US Cities Series: Competitive clusters drive sustainable growth in Seattle

US Cities Series: Competitive clusters drive sustainable growth in Seattle

Seattle seeks to utilise its past reputation for innovation and frontier spirit to stay ahead competitively, while implementing welfare policies that buck the national trend.

The city of Seattle has a population of 652,405, but the city lies in the centre of a metropolitan area of approximately 3.6 million people. This makes it the 15th largest metropolitan area in the United States. It was the fastest growing American city according to 2013 census estimates. Seattle is thriving.

Seattle and its surrounding areas enjoy natural resource and locational advantages that aided its early development. Since it has a deepwater port in proximity to extensive forests, logging became its first major industry. It soon developed a shipbuilding centre as well. Seattle’s location as the northernmost major port in the lower 48 states has made it a natural gateway to Alaska during the Klondike Gold Rush in the late 1890s, and for Alaskan cruises today.

Seattle changed significantly after the introduction of Microsoft in the 1980s. New technology companies added much needed diversification to the economy and attracted a more educated and ethnically diverse workforce.

Prior to the rise of Microsoft and the tech sector, Seattle went through a series of boom and bust cycles. It did well during the Gold Rush of the late 19th century, but then suffered severe losses during the Great Depression.

Boeing, a local company that moved from shipbuilding to aircraft manufacture, was able to sell some designs to the military during WWI. During WWII, Boeing established itself as an industrial giant by being the leading producer of the legendary B-17 and B-29 bombers. This helped restore employment levels during the war.

However, when the war ended so did orders for bombers and the company had massive layoffs. Boeing’s and Seattle’s fortunes have often followed government expenditures.

During the early Cold War, Boeing did well by designing new strategic bombers as well as the first civilian jetliner, the 707. Yet, reduced space and defense expenditures at the close of the Vietnam War and the end of the Apollo Program again led to massive layoffs. Seattle had a 14% unemployment rate in the early 1970s.

While Boeing gained a first mover advantage in commercial airliners, preserved for some time by the high cost of entry into this market, it now faces increasing competition from the European Airbus consortium. Contending that Boeing’s defence side subsidized research and development because of an overlap between military and civilian aircraft, European governments subsidized Airbus in order to help it become competitive.

Boeing remains the region’s largest employer, but it moved its headquarters to Chicago in 2001, and announced in 2013 that several engineering jobs would soon move out of Washington state. At the time, it was assumed that many of these engineers would likely be hired by another local aerospace venture. This would not have been the outcome in the past.

Competitive Clusters

What is most different now is that while logging and aircraft manufacturing were substantial employers, the tech industry is what Harvard Professor Michael Porter called a competitive cluster.

Clusters offer a competitive advantage to their member firms by bolstering innovation in the use of inputs. They are defined by a critical mass of unusual competitiveness in a particular field. Such clusters depend on local factors like knowledge, talent, relationships, and motivation unmatched by remote rivals. Italy’s shoe industry and Hollywood’s movie industry are examples.

Clusters are business environments rich in companies and institutions that focus on a particular industry. The institutions not only include government agencies and public-private partnerships but think tanks, universities and foundations. Dedicated infrastructure, technologies and vocational training are also part of this mix.

The result is a positive mix of competition and cooperation. Competing companies are forced to put forward their best efforts in order to stay competitive due to the cluster’s high standards. Yet they can also form strategic alliances with suppliers and universities, and even joint ventures with one another in order to address business demands. Flexibility offers choice and innovation.

Microsoft’s success in metro Seattle led to a tech cluster. Nintendo’s U.S. headquarters,, Real Networks, and soon followed. T-Mobile’s U.S business is also headquartered in Seattle.

Most recently, Elon Musk announced that Space X is hiring engineers for projects in Seattle. Other clusters can form in a strong economy. The growth of Starbucks led to a competitive cluster in coffee manufacture that now includes Seattle’s Best and Tully’s. Smaller roasters and cafes have sprung up as well.

Since cluster firms do better by remaining in this enhanced location, it’s in their best interest to support the community. It would hurt rather than help business to move headquarters or other major business components, since this would also move them away from sources of talent and key relationships.

Innovation begot innovation as Microsoft Co-founder Paul Allen led a movement to expand or draw new biotech firms to the city. In 2006, the City Council followed Allen’s lead in designating a section of the city for biotech redevelopment. The city has succeeded in drawing firms that were later acquired as subsidiaries by Medtronic, Glaxo Smith Kline, Amgen, Phillips and Boston Scientific.

Forbes named Seattle as the 9th best city in the U.S. for business and careers in 2014.In addition to tech firms it retains Weyerhaeuser in logging and is home to the headquarters of retailers Nordstrom and Costco.

Between 2005 and 2011 the city added 9,467 jobs despite the 2008 financial crisis. The projected goal in 2005 was to produce 84,000 new jobs by 2024. 54% of Seattle’s population works in occupations in management, business, science, and the arts. This compares with 42% regionally and 36% nationally. It also enjoys a highly educated workforce.

Innovator in Sustainable Development and Income Equality

Seattle demonstrates that it’s possible to maintain a strong business climate while also maintaining strong environmental and social policies.

Since housing prices have risen with population growth, the city has developed incentives to create affordable mixed income neighbourhoods. They offer tax exemptions for those constructing new affordable multifamily housing projects. They’ve also provided information and incentives to help builders achieve lower operational and energy costs through green building techniques.

The city and region have also focused on income inequality. Seattle recently passed the country’s highest minimum wage law at $15/hr. Mass transit has found a way to assist working commuters by lowering fares for those at the poverty level. Fare cards are issued at lower cost to those who verify low incomes bi-annually.

In 2010 the City Council established carbon neutrality and environmental stewardship as priorities. This followed a 2000 effort to have the first carbon neutral electric utility, and a 2005 effort to get other cities around the country to meet the Kyoto Protocol targets for greenhouse gas reductions. In May 2014, they passed a city energy code that bested the national standard.

The Bill and Melinda Gates Foundation, based in Seattle, supports programs leading to green jobs. Elsewhere, JP Morgan Chase has sponsored a nonprofit corporation’s support of local farms and support for residents’ healthy food options. They’ve also worked with the University of Washington and other organizations to provide advice to small businesses and to advance STEM education.

Of course, not all businesses are positively affected by these changes. Seattle’s recent decision to adopt the metric system is likely to present challenges. Meanwhile, a contract between the Port of Seattle and Royal Dutch Shell to “park” oil rigs in the port on their way to Alaska has been challenged by the City Council as well as local environmental groups.

Categories: Economics, North America

About Author

Lawrence Katzenstein

Lawrence Katzenstein has taught at the University of New Orleans and the University of Minnesota. Through an affiliation with the Humphrey Institute he was one of the trainers for the initial Chinese WTO delegation. He has been an exchange professor at the Consolidated Universities of Shandong Province and an embedded social scientist with the U.S. Army in Iraq. He earned a B.A. in political science from CCNY and an M.A. and Ph.D in political science from Rutgers University. While at the University of Minnesota he also completed a teaching post doc in International Business.