Tucson's Clustered Connections

Tucson’s
Clustered
Connections
Shana R.
Johnson

Tucson’s
Clustered
Connections
Shana R. Johnson
Major Paper submitted to the faculty of the
Virginia Polytechnic Institute and State University
in partial fulfillment of the requirements for the degree of
Master of Urban and Regional Planning
in Urban Affairs and Planning
Committee Members:
Dr. Heike Mayer, Advisor
Dr. Terry Holzheimer, Second Reader
April 2008
Alexandria, Virginia

Acknowledgements
This work was made possible by the patient guidance and support provided in countless
conversations with my advisor, Dr. Heike Mayer. Dr. Terry Holzheimer also provided
significant support to this project through his helpful critiques and his assistance in
contacting interviewees. Finally, I would like to thank my husband David, son Ward, and
parents Jessica and David Retherford for their incredible support during the research and
writing of this paper.
Cover Image Credits:
The University of Arizona, James E. Rogers College of Law, Student Life, Downtown
Tucson and the Sonora Desert
http://www.law.arizona.edu/admissions/studentlife.cfm?page=studentlife
IBM Tucson photo album, May 22, 1978, more than 300 IBM Tucson employees gather to
celebrate the first customer shipment of IBM 3420 Model 6s.
http://www-03.ibm.com/ibm/history/exhibits/tucson/tucson_photo.html
The Official Website of the State of Arizona, Arizona State Flag

http://az.gov/webapp/portal/displaycontent.jsp?id=1964

Tucson’s Clustered Connections

Abstract: Cluster-based economic development has been extensively practiced and
studied over the past two decades. Yet our understanding of how cluster policies have (or
have not) contributed to economic growth remains limited. This article analyzes the
outcome of cluster policy in Tucson, Arizona. Arizona was an early adopter of a widely
well regarded statewide cluster policy. Today only in Tucson do elements of its original
cluster policy successfully survive. This paper argues that the selective success of
Arizona’s cluster policy occurred in a regional economy that was first primed in its
industrial structure to produce small, entrepreneurial firms. The cluster working groups
were created at a time when there was an uniquely unmet need for an associational format
under which these small firms in regionally emerging industries could build the relational
assets that are key contributing factors to economic growth.
Keywords: Industry cluster, cluster policy, relational assets, associations, networking,

economic growth, bootstrapping, civic entrepreneurs
Table of Contents
Introduction ..............................................................................................................................1
Porter’s Diamond Model of Competitive Advantage............................................................. 8
Tucson’s Experience ............................................................................................................ 12
Economic Building Blocks ...........................................................................................................13
The Defense Sector ...................................................................................................................................... 13
The University of Arizona: BioIndustry and Optics ...................................................................... 15
Bootstrapping: IBM and Burr‐Brown.................................................................................................. 15
The Entrepreneurial Bug: Towards a Small Firm Town....................................................17
Aerospace, Manufacturing and IT ......................................................................................................... 19
BioIndustry ..................................................................................................................................................... 20
Optics................................................................................................................................................................. 22
Producing PublicPrivate Synergy .................................................................................. 24
Birth of a cluster policy.................................................................................................................25
Associations: responding to a need ..........................................................................................28
Network Economy Principles ................................................................................................................. 30
Playing with the big boys.......................................................................................................................... 32
Civic Entrepreneurs Leading the Way .....................................................................................33
The Post Cluster Era............................................................................................................. 35
Limits to the Porter Model...........................................................................................................36
Tucson v. Porter............................................................................................................................................ 38
Global to Local ............................................................................................................................................... 38
A Transitional Policy .....................................................................................................................40
What’s Next? Redefining the Role of Government..................................................... 43
Works Cited ............................................................................................................................ 44

Tables and Figures
Table 1 Twenty Years of Arizona Economic Development ..................................................... 4
Table 2 Evolution of Arizona's Cluster Organizations............................................................... 5
Table 3 Selected Firms and Employment in the Tucson Aerospace and Defense
Sector, 2008 .....................................................................................................................................19
Table 4 Public Sector Support of Arizona's Cluster Organizations, 2008.......................28
Table 5 Selected Academic Criticisms of the Porter Model...................................................37

Figure 1 Porter’s Diamond Model of Competitive Advantage 8
Figure 2 Hughes Aircraft Recruitment Team 14
Figure 3 Biotech Lineage in Tucson 22
Figure 4 From Geographical to Functional, Global Clusters 39
TUCSON’S CLUSTERED CONNECTIONS 1

Introduction
Industry cluster-based economic development has been one of the most
ubiquitous economic development policies of the past two decades. At least 40 U.S.
states have had an industry cluster policy. Nine state legislatures have written the
practice of targeted industry or cluster-based economic development into law (Akundi,
2003). In 2003 Barcelona-based The Competitiveness Institute, an organization that
serves cluster practitioners, published The Cluster Initiative Greenbook which included a
survey of 238 cluster initiatives and identified more than 500 cluster initiatives (Solvell
et.al, 2003). The U.S. Department of Housing and Urban Development (HUD) promoted
the use of cluster-based economic development in all of their economic development
programs in the 1990s (Gonzales, 1996). Institutions including the Organization for
Economic Cooperation and Development, World Bank, national governments, regional
development agencies, and U.S. states and local entities all implemented cluster policies
with great enthusiasm throughout the 1990s (Asheim, Cooke and Martin, 2006). Martin
and Sunley (2003, pp. 6) were correct in stating that “clusters , it seems, have become a
world-wide fad, a sort of academic policy fashion item.”
Yet despite the widespread and longstanding application of cluster policy, do we
really understand how it has (or has not) contributed to economic growth? According to
Asheim, Cooke, and Martin (2006), most cluster policies have been a disappointment to
policy makers in their inability to create new firms or improve the growth rate of existing
firms. They find that it is difficult to gauge the impact of a typical cluster policy at the
regional, cluster or firm-levels, and that “it is probably only at the very narrowest margin
that the impact of typical cluster policy support for better networking, joint marketing or
common purchasing initiatives can be measured, and then only at the level of firm
performance aggregated up to cluster performance” (ibid, 2006, pp. 21).
This paper aims to take on the challenge of assessing how one cluster policy, that
of Tucson, Arizona, has or has not improved its regional economy. To do this it
examines the impact of three industry cluster groups on their member firms: the optics
industry and the Arizona Optics Industry Association (AOIA), the aerospace and
information technology sectors and their Arizona Manufacturing and Information
Technology (AMIT) organization, and the bioindustry sector and their BioIndustry
Association of Southern Arizona (BIO-SA). These three industry cluster groups were
chosen as they are the only surviving organizations from the state of Arizona’s original
cluster strategy.
The key finding of this paper is that AMIT, AOIA and BIO-SA were successful
where the other cluster working groups were not in that they fulfilled an unmet need in
emerging industry sectors in Tucson for an associational format in which small tech
firms could build relational assets and access state resources. This analysis finds that as
suggested by Ashiem, Cooke, and Martin (2006) the major benefit of cluster policy that
accrued to firms in these cluster organizations was an increase in their ability to network
and exchange information with each other regarding market opportunities or state
assistance. The ability of firms to effectively communicate and network with each other
is critically important to economic growth and innovation, and to the extent that AMIT,
AOIA and BIO-SA have enabled their member firms to do this, they have enabled

growth. Understanding the circumstances that allowed only AMIT, AOIA and BIO-SA
to be successful gives us greater understanding of how cluster policy can be effective.
Methodological note
This research is based on interviews and correspondence conducted in October
and November 2007 with 3 Tucson cluster organization members, 1 Tucson local
economic development official, and 2 national consultants that have extensively worked
on Arizona and Tucson’s economic development policies. It also incorporates interviews
of Arizona technology entrepreneurs and policy makers done by Dr. Heike Mayer on the
topic of the emergence of Phoenix as a second-tier high tech city and Arizona’s economic
development policy.

Arizona’s Cluster Policy
Launching their cluster initiative in 1992 with the Arizona Strategic Plan for
Economic Development (ASPED) made Arizona an early adopter of cluster policy.
ASPED, initiated as a response to slower growth in the state and nationally, was
developed through a process that included an initial in-depth economic assessment of the
state’s economy followed by an extensive public participation process that included, 1
statewide town hall, 18 regional town halls and 6 public forums (Waits 2000). Over
4,000 Arizona residents across the state were involved in the ASPED development
process or received feedback on ASPED (ASPED Coalition 1992). ASPED identified 8
industry clusters for the state (information, health and biomedical, transportation and
distribution, business services, tourism, aerospace, minerals and mining, and agricultural
and food processing). Three additional industry cluster groups (environmental
technology, software, and senior living) were later incorporated in the policy (Waits
2000). The Governor’s Strategic Partnership for Economic Development (GSPED) was
formed to implement ASPED in June 1992. GSPED’s membership included the state’s
governor, industry leaders, state legislators, state and local economic development
professionals, and representatives from higher education institutions. Its initial challenge
was to convene the cluster working groups for the identified clusters, something few
regions had done proactively at that time. Cluster working group chairs were charged
with discovering what was critical to growth in their industry in addition to recruiting
membership (Breault et. al, 1996). While the cluster working groups originally began as
statewide associations they quickly devolved to the state’s regions where it was possible
for members to physically meet on a regular basis (Interview A, 2007).
Arizona’s broad-based active and inclusive cluster policy created through a
synergy of public and private actors was very highly regarded. Former HUD Secretary
Henry Cisneros visited Tucson in the mid-1990s to meet with its cluster working group
leaders to learn from their efforts (Gonzales, 1996). Waits (2000) studied the use of
clusters as an analytical tool to study the economy, as an organizational tool to involve
the private sector in regional development strategies and to improve communication
between firms in and across clusters, and as an economic development service delivery
tool in Arizona. Waits detailed how the ASPED development process aided in
enlightening public policy makers on the overarching issues influencing economic
development in the country (globalization, technological change etc.) and focused them
on the how the state could aid the development of its identified industry clusters to
improve their economic performance. Waits also examined the activities of the industry
cluster working groups, which were created by the ASPED process to aid with economic
analysis and continued under GSPED “to aid in strategy development and
implementation” (Waits, 2000, pp. 42).
Waits (2000) comprehensive analysis of Arizona’s cluster policy sought to identify
best practices for cluster-based development strategies from Arizona’s experience,
acknowledging that most cluster strategies were too new to have yet produced economic
impact. This article’s focus is not only on analyzing Arizona’s cluster policy from the
perspective of how it has impacted the practice of economic development. Indeed many
of the positive effects, such as the broadening the perspectives and practices of economic
development professionals in Arizona, that Waits documented remain today. The
article’s attention squarely focuses upon the impact of the remaining groups under study

and the failure of the celebrated policy to sustain itself in this decade. This analysis
differs from that of Waits’ in several ways:
1) It does not accept Michael Porter’s (1990, 1998, 2000) model of clustering
either as a true depiction of the organization of all regional economies or
as a suitable mechanism for fostering economic development.
2) It focuses only upon the only surviving original industry cluster working
groups of AOIA, AMIT and BIO-SA in Tucson, Arizona and their role in
fostering firm growth and entrepreneurship in that region.
3) It charts the development of the industry cluster working groups and why
this key component of Arizona’s cluster policy was so selectively
successful in the groups under study in Tucson.
Arizona has largely moved on to a focus on the “fundamentals” and innovation.
Table 1 Twenty Years of Arizona Economic Development
1988 Alan Hald begins informal meetings of Phoenix area tech entrepreneurs to
discuss economic development issues
1992 Arizona Strategic Plan for Economic Development/Governor's Strategic Plan
for Economic Development
1995 Arizona Technology Summit (Focus: Tech Transfer)
1998 Arizona Office of Workforce Development Cluster Strategy
2000 GSPED disbanded; Southern Arizona Technology Council, Proposition 301
2002 Flinn Foundation Bioscience Roadmap; Translational Genomics Research
Institute/International Genomics Consortium; ASU New American University
- Arrival of President Michael Crow
2003 Arizona State Legislature authorizes $440 million in spending on state
university research facilities; Governor's Council on Innovation and
Technology; Arizona Biomedical Collaborative (Arizona Board of Regents)
2004 $100 million approved by voters for biomedical training at Maricopa
Community College
2005 Small Business Capital Investment Incentive Passed; Meds and Eds Study;
Critical Path Institute
2006 Science Foundation Arizona/Arizona 21st Century Fund, Piper Chairs in
personalized medicine
2008 One Arizona Plan, Greater Tucson Technology Alliance (planned)
By 2007 the majority of the cluster working groups launched to implement

ASPED in 1992 no longer existed. The exceptions to this, again, are found in three
emerging industries in Tucson: Aerospace/Information Technology (AMIT), BioIndustry
(BIO-SA) and Optics (AOIA) that are the subject of this paper. In Tucson, several new
organizations have joined the cluster structure (table 2).

Table 2 Evolution of Arizona's Cluster Organizations
ASPED/ 2008 Tucson 2008 Phoenix Similar External

GSPED Organization Organization Organizations
Cluster
Health/ Bioindustry Association of Arizona None
Biomedical Southern Arizona (BIO- BioIndustry
SA) Association
(ABA)
Optics Arizona Optics Industry None
Association (AOIA)
Aerospace Aerospace, Manufacturing Arizona Arizona Association of
& IT (AMIT) - formed in Technology Industries (1964) – Also
2005 through a merger of Council (not a the state affiliate of
the Southern Arizona ‘cluster’ National Association of
Industry & Aerospace organization) Manufacturers; American
Alliance (SAIAA) and the Electronics Association
Information Technology (AEA) - Arizona Council
Association of Southern
Arizona (ITASA)
Information Same as Aerospace Same as Same as Aerospace and
Aerospace Arizona
Telecommunications &
Information Council
(ATIC) - former
Information/Communicat
ions Infrastructure
Foundation
Ag, Food None None Agri-Business Council of
Processing, Arizona (1978)
Forestry
Business None None
Services
Minerals and None None Arizona Mining
Mining Association (1965)
Transportation None None
/Distribution
Tourism and None None Arizona Office of
Experience Tourism, Arizona
Tourism Alliance (1996)
Senior Living None None Arizona Association of
Homes and Housing for
the Aging
Other relevant groups include: Arizona Chamber of Commerce and Industry (1974), which lobbies the state
for pro-business measures; Arizona Small Business Association, Community Information and
Telecommunications Alliance.

