, 2007). Arizona’s economy had been traditionally reliant upon natural resources, tourism, and real estate development, all of which were heavily impacted by a slower growing economy (ASPED Coalition 1992). Its business leadership came from these traditional industries and was unable to deal with the state’s economic and leadership crises when their own businesses were in trouble. Hald, a “civic entrepreneur” in the new economy space, stepped into this leadership void and advocated for a new type of export-oriented knowledge industry-based growth in Arizona. In 1988 Hald and a group of other Phoenix area high tech entrepreneurs began meeting informally each weekend to study the issue of how to better grow the Arizona economy (Henton, et. al 1997). Hald was familiar with Michael Porter’s industry cluster concept and had his group of entrepreneurs study how it could be applied to Arizona. From the start of the ASPED process he was the one that insisted ASPED’s development be an inclusive and engaged process, with the forums, town halls and mass public participation (Interview C, 2007). When the ASPED development process was formally initiated in March 1990 Hald spent $180,000 of his own and his collaborator’s money to fund the initial in-depth economic assessment by a team of consultants. This analysis determined that Arizona had 9 clusters, most of which were heavily focused in Phoenix. Later the Arizona Department of Commerce contributed $130,000 to fund ASPED (Interview D, 2007). Hald recruited coalition builders like Ioanna Morfessis, then-President of Greater Phoenix Economic Council to build support industry and governmental boundaries as well as entrepreneurs Steve Zylstra of Simula and Bob Breault of Breault Research Organization (BRO) to champion ASPED in industry circles (Henton, et. al 1997). ASPED was developed under the auspices of the ASPED coalition, an executive board comprised of representatives from the private sectors, state universities, the Arizona Department of Commerce and regional economic development organizations, elected state officials and Arizona’s Governor (ASPED Coalition 1992). When ASPED was released a synopsis of the plan became a supplement in the newspaper The Arizona Republic, explaining the new economy and ASPED to the general public. “That is really what Alan Hald was all about, he was an educator and he was a teacher” (Interview C, 2007).

ASPED’s goal of positioning Arizona’s “economy for the 21st century” was to be achieved through increasing the competitiveness of their clusters, and strengthening the economic foundations of Arizona. ASPED convened statewide cluster working groups for the aerospace, agriculture, food processing, forestry, business services, health/biomedical, information, minerals and mining, optics, transportation/distribution, and tourism industries. “Working groups” for these clusters met 3-4 times during 1991 to determine a vision for the cluster’s future, the needs for the cluster and what initiatives

TUCSON’S CLUSTERED CONNECTIONS 26 could be undertaken to assist with cluster growth. Implementation of cluster-based development was to proceed along two tracks: institutionalizing cluster-based development and addressing priority issues raised by the cluster groups and improving the “foundations” that supported the clusters at the regional and state levels. Seven foundational issues were also identified for improvement: human resources, capital resources, technology, tax and regulatory, advanced physical infrastructure, information and communications infrastructure and quality of life (ASPED Coalition, 1992). The idea for the cluster working groups originated with Alan Hald who envisioned them first as focus groups of industry leaders who would be able to collectively articulate industry leaders and help the state understand how their industry might be grown. Once again it was he who went out and recruited industry leaders to participate (Interview D, 2007).

By the mid-1990s, with even the specter of economic crisis gone, The Governor’s Strategic Partnership for Economic Development (GSPED) faced the challenge of keeping its member cluster organizations involved (Breault, et. al. 1996). GSPED was far from a heavily handed guide for cluster organizations it seeded; in fact state support for the industry cluster working groups has always been minimal.

“It [state support] was very limited, it was facilitation. It was really a survival of the fittest process – the idea was those clusters that were the strongest with champions would continue to move forward and those that didn’t would fall by the wayside. It really wasn’t meant to prop up these groups, it really was to say which ones really want to move forward. I think over time that once the state of Arizona got organized again and the Department of Commerce got back in shape they actually began to support new studies of these clusters… it became part of the infrastructure if you will of economic development in Arizona to support these things – but they didn’t put a lot of money into it” (Interview C, 2007). In the 1990s the Arizona Department of Commerce (DOC) structured its service

delivery and an export program around meeting the needs of the cluster groups, but didn’t provide any funding for the cluster working groups until the senior living cluster was created the retirement home industry and procured state funding, at which time limited funding was made available to the other cluster working groups (Interviews Watson, A, and D). While ASPED conceived of the cluster working groups as statewide entities they soon devolved into separate organizations in Tucson and Phoenix, where strong regional economic development agencies used the clusters as marketing tools (Interview D, 2007). In 1998 the state restructured its workforce development program to serve the clusters (Waits 2000). A survey done that year by the Arizona DOC and the Arizona Office of Workforce Development Policy polled more than 2,000 Arizonans on their awareness of GSPED and found only 14 percent of citizens had heard of it. When GSPED and its cluster-based economic development were explained to survey respondents they were broadly supportive of it and of coordinating workforce development efforts with it (Vandegift, 1998). Waits (2000, pp. 39) identified three functions served by the cluster working groups during the 1990s: 1) an analytical tool for understanding the state economy, 2) as an organizational tool to engage industry leaders in a regional strategy and improve communication and networking between firms, and 3) as a service delivery tool for economic development (Waits, 2000, pp. 39).

