MICHAEL E. PORTER

The State of Connecticut: Strategy for Economic Development
Introduction

Connecticut had long been one of the most prosperous U.S. states. With a per capita income of $39,300 in 19991 compared with the U.S. average of $28,542,2 it had the highest standard of living of any state. However, Connecticut had been hit especially hard by the recession of the early 1990s, the worst since the 1930s. During the recession, Connecticut lost one out of every 10 jobs.3 Although the recession ended in 1992, the recovery in the early 1990s was anything but robust. High unemployment rates persisted in some urban areas, and the state’s poverty rate almost doubled, from a 1987–1989 average of 4.5% to 8.4% for the 1997–1999 period.4 Worried leaders initiated the state’s first serious effort to foster economic development in living memory. After several years of little progress, Governor John Rowland (elected in 1994) initiated a cluster-based economic development strategy in late 1995. By 1999, state government had been reorganized, new institutions created, and unprecedented public-private collaboration around competitiveness was taking place. In 2000, Governor Rowland was evaluating the state’s progress thus far and considering how to carry the strategy forward.

Connecticut Profile

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No

Connecticut, one of the 13 original U.S. colonies, adopted in 1639 the first constitution establishing representative government. Connecticut was the fifth state to approve the U.S. Constitution in 1788 after the state’s delegates helped to engineer the "Connecticut Compromise" providing for equal state representation in the Senate and representation according to population in the House of Representatives. Connecticut earned the nickname “The Constitution State.”

1 U.S. Department of Commerce, Bureau of Economic Analysis. 2 Ibid. 3 State of Connecticut, Office of the State Comptroller. 4 “2001 Comptroller’s Report on Connecticut’s Economic Health,” Office of the State of Connecticut Comptroller.

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Professor Michael E. Porter and Kaia K. Miller prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2003, 2005, 2006, 2008, 2009 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

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The State of Connecticut: Strategy for Economic Development

With 3.4 million residents in 2000, Connecticut was the 29th-largest U.S. state in terms of population5 and the third smallest in geography. Situated on the Atlantic coast between New York and Massachusetts, Connecticut had a gross state product in 1999 of $149 billion and ranked 22nd among U.S. states in terms of economic size.6 In 1999 Connecticut’s gross state product per capita, $45,546, was higher than that of any other U.S. state and 34% higher than the U.S. average of $33,889.7

Connecticut’s population had increased only 3.6% over the 1990s versus the average for U.S. states of 13.2%.12 The state’s population was becoming increasingly diverse. Its African-American, Asian, American Indian, and Hispanic populations increased steadily during the decade, as did the elderly population. The population in the 25–44 age range dropped 21% between 1990 and 2000, the third highest decline among U.S. states.13 In 2000, Connecticut’s median age was 37.4 years, seventh highest in the country, versus 34.6 for the United States.14 Connecticut’s legislature—known as the General Assembly—included a Senate and a House of Representatives. Members of both bodies were elected to two-year terms, with the governor elected every four years. There were no term limits. The General Assembly’s annual legislative session took place from January to June. It convened biannually prior to 1972 and annually thereafter.

5 U.S. Census Bureau.

6 U.S. Department of Commerce, Bureau of Economic Analysis. 7 U.S. Department of Commerce, Bureau of Economic Analysis (gross product) and U.S. Census Bureau (population). 8 U.S. Census Bureau. 9 U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (IPEDS). 10 Robert D. Atkinson, “The State New Economy Index,” 2001. 11 Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School. 12 U.S. Census Bureau. 13 Ibid. 14 Ibid. 15 Robert Asher, “Connecticut Inventors,” The University of Connecticut, Connecticut Heritage Gateway.