The key as to why these organizations – AOIA, AMIT and BIO-SA - have persisted
lies in an industrial and social structure unique to Tucson that made their creation
beneficial.
• A regional economy that produced the conditions for the emergence of a nascent
entrepreneurial dynamic in several high tech sectors prior to cluster policy.
• An unmet need for an associational format, the cluster working groups, to
connect firms in emerging industries.
• The ability of the cluster working groups to foster relational assets between firms
over time that has lead to increased economic opportunities and encouraged
entrepreneurship.
• The willingness of key civic entrepreneurs to give generously of their own time
and effort to make cluster policy in Tucson work for small tech firms.
Unlike the other cluster working groups created by ASPED, AOIA, AMIT and
BIO-SA were the first organizations of their kind of for their respective industries. These
groups, particularly optics, are composed of firms that prior to the cluster policy didn’t
even realize that they were an industry in the Tucson region (Waits, 2000, Interview D,
2007). Composed primarily of small firms, AOIA, AMIT and BIO-SA have allowed for
firms to develop working relationships that otherwise may not have occurred, to:
“focus more their efforts on being successful as a company and not spend so much time trying to
identify and tap in – for a small business trying to tap into the university, or Raytheon, or Fort
Huachuca, or even making connections with other small businesses here, it is really tough, it is not
an easy thing to do. Some of these working relationships develop over a period of years, they just
don’t happen over night” (Interview A, 2007, 2007).
This is significant because the development of networks of business relationships

have come to be seen as a key component to economic growth in the last decade.
“The focus on the mechanics of economic development must now be complemented with another
focus, where the guiding metaphor is the economy as relations, the economic process as
conversation and coordination, the subjects of the process not as factors but as reflexive human
actors, both individual and collective, and the nature of economic accumulation as not only
material assets but as relational assets” (Storper, 1997, pp. 28).
Despite an increasing focus on business networks in academic literature, in

economic development practice the realization of the importance of networks has lagged.
“Most economic development people are still sort of stuck in a physical world, and they think it is
about land, they think it is about property, they think it is about capital, physical capital, and a lot
of them understand human capital, intellectual capital, the flow of people – they are just not quite
there yet. So when they look at an economy they say well okay we’ve got to get companies to
move here, tax incentives, we’ve got to move things around, and they don’t completely understand
that what really grows a high value economy are the people. So what is going to connect the
people is the environment that they live in. So you want to have all the things, creative place, the
networks” (Interview D, 2007).

While Waits (2000) acknowledged that networking and collaboration between the
industry cluster working groups was an integral component of Arizona’s cluster policy
and she highlighted the success of AOIA in this respect, she did not focus on how these
aspects functioned to foster growth. A 1995 survey of the cluster working group
activities found that the two areas most cluster organizations were often engaged in were
to co-inform and to co-learn (Waits, 1996).1 Yet to co-inform and co-learn were termed
the “low end of the collaboration spectrum” (Waits 2000, pp. 44). It is not surprising that
cluster practitioners and analysts in Arizona would concentrate more effort on the
provision of economic development programs provided to the cluster firms via the cluster
working groups as the main benefit of their cluster policy. Michael Porter’s theoretical
perspective of clustering that underlies most cluster policies, including Arizona’s,
ascribed some importance to the role of information flows in cluster competitiveness, but
it emphasized the role of local competition and rivalry.

1 In this survey to co‐inform included things such as a cluster organization publishing a newsletter,
commissioning in‐depth cluster studies, and publishing cluster directories and to co‐learn included
the presentation of educational and training programs, seminars, conferences. These definitions
recognize only the formal mechanisms through which information and learning are transmitted
between economic actors.

Porter’s Diamond Model of Competitive Advantage
Although the idea of the ‘clusters’ of industrial activity is nothing new, Michael
Porter (1990, 1998, 2000) is often credited with the popularization of the use of industry
clusters as an economic development strategy in the 1990s. In his 1990 book The
Competitive Advantage of Nations, Porter introduced his “diamond” model of
competitive advantage (figure 1) to demonstrate how co-location among related firms
generates competitive advantage. The elements of his diamond (2000, pp. 20) include
four elements reinforce each other over time to induce locational industrial specialization.
Figure 1 Porter’s Diamond Model of Competitive Advantage
Graphic Source: Porter, 2000
While the basic tenets of the diamond have remained over time, Porter’s
explanations of clustering have shifted in their perspective. In The Competitive
Advantage of Nations Porter’s focus is on how nations generate advantages over one
another and the role of geographic clustering is just one aspect of a set of determinants of
national advantage. In accordance with his national focus Porter describes his
perspective as “Ricardian, in that I view trade (and foreign investment) as determined
most importantly by productivity differences, here broadened from Ricardo’s theory to
include differences in technology, factor quality and methods of competing (ibid, 1990,
pp.173).
In his 1990 work Porter focuses more on the functional relationships (vertical and
horizontal linkages) between firms in clusters. He described any type of business

network among firms, including, among other examples, keiretsu networks in Japan or
the family or quasi-family ties of business networks in Italy, as clusters. Porter (1990,
pp.151) describes the advantages of clusters as:
“The presence of an entire cluster of industries magnifies and accelerates the process of factor
creation that is present where there is a group of domestic rivals. Firms form an entire group of
interconnected industries and human resources, and numerous spillovers occur. The scale of the
entire cluster encourages greater investment and specialization.”
Porter (1990) claimed that there was not a widespread recognition of how often
competitive industries are found to cluster in single regions within nations. He ascribed
their tendency to cluster as an initial reaction to favorable factor conditions in his
diamond model, and thereafter as a self-reinforcing mechanism through external
economies of scale (he broadly credited Marshall (1890/1920). However, Porter
emphasized that most important to a cluster’s function as a source for competitiveness
was its ability to influence innovation by providing a social context for rivalry – as Porter
(ibid, pp.157) believes that “rivals located close to each other will tend to be jealous and
emotional competitors.” As part and parcel of how clusters influence competition, Porter
(1990) ascribes a pre-eminent role in how well clusters perform in their ability to transmit
information.
“Mechanisms that facilitate interchange within clusters are conditions that help information to
flow more easily, or which unblock information as well as facilitate coordination by creating trust
and mitigating perceived differences in economic interest between vertically or horizontally linked
firms” (ibid, pp.153).
Porter provides several examples of how clusters facilitate information flow:

“personal relationships due to schooling or military service; ties through the scientific
community or professional associations; community ties due to geographic proximity;
trade associations encompassing clusters; and norms of behavior such as a belief in
continuity and long-term relationships” (ibid).
He also noted that geographical proximity increases information flow speed:
The process of clustering, and the interchange among industries in the cluster also works best
when the industries involved are geographically concentrated (Porter, 1990, pp. 157).
By his 1998 book, On Competition, Porter had changed his conception of clusters
to one that emphasized their geographical concentration. Porter (1998, pp. 199) defined
clusters as “a geographically proximate group interconnected companies and associated
institutions in a particular field, linked by commonalities and complementarities The
geographic scope of clusters ranges from a region, a state, or even a single city to
spanning nearby or neighboring countries” and also as “a system of interconnected firms
and institutions whose value as a whole is greater than the sum of its parts” (Porter 1998,
pp. 213). Clusters are not just composed of different sub-sectors of an industry and
related industry sub-sectors, but in Porter (1998) clusters cut across industry designations.
Clusters can occur in many different sectors, small or large, and even in local service
industries including things such as restaurants or car dealerships. Clusters can occur in

both rural and urban areas, and the component industries of a cluster are variable over
time as industries decline or arise (Porter, 1998). Geographical proximity serves to
increase competition and the subsequent specialization of home market demand and
locational factor inputs:
“Competition is dynamic and rests on innovation and the search for strategic differences. Close
linkages with buyers, suppliers, and other institutions are important, not only to efficiency but also
to the rate of improvement and innovation. Location affects competitive advantage through its
influence on productivity and especially on productivity growth. Generic factor inputs themselves
usually are abundant and readily accessed. Prosperity depends on the productivity with which
factors are used and upgraded in a particular location” (Porter, 2000, pp. 19).
Porter (2000, pp. 21) delineated three ways in which clusters aid in increasing
competitive advantage “and amplify the parts of the diamond:
• increasing the current (static) productivity of constituent firms or industries,
• increasing the capacity of cluster participants for innovation and productivity
growth, and;
• stimulating new business formation that supports innovation and expands the
cluster.”
The ways in which clusters achieve these advantages broadly fall again to two
phenomena: local rivalry, and of less importance, information flows. In Porter (1998, pp.
213-214) cluster competitiveness “depends to some extent...
• on personal relationships
• face-to-face communication, and
• networks of individuals and institutions that interact.”
But, Porter (ibid) does not regard the presence of these types of information flows
as critical to the functioning of a cluster. Often cluster members may never have even
met, making associations a ‘nice to have’ but not a must for Porter:
“Although the existence of a cluster makes such relationships more likely to develop and
become effective, they are far from automatic. Formal and informal organizing mechanisms and
cultural norms often play a role in the functioning and development of clusters.”
Somewhat in contradiction, Porter (2000, pp. 30) does however find that formal
organizations are often “necessary” to the development of the cluster, and allow for their
member firms to exercise a more powerful collective voice.
“Individual companies can independently influence cluster development, but the importance of
externalities and public goods means that informal networks and formal trade associations,
consortia, and other collective bodies often are necessary and appropriate. Trade associations
representing all or most cluster participants can command greater attention and have greater
influence than do individual members, and an association or a collective body (e.g., joint research
center, testing laboratory) creates a vehicle for cost sharing.”
The role that information flows and relationships play in Porter’s work would
seem almost at odds with his overarching emphasis that it is local rivalry and competition
among local firm that spurs continual innovation, the centerpiece of his argument. Porter

(1998) claims that cluster theory connects network theory and competition. Porter (2000)
notes that most cluster participants are not direct business rivals and that competition and
cooperation can exist together. He claims that even among local firms that are not direct
competitors that rivalry exists because of a desire to be held in high esteem in a
community and a strong desire to do better than others.
“It should be clear that clusters represent a combination of competition and cooperation. Vigorous
competition occurs in winning customers and retaining them. Because of the presence of multiple
rivals and strong incentives, the intensity of competition among clusters often is accentuated.
Yet cooperation must occur in a variety of areas I have identified. Much of it is vertical
(buyer/supplier), with related industries, and with local institutions. Competition and cooperation
can coexist because they are on different dimensions or because cooperation at some levels is part
of winning the competition at other levels” (ibid, pp. 25).
Tucson’s experience implementing a cluster policy more clearly involves

cooperation and a response to a need for a c ollective body than rivalry.

Tucson’s Experience
To understand why cluster policy has been successfully applied in the
aerospace/information technology, bioindustry and optics sectors in Tucson, one first has
to understand the regional economic context in which these industries emerged. Tucson
is not generally considered as a leading region in the knowledge economy, and the City
of Tucson itself lags behind national indicators for income and educational attainment
(Interview A, 2007). Yet despite the humble state of the region’s economy it has
stimulated an emerging locally-grown set of tech entrepreneurs through a combination of
luck and history.
The foundations for a technology economy in Tucson were laid decades ago.
The concept of path dependent development demonstrates how a regional economy is
influenced and even “locked in” to a certain development trajectory based on its historic
economic capacities. Often historic economic capacities are determined by chance events
in a region’s history (Dicken, 2003). Tucson’s strengths in aerospace/information
technology, bioindustry and optics did not arise in isolation but were developed over
decades via the University of Arizona, Fort Huachuca, and major corporations such as
Raytheon, IBM and others locating in Tucson for unrelated reasons.
The economic crisis of the late 1980s and early 1990s produced a period of economic
opportunity for Tucson techies.
The same downturn in the national economy that spurred Arizonans to adopt cluster
policy stimulated entrepreneurship in Tucson. Tucson’s large tech firms shed thousands
of jobs during this period. Since several of its large tech firms (Raytheon, Honeywell)
have the Department of Defense as a key customer, the downturn in defense spending in
this period also spurred layoffs in these sectors in Tucson. There is anecdotal evidence
that some of those who lost their jobs during this period chose to remain in Tucson and
start their own businesses.
Tucson’s emerging industry tech firms have benefited from their own market niches
and are largely characterized as small entrepreneurial ventures.
Tucson’s tech industries have not grown through imitation of others or generic
capabilities, but rather are specialized in areas that have evolved from the development of
these industries unique to the region.
In an era where economic development planners often hope to grow the next big
industry we may lose sight of the importance of history and chance. Cluster policy didn’t
create tech industries in Tucson nor was there any other miracle policy that did so.
Ultimately, the cluster working groups of AMIT, AOIA and BIO-SA may have been
successful in Tucson because they responded to a very specific set of circumstances that
were giving rise to a technology-based economy.