Over time the Arizona DOC found that the issues faced by the clusters and their requests for assistance (in areas such as capital formation, tech commercialization, etc.) differed little between the cluster groups. While the department still works with the

TUCSON’S CLUSTERED CONNECTIONS 27 remaining cluster organizations it has been more successful in strategies that unify its services rather than dealing with each cluster on an individual basis (S. Watson Interview). In 2000 GSPED was disbanded (Interview D, 2007), and after that support of cluster policy waned in the state. The Office of Economic Development at the University of Arizona offered technical support for the cluster organizations, the coalitions that once operated out of the Governor’s Strategic Partnership for Economic Development (GSPED), including acting as a bridge between the university and the cluster organizations, offering targeted industries studies and analysis, and support of business recruitment initiatives of the clusters (Arizona Office of Economic Development, 2006, para 1 and 2), at least until 2006, when its last assessment of Arizona’s optics industry was issued. The Arizona Department of Commerce and state policy has since moved on to supporting innovation in other ways, but still works with the cluster organizations that remain in existence today (S. Watson Interview).

Tucson’s economic development organization, Tucson Regional Economic Opportunities (TREO), had the same experience as the Arizona DOC in serving the cluster organizations. TREO still has a cluster analysis in its latest economic development plan and works closely with the remaining local cluster organizations. However, TREO has had difficulty in uncovering opportunities for it to assist individual clusters to grow outside of the recruiting firms that would contribute to an existing cluster. TREO found that the public policy issues concerning its cluster organizations were the same (Interview F, 2007), just like the Arizona DOC. In 2000 Tucson’s high tech clusters formed the Southern Arizona Technology Council (SATC) to provide a unified platform to address the Tucson cluster’s economic development service delivery needs and shared foundational issues (Interview A, 2007).4 As of early 2008 a successor organization to SATC, the Greater Tucson Technology Alliance (GTTA), was in planning. GTTA would continue the work of the SATC in serving as conduit to connect high tech firms with targeted economic development services and provide a paid staff to provide administrative assistance to the cluster organizations (Interview A, 2007). Table 4 provides an overview of Arizona’s current public sector support for the cluster organizations.

In ASPED’s original conception of the cluster working groups they were largely to further growth by recommending to policy makers formal, legislative or top down initiatives, such as the creation of specialized industry-relevant research institutes or altering relevant legislation (ASPED Coalition, 1992). Although the Arizona DOC and TREO are not pursuing a cluster strategy per se anymore, the intention of the cluster working groups to serve in an advisory or service-delivery role to state policy makers continues through their relationship with SATC and Tucson’s cluster organizations. These groups view themselves as a local implementing organization of state and regional technology-based economic development policy, as an integral part of the state’s economic development infrastructure (Interviews A, F, 2007). However, it is perhaps in a role beyond what ASPED envisioned that in Tucson the cluster working groups have been most useful in fostering economic development, that of their role as associations. 4 A similar development occurred in Phoenix, where the Arizona Technology Council was created through a unification of a software association and other Phoenix‐based high tech cluster organizations. In Phoenix, unlike Tucson, the individual cluster organizations did not continue after the creation of an umbrella organization (S. Watson and M. Hawksworth Interviews, 2007).

TUCSON’S CLUSTERED CONNECTIONS 28 Table 4 Public Sector Support of Arizona's Cluster Organizations, 2008

Associations: responding to a need “Where absent, the formation of associations should be part of a location’s economic development agenda” (Porter, 1998, pp. 259). In classical and neoclassical economics a firm, location, or economic actor can

gain comparative advantage over others when they have an advantage in a factor of production (capital, land, or labor) (Mankiw, 2001). Romer (1986, 1990) broadened the conception of what drives economic growth by showing that increasing returns are the result of technological changes induced by research and development and knowledge-intensive activities, underscoring the importance of human capital as a factor of production. In more recent years, “new economic geography” theorists such as economists Paul Krugman, Masahisa Fuijita, and Anthony Venables (1999) and others, have used general equilibrium models for agglomeration and sought to explain the spatial locations of economic activity in terms of the effect of negative externalities.

However, economics alone cannot give us a complete understanding how spatial agglomeration occurs principally due to its undersocialized view of economic agents. A key assumption of the perspective of classical and neoclassical economics is that economic actors make rational choices not influenced by their social relationships with others or the structure of their society (Granovetter 1986). There has been increasing recognition the past two decades that the economy is not just a set of hard input and output figures, but it is also set of people and relationships. Network analysis has demonstrated how in many different cultural and economic contexts the network of firms, or individuals and their relationships with one another plays an essential role in how

Arizona Department of Commerce

Tucson Regional Economic Opportunities

University of Arizona Office of Economic Development

“AZ FAST” – Federal Small Business Innovation Research (SBIR)/Small Business Technology Transfer (STTR) Program Grant Development Assistance

Formulated regional economic blueprint for Greater Tucson with a focus on high skill/high wage job creation

Creating a comprehensive tech commercialization resource directory

Technology Assessments/Market Feasibility Studies

Helped make business connections on SBIR/STTR grants

Acts as a "bridge" between clusters and the university

Collaboratively creating a central point for companies to receive information on research conducted at state universities

Provided funding support of high tech industry business development projects

Cluster analysis (last cluster focused paper in 2006 examined the growth of optics in the state)

Participated in DOC funded overseas trade missions

Working with high tech industry to involve it in high skill/high wage job creation implementation strategy

Collaborate in presenting tech commercialization information, programs and workshops

Created "BusinessLINC" program with searchable online database that contains company product/service offerings

TUCSON’S CLUSTERED CONNECTIONS 29 economic activity is organized (Doerr, 2005).

One of the most well known exemplars of this principle of the role of relational assets in the economy is Silicon Valley. It is not an understatement to say that the most “crucial aspect” of the region is its networks (Castilla, et. al. 2000, pp. 218). The Valley’s regional culture encourages risk and innovation through its flexible, porous industrial structure, its dense social networks and an open labor market (Saxenian 1994). High labor mobility that can cross industries and institutions allows for the horizontally-structured firms of the region to rapidly react to economic changes (Castilla, et. al 2000). Recruitment of labor in Silicon Valley often occurs not through close friends but through what was termed by Granovetter (1973) as “the strength of weak ties,” or those in one’s extended professional network, that facilitates this process of rapid reorganization. The Valley’s workforce is an asset not only for its highly educated credentials, but also for its social integration. Employers in the Valley consider their employees relational assets economically useful as those hired through social connections tend to be more successful on the job (Castilla, et. al. 2000). Many attempts to replicate Silicon Valley are based on replicating its firms’ features and are fundamentally flawed in their lack of understanding in the role of people and networks in the region (Castilla, et. al. 2001).

