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Monday, February 11, 2019

Theory of Interactive Clusters

This Research is in process of being created. Chapter 1 is being offered here. You can then click the link to see the rest. As the Theory isn't completed it will take more time to edit and improve the theory for public consumption.

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Clusters and Cities

Clusters can be the foundation of the American economy and in one way or another are part of the historical foundation of the people. The way we think about economics in a modern era is changing and to spur further growth will mean moving to new economic platforms that are data driven and more responsive to market needs. Competing with other nations will require faster innovation and growth while drawing intellectual, financial, and physical resources to regions that contain the best ability to develop them fully for maximum financial profits and economic advancements. The Theory of Transactional Clusters helps to better explain future growth in the new economy.

An economic cluster can be defined as, “socio- territorial entity which is characterized by the presence of both a community of people and a population of firms’ and he adds that ‘in the district, unlike in other environments . . . community and firms tend to merge” (Becattini, 1990, p. 38). It is an economic entity where the components work together and interact on a formal and social level that creates economic growth in ways that fulfills participant needs. When effective needs fulfillment and market projection lead to a perpetual self-sustaining economic system. It develops into a self-adjusting organism adapting toward greater mastery of its environment as it seeks market maximization.

Clusters often form organically based on the characteristics of region and the resources available and it can also be sparked through government and industry action (Dmitry, et. al, 2018). It is possible to spark faster cluster growth when the environment is ripe for development and investment. Pushing ready clusters to develop fully leads to faster economic growth for nations and it is essential to know where and how to do this efficiently and effectively with minimal risk.

Principle: It is possible to spark industry growth if we understand the underlying mechanics of innovation and development.

Economic development rests on many different factors that include investment, infrastructure, business environment and even people's motivation. The study of economics is the study of human behavior to come to conclusions about how and why people invest, invent, create, take risks, pay for products and ultimately improve the economy. Clusters are a convenient research subject to see how the various factors come to play in viable industry development such as what may be seen in Silicon Valley or New York.

Therefore, there are many different factors that come to influence economic growth and prosperity. No economist, or industry expert, has all the answers because of the shear mammoth amount of variables in the market. Yet it is possible to start analyzing and breaking down ideas in a way that leads to a better understanding of how the whole works. With time and research we are able to chip away at the knowledge needed to create effective economic models.

Principle: Transactional clusters are comprised of many micro choices of profit and innovation.

According to to Professor Kenneth Scheve from Stanford University and Matthew Slaughter from the Tuck School of Business at Dartmouth college cities have experienced significant growth of (15%) versus rural areas (4%) for rural areas between 2000 and 2016 (Scheve & Slaughter, 2018). Thes same cities also experienced 93% of the population growth. Part of the reason why this occurs is because the workers were more productive around other highly skilled workers.

People live and are embedded into an environment and if that environment is designed for growth there will be an organic enhancement of people, ideas, and business. That isn't likely to happen if the landscape only fosters a rudimentary and politically skewed sense of improvement. Failure to develop a more prosperous future often depends on the political process itself and how attract the growth factors at their most rudimentary level and that takes a new way of thinking and leadership.

Principle: Cities are places where people act and interact with each other to create economic growth.

City centers act concentrate the economic activity into a dense locations where economic "actors" better interplay on each other. Innovative companies cluster together and draw talent in a manner that changes the character of the metro environment. Young professionals are likely to flock to growing cities and will flourish if we are prepared to "set the table". With influx of new intellectual talent comes faster innovative and idea generation that leads to greater wealth that transforms and revitalizes decaying cities. The long-term impact in creating modern economic centers can change the prosperity of a nation for generations.

Many metro cities are built off of Industrial Age platforms and could potentially be developed further to help raise innovation and output through new capital growth. That growth would come through greater industrial, informational, environmental and personal development that when matched with appropriate investment leads to change. Investment leads to development which leads to new investment in a cyclical fashion.