Economic Building Blocks

If one wished to apply a theoretical model to Tucson’s tech economy
development at first glance the famed “triple helix”2 of higher education, industry and
government collaboration might work. The region is home to The University of Arizona
and strong defense sector employment. But Tucson’s entrepreneurial high tech and
bioindustry firms have roots not only in the defense sector and the university, but also in
firms that located in Tucson without regard or relationship to the university or defense.
The bootstrapping model for the development of high tech sectors in the absence of a
major university through “parent” firms incubating high tech talent, exemplified by
regions such as Boise, Kansas City, Portland and Phoenix (Mayer, forthcoming), is seen
to a lesser extent in Tucson with Burr-Brown (now Texas Instruments) and IBM serving
as their own “surrogate” universities incubating the region’s tech talent. Arguably,
Tucson has three distinct high tech firm lineages, defense and the university (being rather
independent of each other) and “parent” firms like IBM and Burr-Brown.
The Defense Sector

Not unlike accounts of the role of defense spending in aiding Stanford’s and
MIT’s or Silicon Valley’s high tech led growth (Leslie, 1992, 1993) the presence of
major military research facilities and defense contractors have perhaps played the largest
role in seeding Tucson’s emerging tech industries. A 1995 study found that Arizona tech
firms depended on the U.S. Department of Defense (DOD) for 25 percent of their sales.
In 1994 the state had more than 95,000 high tech workers, concentrated in industries
largely serving a defense market, including: electronic components and computers (49
percent), aircraft and missiles (20 percent), scientific instruments (including optics) (18
percent), computer software and services (8 percent), research services (3 percent), and
chemicals (including biotechnology products) (2 percent) (Charney and Leones, 1995).
In Tucson today Fort Huachuca and Raytheon Missile Systems are perhaps the most
prominent defense sector entities in an array of actors (see table 3).
Fort Huachuca, located 74 miles south of Tucson, was established in 1877 as a by-
product of the Indian Wars and was an active military post through World War II.
Following World War II the post was given to the state of Arizona, and that could have
been the end of Fort Huachuca had it not been re-acquired by the military during the
Korean War. In 1954 Fort Huachuca was put under the control of the U.S. Army’s Chief
Signal Officer, who found Tucson endowed with a climate favorable to the development
and testing of electrical equipment and aircraft. The future importance of these
technologies was not apparent at the time. The post became the home of the U.S. Army
Strategic Communications Command in 1967 (today the U.S. Army Information Systems
Command) and in 1971 the U.S. Army Intelligence Center and School. In 1990 the U.S.
Army Training and Doctrine Command became the “host command” for the post (U.S.
Army, 2008A, para. 1-10). Today the post is also home to the Joint Interoperability Test
Command, the U.S. Army Electronic Proving Ground, and the U.S. Army Network

2 For more information on the ‘triple helix’ theory see: Etzkowitz, H. (2008). The Triple Helix:
Industry, University, and Government in Innovation. London and New York: Routledge.

Enterprise Technology Command, which employ a number of highly skilled engineering,
science and computer science U.S. Army soldiers, Department of Defense civilian
employees and private defense contractors (U.S. Army, 2008B, para. 1).
For a state in which the real estate business has featured so prominently, it is
fitting that a Tucson real estate developer, Roy Drachman, was the one responsible for
bringing what is today Tucson’s largest employer to the region. In 1950 Drachman
learned that Hughes Aircraft Company was searching for a location of a new inland
manufacturing plant. Drachman led a group of a few other local leaders in successfully
lobbying Hughes to locate the plant in Tucson. The unit of Hughes Aircraft Company
that became Hughes Missile Systems Company manufactured missiles in Tucson for the
defense department through the 1980’s, but its engineering and research and development
functions in were in California. During the DOD downsizing of the early 1990s Hughes
acquired General Dynamics missile business and relocated both their manufacturing and
engineering functions from to Tucson (Hughes Missile Systems Company, 1997). In
1997 Raytheon acquired Hughes Aircraft in transaction valued at $9.5 billion (Raytheon
Company, 1997). Hughes Missile Systems Company became Raytheon Missiles
Systems. The firm now engineers and manufactures “next generation” missiles and
related technologies for the defense, homeland security and space exploration markets in
Tucson (Tucson Regional Economic Opportunity [TREO], n.d.). In 2007 Raytheon
Missile Systems increased its Tucson payroll by nearly 12 percent, to 12,515 Tucson
employees. However, it is not its manufacturing workforce that Raytheon increased, but
it is its engineering staff. Raytheon Missile Systems is currently continuing to actively
recruit engineering talent for its Tucson operations (Gillum, 2008).

Figure 2 Hughes Aircraft Recruitment Team
This front page photo from the Feb. 3, 1951, Tucson Daily Citizen, depicts the team that brought Hughes to
Tucson. The group is gathered at the home of Monte Mansfield (far right), president of the Tucson Airport
Authority, who holds a copy of the final agreement with Hughes. The other men are (from left) Roy
Drachman, realtor; J. Homer Boyd, chairman of the county board of supervisors; Mayor J.O. Niemann; and
C. Edgar Goyette, manager of the Tucson Chamber of Commerce. (Tucson Daily Citizen) (Photo and
Caption Source: Hughes Missile Systems Company, 1997).

The University of Arizona: BioIndustry and Optics
Tucson is fortunate to have a large, public research university. The University of
Arizona, which held its first classes with just 32 students and six teachers in 1891, today
has 36,805 students and 14,466 employees and is a “Research 1” (R1)3
institution. In fiscal year 2004 the university had $478.6 million in research
expenditures (The University of Arizona, 2007). Two locally important industries, optics
and bioindustry, had their genesis in the university (Interviews D, E and F). Many of
bioindustry firms in Tucson are spinoffs from the University of Arizona, or spinoffs of
spinoffs. These firms also tend to hire talent from the University of Arizona (Interview
E, 2007). Figure 3 gives a partial map of Tucson’s bioindustry firm lineage, with all
firms on this map having their roots in the University of Arizona. While most of the
bioindustry firms in Tucson remain very small, one early 1980s era-spinout from the
university, Ventana Medical Systems, now has more than 600 employees and several
offices outside of Tucson (Interview F, 2007). Another university spinoff, Selectide, was
bought by the transnational corporation Senofi-Aventis, and they are growing their
operations in Tucson (Interview E, 2007).
The optics industry was born in Tucson in 1942 out of the area's large number of
telescopes and its traditional strength as a center for astronomical study (Catts, 1999).
The University of Arizona’s Optical Sciences College (OSC) was established in the
1960s at a time when there were very few people trained in the field of optics. The lack
of optics professionals was deemed such a national crisis that the U.S. Air Force Institute
of Technology and the Optical Society of America assisted with the proposal for OSC’s
creation (College of Optical Sciences, n.d.). The optics industry grew as OSC professors
who had ideas that they wanted to pursue outside of the university launched their own
private ventures. (Interview F, 2007). The University of Arizona is known to have
produced 40 optics firm spinoffs, however, the industry has moved beyond its roots in the
university. Breault Research Organization (BRO), an optics software firm and University
of Arizona spinoff itself also has 22 of its own spinoff firms (Interview D, 2007). While
one cannot characterize the University of Arizona as an economic “seed” of Tucson’s
high tech economy as a whole, it has seeded the growth of Tucson’s bioindustry and
optics sectors.
Bootstrapping: IBM and Burr-Brown

IBM Tucson’s operations in data processing and storage and Burr-Brown, a
semiconductor firm, have in common that they were both became important incubators
for attracting and cultivating technology talent in Tucson. IBM originally bought land in
Tucson in 1969, acquiring more land in the city in 1974, but without any specific plans
for development of its site. It wasn’t until 1977 when Tucson was chosen as the location
in which the firm would reunite its General Product’s Division’s development functions
from Boulder, Colorado and manufacturing functions from San Jose, California in a new
facility in Tucson (IBM, n.d.) In a 1979 issue of the IBM employee magazine Think,
William Ross, then Real Estate and Construction Division program manager of site

3 Research 1 University is a designation of the Carnegie Classification of Institutions of Higher
Education that includes those universities that received the highest amounts of federal research
funding. See http://www.carnegiefoundation.org/classifications/ for more details.

selection for IBM, explained the firm’s reasons for selecting Tucson:
"It has good transportation, climate, housing and a good educational system at all levels. It's an
attractive area -- about one thousand miles from both Boulder and San Jose -- for our people to
work in. There was space available for the construction of temporary buildings, and utilities were
available on land already zoned for manufacturing/laboratory operations. So while we were
preparing a master plan for the permanent location, we put up buildings at the temporary airport
site" (Stegmann, 1979).
According to IBM’s Tucson Reference website, John Carter, General Products Division
Tucson’s first general manager recalls the selection of Tucson as a site as:
"Tucson had a number of advantages that made it attractive for a plant/lab site. It was located
relatively near the GPD headquarters in San Jose. It had excellent educational institutions. The
climate, housing and transportation were all good. And it was an attractive area for our people to
live" (IBM, n.d.).
The impact of IBM’s arrival and that of many new highly-skilled workers to
Tucson was felt immediately. IBM employees became active participants in Tucson’s
social and networking events, creating a “synergy” that lead to greater research and
development taking place. At peak employment IBM Tucson had 5,500 workers (Tivu,
2005A). Although the General Products Division of IBM was phased out in 1990, IBM
Tucson remains the home for the development of IBM’s storage operations, employing
highly skilled engineers and managers (IBM, n.d.). In 2006 IBM Tucson staff were
awarded 150 patents, up from 60 in 2003 (Pallack, 2007). The firm employed 1,457
people in 2007, a decrease of 293 employees from 2006 (AZ Star, 2008).
The founding of the microelectronics firm Burr-Brown in Tucson in 1956
occurred quite by “serendipity”, according to the firm’s founder, Tom Brown (Brown,
2002). Brown was an MIT-trained engineer and Harvard MBA turned Tucson real estate
developer until a friend, Paige Burr, induced him to start a company based on his idea for
a transistor. Three years after founding the firm, Brown bought Burr out of the business,
and the firm grew from a garage-based business to reach a peak employment of 1,300
(Tucson Citizen, 2007). A firm with an entrepreneurial spirit, during the 1980s Burr-
Brown launched three internal, independent entrepreneurial ventures (Davis, 1989). The
firm grew greatly in the 1970s and 1980s, in part thanks to its early penetration of
overseas markets and its ability to seek out profitable market niches, including producing
the first single-chip IC for the compact disc player. Although in the 1990s Burr Brown
continued its steady growth, there was some concern among analysts that its isolation
from Silicon Valley may have disadvantaged the firm’s ability to read its market
(References for Business, n.d.). In August 2000 Texas Instruments acquired Burr-Brown
for $7.6 billion (Tucson Citizen, 2007). In 2007 Texas Instruments employed 643 people
in Tucson, a decrease of 457 workers in the past 5 years (AZ Star, 2008).
While IBM and Burr-Brown are a shadow of their former selves in Tucson their
legacy in the region is strong. Both firms have been important to the growth of the
University of Arizona. The University of Arizona’s Eller College of Management’s
management information systems (MIS) program received $1 million from IBM in the
early 1980s, which “opened the door” to the college’s MIS program receiving nearly $50
million in additional funding from other institutions, increasing Eller’s credibility. IBM

Tucson has also donated a range of computer equipment to the University of Arizona
over the years (Vitu, 2005A). In 2007 the Thomas R. Brown Family Foundation,
established by Tom Brown, the late co-founder of Burr-Brown, donated $4 million to the
University to endow two faculty chairs, one in engineering and one in management. The
foundation is a strong supporter of both the engineering and management programs at the
University of Arizona (University Communications, 2007).
The Entrepreneurial Bug: Towards a Small Firm Town

Were the Tucson economy merely made up of a few branch plants of
transnational corporations or large institutions it would have a base of high tech
employment, but arguably it couldn’t be considered a “high tech economy.” Since the
1970s there has been recognition that sustained economic growth is created through
endogenous development (Eraydin, 2005). The issue of how to move from an economy
with few sources of endogenous growth to one of sustained growth, entrepreneurship and
innovation confronts many regions. Feldman (2001) identified how the Washington,
D.C. region made this transition from an economy dependent upon large sources of
institutional employment (the Federal government) to one of homegrown
entrepreneurship and broader-based tech employment. Feldman (ibid) demonstrated that
D.C. developed the attributes – access to venture capital, supportive social capital or
support services or networks for entrepreneurs – that have been considered prerequisites
for the development of a tech economy only after its entrepreneurial culture had been
generated. In the D.C. region entrepreneurship was first sparked by the downsizing of
the federal governments, a crisis for many whom had hitherto enjoyed reliable
employment and were socially embedded in the region, and it was aided by the
substantial increase in federal outsourcing. Mayer (forthcoming) highlights how in
smaller emerging technology regions the crisis of a layoff at a major tech employer
precipitated entrepreneurship among highly-skilled workers that wanted to stay in their
home region, and for whom other employment options in their region are limited or non-
existent. Stam (2007) has shown that early in an entrepreneurial venture’s life a very
important constraint on locational choice is where it is socially embedded (although this
constraint dissipates as the firm develops). It is the decision of individuals to become
entrepreneurs that seed external support services and the development of high tech
clusters (Feldman, Francis and Bercovitz, 2004).
Tucson shares the experience of a series of layoffs and downsizing in major
employers spurring entrepreneurship. From 1987 to 1992 the state of Arizona lost 15,000
high technology jobs from its large high tech employers alone. Arizona was not only
subject to the general economic downturn of the late 1980s and the early 1990s but was
also hit hard by the defense spending decrease that accompanied the end of the Cold War
(Charney and Leones, 1995). In 1988 IBM Tucson announced it would layoff 2,800 of
its 5,500 employees, and by 1994 IBM employed just 850 people in Tucson. In 1994 the
IBM campus was in large part given to the University of Arizona, where it has become
the university’s Science and Technology Park. IBM remains located at the site, and
alongside Raytheon is a major tenant of the park. By 2005 more than 7,000 workers and
30 firms occupied space at the park. Since the University of Arizona took control of the
tech park it has added an average of 500 employees a year to the site (Vitu, 2005A).
Even beyond the tech park, however, the legacy of IBM’s precesne in the region