One venue through which Silicon Valley’s social capital is built is through its trade associations. Porter (1998) views trade associations as important components, even sometimes necessary, to cluster development. He advocates for a trade association role beyond lobbying government and organizing networking events – that they should “institutionalize cluster linkages” (pp. 258), and become focal points for industries to work together to solve common problems, provide relevant training, and engage in formal business consortia or partner with other local institutions. In Silicon Valley the Western Electronics Manufacturers Association (WEMA), a forerunner of the American Electronics Association, focused on providing services to emerging technology startups. WEMA and the similar organizations that followed served as meeting places, sponsored educational seminars, and as a place were “friendships” were made between professionals and market information was exchanged (Saxenian, 1994, pp. 47-48).

The activities of WEMA and Tucson’s cluster organizations, and Porter’s idealized trade associations, are strikingly similar. While the economic development service delivery functions may be more direct and state-linked in Tucson’s cluster organizations, the positive outcomes associated with AMIT, AOIA and BIO-SA are really related to their ability to connect industry players at a time when no such forum had previously existed, but by which there was already some base level of firm activity in each sector.


Network Economy Principles Networks comprise the backbone of innovative regions whose strengths lie in the

speed at which they can create and diffuse knowledge (Eraydin, 2005). To illustrate how AMIT, AOIA and BIO-SA have served as associations and why this role is so important policy makers should understand three basic principles of a “network economy.”5

#1 Face to Face Interaction Builds Trust To create familiar, trustful relationships that can result in economic collaboration

of information exchange requires a frequency of interaction. This interaction usually takes place in the form of face-to-face (F2F) collaboration.

“Everybody [BIO-SA members] gets along great, and no, we don’t have a lot of competition. To be honest each of the companies has their own niche, a lot of the events we sponsor are partnering and networking type interactions because there is overlapping expertise, and if they can get access to some technologies they need either through the university or through some other company in partnerships that just facilitates everybody, so yeah, there is not a lot of animosity, there is none really. That’s true across the other clusters as well. We do a lot of cross cluster events and try and get people interacting and broadening their base and creating new opportunities. It is sort of like you try and get faculty together and get collaborative grants going, so you get collaborative economic development activities going, it works really quite well actually, it is a very agreeable group who seem to like each other” (Interview E, 2007). F2F has four defining attributes according to Storper and Venables (2004, pp.

351): • it is an efficient communication technology; • it can help solve incentive problems; • it can facilitate socialization and learning; • and it provides psychological motivation.

F2F has the advantage of allowing individuals to evaluate other’s intentions more

clearly through their body language, and to allow individuals a chance to form trusted “in” groups of those whose performance can be trusted. The significant resources (time, money) that must be devoted to fostering F2F indicate commitment to a relationship and foster trust (Storper and Venables 2004). Waits (2000) recounted how one AOIA member firm that invested $50,000 in cluster activities believed it had gained more than $700,000 in new business from the networking opportunities that AOIA made possible.

Granovetter (1986, pp. 490) argued that individuals settle for general market information when nothing better is available, but generally seek out their own information which they deem to be better when it comes from a trusted source with which one has had repeated interactions. The information source has an incentive to maintain trust and thus provide correct information because outside of “pure economic motives” there are also other social contexts where trust is expected. While market mechanisms such as the Internet and other advanced communications technologies may

5 It should be noted that these three network economy principles were constructed for the purpose of illustrating the ways in which relationships are important to the growth of an economy. There may certainly be other principles that could be added to this summary list.

TUCSON’S CLUSTERED CONNECTIONS 31 be effective at matching finished goods whose value is readily understandable, much of the economy is now dependent upon “experience goods” or goods whose value is not readily understandable and that necessitate trust and mutual understanding through long-term relationships to facilitate a successful match (Leamer and Storper, 2001).

#2 Trust encourages information exchange. “Initially when we bring companies together in work groups, focus sessions, there is not a great deal of information exchange, but over time as the participants get to know each other and become more comfortable working with each other, they actually provide, and are open with the information. Initially, there isn’t as much information sharing, but over time as people get to know each other they are much more open with information” (Interview A, 2007). The Southern Arizona Tech Council has learned via surveying firms that have

used some of its economic development assistance services that the top services firms are looking to the organization for are opportunities to network and information on what other companies are doing in the region (Interview A, 2007). The ability to become connected is the motivating factor for individuals to put their time and money into participating in the cluster organizations:

“the thing that is really driving this is being able to connect, to engage the small business community better connect them with everything that is going on here, in a way with the services, programs, and activities that will help them be more successful, and grow their business” (Interview A, 2007). Rosenfeld (2003, pp.1) argued that perhaps the most important advantage of

clustering is that it enhances the ability of firms to access informal information and knowledge sharing. When asked to sum up the value of Tucson’s successful emerging industry cluster organizations, one interviewee remarked:

“Essentially it connected people in a way that they hadn’t been connected before, and they continue to move on” (Interview C, 2007).

#3 That information can be codified or tacit. “Learning, putting stuff down is, I think, important, but if you just read the written word then you don’t get this kind of a conversation. A viewgraph with three lines on it means one thing to one person and something else to somebody else, you need to have some kind of a working knowledge. If you haven’t gone to the conference you missed maybe three hours that summarized the three viewgraphs, something is missing there” (Interview D, 2007).