Do

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No

From its colonial days, Connecticut’s limited agricultural land meant that manufacturing had emerged as the mainstay of the state’s economy. With wood, iron ore deposits in the northwest, mill sites on its rivers, a number of navigable waterways, and ports, Connecticut was also proximate to the most populous and affluent U.S. markets. The inventiveness of the “Connecticut Yankee” produced a stream of innovations such as vulcanized rubber, friction matches, sewing machines, the steamboat, safety fuses, lollipops, corkscrews, mechanical calculators, cylindrical locks, and the submarine. In the late 18th and early 19th centuries, Connecticut produced one patent for every 700 people compared with the national average of one for every 3,000.15

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Early Economic History

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In 2001, 33% of Connecticut’s adults had a college degree, versus 25% nationally, placing Connecticut fourth among all states.8 The state boasted 46 institutions of higher education of which 30 were four-year colleges and universities, including Yale, Trinity, Wesleyan, and the University of Connecticut.9 Connecticut ranked ninth among U.S. states in the percentage of engineers and scientists in the workforce.10 In 1999, the state registered 11.9 patents per 10,000 employees versus 6.3 for the United States overall, and its annual patenting growth from 1990–1998 was 3.3%, slightly higher than the 3.2% U.S. average.11

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One of Connecticut’s earliest clusters was in metal manufacturing, centered in the Connecticut River Valley. Connecticut won the title “Arsenal of the Nation” when the Salisbury Lakeville Furnace became the leading cannon producer during the American Revolution. Following the Revolution, more than 40 additional furnaces and forges were opened in and around the Salisbury iron ore deposits. The first manufactured firearms with interchangeable parts were developed by Eli Whitney and Simeon North in the early 1800s. Gun manufacturing in and around New Haven became one of Connecticut's leading industries.

Gun manufacturing and the increasing demand for interchangeable parts in manufacturing other goods stimulated the development of machine tools. Connecticut’s precision metalworking machine tools were used to produce parts for a variety of products. This system, which spread throughout the United States, became known as "The American System of Manufactures."

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No

Connecticut’s textile and apparel cluster began to emerge when Samuel Slater built America’s first cotton mill in 1793 in nearby Pawtucket, Rhode Island based on England’s water-powered permanent spinning system. The factory system, known as the “Slater System,” brought all operations from the spinning of yarn to the weaving of cloth under one roof and provided housing and other community services for the workers in the mill villages. Eli Whitney’s cotton gin was invented in 1796, increasing the volume and speed of delivery of cotton for spinning, which increased the demand for more mills. Francis Cabot Lowell furthered industry growth with his 1814 power loom. The Connecticut government promoted the construction of textile factories by granting tax exemptions to owners and authorizing special lotteries to raise capital for mill construction. Mills spread into Connecticut and soon proliferated throughout New England, and related industries thrived. The city of Vernon, Connecticut became known for its cotton mills, Danbury for hat making, Manchester for silk mills, and Watertown for the first large-scale production of sewing machines in 1850. The textile and apparel cluster thrived not only in Connecticut but also in all the New England states due to the ready availability of waterpower, capital, and labor. The apparel subcluster grew rapidly after 1839, when Charles Goodyear turned his attention from designing machines to produce spoons and buttons to experimenting with chemical compounds that had the flexibility of natural rubber but were not as temperature sensitive. In 1842, Goodyear discovered the formula for rubber “vulcanization,” which became the basis for durable rubber products—boots, shoes, and rubber clothing. Initially concentrated in the Naugatuck River Valley, the cluster subsequently migrated to other states as Connecticut residents joined the national migration west. Other Connecticut innovations diffused this way as well.

By 1870, almost half of Connecticut’s employees worked in a factory, high among U.S. states.16 The strong economy attracted immigrants beginning with the Irish and followed by Italians, Poles, Jews, Greeks, and others. Connecticut became one of the most ethnically diverse states.

