1What is the idea?
Clusters are beneficial because they allow for economies of scale, and access to skilled labour and innovation largely happens in geographic clusters of interrelated companies and institutions. In his 2014 report, Spencer72 identified 230 separate geographic clusters in 21 different industries in Canada. This included a higher education cluster in Charlottetown that employed 2,066 people in 2011, the aluminum cluster in Saguenay that employed 3,687 people and the food and beverage cluster in London that employed 6,972 people. Firms in these clusters benefit from being in the same geographic region with shared local knowledge and a shared pool of talented workers.
However, there are large information gaps at the local cluster level, as clusters have very different needs and are facing very different challenges regarding innovation. Through the creation of cluster research centres, gaps in the cluster’s ecosystem will be identified, idea sharing will be increased, data will be collected and shared and regulatory failures will be identified.
Recommendation: The federal government should fund the creation of a network of cluster research centres across the country at universities within the geographic area of the cluster that would be required to provide a yearly set of deliverables to maintain their funding.
The deliverables for each cluster research centre would include the following:
Recommendation: Each cluster research centre must convene a minimum of one meeting per year with local stakeholders, including industry, academia and government, to network and share information and aid in the creation of reports and white papers on the challenges the cluster is facing.
Recommendation: Each cluster research centre must ensure they collect data, both qualitative and quantitative, about the cluster.
Recommendation: Each cluster research centre must, once per year, update (or create) a publicly available map of their local cluster ecosystem.
Recommendation: Each cluster research centre must, once per year, release a white paper with policy recommendations for governments.
Recommendation: Each cluster research centre must, once per year, report on the state of the cluster and identify possible gaps in the local ecosystem.
Recommendation: Each cluster research centre must, once per year, report on the local cluster’s best practices and those from other clusters.
Recommendation: Each cluster research centre must, once per year, report on what initiatives, if any, companies in the cluster have undertaken to increase the hiring of underrepresented groups, including women, visible minorities and Aboriginal Canadians.
Recommendation: Each cluster research centre must, once per year, report on the labour needs of the cluster, identify any skills training gaps in the sector and provide curriculum and co-operative education recommendations to universities, colleges and other educational institutions.
Recommendation: Each cluster research centre must, once per year, award up-and-coming young innovators in the local ecosystem.
2Who will be responsible for administering the idea?
The development and ongoing administration of the cluster research centres will be the responsibility of the Minister of Innovation, Science and Economic Development and the universities and colleges where the centres are located. In his 2015 mandate letter to the Minister of Innovation, Science and Economic Development, the prime minister mandated the development of an Innovation Agenda that included expanding effective support for “the emerging national network for business innovation and cluster support.”73
3What mechanisms for accountability or measurement can be put in place for the idea?
The requirement for a yearly set of deliverables to maintain funding provides accountability. Checks and balances must be put in place by the ministry to ensure the delivered materials are of acceptable quality. These deliverables will be made public to disseminate information and to ensure quality.
4What failures is the idea trying to solve?
The cluster research centres are designed to address, either directly or indirectly, a wide array of market and regulatory failures that can occur in a cluster.
Thin Markets: Cluster markets are thickened by more workers and more firms. The research centres help increase the supply of labour through their recommendations to address skills training gaps, as well as sharing of best practices to tap into historically excluded sources of labour. More firms can be created through the centres better matching start-ups with sources of capital to obtain funding. Both sides of the market can also be thickened through the advice the centers provide to governments on skills and funding gaps.
Externalities and Knowledge Spillovers: Knowledge spillovers will be created through the meetings assembled by the centre and by increasing “collisions” through the other activities of the centres. The centres will disseminate best practices and other forms of knowledge that can be adopted by other firms.
Network Externalities and Co-ordination Failures: The cluster research centres create a geographic space for people in the cluster to meet, share ideas and develop new approaches.74
Evangelism Externalities: The cluster research centres act, in part, as a champion for the local cluster and should serve to promote the values of the cluster to other Canadians, enhancing the reputation of the cluster.
Regulatory Failure: One of the responsibilities of the centres is to address regulatory failures by providing regulators and lawmakers more local knowledge of and feedback about the cluster. A common complaint we heard from regulators in our roundtable was this: “We hear from 40 different cluster stakeholders about 40 different issues; we don’t know which problems are the most important.” Cluster research centres can provide “triage” guidance to regulators, so the most pressing priorities are addressed first.
Risk Aversion: One of the tasks of the centre is to provide awards to innovators and other successful risk takers, thereby creating role models and encouraging others to do the same.
Inequality of Opportunity: The cluster research centres will directly reduce inequality of opportunity by looking for bottlenecks that are excluding people from the local market. Additionally, these centres will look for ways promote companies that seek ways to diversify their hiring.
5What are the potential benefits of the idea and what are the costs?
Benefits: These centres will help address skills shortages, and gets universities and the private sector used to working with each other. If these centres create stronger clusters, it not only benefits the workers and companies within the cluster but creates spin-off employment and prosperity in other local industries.
Costs and Risks: There is a financial cost to setting up and running these centres will cost money. Industry Canada recently funded a similar research centre at Western University with $1 million a year for five years. We estimate that each cluster research centre would cost between $500,000 and $1 million a year to run.
Firms may resist participating in centres or may see them as a way to ensure the government enacts policies and approaches that benefit the industry but not the overall goal of the research centre. There is also the possibility of political interference with the work of the cluster research centres or in choosing which research centres get funded. The centres will need to have a level of independence to ensure this does not happen.
6Will the idea increase economic inclusion and/or enhance autonomy? If so, how?
Economic Inclusion: Economic inclusion is a primary goal of the research centres as they focus on increasing inclusion in the cluster. Many of the clusters face skills shortages, yet many people in excluded groups are unable to participate in the cluster.
Autonomy: These research centres will help entrepreneurs start new businesses within the cluster. By helping match people with good ideas to sources of funds, individuals are given more options in how to participate in the local economy.
72 Spencer, 2014
73 Office of the Prime Minister, Minister of Innovation, Science and Economic Development Mandate Letter (2015).
74 This is referred to in economics literature on coordination failures as a “Schelling point.”
About the Authors
Dr. Mike Moffatt is Senior Associate at Canada 2020. He is also an Assistant Professor in the Business, Economics and Public Policy group at Ivey Business School at Western University, where he teaches courses in international trade and firm-level strategy. Mike is Director of Ivey’s Lawrence National Centre for Policy and Management, a public policy centre that is taskedwith bridging the gap between business strategy and government policy.”