Long considered an underpinning of the continued geographic concentrations of

innovation is the transmission of tacit knowledge. Michael Polyani (1958, 1967), a chemist who developed a theory of innovation that involved personal feelings and values that could not be transmitted through a formal means, or what is termed tacit knowledge. Polyani famously defined tacit knowledge with the aphorism, “we know more than we can tell." Essentially tacit knowledge is that that cannot be codified or easily transmitted via a written medium alone, one that requires interaction between individuals. Because tacit knowledge exchange typically requires F2F, it is often assumed that geographical proximity is requisite. Polyani (and others) who have written on tacit knowledge transfer

TUCSON’S CLUSTERED CONNECTIONS 32 have emphasized the social context in which the knowledge is produced, but also important is the shared institutional context (Gertler, 2007). Even in an era of globalization where most of a firm’s suppliers and customers may be located outside of a region the incentive for geographical clustering of firms remains. “Being located in the middle of an industrial district typically allows creative and entrepreneurial individuals to absorb thinking processes, ways of talking and ways of doing things by interacting closely with other knowledgeable people” that provide a framework for tacit knowledge transfer (Desrochers, 2001, pp. 33-34). The exploitation of tacit knowledge, or codified knowledge would not be possible without this framework, of being located in “specialized and complementary epistemic communities, on the one hand, and a high level of innovation and entrepreneurship – both within existing firms and in the form of new business” (Håkanson, 2001, pp. 20).6

Howells (2002, pp. 873-874) delineated five reasons why geography is important to knowledge creation and transmission:

• one’s knowledge “set” is determined by social “interaction;” • knowledge is individual, and individuals are influenced by place; • one’s knowledge depends on varying bits of codified and tacit knowledge

received which is constrained by space; • learning is often a collective activity that requires co-presence, and all information

must be interpreted individually and interpretation is based on past experiences that have been shaped by geography

While the focus of much academic research has been on the transmission of tacit knowledge, it is important to note that it may not necessarily be the type of knowledge (tacit or codified) that is what matters in the success of an agglomeration of industries, but rather their ability to exploit that knowledge (Håkanson, 2001). Many interviewees recounted that it was their knowledge of who could best do what in their industry that allowed them to facilitate connections and business between inter- and intra-regional firms.

Playing with the big boys “There is a very positive relationship between the bigs and the littles,” (Interview D, 2007). Another important role of AMIT, AOIA and BIO-SA in Tucson is the one they

play in managing the relationship between their largely small to medium-sized business member base, and the region’s transnational corporation (TNC) branches, including Raytheon, IBM and others. In 2006 Raytheon conducted $47 million in business with 270 local suppliers, largely because of the lower cost incurred in procuring business locally (TREO, n.d.). About half of the business Raytheon has with local suppliers is done with small companies (Interview A, 2007). Obviously Raytheon’s work with local firms is an important benefit of their presence in the town, but when a large transnational 6 Notably Malmberg and Maskell (2002) are critical of the view that knowledge exchange and collaboration and networking underlie the creation of spatial agglomerations of industry and knowledge. Rather they emphasize spatial agglomeration of firms as dependent upon firms ability to monitor each others activities and copy one another.

TUCSON’S CLUSTERED CONNECTIONS 33 corporation dominates such a large swath of a regional economy there can be dangers. Christopherson and Clark (2007) have noted that TNCs have the ability to limit innovation and regional economic stability through exerting their power over what their small or medium sized regional contractors and suppliers produce. But in Tucson the relationship of the smaller firms and the “big boys” is difficult to characterize wholly as one of dominance and subservience.

The TNCs in Tucson send representatives to the cluster organizations not as the dominant force, but as equals. Unlike the small tech firms that coordinate the cluster organizations, TNCs like Raytheon, IBM or Honeywell do not need the cluster organizations to access assistance from or lobby the state. State and regional policy makers work with the TNCs to ensure that their needs and concerns are being continuously addressed (Interview F, 2007).

Both the TNCs and the cluster organizations have used each other’s presence to their advantage. Raytheon, in particular, has made good use of the cluster organizations. Raytheon once had AOIA send a request it had for a very specific kind of optical instrument out to its membership, with the request having Raytheon’s name redacted from it so the cluster members did not know they were preparing proposals for work for the TNC. Within an hour of sending the request for work out so many proposals were sent to AOIA that even after the organization filtered the responses the Raytheon was still overwhelmed with their volume. This process insulated Raytheon having too many direct responses to allow them to quickly identify the best the best prospects to complete the work (Interview D, 2007). Raytheon is also increasingly looking to connect with small and medium sized firms to commercialize technology that is outside of their core defense business, but they would really like to see on the market (Interview A, 2007). With the Iraq War’s eventual end Raytheon is also looking at how to produce commercial products themselves. As a defense contractor they are used to producing products with long product development cycles, whereas in the commercial sector product development may need to be done in 6 months. The cluster groups may provide resources to help them commercialize their military technology in the coming years (Interview D, 2007, F).

The cluster organizations have also used the TNCs for their financial resources. As the cluster organizations have limited funding they have to be creative about how they fund their programs. In the past TNCs have been tapped for funding cluster organization conferences and other events (Interview D, 2007).

Civic Entrepreneurs Leading the Way “Personalities are very important. These things don’t work unless you have leaders. One phrase that we have in our work is ‘no champions, no initiatives. You need champions, you need people who are willing to work hard to make these things happen” (Interview C, 2007). While the creation of Arizona’s cluster policy was initially private-sector led, it

has succeeded in AMIT, AOIA and BIO-SA thanks to an ‘all volunteer army’ of private-sector individuals who have invested enormous resources in the organizations. One economic development consultant who has worked in the state since ASPED noted that many of the same private sector players who were involved in ASPED continue to be involved in the state’s current economic development initiatives and the cluster organizations themselves (Interview C, 2007).