16 James P. Walsh, “The Rise of Industry,” Connecticut Heritage Gateway.

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The concentration of skilled metal manufacturers contributed to the emergence of Connecticut’s brass industry. When brass buttons became fashionable in the late 1700s, Waterbury metalworkers Henry, Silas, and Samuel Grilley began manufacturing brass buttons from sheets imported from England. They soon joined Abel and Levi Porter to form Waterbury’s Abel Porter & Company. The company became the Scovill Manufacturing Company in 1806 and produced a wide variety of brass products. Waterbury inventors, concentrated in the brass industry, soon led all Connecticut cities in the number of patents issued per resident. By the 20th century, Connecticut ranked first among U.S. states in the production of brass goods.

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The State of Connecticut: Strategy for Economic Development

Connecticut began to establish a reputation as the “Insurance State” in the early 1800s. Marine insurance arose first as groups of merchants began sharing the risks associated with the many ships that sailed from the state’s rivers and ocean ports to the Caribbean. Fire insurance emerged next, followed by life, accident, casualty, and health insurance over the next century. The first insurance company, the Hartford Fire Insurance Company, predecessor of the ITT Hartford Group, was incorporated in 1810. Aetna sold its first life insurance policy in Hartford in 1850 as the Aetna Insurance Company. The Aetna Life Insurance Company was incorporated separately in 1853. The migration of insurance companies from New York in the early to mid-1900s, attracted by Connecticut’s high living standards, solidified the insurance cluster in and around Hartford as a mainstay of Connecticut’s economy. Many of Connecticut’s industries depended on imported inputs and access to urban markets, making transportation and communication essential. In the first half of the 19th century, the Farmington Canal was built on the initiative of New Haven merchants to stimulate the city's export trade, one of many canals built in the United States. The canal was closed in 1848 as railroads spread. The first railroad tracks in Connecticut were laid in 1837, and Hartford and New Haven were connected by 1838. New Haven and New York City were connected in 1844. The large-scale financing required by the railroad stimulated the state's banking and insurance firms. The marine cluster had long roots in Connecticut based on active trading with the West Indies as far back as the 17th century and on moving building materials and other supplies up and down the East Coast. Shipbuilding and ship repair were important to the state’s economy from the beginning with a particular concentration along the Mystic River. Other parts of the cluster included sail making, rope making, ship plumbing, provisioning, metal-fitting manufacture, and the production of decorative ship pieces. From the mid-19th century on, steam, diesel, and gas marine engines were all manufactured in Connecticut.

Do

The aviation cluster was born when Pratt & Whitney Company, a Hartford machine-tool manufacturer, together with investors Frederick Rentschler and George Mead formed the Pratt & Whitney Aircraft Company in 1925. Its product, a 350-horsepower, radial, air-cooled airplane engine, would earn a contract with the U.S. Navy. Within three years, Pratt & Whitney was turning out thousands of Wasp engines and had increased its workforce from 30 craftsmen to over 600.17 In 1929, Seattle-based Boeing Airline & Transport joined with Hartford’s Pratt & Whitney, Stratford’s manufacturer of flying boats Sikorsky, and three other out-of-state companies—Chance Vought, Hamilton, and Standard Steel Propeller—to form United Aircraft & Transport Corporation, becoming

17 Herbert F. Janick, “The Rise of United Technologies,” Connecticut Heritage Gateway.

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This document is authorized for use only by Sergio Marroquin until June 2012. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.

No

By the 1920s, Connecticut's economy had undergone a transition. Some mainstays of the economy, including textiles and metal products such as hardware, guns, and machinery, declined as a result of higher wages and transportation costs relative to other regions. Connecticut factories shifted to making specialty precision parts for industries such as automotive, electric power, and aviation, taking advantage of the state’s established machine-tool manufacturers.

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In 1900, the Electric Boat Company of Groton was founded when the company of submarine designer John P. Holland was purchased by its electric battery supplier. It acquired the New London Ship and Engine Company in 1910 to produce diesel engines, other machinery, and parts for submarines and ships. Electric Boat grew to become one of Connecticut’s largest employers in the 20th century, building the first nuclear submarine in 1954 and consistently winning government contracts to build next-generation vessels. Connecticut became the center of the submarine service of the U.S. Navy.