While it can be difficult to analyze large groups from a social perspective, down into the intricate details of their lives, we cannot ignore the sociological aspects of how ideas are shared built upon to construct new and innovative ideas in repeated patterns. We should also not ignore the financial and personal motivations of the entrepreneur and investors that spark growth in a region that seem to be part of all growth. Thus the study of economic development is the study of what aspects of growth seem to repeat themselves.

Principle: Hubs develop through linkages of ideas and resources through entrepreneurial innovation.

All hubs foster linkages of people, ideas, firms, resources, and investments that create geographically anchored innovation that supports stronger global economic prosperity. The manner in which business and people interact, openly innovate and provide feedback to each other creates the national innovation approach (Lundvall, 1998). This development is uniquely based on cultural background, social structure, and the vantage points of stakeholders that constitute the atmosphere of motivation, learning, sharing and exploring that foster growth.

Hubs attract entrepreneurs and investors who seek lucrative opportunities that grow personal wealth through market investment. Entrepreneurs focus on value creation, development of new products/services, sparking ventures, and encourage market innovations (Brush, et. al., 2003). It is theses renewals of intellectual and financial resources that develops stronger economic systems that breath life into stale economic structures. Drucker (1985) describes entrepreneurial opportunities as:

1. The creation of new and unique information

2. Exploitation of market inefficiencies as a result of information asymmetry

3. Acting upon the costs and benefits of alternative resource allocations

Principle: Cities will attract younger generations looking for entrepreneurial and expressive opportunities.

Development is based on the many transactions that are in dense form within cities. In modern times, cities are experiencing a renaissance of growth and development while helping to spark larger regional changes. A study by IHS Global Insight indicates that 95% of U.S. cities will see economic growth (Jean, 2014). Their regional director believes that "The economic prosperity of the U.S. economy is directly linked with the economic prosperity of metro economies".

Cities would be wise to prepare for growth to encourage global competitiveness. Emerging nations in Asia will begin to outstrip American producers based on their constant investment in their infrastructure and production capacities. The U.S., and its European Allies, are at a place where they can arrest this trend and pull themselves up from their bootstraps so they can develop cities that are capable of drawing international investment and producing world class products.

Because cities are growing in popularity and size it also affords Americans an opportunity to enhance economic activities in hubs in a way that leaps ahead of economic curves through proper data analytics. Now is the time for the U.S. to consider its overall strategy to economic development and the market in order to ensure that they are not left behind in the advent of the "Age of Asia".


Metro cities are attracting a younger generation of workers drawn to communities that offer new opportunities and this could be a catalyst for change. This generation are entrepreneurial by nature and seek to make an impact on society. Less oriented toward money than previous generations, but seeking career opportunities, they dream of being business owners and trend setters that blaze their own rules. It is a generation that seeksto create, innovate, start, and re-build.


Clusters also offer a chance to expand opportunities across this entrepreneurial generation and impact different sectors of society. Young people are seeking to develop their own opportunities and this could raise America's innovative development. For example, Three sociologists from the University of Southern California conducted a study that associates San Diego’s future with creating opportunities that reduce inequality through employing more people based on:

1. High-tech and high-need,

2. Innovation and inclusion, and

3. Places (Pastor, Sanches-Lopez, and Ito, 2015).

As investment and research match each other, new revenue streams are found and exploited for greater regional benefit. Investments are a key fuel in economic growth. It offers organizations that opportunity to expand their their entrepreneurial activities by allocating resources to great ideas. It is these innovative ideas that lead to new product that often result in product/service creation and greater growth. Without needed funds new ideas are left on the side and industry begins to decline.

What We Learn:

1. Cities attract younger generations.

2. Cities will become commercial centers of innovation and development.

3. Entrepreneurs will find their greatest opportunities within cities.

4. Each city will develop their own socio-cultural method of approaching the market.

5. The success of the city will be associated with its quality of life.

6. Hubs can create interaction of the economic elements that lead to growth.

7. Cities need investment and innovation.

8. All cities are based on transactional micro choices of profit and innovation.
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