During the initial ASPED analysis optics had not been included as a cluster, until an economic analyst at the University of Arizona suggested to Hald that Tucson had strength in the field. When Hald subsequently contacted Bob Breault regarding optics in Tucson, Breault wasn’t sure if he wanted to get involved with these “unknown” clusters and he wasn’t very enamored with an idea that he knew would take time away from his firm. Breault at the time thought that there were perhaps 30-35 optics firms in Tucson. At the behest of Hald he and a couple of others arranged a reception for optics firms in Tucson. He was quite surprised when 55 optics firms attended the event. Following the reception Hald asked Breault to attend the ASPED launch in Phoenix. At the ASPED launch Breault wasn’t shy about letting his feelings about how “bad” conditions for the industry were be known. The day following the ASPED launch Hald called Breault and asked him to put together a meeting of optics firms in two weeks time, and three weeks from that time he wanted a presentation on the optics cluster. Breault remembered thinking, “I’m not his slave” but he did as asked regardless, and he became a leader in the Arizona Optics Industry Association (Interview D, 2007). Bob Hagen, chair of the Southern Arizona Technology Council, also became involved with cluster-based economic development during the ASPED process (Interview A, 2007). Breault, Hagen and all the many others who are involved in continuing the existence of Tucson’s cluster organizations are civic entrepreneurs.

The name civic entrepreneur combines two important American traditions: entrepreneurship (the spirit of enterprise) and civic virtue (the spirit of community). Entrepreneurs are change agents. (Henton, et. al. 1997). Civic entrepreneurs are like entrepreneurs, but they act on a broader basis for the

public good. Their personality and leadership style are very important in their ability to be effective (Interview C, 2007). The personalities of successful civic entrepreneurs can be described using Gladwell’s (2000) concept of “connectors” – that is, those people that are at the top of a pyramid of social connections, those people that are connected to everyone. Connectors are not people who necessarily set out to know everyone, but that by virtue of their personality attract the acquaintance of many. They are those that are able to catalyze the interest or involvement of their acquaintances into their endeavors.

The leaders of Tucson’s cluster organizations have both personal and civic motivations for participating in the process. The early (1980s) generation of tech entrepreneurs in Tucson recognized a need for resources for tech startups, for informal forums where tech entrepreneurs can learn from each other as well as for more information on the procedural aspects of business formation. Many of these entrepreneurs were natives or long-time residents of the region and cared deeply about its future. They also realized that there are organizational and personal advantages to being involved in a project that connects people and information (Interviews A, C, D, E, F). Whatever the plan or policy being implemented, it is clear that Tucson’s emerging sector cluster organizations have been successful because of the people involved. One interviewee summed this phenomenon up quite aptly: “you can center around institutions, but institutions in the end are really about people” (Interview C, 2007).


The Post Cluster Era This paper’s discussion of the successes of AMIT, AOIA and BIO-SA in building

relational assets and supporting industrial growth in Tucson should not obscure the fact that cluster policy is no longer in fashion. Cluster policy in most places has not been “successful.” This could be because of the way in which it has been implemented or because of flaws in Porter’s cluster concept. Whatever the reason for its failures cluster policy has left an important legacy and set of lessons in Arizona. Porter’s cluster concept has limitations that complicate its policy application. Serious doubts surrounding Porter’s cluster concept’s validity make it important to ask how any theoretical flaws may have impacted cluster policy application. Among the common complaints regarding cluster theory are the malleability of the cluster concept, that clusters treat all the phenomena of regional industrial structure as if they were all one in same, that Porter’s emphasis on the role of firm rivalry in spurring innovation has not been definitively empirically validated, and that Porter’s work as a whole lacks a strong empirical base. Cluster policy has brought a better conception of industry-specific needs and knowledge about the new economy to policy makers. Cluster policy has changed the state’s mindset from only focusing on the needs of individual firms to having a broader focus on what industry specific needs and strengths a state may have. Arguably cluster policy has left Arizona much better informed about its economy and how it relates to the broader national and international economy. Cluster policy was an important and direct predecessor of Arizona’s current focus on innovation and the fundamentals as well as the state’s current focus on developing a bioindustry. It is time to move beyond clusters to “Smart Economic Development.” Smart Economic Development should be to economic development planning what Smart Growth is to land use planning. Smart Growth asks us to be strategic about our development, and Smart Economic Development planning would ask us to do the same in our regional economic policy. Tucson’s experience demonstrates that things work when they respond to an actual need; where cluster organizations were duplicitous of other private sector efforts they have disappeared. Economic development needs to move beyond adopting the latest fads to be (literally) sold and instead use various policies strategically. Strategic policy can be crafted only when the policy makers have a sufficient understanding (qualitative and quantitative) of their economy and when those that are consumers of the policy’s products (the private sector) are engaged.

Whereas economic development planning is largely based on dealing with the tangible aspects of the economy, Tucson’s experience with its cluster organizations demonstrates the importance of addressing the economy’s intangible qualities. The next challenge for economic developers is to create innovative strategies for building relational assets in their communities.

TUCSON’S CLUSTERED CONNECTIONS 36 Limits to the Porter Model

Although cluster policy has been widely adopted there is no consensus that Porter's conception of the cluster is correct. Academic criticisms of Porter's cluster policy are largely focused upon the extreme adaptability of the cluster concept and the lack of empirical evidence to support it. Table 5 presents a sampling, not an exhaustive list, of criticism of the Porter model. Porter himself is hardly an impartial academic. His consulting firm, Monitor, markets cluster studies to regions, nations and organizations around the world (Asheim, Cooke and Martin, 2006). Ohio alone spent $1 million on a Monitor cluster study (Interview F, 2007).