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one of the four major aviation conglomerates in the United States. A huge tract of farmland in East Hartford became a large manufacturing facility, and Chance Vought relocated to Hartford in 1930.

Antitrust legislation led to the breakup of United Aircraft & Transport in 1934, and it was split into three corporations: United Aircraft, the Boeing Airplane Company, and United Air Lines Transport. United Aircraft’s four Connecticut-based divisions were Pratt & Whitney (engines), Hamilton Standard (propellers), Sikorsky (flying boats), and Chance Vought (fighter planes).

World War II was also a stimulus for the pharmaceuticals cluster in Connecticut. Charles Pfizer and Charles Erhart emigrated from Germany to New York and founded a chemical company, Charles Pfizer & Company, in 1849 to produce the breakthrough drug candied santonin, a palatable antiparasitic. In 1880, Pfizer began manufacturing citric acid, which became its flagship product when the company discovered an innovative fermentation process in 1919 that obviated the need for citrus fruit inputs imported from Europe. In 1928, Alexander Fleming discovered the antibiotic properties of penicillin. Pfizer applied its fermentation process to the mass production of penicillin and became the world’s largest producer of the drug and top supplier to the U.S. government during World War II. The company chose Groton, Connecticut as the site of the world’s largest citric acid fermentation plant in 1946.

Although Connecticut had always been prosperous, World War II propelled the state to the top position. In 1950, Connecticut ranked fourth, with per capita income of $1,891 versus a U.S. average of $1,510. By 1960, the state ranked first and retained this position for the next four decades.18 The textile and apparel cluster, dependent in many segments on lower-wage and less-skilled workers, left the region, moving first to southern states and also overseas. The movement of America’s population to the suburbs after World War II led many corporations to open suburban campuses in order to be closer to the new residential areas. Connecticut’s location began to attract many corporate offices, especially in the southern part of the state near New York City. Corporate campuses became major employers in the state.

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Pfizer opened new research laboratories in Groton in 1960 as part of its increasing corporate focus on pharmaceutical research. Pfizer was later joined by Boehringer Ingelheim (1971), Bristol-Myers Squibb (1986), and Bayer (1988), drawn by major hospitals, the presence of Yale and other universities, several emerging biotechnology companies, and an attractive location for researchers to live. Particularly in the New Haven area, Connecticut became a significant concentration of biomedical research in the nation. Connecticut United for Research Excellence (CURE), a local nonprofit organization promoting biomedical research, was formed in 1990. CURE's 30 founding members represented education and research institutions, health-related corporations, hospitals and health-care systems, professional societies, supporting agencies, businesses and organizations, and
18 U.S. Bureau of Economic Analysis.

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The Post-World War II Economy

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World War II was a huge stimulus for airplane production. More than half of the engines used by the Allies during the war were made by Pratt & Whitney. United Aircraft operated three shifts throughout the war, trained many new workers, and constructed satellite plants in four Connecticut towns. Recognizing that piston engines would soon be outmoded, Pratt & Whitney developed turbojet engines in the early 1950s for commercial and military use. The parent company later diversified into the production of electronics, electric cables, elevators, and industrial power plants, changing its name to United Technologies Corporation in 1975.

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voluntary health organizations. CURE quickly established itself as the information source for biomedical research in Connecticut.

