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Innovation’s Conference Committee Hurdle

America continues to grope toward the development of an effective innovation strategy as part of a credible push toward economic reinvention. Notably, in September President Obama--through a solid white paper and a good Troy, N.Y. speech--articulated a bona fide plan for catalyzing the development and commercialization of mold-breaking new products and processes essential to staving off further economic decline.

So now comes the next juncture: Congress’ final deliberations on the creation of a new regional industry clusters program.

Congressional approval of an adequately funded clusters effort is critical because the nation’s economic recovery and longer-term revitalization hinge on restoring the economic health of its regions, metropolitan and rural.

Clusters matter because networks of interconnected, geographically concentrated businesses and related entities in a particular field have been shown, as we have noted previously, to deliver substantial economic benefits to firms and industries by facilitating accelerated knowledge sharing, enhanced access to specialized labor and suppliers, and substantial economies of scale.

Once it seemed U.S. industry clusters, think Detroit’s automakers, were invulnerable and immortal. Over the last 30 years, though, we’ve learned that in a highly competitive, highly connected world no region can take its economic base for granted.

What the federal government hasn’t learned is how to create a policy that catalyzes economic resiliency through greater cluster competitiveness.

Which is why it is crucial that the House-Senate conference committee on the Commerce-Justice-Science (CJS) appropriations bill (H.R. 2847) put aside squabbling and turf issues and approve something like the balanced two-part regional industry clusters initiative requested in the president’s budget for the Economic Development Administration (EDA) (also envisioned in a 2008 Brookings report).

The EDA budget request seeks $50 million for a regional innovation clusters initiative that would at once award competitive, bottom-up grants to strengthen local efforts and, to further support them, establish a national clusters research and information center.

The problem is, neither the House nor Senate CJS appropriation bills fully fund the president’s proposal. The Senate version provides about $35 million of the requested funds--enough to fund a viable clusters program with both a grants and information component. However, the House version slashed the president’s request to only $10 million to restore funds to EDA’s public works account, leaving only enough to fund a very small grant program (and no research and information center). Here, the president made a political mistake in repurposing EDA’s existing funding base rather than adding new funds. Predictably, those hurt by the shift came forward to ensure their interests were protected. But an opportunity remains for the greater good to be served.

To ensure that a fully-rounded clusters program becomes operational., the conferees should agree to the Senate funding level for the EDA economic adjustment, technical assistance, and research/evaluation accounts (allowing the clusters effort to be funded at about $35 million) but also accept the higher House funding level for EDA assistance programs ($255 million), which would allow conferees to split the difference between House and Senate appropriations for public works. Further, the conference report should explicitly affirm in its explanatory statements that the new cluster innovation program represents a new paradigm for EDA development activities--one applicable to both rural and metropolitan economies and that seeks to build local institutional capacity for global competitiveness.

Now, it’s true that the sum of $35 million for a new federal clusters program remains paltry given the scale of America’s needed economic reconstruction. And yet, the establishment of a well-designed and implemented EDA clusters program would serve as an important symbol and demonstration of a new federal approach to economic policy. 

At stake here, then, is an excellent opportunity to test a new bottom-up approach to regional development that encourages local creativity for innovation; leverages additional public and private money; deploys information to enable better decisionmaking; and, finally, encourages a more flexible federal culture.

So let’s go for it. Congress should implement the president’s vision and test an important new strategy for stimulating innovation and job-creation, region by region.