One of the most prominent difficulties with Porter’s diamond model and cluster concept is discerning what is really new about what he is saying. Porter (1998) admits his intellectual debt to Alfred Marshall’s triad of external economies explanation of industrial agglomeration (and the related work of others) yet he argues that his diamond model advocates for building upon the spillovers of emerging firm concentrations and incorporates the role of innovation and learning for a new knowledge-based economy. Malmberg (2003) credits Porter’s diamond model with some truly original elaboration upon traditional agglomeration theory, including:

• emphasizing the importance of specialized region or industry specific productive factor inputs or selective disadvantages;

• demand conditions that emphasize the sophistication of demand conditions, as opposed to mass market demand, and;

• the importance of motivational local inter-firm rivalry in providing for an innovative economy that produces long-term economic growth.

As for the definition of a cluster itself, outside of the wide range of preceding literatures that employ related concepts to which Porter himself has given credit, a strikingly similar function definition of clusters appeared in Czmanski and Ablas (1979, pp.62):

“`cluster' means a subset of industries of the economy connected by flows of goods and services stronger than those linking them to the other sectors of the national economy.”

They, however, differentiated between a functional cluster and the spatial relationship among firms (ibid):

“A 'complex', on the other hand, has been defined as a group of industries connected by important flows of goods and services, and showing in addition a significant similarity in their locational patterns. Thus, complexes emphasize the spatial aspects of industrial concentration.”

Perhaps most important to keep in mind when considering Porter’s (or anyone

else’s) prescriptions for universal industrial structure explanations or economic development programs is that “the city has never been a machine” and that while urban theorists and experts divine the ingredients needed for regional growth, they often do not go too deeply into the incredibly complex ways that these ingredients interact with each other to form differing outcomes, limiting the usefulness of understanding the urban process today (Storper, 1997, pp. 255-256).

TUCSON’S CLUSTERED CONNECTIONS 37 Table 5 Selected Academic Criticisms of the Porter Model

Literature Criticisms of Porter’s Cluster Model

Perry (1999)

• Regions should ensure that in a cluster policy they are not merely associating a spatial agglomeration of firms with a cluster, but that a cluster is a "special strength"

• A spatial agglomeration of similar firms does not necessarily equate with their integration and cooperation with one another

Barkley and Henry (2001)

• Regions lacking any part of Porter's diamond will have difficulty 'growing' a cluster

• Pursuing cluster policies can be difficult as it is complicated for latecomers in an industry to be competitive

Martin and Sunley (2003)

• The cluster concept is supposedly geographic but can encompass any range of geographies

• Amorphous nature of that the cluster concept that allowed one to find desired clusters

• Porter’s clusters are not empirically testable, accepted only on faith • The cluster concept “has acquired a variety of uses, connotations

and meanings that it has, in many respects, become a ‘chaotic concept’, in the sense of conflating and equating quite different types, processes and spatial scales of economic localization under a single, all-embracing universalistic notion” (2003, pp. 10)

• Concepts owes its policy prevalence to Porter’s marketing and "branding" of the idea in the language of competitiveness and strategy

Malmberg (2003)

• Cluster literature makes propositions that are not testable empirically

• While there is sometimes local rivalry, many firms report having few direct competitors or competitors located outside their region

• There is little collaboration between firms and organizations locally; instead most of these interactions happen over a global value chain

• Cluster literature has been preoccupied with finding connections between firms in a circumscribed geographical space and attempts to asses the degree of local interaction

Palazuelos (2005)

• Few economies have the right set of features (business structure, socio-economic structure, etc.) for clustering to be successful

Asheim, Cooke and Martin (2006)

• Porter rarely proves empirically that anything he claims to be a cluster actually is one; he cherry picks cluster examples and doesn't discover the facts that gave rise to them

• It may not be possible to create a single theory that best describes all agglomeration

Malmberg and Power (2006)

• Porter's early work defines clusters functionally, his later work geographically

• Cluster is an idealized successful final stage of development • Knowledge creation is not a mechanism of local organizational

collaboration and evidence as to how it affects local rivalry varies


Tucson v. Porter Unlike the stylized cluster inter-firm relationships proposed by Porter’s model,

firms in Tucson's emerging tech sectors do not necessarily have the majority of their supplier or buyer relationships located in Tucson, but rather work with firms around the world (Interviews A, D, E, 2007). This is also broadly true elsewhere (Interviews B, C, Malmberg, 2003). Empirical research has shown that local businesses do not do much business together, and even that firms that have the broadest geographical technology collaborations are the most successful (Malmberg and Maskell 2002). In the Tucson optics sector, while firms do tend to have local suppliers, their final goods are largely exported. Fifty-six percent of firms in Tucson’s optics cluster export; much of those exports are overseas to Asia, Europe, and Mexico (Interview D, 2007).

Direct competitors among Tucson’s emerging sector tech firms are few, if any. The majority of firms are specialized in their own niche (Interview E, 2007). In contrast to the centrality of the role of local rivalry in Porter’s model is the reality that in Tucson the idea of there being firm rivalry was rejected outright. Instead, perhaps in part because of high labor mobility in some of the sectors, and also because the participants in cluster organizations are there because they genuinely have an affinity for Tucson and want to see it (and their own ventures) grow, the relationship of firms involved in the cluster organizations was characterized as generally congenial (Interview A, E, D, 2007).

An important limitation to Porter’s conception of clusters that has affected cluster policy is the idea of cluster boundaries themselves. While Porter (1998) contends that cluster boundaries need to be adapted as industries change over time, and that cluster organizations need to have the breadth to capture all actors in a cluster, it is difficult to see where a cluster might begin and end in Tucson. The old “pure” industry definitions that constituted a cluster are becoming less relevant (S. Watson Interview, Interviews A, B, E, 2007). For example, in Tucson a bioindustry firm may work with a firm in optics on a bio-imaging product (Interview E, 2007). Then the same optics firm may work with a defense contractor on an entirely different application of their expertise (Interview D, 2007). The Southern Arizona Tech Council was founded in part to respond to a need for cross-sector events that provide an opportunity for members of the different cluster organizations to network (Interview A, 2007). The synergy of this cross-cluster coordination is often what drives innovation in local economies and leads to new industry sectors (Interview B, 2007).

