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>Growing industry clusters now seems to be the >exclusive focus of Portland’s economic recovery >discussions. Should we pin all our hopes on the >cluster idea? The cluster concept is a good one, but >it is only a partial answer to our problems. Half a >solution may yield zero benefit! In order not to >waste our financial and emotional investment in >recovery programs, we must also look at social >capital, and at the role of a godfather. > >Prominent local investors have hinted at the >importance of our social characteristics, social >infrastructure and communication networks. Will >Glasgow remarks in the Oregonian about our >“mellowness.” David Chen wishes we had more “sales >DNA,” and mentions how executives in Portland’s >embedded software cluster don’t talk to each other. >These vital issues go unmentioned in cluster theory.  > >According to Alec Hansen of Sausalito’s Economic >Competitiveness Group, Inc., an industrial cluster >consists of:  > >o Key firms exporting goods and services out of the >region. >o A network of supplier firms supplying inputs, raw >materials, components, parts, and specialized services. >o Economic foundations: human resources, technology, >access to capital, business climate, and physical >infrastructure. > >Hansen’s pyramid diagram of cluster structure, widely >circulated in Portland, emphasizes the economic >foundations of a cluster, but gives no clue that >social foundations are equally important.  > >Michael Porter’s influential paper “Clusters and the >New Economics of Competition” mentions, in passing, >“the social glue that binds clusters together.” He >notes that Israel’s “strong desire” for food >self-sufficiency gave rise to its agri-tech cluster, >and that clusters succeed “especially when local >institutions are supportive.” He does not follow up on >these ideas. The Council on Competitiveness’ report >“Regional Foundations of U.S. Competitiveness” >(downloadable at www.oregoneconomy.org) is similarly >heavy on economics and light on social culture. In >only one place does it mention “leadership committed >to a shared vision.” Cluster theory is thus mechanical >(“put this firm here and that company there…”) and >ahistoric. > >Contrast this to Frances Fukuyama’s belief that >“Cultural differences will become the chief >determinant of... success in the global struggle for >economic predominance…. Social capital will be as >important as physical capital.” Where Porter mentions >off-handedly that “a cluster’s roots can often be >traced to historical circumstances,” Fukuyama sees >history as central: “The ability to cooperate socially >is dependent on prior habits, traditions and norms, >which themselves serve to structure the market.” > >In Fukuyama’s view, the development of prosperity >depends on trust relationships that extend beyond the >family but are not organized or administered by >governments. A region’s “spontaneous sociability” – >its ability to form viable new civil and civic >associations – depends on “ethical habits and >reciprocal moral obligations.”  Social capital (“the >ability of people to work together for common purposes >in groups and organizations”) is thus different from >“human capital,” a term we use to refer to managerial >talent and an educated workforce. > >To understand high-tech prosperity, we might look at >the historical diamond industry. Known for extreme >collocation and extreme trust, this industry depended >on handshake agreements; few receipts were demanded. >Knowledge workers (engineers, cutters, appraisers, >buyers, retailers) worked in proximity, but the >industry was international, indeed nearly global. High >tech development should be based on the same kinds of >trusting alliances and partnerships. Can Oregon build >and sustain these in an environment of nondisclosure >agreements, non-compete clauses, sweetheart investment >banking deals and pirated code? What about our social >attitudes toward change, innovation, and wealth? How >do we treat entrepreneurial failure? Do we celebrate >the success of others, or overtly or covertly punish >it? > >How can we leverage some bits of our history, overcome >other bits, and establish and maintain social capital? >Having been part of Austin’s transformation in the >‘80s and 90s, and having consulted for many other >budding techno-regions, I say one important answer is >a godfather. The godfather (could be a godmother, of >course!) is the keeper of the vision. A visionary >himself, he is steadfast and persistent, and has >excellent local and external networks of >acquaintances. He may profit from economic development >activities, but is not in it primarily for personal >monetary or status rewards. Indeed he is usually >financially comfortable already, which enables him to >hang in there, sustaining the vision for decades if >need be. He is a longtime member of the community, >trusted by varied community groups. In Austin, this is >George Kozmetsky; in Curitiba, Jaime Lerner; and in >Oita, Prefectural Mayor Hiramatsu.  > >The godfather’s politics are non-partisan, and he is >careful not to cause irreparable rifts in the >community. His imprimatur on a project attracts people >to it; they know he will not support it if it is a >cover for graft or hidden agendas. Like mathematicians >flaunting their Erdös numbers, members of the >community gain status by their closeness to the >godfather. Silly? Perhaps, but very effective for >economic transformation. > >A community may have two or more “capi” in addition to >or instead of a godfather. This can work, but only if >the capi stick to a single story. An Austin CEO said, >“Even though I’d find lower taxes elsewhere, I brought >my company to Austin because it’s the only place where >I heard the same story from the mayor, the chamber, >and the university. It gave me confidence in Austin.” >The story we want to tell about our community is part >economic vision and part creation/renewal myth. At its >heart, it is more anthropological than economic. The >Oregon Business Plan starts us in this direction while >we still squabble about biotech strategy and business >taxes in Portland.  > >To succeed, we will accept that social capital makes a >difference; that our social character differs from >other regions’; and that parts of our character are >strengths to build on and other parts can be changed >constructively. We will build social capital to >support the Oregon Business Plan, filling out the Plan >with a story of who we are as a people and where we’re >going. This story will resonate with entrepreneurs and >corporate site selection managers. > >In the 1980s, referring to U.S.-Japan competition in >high-quality manufacturing, Peter Drucker said, “What >we have to learn from the Japanese is not what to do, >but to do it.” He meant that desire, commitment and >follow-through are as important as know-how. We must >remember this and act on it as we apply multiple >powerful ideas – clusters, social capital, and >communications networks – to forge our economic future. > >A short bibliography of social capital > >Baron, S., J. Field, et al., Eds. (2001). Social >Capital: Critical Perspectives. Oxford, Oxford >University Press. >Dasgupta, P. and I. Serageldin, Eds. (2000). Social >Capital: A Multifaceted Perspective. Washington DC, >World Bank. >Fountain, J. E. (1998). "Social Capital: Its >relationship to innovation in science and technology." >Sci. Public Policy 25(3): 103-115. >Fukuyama, F. (1995). Trust: The Social Virtues & the >Creation of Prosperity. New York, The Free Press. >Hefner, R. W., Ed. (1998). Market Cultures: Society >and Morality in the New Asian Capitalisms. Boulder, >Westview Press. >Knack, S. and P. Keefer (1997). "Does social capital >have economic payoff? A cross-country investigation." >Q. J. Econ. 112(4): 1251-1288. >Landry, R., N. Amara, et al. (2002). "Does social >capital determine innovation? To what extent?" >Technological Forecasting & Social Change 69(7): >681-701. >Lesser, E. L. (2000). Knowledge and Social Capital: >Foundations and Applications. Boston, >Butterworth-Heinemann. >Sabel, C. (1992). Studied Trust: Building new forms of >cooperation in a volatile economy. Industrial Districs >and Local Economic Regeneration. F. Pyke and W. >Sengenberger. Geneva, International Institute for >Labor Studies: 215-250.

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