is strongly felt. During the major downsizing of the firm in Tucson in the 1990s a lot of
former IBMers chose to stay in the town and form their own businesses. Many stayed
because the liked the quality of life in Tucson and were established in the region
(Interview A, 2007). During the IBM downsizings the company offered training and
buyouts that included two years of salary and $25,000 which helped start their own
businesses. While no data exists on how many former IBMers started businesses in
Tucson it has been estimated that it was upwards of 100, including former manufacturing
and other low-skill employees, as well as more highly-skilled ones. Some entrepreneurs
continued to do what they did at IBM and have found that their credentials as former
IBM employees and skills they received in IBM’s internal training programs have helped
them succeed. John Carter, IBM Tucson’s first general manager from 1977 to 1987, was
chief executive and quarter-owner of a firm that assembled IBM tape cartridges,
Qualtronics, and then was chief executive at Burr Brown. He was quoted in a 2005
article as saying, "IBMers liked it here. They tried to move me on and I decided not to
go" (Vitu, 2005B). A similar phenomenon of former employees staying in the region and
starting businesses has occurred with Fort Huachuca. Former military members working
in the post’s high-level software development and intelligence command functions have
often after leaving military service stayed in the region and started their own businesses,
often based on some of the things they were doing in Army (Interview F, 2007).
Burr Brown’s dramatic downsizing following its acquisition by TI also had a
silver lining. The reductions in the TI workforce in recent years have come as TI
consolidates its manufacturing in Texas, but it is keeping 300 engineering and
development jobs in Tucson (Tucson Citizen, 2007). Burr Brown’s role in incubating
talent for the region was extremely important. Jim Strickland, a former Burr Brown
executive, is the founder Tucson’s Coronado Venture Fund. Coronado Venture Funds
was an important funder of local bioindustry powerhouse Ventana Medical Systems
(Interview F, 2007). Coronado Venture Funds is an organization that services 4 venture
capital partnerships with $10 million. Its focus is on tech firms in Arizona and
neighboring states (Governors Council on Innovation, n.d.). Strickland is also involved
with the Desert Angels, a group of Tucson Angel Investors (Interview F, 2007). Founded
in 2000, the Desert Angels now has more than 70 members and reviews over 100 firms as
a year as possible investments (Desert Angels, n.d.).
The talent brought to the region has thus been important not only to the work they
are doing at a firm, but in sparking third-sector support and funding resources for
potential entrepreneurs. In addition to the Desert Angels, Coronado Venture Fund, and
the cluster organizations, Larry Heckler, a local attorney, hosts a well attended annual
seminar, IdeaFunding, to get people to better understand the process of the different
avenues of funding an entrepreneurial ventures (Interview F, 2007). IdeaFunding began
in 1998 and is supported by the cluster organizations as well as other regional partners
(IdeaFunding, n.d.).
The downsizings experienced by the hallmark large Tucson technology employers
of the past have thus seeded what is today a small firm town. Tucson has a plurality of
small technology-based businesses that offer a more diverse technology base than the
town had in the past. The entrepreneurs that responded to the layoff crises are also joined
by those who were natives of Tucson or graduates of the University of Arizona who
chose to stay or return to the town for their love of the region, and started their own tech

businesses in the face of a lack of other employment opportunities. These entrepreneurs
have built avenues of small business support for knowledge and funding, including the
cluster organizations, that have added a support structure for entrepreneurship.
Aerospace, Manufacturing and IT

A 2006 analysis of Tucson’s Aerospace/Defense cluster ranked it 5 in the nation.
th
Aerospace jobs alone in Tucson account for 55 percent of the region’s total high tech
employment. The sector is dominated by Raytheon Missile Systems which employs 60
percent of the region’s aerospace workers, and 4 of 5 Tucson Aerospace engineers.
Tucson’s aerospace firms primarily serve a national and international market and are
highly embedded in extra-regional relationships, they spend only 8 percent of their
procurement budget in the region (TREO, 2006).
Table 3 Selected Firms and Employment in the Tucson Aerospace and Defense Sector, 2008
Firm/Institution Type Arrived/Founded Employees

Raytheon Missile Branch 1951 12,515
Systems (formerly Hughes
Aircraft)
Honeywell Aerospace Branch 760
Bombadier (formerly Gates Branch 1976 581
Learjet)
Evergreen Maintenance Branch 400
Center Inc.
B/E Aerospace Inc Branch 2002
General Dynamics Branch 978
Information Technology
Science Applications Branch 390
International Corp.
Northrop Grumman Corp. Branch 550
Abrams Airborne Branch 1965 240
Manufacturing Inc.
Manson Co. Inc Local firm 1948
Universal Avionics Systems Local firm 1981 450
Sargent Controls & Aerospace Local firm 1990 261
(Moved to Tucson)
Global Aircraft Solutions Local firm 1947 155
(formerly Hamilton Aircraft
Company)
Davis-Monahan Air Force Military Base 1925 7,701
Base
U.S. Army Intelligence Center Military Base 1877 6,701
and Fort Huachuca
Data Sources: AZ Star, 2008. TREO. (n.d.). Aerospace. Retrieved September 2, 2007
from http://www.treoaz.org/Industry-Strengths-Aerospace.aspx.

Tucson’s information technology (IT) firms
Aerospace/Defense
have a very different mix and makeup. Tucson’s • 200 local companies
IT businesses grew primarily because of the • 20,000-30,000
growth of small, local firms. Between 1990 and employees
2004 Tucson’s IT firms collected 729 patents, • $5-6 billion in revenues
Information Technology
more than any other industry sector in the region.
• 1,200 local companies
In this time period software-related employment • 50,000 employees
virtually entirely accounted for the growth in the • $4 billion in revenues
sector, and the software sub-sector employed the 1990-2004 Job Creation
vast majority of the region’s IT workers. • Aerospace/Defense
11,640 (top regional job
Tucson’s IT firms serve both regional and
creator)
national markets in equal shares (TREO, 2006). • IT 819 (software driven)
Source: Tucson Regional
The Aerospace, Manufacturing and Economic Opportunity, 2006
Information Technology cluster was created in
2005 through a merger of the Southern Arizona Industry & Aerospace Alliance (SAIAA)
and the Information Technology Association of Southern Arizona (ITASA) (TREO,
2006). AMIT regards itself as “the central voice for over 800 companies and 15,000
professionals in Southern Arizona.” With 89
AMIT Peer Network Purpose: member firms its primary function is networking
• share common challenges
and obtain insight on
and knowledge sharing. AMIT’s industry
innovative solutions networks connect those in the aerospace,
• develop perspectives on manufacturing and IT sectors individually, while
issues that affect its has peer networks that allow for chief
competitiveness executives, “one man band” or 1-2 person firms,
• network with others who are
making advances in and
and sales and marketing firms to also meet
providing support to the together in a focused setting (Aerospace,
technology industry Manufacturing and Information
Source: AMIT, n.d. Technology[AMIT], n.d.).
BioIndustry
“We don’t have any expectations of being San Diego or Seattle in the foreseeable future, but it is an
outlet for technologies spinning out of the university, it does contribute to economic development”
(Interview E, 2007).
Since the founding of Ventana Medical Systems in the 1980s, Southern Arizona has
gained some momentum in bioindustry. Excluding hospital employment, the sector
increased employment by 22 percent between 2001 and 2004, despite slow growth in the
sector nationally. While as a share of the region’s employment, excluding hospitals, the
bioindustry accounts for just 1 percent of private employment, the sector is growing.
Southern Arizona has particular strengths in biological research, testing laboratories and
medical device manufacturing (Battelle, 2006).
The University of Arizona remains important to the growth of the BioIndustry
sector in Tucson. The Board of Regents that govern Arizona’s higher education system

have instituted an “Enterprise Model” of development, which acknowledges that in an
environment where state funding for higher education will not increase significantly that
alternative revenue streams must be found. Concurrently, private sector interest in
industry-relevant activity in the university has increased. This situation has generated an
increased interest in the commercialization of technologies developed in the university
that will probably continue for some time (Interview E, 2007). Between 1997 and 2004
life science research (including medical research) grew by 108 percent at the University
of Arizona. Life science research is now more than half of the university’s research
funds (Battelle, 2006). Funding agencies of life science research, in particular the
National Institute of Health, are also dictating more applied, industry-oriented research,
which increases opportunities for BioIndustry firms in Tucson to grow from or partner
with the University of Arizona (Interview E, 2007).
In addition to the University of Arizona, in recent years Tucson has benefited
from the addition of two local institutions relevant to bioindustry and a broader statewide
focus on fostering bioindustry as a source of economic growth within Arizona. A few of
these contributing organizations are:
• C-Path: The Critical Path Institute (C-Path) was founded in 2005 as a partnership between the
University of Arizona, the Federal Food and Drug and Administration and SRI International to
facilitate faster ad safer development and commercialization of drugs and medical devices
(Arizona Daily Star, 2007).
• BIO5: Created in 2001 using funds from a voter-approved tax the purpose of the BIO5 Institute is
to aid interaction between University of Arizona faculty and industry. The institute was named
BIO5 after the five academic disciplines its work encompasses: science, agriculture, medicine,
pharmacy, and engineering (BIO5, 2008).
• Flinn Foundation Bioscience Roadmap: In 2002 the Bioscience Roadmap was launched by
Phoenix-based Flinn Foundation with consulting assistance from Battelle Memorial Institute. The
roadmap created a 10-year strategy intended to accelerate Arizona’s private-sector bioscience
capacity (Flinn, 2007). In 2006 the Flinn Foundation and Battelle provided a Bioscience
Roadmap that focused on Southern Arizona (Battelle, 2006).
• Science Foundation Arizona (SFAz): Phoenix-based SFAz is a non profit organization created in
2006 by industry-sector leadership groups from Flagstaff, Phoenix, and Tucson (Southern Arizona
Leadership Council) to build on the efforts of the Flinn Foundation’s Bioscience Roadmap.
Among other activities, SFAz makes grants in areas deemed to be of strategic research interest to
the state and encourages research partnerships between the private sector and the state’s academia
(SFAz, 2006).
• Translational Genomics Research Institute (TGEN): Also a non-profit based in Phoenix, TGEN
was created in 2002 under the leadership of renowned former-NIH scientist Dr. Jeffery Trent.
TGEN’s focus is on “developing earlier diagnostics and smarter treatments” (TGEN, n.d.) Trent
is a graduate of the University of Arizona, and at least one TGEN official holds a professorship at
the University. A professor from the University of Arizona has also worked at TGEN (M.
Berrens, personal interview).
The BioIndustry Association of Southern Arizona (BIO-SA) currently lists 89

members. BIO-SA’s mission is to promote “regional bioindustry through community
building and business enablement” (BIO-SA, 2005). BIO-SA serves as a format in which
to connect members of Tucson’s emerging bioindustry sector:
“I get lots of calls from people looking for a particular technology or some expertise and one of
my roles is to try and put the right people together, so that both companies if you like, or the
company and the university can both benefit” (Interview E, 2007).

BIO-SA participates in state trade missions, national bioindustry conferences, and

partners with its Phoenix counterpart (although the 120 mile distance between Phoenix
and Tucson limits their interaction). BIO-SA has been credited with creating a
“synergism” that has helped enhance innovation. The culture of BIO-SA and Tucson’s
BioIndustry sector is congenial, not openly competitive. There is a good amount of
trading of firm management and talent (Interview E, 2007).
As a part of Battelle and the Flinn Foundation’s Southern Arizona Bioscience
Roadmap prescriptions for growing bioindustry in the Tucson region they recommend
strengthening BIO-SA by providing funding for a professional staff so they can increase
the networking opportunities they offer, as well as increase other specialized services to
bioindustry firms (Battelle, 2006). Battelle has mapped out a partial lineage of
bioindustry firms in Tucson (figure 3).
Figure 3 Biotech Lineage in Tucson
Biotech Lineage in Tucson

Companies with less than 10 Full Time Equivalent (FTE)
U. Arizona employees are in bold
Niadyne All companies have connections with UA
Prolx Selectide (4)
Melanotan
Amplimed NanoSyn Sanofi-Aventis
Cyternex (Relocated)
Sabino Biosystems SIDDCO
(ChemRx – closed) 4
Encore
ImaRx Pharmaceuticals (RIP)
(DuPont) 3
Torviq High Throughput
(Relocate Genomics 4
d))
ImaRx Therapeutics 3
Ventana Medical Systems 2
Vega
(closed) Protein Therapeutics 1
1 Cord Blood Registry
Protein Technologies
Integrated Biomolecule
(Rainin Instruments) 1
Graphic Source: Battelle, 2006

