BusinessWeek: Top-Down Tech Clusters Often Lack Key Ingredients

Russia\’s planned \’science city\’ is a fresh example of centrally planned innovation, which historically falls short of its goals

By Vivek Wadhwa

Russia recently announced a government-planned “science city,” to be located outside Moscow, that it hopes will one day rival Silicon Valley\’s creative engine. The country plans to spend $200 million to turn a muddy field of birch groves and warehouses into a technology hub bursting with innovation and competitive companies. The government will dole out money to companies that it selects, powerful oligarchs will develop real estate, and government-appointed administrators will run it.

Russia isn\’t alone in trying to engineer new technology centers. China has invested billions of dollars to launch tech parks across the country, as have nations including Spain, Singapore, Finland, and Malaysia. The U.S. Congress is considering legislation to encourage new science parks by providing loan guarantees—never mind that U.S. office space vacancies are running at record levels in many cities.

Most of these projects are well-intentioned efforts to boost national competitiveness. But as I\’ve written before, top-down clustering doesn\’t tend to work nearly as well as when hubs of commerce and academia spring up from private efforts.

Many of the hundreds of cluster-development projects that have been started around the world since the 1980s have either failed or are on life support, including Tsukuba, Japan\’s science city, and Egypt\’s “Silicon Pyramid.” Because they typically die a slow death, you don\’t read about the failures on the front pages of newspapers. Political leaders long ago held press conferences to claim credit for advancing science and technology, management consultants earned hefty fees, and real estate barons reaped fortunes. Taxpayers were left holding the bag.

Slight evidence for cluster theory

Academics, including Harvard Business School\’s Michael Porter and many management consultants, have been prescribing central-clustering development plans for decades. The plans are based on the idea that governments or economic development bodies can create hubs of activity in specific industrial sectors by bringing businesses, suppliers, and researchers together in buildings or industrial parks. Build great infrastructure, offer financial incentives, and the magic will happen, the thinking goes.

Yet regional planners and academics get defensive when asked to produce evidence of cluster theory\’s success. They typically tout Silicon Valley and North Carolina\’s Research Triangle Park as examples of the success of government-supported clusters. In Silicon Valley though, the government can\’t take credit for success.

One way to understand the Valley\’s success is to compare it to the Route 128 ring around Boston. University of California Berkeley professor AnnaLee Saxenian\’s 1994 book, Regional Advantage: Culture and Competition in Silicon Valley and Route 128 documented the evolution of both tech centers. She noted that during World War II, the government provided funding to the Massachusetts Institute of Technology and Stanford University for research on aerospace and electronics. Boston had a huge advantage because of its proximity to East Coast industrial centers and helped build General Electric (GE), RCA, Westinghouse Electric, and Raytheon (RTN). Silicon Valley produced Hewlett-Packard (HPQ), but the 128 belt maintained an advantage through the 1970s.

By the 80\’s, Silicon Valley and Route 128 looked alike: a mix of large and small tech firms, world-class universities, venture capitalists, and military funding. If you were betting on one, you\’d have been wise to bet on Route 128 because of its longer industrial history and proximity to other big corporate research centers and high-quality schools, including Harvard, MIT, Yale, Brown, and Amherst College. Yet today, 128\’s luster has faded, along with one-time stars such as Digital Equipment, Data General, and Wang Laboratories.

Diverse populace fuels Silicon Valley

Silicon Valley\’s high rates of job-hopping, new company formation, and culture of information exchange and risk-taking put it over the top. Valley firms understood that collaborating and competing at the same time is a recipe for success in the tech world, where complex products often comprise chunks of technology harvested from many organizations. In addition, failure was tolerated and often worn proudly. The dynamism of this system overwhelmed the slow pace of technological change on Route 128. DEC, Wang, Prime Computer, and Data General went the way of the dinosaur.

In Silicon Valley today, diversity is the rule, both in terms of products and people. The region produces chips, computer hardware, business software, search engines, social media, and clean technology. From 1995 to 2005, 52 percent of Silicon Valley\’s startup founders were born outside the U.S., my research found. Immigrants from India and Taiwan have been especially adept at mastering the Valley\’s rules of engagement. They created their own networks and achieved extraordinary success. During the \’80s, scarcely any India-born immigrants founded Silicon Valley companies. During the 10-year period ending in 2005, they founded 15.5 percent of the region\’s startups.

University of Toronto Professor Richard Florida has been researching factors that provide Silicon Valley and other tech centers with advantages. His conclusion is the same as mine: It isn\’t location or government investment that makes a vibrant tech center, it\’s the presence of a diverse set of well-educated workers. After studying the growth of 50 metropolitan areas in the U.S. from 1990 to 2000, Florida found that the most successful regions were those with the most gay, bohemian, and immigrant citizens.

Entrepreneurs, not buildings and real estate, are the key to innovation and economic growth. Yes, a region needs good infrastructure and a pool of educated talent to develop a technology hub. But governments can\’t manufacture innovation by putting a set of fancy buildings next to a university, as Russia plans to do.

To build the next wave of successful clusters, governments should provide creative, risk-taking entrepreneurs with the means to start companies and build networks. They should provide seed financing and tax breaks for entrepreneurs, welcome skilled immigrants, and improve educational resources. That\’s the formula for nurturing entrepreneurship.

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