Population shifts led to the adoption of a new state constitution in 1965. The changes were stimulated by a decision of the Supreme Court of the United States requiring state legislatures to comply with the "one man-one vote" principle. The 1970 census revealed a Connecticut population of 3.03 million, with 50% of the House districts and 59% of the Senate districts predominantly suburban in character.19 Reapportionment shifted political representation in this direction. In addition, a constitutional amendment was passed by which the legislature would meet every year, instead of every other year, beginning in 1972. Initially attracted by jobs in Connecticut’s manufacturing industries, minorities migrated to Connecticut just as Connecticut’s economy was moving away from jobs accessible by less-skilled workers. Many newcomers were unable to find work, and the unrest that characterized many U.S. cities in the 1960s emerged in Connecticut’s major cities. Corporate headquarters continued to relocate in Connecticut. Between 1969 and 1973, forty-six major companies, including 20 among the Fortune 500, moved their headquarters from New York to Connecticut and twenty-one companies moved to Connecticut between 1974 and 1987,20 enticed by the aggressive new Department of Economic Development formed by Governor Ella T. Grasso (1975– 1980) to support companies wanting to relocate to or expand in Connecticut. In the 1970s, Stamford became Connecticut’s fifth-largest city in part because of the presence of companies including Champion International, Olin-Mathieson, General Telephone, Singer Corporation, Pitney Bowes, and Xerox.21 Governor William O’Neill (1981–1990) continued Grasso’s policies, focusing on improving the quality of secondary education and implementing a 10-year, $5.5 billion highway, bridge, and dam infrastructure repair program. Connecticut governors and other political leaders were known as cautious and conservative, and Connecticut was known as the “Land of Steady Habits.” During this period, federal legislation was passed (in 1988) allowing Indian tribes to open casinos. Casinos were established by two of Connecticut’s tribes in less-developed parts of the state. The Foxwoods casino, founded in 1992 by the Mashantucket Pequot tribe, soon became one of the largest, most profitable casinos in the world. Mohegan Sun casino, founded by the Mohegan tribe, later opened.

The Great Recession

Connecticut’s growth came to an abrupt halt in 1989 when the worst recession since the 1930s hit the state. Connecticut's economic condition began to worsen at the beginning of 1989, six quarters ahead of the national recession. Overall, New England was hardest hit. The “Great Recession,” as it was sometimes termed, led to the loss of 158,200 Connecticut jobs, or one out of every 10.22 Forty percent of the job losses were in the manufacturing sector.23 In the words

Do

19 Herbert F. Janick, “The Constitution of 1965,” Connecticut Heritage Gateway.

20 Regina R. Armstrong and David Miller, "Employment in the Manhattan CBD and Back-Office Locational Decisions," City Almanac, Vol. 18, No. 1-2, June/August, 1984; The Economist, May 9, 1987. 21 Herbert F. Janick, “Demographic Change in the Twentieth Century,” Connecticut Heritage Gateway. 22 State of Connecticut, Office of the State Comptroller. 23 Ibid.

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No

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of one government advisor, “Whole clusters were evaporating. Manufacturers were going under, construction nose-dived, and 35 banks were eliminated in a round of consolidations and failures.” Sharp cutbacks in defense spending were affecting many states in the late 1980s and early 1990s. Connecticut was among the hardest hit. Connecticut’s defense contracts fell from more than $6 billion in 1989 to just over $2 billion in 1994.24

Although the recession technically ended in 1992, the recovery was termed “the jobless recovery.” Although Connecticut’s aerospace vehicles and defense cluster increased its share of national output following the recession, national output was still falling, and the number of jobs continued to decrease. It took until 2000 for Connecticut to return to the job levels of the late 1980s.

A New Focus for Economic Development

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That question became a rallying cry for a new state economic development plan. Because of the recession and the dearth of jobs, the governor called on the utilities to develop a marketing program to attract business to the state. The Connecticut Economic Resource Center, Inc. (CERC) was created in 1991 to market the state of Connecticut. CERC was a unique, private, nonprofit partnership of the state’s electric and telecommunications companies and state government.

The Manufacturing Recovery Act of 1992, was enacted by the legislature to stimulate the economy and attract business. The bill included tax deductions for research and development and tax credits for manufacturers that provided training and educational grants to employees. Machinery and equipment used in manufacturing were exempted from sales and property taxes, phased in over a four-year period.