Optics
“If it is from Tucson, if it’s optics, it’s holy” (Interview D, 2007).
Tucson’s lead in creating a center for the study of optics has arguably propelled
the region into industrial prominence in the field. Revenue for optics firms in Tucson
grew from $500,000 dollars in the early 1980s to $750 million in 1998 (Barber, 2001).
Arizona optics firms surveyed in 1995 and 1999 increased their employment by 42

percent in 4 years. Median firm employment among surveyed firms grew from 6 to 12
full time equivalent employees (Catts, 1999). It is estimated that 770 optics employees
work in firms employing a total of 100 people or
fewer (Young, 2007). Due to a vertically-linked Optics Industry Highlights
local supplier network nearly 40 percent of Tucson and Southern Arizona
revenues for optics firms are generated from local • 150 local companies
• 4,573 employees in
sales, although optics firms are well connected Pima County
and engaged in business with firms and • $650 million in revenues
institutions across the globe (Catts, 2001, (Source: TREO, n.d.)
Interview D, 2007). A 2006 survey of Arizona
optics and nanotechnology firms found that the
largest impediments to further growth included a dearth of qualified employees,
networking opportunities and funding (Wiggins, 2007).
The Arizona Optics Industry Association (AOIA) was founded in 1992, the same
year that the magazine Business Week in a cover article famously declared Tucson
“optics valley” (Interview D, 2007). AOIA is often deemed to be the most successful or
active of the clusters (Interview F, 2007, TREO, 2006). While the organization remains a
statewide cluster, the locus of its activity is in Tucson. AOIA’s strategic objectives
(marketing, networking, strategic partnering, education and representation) are achieved
through the collaboration of over 300 member firms across Arizona (TREO, 2006). A
founder and long-time leader of AOIA, Dr. Robert Breault, has traveled the world
helping other optics cluster organizations get started and to promote Tucson’s optics
cluster, generating significant amounts of new business for his own firm as well as others
(Interviews C, D). As a result of the cluster’s activities the optics industry in Tucson has
become very branded internationally, and optics firms (not always “good” ones) have
relocated to Tucson. AOIA members collaborate informally and formally in business,
helping startups with their business plans or finding funding (Interview D, 2007), and
they have worked together to win business contracts that otherwise they wouldn’t have
been able to get individually (Waits, 2000). AOIA has used its brand reputation and the
power of its large membership to secure in-kind donations of advertising for the cluster in
trade magazines and to persuade larger corporations financially sponsor its events
(Interview D, 2007).
Perhaps more than anything else however, AOIA benefits its member companies
by serving as a conduit for informal information exchange and networking. As a result of
AOIA’s efforts to connect through various venues to other optics firms across the world
and to market itself the organization has become the go to resource for the industry. With
one call to an AOIA member a firm from Tucson or from across the world can send out a
request for work to all AOIA members or solicit recommendations of a firm qualified to
do work with them (Interview D, 2007). While prior to the founding of AOIA no
recognition of an “optics” industry in Arizona existed, today the optics industry with the
help of AOIA has become an important contributor to economic growth in Southern
Arizona (Waits, 2000).

Producing Public-Private Synergy

Although the circumstances that led to Tucson’s development of an emerging tech
economy and surrounding the creation of its cluster policy may be unique to the region,
there are aspects of Tucson’s experience that can inform economic development policy
more broadly.
Arizona’s cluster policy was private-sector lead.

Arizona is unique in that its cluster policy was not initiated by the state, but rather was a
grassroots business initiative that grew to encompass the public sector. In Arizona
private sector leaders were ahead of their public sector peers in identifying what was
needed for the state’s technology businesses to grow.
Tucson’s small tech firms had an unmet need for formal state and informal (peer)
assistance and information.
Prior to the implementation of the cluster working groups no association existed to
network those in the bioindustry, optics and aerospace, information technology and
manufacturing sectors in Tucson. Firms in these sectors were unaware of what work was
being done by other firms in the region. In the ‘new economy’ the exchange of
information and know-how facilitated by interpersonal networks are important
contributors to innovation and growth, and the creation of AMIT, AOIA and BIO-SA met
this need. Small tech startups also had difficultly accessing assistance or information
from the state. The state lacked information about the needs and character of its small
and medium sized tech firms.
Civic Entrepreneurs are essential for any policy to be effective.

Without Phonix-based software entrepreneur Alan Hald Arizona’s cluster policy
probably never would have come to be. Yet Hald’s vision to strengthen Arizona’s
economy through cluster-based economic development was achieved through his ability
to involve other leaders, “civic entrepreneurs,” who were motivated by their own
experiences doing business in Arizona and their desire to improve their state to devote
significant amounts of time and effort to the cluster working groups.

Birth of a cluster policy

Among the hundreds of state and local cluster policies created over the last two
decades Arizona’s is in one important respect unique; it was not initiated by public policy
makers. Instead ASPED was the brainchild of a single man, technology entrepreneur
Alan P. Hald, co-founder and then President of Phoenix-based technology firm
MicroAge, Inc. and a graduate of Harvard Business School. Hald played a critical and
catalytic leadership role when the economic downturn of the late 1980s and early 1990s
was compounded in Arizona by the fact the state was experiencing a concurrent political
leadership crisis that included the impeachment of a Governor (Interview C, 2007).
Arizona’s economy had been traditionally reliant upon natural resources, tourism, and
real estate development, all of which were heavily impacted by a slower growing
economy (ASPED Coalition 1992). Its business leadership came from these traditional
industries and was unable to deal with the state’s economic and leadership crises when
their own businesses were in trouble. Hald, a “civic entrepreneur” in the new economy
space, stepped into this leadership void and advocated for a new type of export-oriented
knowledge industry-based growth in Arizona. In 1988 Hald and a group of other
Phoenix area high tech entrepreneurs began meeting informally each weekend to study
the issue of how to better grow the Arizona economy (Henton, et. al 1997). Hald was
familiar with Michael Porter’s industry cluster concept and had his group of
entrepreneurs study how it could be applied to Arizona. From the start of the ASPED
process he was the one that insisted ASPED’s development be an inclusive and engaged
process, with the forums, town halls and mass public participation (Interview C, 2007).
When the ASPED development process was formally initiated in March 1990 Hald spent
$180,000 of his own and his collaborator’s money to fund the initial in-depth economic
assessment by a team of consultants. This analysis determined that Arizona had 9
clusters, most of which were heavily focused in Phoenix. Later the Arizona Department
of Commerce contributed $130,000 to fund ASPED (Interview D, 2007). Hald recruited
coalition builders like Ioanna Morfessis, then-President of Greater Phoenix Economic
Council to build support industry and governmental boundaries as well as entrepreneurs
Steve Zylstra of Simula and Bob Breault of Breault Research Organization (BRO) to
champion ASPED in industry circles (Henton, et. al 1997). ASPED was developed under
the auspices of the ASPED coalition, an executive board comprised of representatives
from the private sectors, state universities, the Arizona Department of Commerce and
regional economic development organizations, elected state officials and Arizona’s
Governor (ASPED Coalition 1992). When ASPED was released a synopsis of the plan
became a supplement in the newspaper The Arizona Republic, explaining the new
economy and ASPED to the general public. “That is really what Alan Hald was all
about, he was an educator and he was a teacher” (Interview C, 2007).
ASPED’s goal of positioning Arizona’s “economy for the 21 century” was to be
st
achieved through increasing the competitiveness of their clusters, and strengthening the
economic foundations of Arizona. ASPED convened statewide cluster working groups
for the aerospace, agriculture, food processing, forestry, business services,
health/biomedical, information, minerals and mining, optics, transportation/distribution,
and tourism industries. “Working groups” for these clusters met 3-4 times during 1991 to
determine a vision for the cluster’s future, the needs for the cluster and what initiatives

could be undertaken to assist with cluster growth. Implementation of cluster-based
development was to proceed along two tracks: institutionalizing cluster-based
development and addressing priority issues raised by the cluster groups and improving
the “foundations” that supported the clusters at the regional and state levels. Seven
foundational issues were also identified for improvement: human resources, capital
resources, technology, tax and regulatory, advanced physical infrastructure, information
and communications infrastructure and quality of life (ASPED Coalition, 1992). The
idea for the cluster working groups originated with Alan Hald who envisioned them first
as focus groups of industry leaders who would be able to collectively articulate industry
leaders and help the state understand how their industry might be grown. Once again it
was he who went out and recruited industry leaders to participate (Interview D, 2007).
By the mid-1990s, with even the specter of economic crisis gone, The Governor’s
Strategic Partnership for Economic Development (GSPED) faced the challenge of
keeping its member cluster organizations involved (Breault, et. al. 1996). GSPED was
far from a heavily handed guide for cluster organizations it seeded; in fact state support
for the industry cluster working groups has always been minimal.
“It [state support] was very limited, it was facilitation. It was really a survival of the fittest
process – the idea was those clusters that were the strongest with champions would continue to
move forward and those that didn’t would fall by the wayside. It really wasn’t meant to prop up
these groups, it really was to say which ones really want to move forward. I think over time that
once the state of Arizona got organized again and the Department of Commerce got back in shape
they actually began to support new studies of these clusters… it became part of the infrastructure
if you will of economic development in Arizona to support these things – but they didn’t put a lot
of money into it” (Interview C, 2007).
In the 1990s the Arizona Department of Commerce (DOC) structured its service
delivery and an export program around meeting the needs of the cluster groups, but didn’t
provide any funding for the cluster working groups until the senior living cluster was
created the retirement home industry and procured state funding, at which time limited
funding was made available to the other cluster working groups (Interviews Watson, A,
and D). While ASPED conceived of the cluster working groups as statewide entities they
soon devolved into separate organizations in Tucson and Phoenix, where strong regional
economic development agencies used the clusters as marketing tools (Interview D, 2007).
In 1998 the state restructured its workforce development program to serve the clusters
(Waits 2000). A survey done that year by the Arizona DOC and the Arizona Office of
Workforce Development Policy polled more than 2,000 Arizonans on their awareness of
GSPED and found only 14 percent of citizens had heard of it. When GSPED and its
cluster-based economic development were explained to survey respondents they were
broadly supportive of it and of coordinating workforce development efforts with it
(Vandegift, 1998). Waits (2000, pp. 39) identified three functions served by the cluster
working groups during the 1990s: 1) an analytical tool for understanding the state
economy, 2) as an organizational tool to engage industry leaders in a regional strategy
and improve communication and networking between firms, and 3) as a service delivery
tool for economic development (Waits, 2000, pp. 39).
Over time the Arizona DOC found that the issues faced by the clusters and their
requests for assistance (in areas such as capital formation, tech commercialization, etc.)
differed little between the cluster groups. While the department still works with the

remaining cluster organizations it has been more successful in strategies that unify its
services rather than dealing with each cluster on an individual basis (S. Watson
Interview). In 2000 GSPED was disbanded (Interview D, 2007), and after that support of
cluster policy waned in the state. The Office of Economic Development at the University
of Arizona offered technical support for the cluster organizations, the coalitions that once
operated out of the Governor’s Strategic Partnership for Economic Development
(GSPED), including acting as a bridge between the university and the cluster
organizations, offering targeted industries studies and analysis, and support of business
recruitment initiatives of the clusters (Arizona Office of Economic Development, 2006,
para 1 and 2), at least until 2006, when its last assessment of Arizona’s optics industry
was issued. The Arizona Department of Commerce and state policy has since moved on
to supporting innovation in other ways, but still works with the cluster organizations that
remain in existence today (S. Watson Interview).
Tucson’s economic development organization, Tucson Regional Economic
Opportunities (TREO), had the same experience as the Arizona DOC in serving the
cluster organizations. TREO still has a cluster analysis in its latest economic
development plan and works closely with the remaining local cluster organizations.
However, TREO has had difficulty in uncovering opportunities for it to assist individual
clusters to grow outside of the recruiting firms that would contribute to an existing
cluster. TREO found that the public policy issues concerning its cluster organizations
were the same (Interview F, 2007), just like the Arizona DOC. In 2000 Tucson’s high
tech clusters formed the Southern Arizona Technology Council (SATC) to provide a
unified platform to address the Tucson cluster’s economic development service delivery
needs and shared foundational issues (Interview A, 2007).4 As of early 2008 a successor
organization to SATC, the Greater Tucson Technology Alliance (GTTA), was in
planning. GTTA would continue the work of the SATC in serving as conduit to connect
high tech firms with targeted economic development services and provide a paid staff to
provide administrative assistance to the cluster organizations (Interview A, 2007). Table
4 provides an overview of Arizona’s current public sector support for the cluster
organizations.
In ASPED’s original conception of the cluster working groups they were largely
to further growth by recommending to policy makers formal, legislative or top down
initiatives, such as the creation of specialized industry-relevant research institutes or
altering relevant legislation (ASPED Coalition, 1992). Although the Arizona DOC and
TREO are not pursuing a cluster strategy per se anymore, the intention of the cluster
working groups to serve in an advisory or service-delivery role to state policy makers
continues through their relationship with SATC and Tucson’s cluster organizations.
These groups view themselves as a local implementing organization of state and regional
technology-based economic development policy, as an integral part of the state’s
economic development infrastructure (Interviews A, F, 2007). However, it is perhaps in
a role beyond what ASPED envisioned that in Tucson the cluster working groups have
been most useful in fostering economic development, that of their role as associations.

4 A similar development occurred in Phoenix, where the Arizona Technology Council was created
through a unification of a software association and other Phoenix‐based high tech cluster
organizations. In Phoenix, unlike Tucson, the individual cluster organizations did not continue after
the creation of an umbrella organization (S. Watson and M. Hawksworth Interviews, 2007).