Global to Local An important, glaring omission in Porter’s cluster model is his lack of

conceptualization of the relationship between geographical clusters and the global economy. Porter (1990) really seems to extend, by his own admission, the ideas of Ricardo to the cluster level, whereby competitive advantage is gained through comparative advantage by the specialization of production factors with in the cluster. However important endogenous factors may be to fostering regional economic growth, it is clear that endogenous growth has its limits, as:


“In contemporary economic relations, however, it is obvious that none of the regions can achieve sustained economic growth solely on endogenous development process. They require networks with non-regional actors, which link regional economic systems to a global economy” (Eryadin 2005, pp. 53).

Despite some path dependent trajectories, it is not “inherent regional advantages”

that advance regional development, but rather how a region’s assets match the needs of “trans-local actors” (i.e. firms) (Coe, et.al, 2004). Markusen, Schrock, and Barbour (2004) argue that, rather, instead of pursuing a single type of economic policy that views the urban economy within an antiquated paradigm of importing and exporting goods and services, that instead regional economies that have found a niche in the global market are those that will experience economic growth.

Figure 4 From Geographical to Functional, Global Clusters

Graphic Source: New Economy Strategies, 2007

When AOIA leader Bob Breault has assisted in founding optics cluster groups in other regions (everywhere from Florida to Singapore) he has been derided by industry cluster experts who believed that he should have focused on increasing the competitiveness of Tucson’s optics cluster, not helping its competitors. These experts have failed to recognize the global nature of all business and the importance of inter-regional suppliers and customers. Through the active marketing of AOIA, Breault’s

TUCSON’S CLUSTERED CONNECTIONS 40 company (an optics software firm) has directly benefited not only by gaining new customers but also by making Breault himself a go-to guy for optics contacts globally. Breault often gets calls from firms all over the world seeking to find other firms that do very specialized functions – and within a matter of minutes, a phone call or two, a firm in Germany is connected with one in Australia or Florida. The fact that all of the connections he makes are not always to firms in Tucson doesn’t really matter; by being the point of connection Breault is made aware of the connections and work that is going on in his industry globally – benefiting his firm and the Tucson’s optics cluster. The results of these interactions have made the AOIA legendary around the world for its wide reach into the industry (Interview D). BIO-SA also is seeking to establish a global reach, it is very involved with the University of Arizona’s Global Advantage program which allows their members to interact and learn from with firms in Ottawa, Manchester, and other regions in the world (Interview E, 2007).

The ability for firms and individuals to have networks that reach outside of their region is very important. The growth of a transnational technical community across Silicon Valley, Taiwan and China facilitated industrial upgrading in the developing regions (Saxenian, 2006). Recent advances in network analysis have found that the more socially distributed one’s network is, the faster one will rise professionally, particularly if one can serve as a connector between clusters of economic activity (Doerr, 2005).

Changes in the business models of the firms, with more and more firms serving merely as headquarters or branding agents and outsourcing functions such as marketing or production to independent subcontractors located around the world, are important factors driving the de-coupling of self-contained clusters, as demonstrated in figure 4 (New Economy Strategies, 2007). Within a networked economy, Coe, et. al.(2004) contend that regional development requires three components at any given historical moment: 1) the existence of economies of scale (concentrations of specific knowledge/skills/expertise) and scope (spillover effects – learning/cooperative atmosphere), 2) the possibility of localization economies within global production networks (GPNs) and 3) the appropriate configurations of ‘regional’ institutions to ‘hold down’ GPNs and unleash regional potential. In the era of globalization it is not necessarily the specialized industry sector that is important, but rather the specialized sets of human capital present in a region (New Economy Strategies, 2007). Regions thus retain pre-eminent importance in the organization of the global economy. Specialized skill sets are developed and reinforced in regional agglomerations where the social interaction that facilities learning and innovation can take place (Gertler and Wolfe, 2006).

A Transitional Policy “It [cluster policy] was an attempt to try and understand where wealth comes from, so I see it as a transitional strategy, I don’t see it as an end strategy. It was an attempt to try and figure out where you can create high-quality jobs. And I think we’ve got them half-way there but I think the whole conversation changed” (Interview C, 2007). Most cluster policies have been a proven disappointment to policy makers in their

inability to create new firms or improving the growth rate of existing firms. As it is difficult to gauge the impact of cluster policy on the various levels of the regional, cluster

TUCSON’S CLUSTERED CONNECTIONS 41 or firm, a clear shift away from the use of cluster policy has occurred in the last few years (Asheim, Cooke and Martin, 2006). Aside from the continued existence of the emerging sector technology clusters in Tucson, what is the legacy of the policy? What has it taught us that will contribute to the effectiveness of future policies?

Cortright’s (2006) comprehensive industry cluster academic literature review identified 3 contributions of cluster policy, including: 1) the importance of using clusters as a “key organization unit for understanding and improving the performance of regional economies; 2) the ability of cluster policy to focus “economic development policy and practice toward groups of firms and away from individual firms” and 3) to provide “important lessons for economic development policy and practice,” including the need for regional industrial differentiation, for public policy makers to engage with cluster members, to create economic development strategies tailored to individual clusters, and to create an environment conducive to cluster growth. Arizona’s specific experience highlights the need for specific action at different stages of cluster development.

“I think when we look at this whole proposition we need to think about more specifically what we are trying to do, the cluster things needs to essentially take the next step from being a generalized movement in economic development to something that is more oriented to reaping certain types of impacts” (Interview B, 2007).