Table 4 Public Sector Support of Arizona's Cluster Organizations, 2008
Arizona Tucson Regional University of Arizona Office of

Department of Commerce Economic Opportunities Economic Development
“AZ FAST” – Federal Small
Business Innovation Research
(SBIR)/Small Business Formulated regional economic
Technology Transfer (STTR) blueprint for Greater Tucson with Creating a comprehensive tech
Program Grant Development a focus on high skill/high wage commercialization resource
Assistance job creation directory
Technology Assessments/Market Helped make business
Feasibility Studies connections on SBIR/STTR Acts as a "bridge" between
grants clusters and the university
Collaboratively creating a central
point for companies to receive Provided funding support of high Cluster analysis (last cluster
information on research tech industry business focused paper in 2006 examined
conducted at state universities development projects the growth of optics in the state)
Working with high tech industry
to involve it in high skill/high
Participated in DOC funded wage job creation implementation
overseas trade missions strategy
Created "BusinessLINC"
Collaborate in presenting tech program with searchable online
commercialization information, database that contains company
programs and workshops product/service offerings
Associations: responding to a need

“Where absent, the formation of associations should be part of a location’s economic development
agenda” (Porter, 1998, pp. 259).
In classical and neoclassical economics a firm, location, or economic actor can

gain comparative advantage over others when they have an advantage in a factor of
production (capital, land, or labor) (Mankiw, 2001). Romer (1986, 1990) broadened the
conception of what drives economic growth by showing that increasing returns are the
result of technological changes induced by research and development and knowledge-
intensive activities, underscoring the importance of human capital as a factor of
production. In more recent years, “new economic geography” theorists such as
economists Paul Krugman, Masahisa Fuijita, and Anthony Venables (1999) and others,
have used general equilibrium models for agglomeration and sought to explain the spatial
locations of economic activity in terms of the effect of negative externalities.
However, economics alone cannot give us a complete understanding how spatial
agglomeration occurs principally due to its undersocialized view of economic agents. A
key assumption of the perspective of classical and neoclassical economics is that
economic actors make rational choices not influenced by their social relationships with
others or the structure of their society (Granovetter 1986). There has been increasing
recognition the past two decades that the economy is not just a set of hard input and
output figures, but it is also set of people and relationships. Network analysis has
demonstrated how in many different cultural and economic contexts the network of firms,
or individuals and their relationships with one another plays an essential role in how

economic activity is organized (Doerr, 2005).
One of the most well known exemplars of this principle of the role of relational
assets in the economy is Silicon Valley. It is not an understatement to say that the most
“crucial aspect” of the region is its networks (Castilla, et. al. 2000, pp. 218). The
Valley’s regional culture encourages risk and innovation through its flexible, porous
industrial structure, its dense social networks and an open labor market (Saxenian 1994).
High labor mobility that can cross industries and institutions allows for the horizontally-
structured firms of the region to rapidly react to economic changes (Castilla, et. al 2000).
Recruitment of labor in Silicon Valley often occurs not through close friends but through
what was termed by Granovetter (1973) as “the strength of weak ties,” or those in one’s
extended professional network, that facilitates this process of rapid reorganization. The
Valley’s workforce is an asset not only for its highly educated credentials, but also for its
social integration. Employers in the Valley consider their employees relational assets
economically useful as those hired through social connections tend to be more successful
on the job (Castilla, et. al. 2000). Many attempts to replicate Silicon Valley are based on
replicating its firms’ features and are fundamentally flawed in their lack of understanding
in the role of people and networks in the region (Castilla, et. al. 2001).
One venue through which Silicon Valley’s social capital is built is through its
trade associations. Porter (1998) views trade associations as important components, even
sometimes necessary, to cluster development. He advocates for a trade association role
beyond lobbying government and organizing networking events – that they should
“institutionalize cluster linkages” (pp. 258), and become focal points for industries to
work together to solve common problems, provide relevant training, and engage in
formal business consortia or partner with other local institutions. In Silicon Valley the
Western Electronics Manufacturers Association (WEMA), a forerunner of the American
Electronics Association, focused on providing services to emerging technology startups.
WEMA and the similar organizations that followed served as meeting places, sponsored
educational seminars, and as a place were “friendships” were made between professionals
and market information was exchanged (Saxenian, 1994, pp. 47-48).
The activities of WEMA and Tucson’s cluster organizations, and Porter’s
idealized trade associations, are strikingly similar. While the economic development
service delivery functions may be more direct and state-linked in Tucson’s cluster
organizations, the positive outcomes associated with AMIT, AOIA and BIO-SA are
really related to their ability to connect industry players at a time when no such forum
had previously existed, but by which there was already some base level of firm activity in
each sector.

Network Economy Principles

Networks comprise the backbone of innovative regions whose strengths lie in the
speed at which they can create and diffuse knowledge (Eraydin, 2005). To illustrate how
AMIT, AOIA and BIO-SA have served as associations and why this role is so important
policy makers should understand three basic principles of a “network economy.”5
#1 Face to Face Interaction Builds Trust

To create familiar, trustful relationships that can result in economic collaboration
of information exchange requires a frequency of interaction. This interaction usually
takes place in the form of face-to-face (F2F) collaboration.
“Everybody [BIO-SA members] gets along great, and no, we don’t have a lot of competition. To
be honest each of the companies has their own niche, a lot of the events we sponsor are partnering
and networking type interactions because there is overlapping expertise, and if they can get access
to some technologies they need either through the university or through some other company in
partnerships that just facilitates everybody, so yeah, there is not a lot of animosity, there is none
really. That’s true across the other clusters as well. We do a lot of cross cluster events and try and
get people interacting and broadening their base and creating new opportunities. It is sort of like
you try and get faculty together and get collaborative grants going, so you get collaborative
economic development activities going, it works really quite well actually, it is a very agreeable
group who seem to like each other” (Interview E, 2007).
F2F has four defining attributes according to Storper and Venables (2004, pp.
351):
• it is an efficient communication technology;
• it can help solve incentive problems;
• it can facilitate socialization and learning;
• and it provides psychological motivation.
F2F has the advantage of allowing individuals to evaluate other’s intentions more
clearly through their body language, and to allow individuals a chance to form trusted
“in” groups of those whose performance can be trusted. The significant resources (time,
money) that must be devoted to fostering F2F indicate commitment to a relationship and
foster trust (Storper and Venables 2004). Waits (2000) recounted how one AOIA
member firm that invested $50,000 in cluster activities believed it had gained more than
$700,000 in new business from the networking opportunities that AOIA made possible.
Granovetter (1986, pp. 490) argued that individuals settle for general market
information when nothing better is available, but generally seek out their own
information which they deem to be better when it comes from a trusted source with
which one has had repeated interactions. The information source has an incentive to
maintain trust and thus provide correct information because outside of “pure economic
motives” there are also other social contexts where trust is expected. While market
mechanisms such as the Internet and other advanced communications technologies may

5 It should be noted that these three network economy principles were constructed for the purpose
of illustrating the ways in which relationships are important to the growth of an economy. There
may certainly be other principles that could be added to this summary list.

be effective at matching finished goods whose value is readily understandable, much of
the economy is now dependent upon “experience goods” or goods whose value is not
readily understandable and that necessitate trust and mutual understanding through long-
term relationships to facilitate a successful match (Leamer and Storper, 2001).
#2 Trust encourages information exchange.
“Initially when we bring companies together in work groups, focus sessions, there is not a great
deal of information exchange, but over time as the participants get to know each other and become
more comfortable working with each other, they actually provide, and are open with the
information. Initially, there isn’t as much information sharing, but over time as people get to
know each other they are much more open with information” (Interview A, 2007).
The Southern Arizona Tech Council has learned via surveying firms that have
used some of its economic development assistance services that the top services firms are
looking to the organization for are opportunities to network and information on what
other companies are doing in the region (Interview A, 2007). The ability to become
connected is the motivating factor for individuals to put their time and money into
participating in the cluster organizations:
“the thing that is really driving this is being able to connect, to engage the small business
community better connect them with everything that is going on here, in a way with the services,
programs, and activities that will help them be more successful, and grow their business”
(Interview A, 2007).
Rosenfeld (2003, pp.1) argued that perhaps the most important advantage of
clustering is that it enhances the ability of firms to access informal information and
knowledge sharing. When asked to sum up the value of Tucson’s successful emerging
industry cluster organizations, one interviewee remarked:
“Essentially it connected people in a way that they hadn’t been connected before, and they
continue to move on” (Interview C, 2007).
#3 That information can be codified or tacit.
“Learning, putting stuff down is, I think, important, but if you just read the written word then you
don’t get this kind of a conversation. A viewgraph with three lines on it means one thing to one
person and something else to somebody else, you need to have some kind of a working
knowledge. If you haven’t gone to the conference you missed maybe three hours that summarized
the three viewgraphs, something is missing there” (Interview D, 2007).
Long considered an underpinning of the continued geographic concentrations of

innovation is the transmission of tacit knowledge. Michael Polyani (1958, 1967), a
chemist who developed a theory of innovation that involved personal feelings and values
that could not be transmitted through a formal means, or what is termed tacit knowledge.
Polyani famously defined tacit knowledge with the aphorism, “we know more than we
can tell." Essentially tacit knowledge is that that cannot be codified or easily transmitted
via a written medium alone, one that requires interaction between individuals. Because
tacit knowledge exchange typically requires F2F, it is often assumed that geographical
proximity is requisite. Polyani (and others) who have written on tacit knowledge transfer

have emphasized the social context in which the knowledge is produced, but also
important is the shared institutional context (Gertler, 2007). Even in an era of
globalization where most of a firm’s suppliers and customers may be located outside of a
region the incentive for geographical clustering of firms remains. “Being located in the
middle of an industrial district typically allows creative and entrepreneurial individuals to
absorb thinking processes, ways of talking and ways of doing things by interacting
closely with other knowledgeable people” that provide a framework for tacit knowledge
transfer (Desrochers, 2001, pp. 33-34). The exploitation of tacit knowledge, or codified
knowledge would not be possible without this framework, of being located in
“specialized and complementary epistemic communities, on the one hand, and a high
level of innovation and entrepreneurship – both within existing firms and in the form of
new business” (Håkanson, 2001, pp. 20).6
Howells (2002, pp. 873-874) delineated five reasons why geography is important
to knowledge creation and transmission:
• one’s knowledge “set” is determined by social “interaction;”
• knowledge is individual, and individuals are influenced by place;
• one’s knowledge depends on varying bits of codified and tacit knowledge
received which is constrained by space;
• learning is often a collective activity that requires co-presence, and all information
must be interpreted individually and interpretation is based on past experiences
that have been shaped by geography
While the focus of much academic research has been on the transmission of tacit
knowledge, it is important to note that it may not necessarily be the type of knowledge
(tacit or codified) that is what matters in the success of an agglomeration of industries,
but rather their ability to exploit that knowledge (Håkanson, 2001). Many interviewees
recounted that it was their knowledge of who could best do what in their industry that
allowed them to facilitate connections and business between inter- and intra-regional
firms.
Playing with the big boys

“There is a very positive relationship between the bigs and the littles,” (Interview D, 2007).
Another important role of AMIT, AOIA and BIO-SA in Tucson is the one they
play in managing the relationship between their largely small to medium-sized business
member base, and the region’s transnational corporation (TNC) branches, including
Raytheon, IBM and others. In 2006 Raytheon conducted $47 million in business with
270 local suppliers, largely because of the lower cost incurred in procuring business
locally (TREO, n.d.). About half of the business Raytheon has with local suppliers is
done with small companies (Interview A, 2007). Obviously Raytheon’s work with local
firms is an important benefit of their presence in the town, but when a large transnational

6 Notably Malmberg and Maskell (2002) are critical of the view that knowledge exchange and
collaboration and networking underlie the creation of spatial agglomerations of industry and
knowledge. Rather they emphasize spatial agglomeration of firms as dependent upon firms ability to
monitor each others activities and copy one another.

corporation dominates such a large swath of a regional economy there can be dangers.
Christopherson and Clark (2007) have noted that TNCs have the ability to limit
innovation and regional economic stability through exerting their power over what their
small or medium sized regional contractors and suppliers produce. But in Tucson the
relationship of the smaller firms and the “big boys” is difficult to characterize wholly as
one of dominance and subservience.
The TNCs in Tucson send representatives to the cluster organizations not as the
dominant force, but as equals. Unlike the small tech firms that coordinate the cluster
organizations, TNCs like Raytheon, IBM or Honeywell do not need the cluster
organizations to access assistance from or lobby the state. State and regional policy
makers work with the TNCs to ensure that their needs and concerns are being
continuously addressed (Interview F, 2007).
Both the TNCs and the cluster organizations have used each other’s presence to
their advantage. Raytheon, in particular, has made good use of the cluster organizations.
Raytheon once had AOIA send a request it had for a very specific kind of optical
instrument out to its membership, with the request having Raytheon’s name redacted
from it so the cluster members did not know they were preparing proposals for work for
the TNC. Within an hour of sending the request for work out so many proposals were
sent to AOIA that even after the organization filtered the responses the Raytheon was still
overwhelmed with their volume. This process insulated Raytheon having too many
direct responses to allow them to quickly identify the best the best prospects to complete
the work (Interview D, 2007). Raytheon is also increasingly looking to connect with
small and medium sized firms to commercialize technology that is outside of their core
defense business, but they would really like to see on the market (Interview A, 2007).
With the Iraq War’s eventual end Raytheon is also looking at how to produce commercial
products themselves. As a defense contractor they are used to producing products with
long product development cycles, whereas in the commercial sector product development
may need to be done in 6 months. The cluster groups may provide resources to help them
commercialize their military technology in the coming years (Interview D, 2007, F).
The cluster organizations have also used the TNCs for their financial resources.
As the cluster organizations have limited funding they have to be creative about how they
fund their programs. In the past TNCs have been tapped for funding cluster organization
conferences and other events (Interview D, 2007).
Civic Entrepreneurs Leading the Way

“Personalities are very important. These things don’t work unless you have leaders. One phrase
that we have in our work is ‘no champions, no initiatives. You need champions, you need people
who are willing to work hard to make these things happen” (Interview C, 2007).
While the creation of Arizona’s cluster policy was initially private-sector led, it
has succeeded in AMIT, AOIA and BIO-SA thanks to an ‘all volunteer army’ of private-
sector individuals who have invested enormous resources in the organizations. One
economic development consultant who has worked in the state since ASPED noted that
many of the same private sector players who were involved in ASPED continue to be
involved in the state’s current economic development initiatives and the cluster
organizations themselves (Interview C, 2007).

During the initial ASPED analysis optics had not been included as a cluster, until
an economic analyst at the University of Arizona suggested to Hald that Tucson had
strength in the field. When Hald subsequently contacted Bob Breault regarding optics in
Tucson, Breault wasn’t sure if he wanted to get involved with these “unknown” clusters
and he wasn’t very enamored with an idea that he knew would take time away from his
firm. Breault at the time thought that there were perhaps 30-35 optics firms in Tucson.
At the behest of Hald he and a couple of others arranged a reception for optics firms in
Tucson. He was quite surprised when 55 optics firms attended the event. Following the
reception Hald asked Breault to attend the ASPED launch in Phoenix. At the ASPED
launch Breault wasn’t shy about letting his feelings about how “bad” conditions for the
industry were be known. The day following the ASPED launch Hald called Breault and
asked him to put together a meeting of optics firms in two weeks time, and three weeks
from that time he wanted a presentation on the optics cluster. Breault remembered
thinking, “I’m not his slave” but he did as asked regardless, and he became a leader in the
Arizona Optics Industry Association (Interview D, 2007). Bob Hagen, chair of the
Southern Arizona Technology Council, also became involved with cluster-based
economic development during the ASPED process (Interview A, 2007). Breault, Hagen
and all the many others who are involved in continuing the existence of Tucson’s cluster
organizations are civic entrepreneurs.
The name civic entrepreneur combines two important American traditions: entrepreneurship (the
spirit of enterprise) and civic virtue (the spirit of community). Entrepreneurs are change agents.
(Henton, et. al. 1997).
Civic entrepreneurs are like entrepreneurs, but they act on a broader basis for the
public good. Their personality and leadership style are very important in their ability to
be effective (Interview C, 2007). The personalities of successful civic entrepreneurs can
be described using Gladwell’s (2000) concept of “connectors” – that is, those people that
are at the top of a pyramid of social connections, those people that are connected to
everyone. Connectors are not people who necessarily set out to know everyone, but that
by virtue of their personality attract the acquaintance of many. They are those that are
able to catalyze the interest or involvement of their acquaintances into their endeavors.
The leaders of Tucson’s cluster organizations have both personal and civic
motivations for participating in the process. The early (1980s) generation of tech
entrepreneurs in Tucson recognized a need for resources for tech startups, for informal
forums where tech entrepreneurs can learn from each other as well as for more
information on the procedural aspects of business formation. Many of these
entrepreneurs were natives or long-time residents of the region and cared deeply about its
future. They also realized that there are organizational and personal advantages to being
involved in a project that connects people and information (Interviews A, C, D, E, F).
Whatever the plan or policy being implemented, it is clear that Tucson’s emerging sector
cluster organizations have been successful because of the people involved. One
interviewee summed this phenomenon up quite aptly: “you can center around institutions,
but institutions in the end are really about people” (Interview C, 2007).

The Post Cluster Era

This paper’s discussion of the successes of AMIT, AOIA and BIO-SA in building
relational assets and supporting industrial growth in Tucson should not obscure the fact
that cluster policy is no longer in fashion. Cluster policy in most places has not been
“successful.” This could be because of the way in which it has been implemented or
because of flaws in Porter’s cluster concept. Whatever the reason for its failures cluster
policy has left an important legacy and set of lessons in Arizona.
Porter’s cluster concept has limitations that complicate its policy application.
Serious doubts surrounding Porter’s cluster concept’s validity make it important to ask
how any theoretical flaws may have impacted cluster policy application.
Among the common complaints regarding cluster theory are the malleability of the
cluster concept, that clusters treat all the phenomena of regional industrial structure as if
they were all one in same, that Porter’s emphasis on the role of firm rivalry in spurring
innovation has not been definitively empirically validated, and that Porter’s work as a
whole lacks a strong empirical base.
Cluster policy has brought a better conception of industry-specific needs and

knowledge about the new economy to policy makers.
Cluster policy has changed the state’s mindset from only focusing on the needs of
individual firms to having a broader focus on what industry specific needs and strengths a
state may have. Arguably cluster policy has left Arizona much better informed about its
economy and how it relates to the broader national and international economy. Cluster
policy was an important and direct predecessor of Arizona’s current focus on innovation
and the fundamentals as well as the state’s current focus on developing a bioindustry.
It is time to move beyond clusters to “Smart Economic Development.”

Smart Economic Development should be to economic development planning what Smart
Growth is to land use planning. Smart Growth asks us to be strategic about our
development, and Smart Economic Development planning would ask us to do the same in
our regional economic policy. Tucson’s experience demonstrates that things work when
they respond to an actual need; where cluster organizations were duplicitous of other
private sector efforts they have disappeared. Economic development needs to move
beyond adopting the latest fads to be (literally) sold and instead use various policies
strategically. Strategic policy can be crafted only when the policy makers have a
sufficient understanding (qualitative and quantitative) of their economy and when those
that are consumers of the policy’s products (the private sector) are engaged.
Whereas economic development planning is largely based on dealing with the

tangible aspects of the economy, Tucson’s experience with its cluster organizations
demonstrates the importance of addressing the economy’s intangible qualities. The next
challenge for economic developers is to create innovative strategies for building
relational assets in their communities.

Limits to the Porter Model
Although cluster policy has been widely adopted there is no consensus that
Porter's conception of the cluster is correct. Academic criticisms of Porter's cluster
policy are largely focused upon the extreme adaptability of the cluster concept and the
lack of empirical evidence to support it. Table 5 presents a sampling, not an exhaustive
list, of criticism of the Porter model. Porter himself is hardly an impartial academic. His
consulting firm, Monitor, markets cluster studies to regions, nations and organizations
around the world (Asheim, Cooke and Martin, 2006). Ohio alone spent $1 million on a
Monitor cluster study (Interview F, 2007).
One of the most prominent difficulties with Porter’s diamond model and cluster
concept is discerning what is really new about what he is saying. Porter (1998) admits
his intellectual debt to Alfred Marshall’s triad of external economies explanation of
industrial agglomeration (and the related work of others) yet he argues that his diamond
model advocates for building upon the spillovers of emerging firm concentrations and
incorporates the role of innovation and learning for a new knowledge-based economy.
Malmberg (2003) credits Porter’s diamond model with some truly original elaboration
upon traditional agglomeration theory, including:
• emphasizing the importance of specialized region or industry specific productive
factor inputs or selective disadvantages;
• demand conditions that emphasize the sophistication of demand conditions, as
opposed to mass market demand, and;
• the importance of motivational local inter-firm rivalry in providing for an
innovative economy that produces long-term economic growth.
As for the definition of a cluster itself, outside of the wide range of preceding
literatures that employ related concepts to which Porter himself has given credit, a
strikingly similar function definition of clusters appeared in Czmanski and Ablas (1979,
pp.62):
“`cluster' means a subset of industries of the economy connected by flows of goods and services
stronger than those linking them to the other sectors of the national economy.”
They, however, differentiated between a functional cluster and the spatial relationship
among firms (ibid):
“A 'complex', on the other hand, has been defined as a group of industries connected by important
flows of goods and services, and showing in addition a significant similarity in their locational
patterns. Thus, complexes emphasize the spatial aspects of industrial concentration.”
Perhaps most important to keep in mind when considering Porter’s (or anyone
else’s) prescriptions for universal industrial structure explanations or economic
development programs is that “the city has never been a machine” and that while urban
theorists and experts divine the ingredients needed for regional growth, they often do not
go too deeply into the incredibly complex ways that these ingredients interact with each
other to form differing outcomes, limiting the usefulness of understanding the urban
process today (Storper, 1997, pp. 255-256).


Table 5 Selected Academic Criticisms of the Porter Model
Literature Criticisms of Porter’s Cluster Model

• Regions should ensure that in a cluster policy they are not merely
associating a spatial agglomeration of firms with a cluster, but that a
cluster is a "special strength"
• A spatial agglomeration of similar firms does not necessarily equate
Perry (1999) with their integration and cooperation with one another
• Regions lacking any part of Porter's diamond will have difficulty
'growing' a cluster
Barkley and • Pursuing cluster policies can be difficult as it is complicated for
Henry (2001) latecomers in an industry to be competitive
• The cluster concept is supposedly geographic but can encompass
any range of geographies
• Amorphous nature of that the cluster concept that allowed one to
find desired clusters
• Porter’s clusters are not empirically testable, accepted only on faith
• The cluster concept “has acquired a variety of uses, connotations
and meanings that it has, in many respects, become a ‘chaotic
concept’, in the sense of conflating and equating quite different
types, processes and spatial scales of economic localization under a
single, all-embracing universalistic notion” (2003, pp. 10)
• Concepts owes its policy prevalence to Porter’s marketing and
Martin and "branding" of the idea in the language of competitiveness and
Sunley (2003) strategy
• Cluster literature makes propositions that are not testable
empirically
• While there is sometimes local rivalry, many firms report having
few direct competitors or competitors located outside their region
• There is little collaboration between firms and organizations locally;
instead most of these interactions happen over a global value chain
• Cluster literature has been preoccupied with finding connections
Malmberg between firms in a circumscribed geographical space and attempts
(2003) to asses the degree of local interaction
Palazuelos • Few economies have the right set of features (business structure,
(2005) socio-economic structure, etc.) for clustering to be successful
• Porter rarely proves empirically that anything he claims to be a
cluster actually is one; he cherry picks cluster examples and doesn't
Asheim, discover the facts that gave rise to them
Cooke and • It may not be possible to create a single theory that best describes all
Martin (2006) agglomeration
• Porter's early work defines clusters functionally, his later work
geographically
• Cluster is an idealized successful final stage of development
Malmberg and • Knowledge creation is not a mechanism of local organizational
Power (2006) collaboration and evidence as to how it affects local rivalry varies

Tucson v. Porter
Unlike the stylized cluster inter-firm relationships proposed by Porter’s model,
firms in Tucson's emerging tech sectors do not necessarily have the majority of their
supplier or buyer relationships located in Tucson, but rather work with firms around the
world (Interviews A, D, E, 2007). This is also broadly true elsewhere (Interviews B, C,
Malmberg, 2003). Empirical research has shown that local businesses do not do much
business together, and even that firms that have the broadest geographical technology
collaborations are the most successful (Malmberg and Maskell 2002). In the Tucson
optics sector, while firms do tend to have local suppliers, their final goods are largely
exported. Fifty-six percent of firms in Tucson’s optics cluster export; much of those
exports are overseas to Asia, Europe, and Mexico (Interview D, 2007).
Direct competitors among Tucson’s emerging sector tech firms are few, if any.
The majority of firms are specialized in their own niche (Interview E, 2007). In contrast
to the centrality of the role of local rivalry in Porter’s model is the reality that in Tucson
the idea of there being firm rivalry was rejected outright. Instead, perhaps in part because
of high labor mobility in some of the sectors, and also because the participants in cluster
organizations are there because they genuinely have an affinity for Tucson and want to
see it (and their own ventures) grow, the relationship of firms involved in the cluster
organizations was characterized as generally congenial (Interview A, E, D, 2007).
An important limitation to Porter’s conception of clusters that has affected cluster
policy is the idea of cluster boundaries themselves. While Porter (1998) contends that
cluster boundaries need to be adapted as industries change over time, and that cluster
organizations need to have the breadth to capture all actors in a cluster, it is difficult to
see where a cluster might begin and end in Tucson. The old “pure” industry definitions
that constituted a cluster are becoming less relevant (S. Watson Interview, Interviews A,
B, E, 2007). For example, in Tucson a bioindustry firm may work with a firm in optics
on a bio-imaging product (Interview E, 2007). Then the same optics firm may work with
a defense contractor on an entirely different application of their expertise (Interview D,
2007). The Southern Arizona Tech Council was founded in part to respond to a need for
cross-sector events that provide an opportunity for members of the different cluster
organizations to network (Interview A, 2007). The synergy of this cross-cluster
coordination is often what drives innovation in local economies and leads to new industry
sectors (Interview B, 2007).
Global to Local
An important, glaring omission in Porter’s cluster model is his lack of
conceptualization of the relationship between geographical clusters and the global
economy. Porter (1990) really seems to extend, by his own admission, the ideas of
Ricardo to the cluster level, whereby competitive advantage is gained through
comparative advantage by the specialization of production factors with in the cluster.
However important endogenous factors may be to fostering regional economic growth, it
is clear that endogenous growth has its limits, as:

“In contemporary economic relations, however, it is obvious that none of the regions can achieve
sustained economic growth solely on endogenous development process. They require networks
with non-regional actors, which link regional economic systems to a global economy” (Eryadin
2005, pp. 53).
Despite some path dependent trajectories, it is not “inherent regional advantages”

that advance regional development, but rather how a region’s assets match the needs of
“trans-local actors” (i.e. firms) (Coe, et.al, 2004). Markusen, Schrock, and Barbour
(2004) argue that, rather, instead of pursuing a single type of economic policy that views
the urban economy within an antiquated paradigm of importing and exporting goods and
services, that instead regional economies that have found a niche in the global market are
those that will experience economic growth.