In Tucson a defining characteristic of the clusters that have survived is that they were all from emerging industries (Interview C, 2007). Waits (2000, pp. 44) noted that the “busiest clusters have been the “up-starts,” that is, the emerging ones that do not yet represent a significant concentration of economic activity within the state.” Established industries in the state did not need an additional cluster organization to communicate their needs to policy makers; instead they already had private trade associations that fulfilled the functions of the cluster groups (Interview C, 2007).

As table 2 (page 4) shows, each of the more established industries in Arizona had trade associations that pre-dated the cluster organizations, making the additional organizations redundant. In Phoenix in particular, although they have high tech employers the type of high tech economy they have does not generate much spin-off activity (Glasmeier, 1988). Thus Phoenix generally lacked an emergent base of homegrown tech entrepreneurs that may have stimulated a need for a cluster association. In most places cluster organizations have not functioned well. The first reaction of many public agencies was that to implement a policy one needed to create something. In creating a proliferation of organizations they each end up doing very little and were not actually needed by the private sector (Interview B, 2007).

“I don’t think clusters are a means to themselves but I see them as a means to an end. The other ends are raising per capita income, improving innovation, achieving all the changes in the fundamentals… so it is not that you just want to have cluster groups for their own sake but cluster can be a transitional strategy if you don’t have strong industries already, and so it is a way to gather up the companies in an industry sector to get them connected to each other so that they can begin to articulate what their needs are for capital or for training” (Interview C). Cluster policy set the stage for Arizona being able to move forward into a broader

set of policies. As noted, the state of Arizona has shifted to a focus on clusters to

TUCSON’S CLUSTERED CONNECTIONS 42 enhancing its “fundamentals” and innovation (Watson Interview, 2007), but the vision of Alan Hald – higher wage jobs, a focus on the industries of the future – remains (Interview C, 2007). In describing Arizona’s new policy direction, Sandra Watson, Arizona DOC:

“So I think what we’ve done is we’ve enhanced that cluster concept to really develop an infrastructure and sort of a technology-based infrastructure – and actually I really shouldn’t use technology-based infrastructure because then they’ll think I’m talking about telecommunications infrastructure – but it is what allows us to grow companies in this state. So I think that a shift from a pure industry cluster standpoint to a more foundational one with focus on the clusters was kind of that new strategy for us, and I think it has been very successful” (Watson, 2007). In her January 2008 “State of the State” address, Arizona Gov. Janet Napolitano

outlined her vision for “One Arizona” with improvements in the state’s education system and infrastructure, but with an overarching theme of facilitating innovation (State of Arizona, 2008). Feldman and Francis (2004) urged policy makers to focus on enhancing the ability of all firms to grow and aid entrepreneurs, as entrepreneurs are the basis for cluster formation. Arizona is half-way there, if it were not for the fact that they are still pursuing one targeted industry, which as previously mentioned is biotech.

In pursuing biotech they are not alone. By 2003 two other early adopters of cluster policy, Enterprise Scotland and the Basque Ministry of Industry, had moved on to new non-cluster based initiatives. Their new focus is also developing biotech (Asheim, Cooke and Martin 2006). While Arizona is among the many dozens pursuing a biotech-based economic development strategy, a 2002 study deemed just nine metropolitan areas in the United States are positioned to facilitate the growth of a biotechnology cluster. Neither Phoenix nor Tucson was among the nine (Mayer and Cortright 2002).

In Phoenix it was the leader of their old health and biomedical cluster group (now the Arizona BioIndustry Association), Michael Berrens, who was called upon to assist the state in crafting their new biotech strategy – from helping to recruit the famous Dr. Jeffrey Trent (a former classmate) to lead TGEN, and to raise the $90 million required to create TGEN and recruit Trent in a very short period of time (M.J. Waits Interview, 2007). Subsequently, in addition to the Flinn Foundation’s Bioscience Roadmap and Science Foundation Arizona there has been a biotech push at multiple levels Arizona State University in Phoenix and by some local economic development agencies in the Phoenix region (D. Roderique Interview, 2007, M. Silver Interview, 2007).


What’s Next? Redefining the Role of Government After the disappointment of cluster policy it is understandable that we’d want to discover what is next. Perhaps the demise of cluster policy provides a respite to consider how best to apply some ‘lessons learned’ and to move to a more systematic and strategic paradigm of “smart economic development.” Economic development should resist the temptation to follow fads and instead focus on responding to actual needs.

To know what the actual needs are requires one to come to a true understanding of the economy’s features, and that will require both quantitative and qualitative analysis (Mayer, 2005). Once a set of needs are identified the best policy instruments to address them need to be identified. Cortright (2006) argues that a one-size fits all approach to accommodating cluster growth within a region will not suffice and that different strategies must be adopted for different clusters. Whether one is trying to grow a “cluster” or some other defined unit of industrial organization, the need to differentiate strategies remains. Civic entrepreneurs and the private sector need to define their own needs and take ownership of any initiative at a grassroots level.

Porter (1998) included the need for engaged private sector participation as a factor

in producing a successful cluster strategy. In order to best engage the private sector one needs to have a clearly defined purpose, scope of work and desired outcome. Simply saying that a region will be in the top 5 in some sector in 5 years may not be achievable. Having action steps that each participant in an initiative can engage in will help move a policy along and encourage participants to take ownership in the work.

The next challenge for economic development is to design strategies that can promote a community’s relational assets as well as its physical ones.

This paper identified the cultivation of relational assets as the key to economic growth. Tucson’s emerging tech sector cluster organizations have succeeded in this quest – but the creation of collective organizations isn’t always necessary or prudent. Economic developers are in a unique position to know many businesses across their jurisdictions; perhaps it is time that to try and discover the ways in which that knowledge can aid in connecting firms and their employees, as well as how best we can connect them with production networks outside of a home region.


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