Figure 4 From Geographical to Functional, Global Clusters
Graphic Source: New Economy Strategies, 2007
When AOIA leader Bob Breault has assisted in founding optics cluster groups in
other regions (everywhere from Florida to Singapore) he has been derided by industry
cluster experts who believed that he should have focused on increasing the
competitiveness of Tucson’s optics cluster, not helping its competitors. These experts
have failed to recognize the global nature of all business and the importance of inter-
regional suppliers and customers. Through the active marketing of AOIA, Breault’s

company (an optics software firm) has directly benefited not only by gaining new
customers but also by making Breault himself a go-to guy for optics contacts globally.
Breault often gets calls from firms all over the world seeking to find other firms that do
very specialized functions – and within a matter of minutes, a phone call or two, a firm in
Germany is connected with one in Australia or Florida. The fact that all of the
connections he makes are not always to firms in Tucson doesn’t really matter; by being
the point of connection Breault is made aware of the connections and work that is going
on in his industry globally – benefiting his firm and the Tucson’s optics cluster. The
results of these interactions have made the AOIA legendary around the world for its wide
reach into the industry (Interview D). BIO-SA also is seeking to establish a global reach,
it is very involved with the University of Arizona’s Global Advantage program which
allows their members to interact and learn from with firms in Ottawa, Manchester, and
other regions in the world (Interview E, 2007).
The ability for firms and individuals to have networks that reach outside of their
region is very important. The growth of a transnational technical community across
Silicon Valley, Taiwan and China facilitated industrial upgrading in the developing
regions (Saxenian, 2006). Recent advances in network analysis have found that the more
socially distributed one’s network is, the faster one will rise professionally, particularly if
one can serve as a connector between clusters of economic activity (Doerr, 2005).
Changes in the business models of the firms, with more and more firms serving
merely as headquarters or branding agents and outsourcing functions such as marketing
or production to independent subcontractors located around the world, are important
factors driving the de-coupling of self-contained clusters, as demonstrated in figure 4
(New Economy Strategies, 2007). Within a networked economy, Coe, et. al.(2004)
contend that regional development requires three components at any given historical
moment: 1) the existence of economies of scale (concentrations of specific
knowledge/skills/expertise) and scope (spillover effects – learning/cooperative
atmosphere), 2) the possibility of localization economies within global production
networks (GPNs) and 3) the appropriate configurations of ‘regional’ institutions to ‘hold
down’ GPNs and unleash regional potential. In the era of globalization it is not
necessarily the specialized industry sector that is important, but rather the specialized sets
of human capital present in a region (New Economy Strategies, 2007). Regions thus
retain pre-eminent importance in the organization of the global economy. Specialized
skill sets are developed and reinforced in regional agglomerations where the social
interaction that facilities learning and innovation can take place (Gertler and Wolfe,
2006).
A Transitional Policy
“It [cluster policy] was an attempt to try and understand where wealth comes from, so I see it as a
transitional strategy, I don’t see it as an end strategy. It was an attempt to try and figure out where
you can create high-quality jobs. And I think we’ve got them half-way there but I think the whole
conversation changed” (Interview C, 2007).
Most cluster policies have been a proven disappointment to policy makers in their
inability to create new firms or improving the growth rate of existing firms. As it is
difficult to gauge the impact of cluster policy on the various levels of the regional, cluster

or firm, a clear shift away from the use of cluster policy has occurred in the last few years
(Asheim, Cooke and Martin, 2006). Aside from the continued existence of the emerging
sector technology clusters in Tucson, what is the legacy of the policy? What has it taught
us that will contribute to the effectiveness of future policies?
Cortright’s (2006) comprehensive industry cluster academic literature review
identified 3 contributions of cluster policy, including: 1) the importance of using clusters
as a “key organization unit for understanding and improving the performance of regional
economies; 2) the ability of cluster policy to focus “economic development policy and
practice toward groups of firms and away from individual firms” and 3) to provide
“important lessons for economic development policy and practice,” including the need
for regional industrial differentiation, for public policy makers to engage with cluster
members, to create economic development strategies tailored to individual clusters, and
to create an environment conducive to cluster growth.
Arizona’s specific experience highlights the need for specific action at different
stages of cluster development.
“I think when we look at this whole proposition we need to think about more specifically what we
are trying to do, the cluster things needs to essentially take the next step from being a generalized
movement in economic development to something that is more oriented to reaping certain types of
impacts” (Interview B, 2007).
In Tucson a defining characteristic of the clusters that have survived is that they
were all from emerging industries (Interview C, 2007). Waits (2000, pp. 44) noted that
the “busiest clusters have been the “up-starts,” that is, the emerging ones that do not yet
represent a significant concentration of economic activity within the state.” Established
industries in the state did not need an additional cluster organization to communicate
their needs to policy makers; instead they already had private trade associations that
fulfilled the functions of the cluster groups (Interview C, 2007).
As table 2 (page 4) shows, each of the more established industries in Arizona had
trade associations that pre-dated the cluster organizations, making the additional
organizations redundant. In Phoenix in particular, although they have high tech
employers the type of high tech economy they have does not generate much spin-off
activity (Glasmeier, 1988). Thus Phoenix generally lacked an emergent base of
homegrown tech entrepreneurs that may have stimulated a need for a cluster association.
In most places cluster organizations have not functioned well. The first reaction of many
public agencies was that to implement a policy one needed to create something. In
creating a proliferation of organizations they each end up doing very little and were not
actually needed by the private sector (Interview B, 2007).
“I don’t think clusters are a means to themselves but I see them as a means to an end. The other
ends are raising per capita income, improving innovation, achieving all the changes in the
fundamentals… so it is not that you just want to have cluster groups for their own sake but cluster
can be a transitional strategy if you don’t have strong industries already, and so it is a way to
gather up the companies in an industry sector to get them connected to each other so that they can
begin to articulate what their needs are for capital or for training” (Interview C).
Cluster policy set the stage for Arizona being able to move forward into a broader
set of policies. As noted, the state of Arizona has shifted to a focus on clusters to

enhancing its “fundamentals” and innovation (Watson Interview, 2007), but the vision of
Alan Hald – higher wage jobs, a focus on the industries of the future – remains (Interview
C, 2007). In describing Arizona’s new policy direction, Sandra Watson, Arizona DOC:
“So I think what we’ve done is we’ve enhanced that cluster concept to really develop an
infrastructure and sort of a technology-based infrastructure – and actually I really shouldn’t use
technology-based infrastructure because then they’ll think I’m talking about telecommunications
infrastructure – but it is what allows us to grow companies in this state. So I think that a shift
from a pure industry cluster standpoint to a more foundational one with focus on the clusters was
kind of that new strategy for us, and I think it has been very successful” (Watson, 2007).
In her January 2008 “State of the State” address, Arizona Gov. Janet Napolitano
outlined her vision for “One Arizona” with improvements in the state’s education system
and infrastructure, but with an overarching theme of facilitating innovation (State of
Arizona, 2008). Feldman and Francis (2004) urged policy makers to focus on enhancing
the ability of all firms to grow and aid entrepreneurs, as entrepreneurs are the basis for
cluster formation. Arizona is half-way there, if it were not for the fact that they are still
pursuing one targeted industry, which as previously mentioned is biotech.
In pursuing biotech they are not alone. By 2003 two other early adopters of
cluster policy, Enterprise Scotland and the Basque Ministry of Industry, had moved on to
new non-cluster based initiatives. Their new focus is also developing biotech (Asheim,
Cooke and Martin 2006). While Arizona is among the many dozens pursuing a biotech-
based economic development strategy, a 2002 study deemed just nine metropolitan areas
in the United States are positioned to facilitate the growth of a biotechnology cluster.
Neither Phoenix nor Tucson was among the nine (Mayer and Cortright 2002).
In Phoenix it was the leader of their old health and biomedical cluster group (now
the Arizona BioIndustry Association), Michael Berrens, who was called upon to assist the
state in crafting their new biotech strategy – from helping to recruit the famous Dr.
Jeffrey Trent (a former classmate) to lead TGEN, and to raise the $90 million required to
create TGEN and recruit Trent in a very short period of time (M.J. Waits Interview,
2007). Subsequently, in addition to the Flinn Foundation’s Bioscience Roadmap and
Science Foundation Arizona there has been a biotech push at multiple levels Arizona
State University in Phoenix and by some local economic development agencies in the
Phoenix region (D. Roderique Interview, 2007, M. Silver Interview, 2007).

What’s Next? Redefining the Role of

Government
After the disappointment of cluster policy it is understandable that we’d want to
discover what is next. Perhaps the demise of cluster policy provides a respite to consider
how best to apply some ‘lessons learned’ and to move to a more systematic and strategic
paradigm of “smart economic development.”
Economic development should resist the temptation to follow fads and instead focus on
responding to actual needs.
To know what the actual needs are requires one to come to a true understanding
of the economy’s features, and that will require both quantitative and qualitative analysis
(Mayer, 2005). Once a set of needs are identified the best policy instruments to address
them need to be identified. Cortright (2006) argues that a one-size fits all approach to
accommodating cluster growth within a region will not suffice and that different
strategies must be adopted for different clusters. Whether one is trying to grow a
“cluster” or some other defined unit of industrial organization, the need to differentiate
strategies remains.
Civic entrepreneurs and the private sector need to define their own needs and take
ownership of any initiative at a grassroots level.
Porter (1998) included the need for engaged private sector participation as a factor
in producing a successful cluster strategy. In order to best engage the private sector one
needs to have a clearly defined purpose, scope of work and desired outcome. Simply
saying that a region will be in the top 5 in some sector in 5 years may not be achievable.
Having action steps that each participant in an initiative can engage in will help move a
policy along and encourage participants to take ownership in the work.
The next challenge for economic development is to design strategies that can promote a
community’s relational assets as well as its physical ones.
This paper identified the cultivation of relational assets as the key to economic
growth. Tucson’s emerging tech sector cluster organizations have succeeded in this quest
– but the creation of collective organizations isn’t always necessary or prudent.
Economic developers are in a unique position to know many businesses across their
jurisdictions; perhaps it is time that to try and discover the ways in which that knowledge
can aid in connecting firms and their employees, as well as how best we can connect
them with production networks outside of a home region.

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Cover Image Credits:

The Official Website of the State of Arizona, Arizona State Flag

Tucson’s Clustered Connections

Keywords: Industry cluster, cluster policy, relational assets, associations, networking,

Arizona has largely moved on to a focus on the “fundamentals” and innovation.

By 2007 the majority of the cluster working groups launched to implement

ASPED/ 2008 Tucson 2008 Phoenix Similar External

This is significant because the development of networks of business relationships

Despite an increasing focus on business networks in academic literature, in

Porter provides several examples of how clusters facilitate information flow:

He also noted that geographical proximity increases information flow speed:

Tucson’s experience implementing a cluster policy more clearly involves

Economic Building Blocks

The Defense Sector

Bootstrapping: IBM and Burr-Brown

The Entrepreneurial Bug: Towards a Small Firm Town

Aerospace, Manufacturing and IT

Firm/Institution Type Arrived/Founded Employees

The BioIndustry Association of Southern Arizona (BIO-SA) currently lists 89

BIO-SA participates in state trade missions, national bioindustry conferences, and

Biotech Lineage in Tucson

Graphic Source: Battelle, 2006

Producing Public-Private Synergy

Arizona’s cluster policy was private-sector lead.

Civic Entrepreneurs are essential for any policy to be effective.

Birth of a cluster policy

Arizona Tucson Regional University of Arizona Office of

Associations: responding to a need

In classical and neoclassical economics a firm, location, or economic actor can

Network Economy Principles

#1 Face to Face Interaction Builds Trust

#2 Trust encourages information exchange.

#3 That information can be codified or tacit.

Long considered an underpinning of the continued geographic concentrations of

Playing with the big boys

Civic Entrepreneurs Leading the Way

The Post Cluster Era

Cluster policy has brought a better conception of industry-specific needs and

It is time to move beyond clusters to “Smart Economic Development.”

Whereas economic development planning is largely based on dealing with the

Literature Criticisms of Porter’s Cluster Model

Despite some path dependent trajectories, it is not “inherent regional advantages”

What’s Next? Redefining the Role of

Arizona Office of Economic Development. (2006). Industry Cluster Development

Akundi, K. (2003). CLUSTER-BASED ECONOMIC DEVELOPMENT, PART 1: A

ASPED Coalition. (1992). “CREATING A 21 CENTURY ECONOMY: Arizona’s

Strategic Plan for Economic Development.” Tempe, Arizona.

Battelle. (2006, November 14). Southern Arizona’s Bioscience Roadmap. Presentation

Bio5. (2008). About Bio5. Retrieved November 28, 2007 from

BioIndustry Association of Southern Arizona. (2005). About BIO-SA. Retrieved

Catts, B. (1999, August). Arizona Optics: A Targeted Industry Summary Report.

Cortright, J. (2006). “Making Sense of Clusters: Regional Competitiveness and

Desrochers, P. (1999). Geographical Proximity and the Transmission

Feldman, M. P. (2001). The Entrepreneurial Event Revisited: An Examination of New

Flinn Foundation. (n.d.). Roadmap: Background. Retrieved October 2, 2007 from

Gertler, M. (2007). “Tacit Knowledge in Production Systems: How Important is

Glasmeier, A. (1988). “Factors Governing the Development of High Tech

Granovetter, M. (1985). “Economic Action and Social Structure: The Problem of

Granovetter, M. (1973). “The Strength of Weak Ties.” American Journal of Sociology,

Håkanson, L. (2003). Epistemic Communities and Cluster Dynamics: On the Role of

Howells, Jeremy R. L. (2002). Tacit Knowledge, Innovation and Economic Geography.

Malmberg, A. and Maskell, P. (2002). The Elusive Concept of Localization Economies:

Malmberg, A. and Power, D. (2006). True clusters: A severe case of conceptual