Nicholas Perna, the chairman of CECB and chief economist at Shawmut Bank (late part of 1992), convened a session with business leaders and the legislature on regional economic development strategies. Among the themes discussed was the cluster concept. The session resulted in a number of initiatives to improve Connecticut’s business environment and encourage the development of

24 “Connecticut Defense Statistics,” Connecticut’s Department of Economic and Community Development. 25 State of Connecticut, Office of the State Comptroller.

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The sharp economic downturn prompted the legislature to create the Connecticut Economic Conference Board (CECB) in 1991 to examine ways of revitalizing the state’s economy. The CECB, composed of three government officials (the Secretary of the Office of Policy and Management, the Commissioner of Economic Development, and the Director of the Legislative Office of Fiscal Analysis) and seven economists, met with the legislature in 1991 to discuss the current situation and the future outlook. The forecast presented by the CECB in 1991 was bleak. One legislator asked, “Is there anything we can do to change the forecast?”

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The 1990 gubernatorial election took place as the economy was severely contracting. Lowell Weicker, formerly a Republican, ran as an independent gubernatorial candidate in a rare three-party race against Republican John Rowland and Democrat Bruce Morrison. Weicker had served as U.S. senator from Connecticut in the 1970s and lost a close Senate race to Joseph Lieberman in 1988. Weicker broke ranks with the Republican Party in the 1990 gubernatorial race and won. When he took office Connecticut’s budget deficit was almost $1 billion, out of a total budget of $7 billion,25 as consumers were spending less and businesses were leaving the state. One of the governor’s first steps was to propose the politically unpopular, first-ever state personal income tax, enacted by the legislature during its 1991 session.

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industry clusters. New legislation in 1993 charged CECB with creating a competitiveness index for Connecticut in conjunction with the state Department of Economic Development and the University of Connecticut. A consulting firm, DRI/McGraw-Hill (DRI), was retained to assist in devising a strategic and competitive assessment of the state’s economy, including a “cluster initiative” to identify the state’s key industry clusters and their strategic priorities. The effort was termed the “Connecticut Competitiveness Initiative.” Throughout 1993 and 1994, DRI worked with the Department of Economic Development, the CECB, and a number of business leaders to diagnose Connecticut’s competitiveness. DRI drafted documents, coordinated discussions, and made recommendations on a competitiveness index for the state. The DRI consultants did the bulk of the analysis and shaping of the recommendations. Six major industry clusters in Connecticut were identified based on “location quotients,” which compared industry employment levels in Connecticut with industry employment levels nationally. The clusters identified were advanced manufacturing; communication, information, and education; financial services; business services; health and biomedicine; and tourism and entertainment. Cluster councils were formed composed primarily of midlevel managers from cluster companies. Each council met four to six times over a six-month period at meetings facilitated by DRI consultants to identify the key issues affecting the competitiveness of their clusters and to make recommendations for public and private sector actions. In addition to the cluster councils, ad hoc committees were formed to discuss important business environment issues including taxes, transportation, workforce quality, and the regulatory climate. The committees recommended identifying “champions” who would push the issues toward resolution. As chairman of CECB, Perna spent the summer of 1994 on the phone and in meetings trying to push the effort forward. The state Department of Economic Development played little or no role in the process.

Do

Operating largely independently, the tourism cluster had made headway. In 1992, the legislature passed the Tourism Act creating the Connecticut Tourism Council to serve as an advisory board to the State Office of Tourism, and a Tourism Promotion Fund to receive revenue from a surcharge on rental cars totaling about $4 million in addition to the over $10 million the Office of Tourism was already receiving annually from the state’s hotel tax.26 The fund was used for a major marketing

26 Interview, William Kaufmann, chairman and CEO of Connecticut Economic Resource Center (CERC).

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No

DRI’s report “The Connecticut Connection: Implementation Strategy for the Connecticut Competitiveness Initiative” was released in November 1994. The report outlined “the building blocks for implementing an economic strategy for the state of Connecticut . . . [and identified] the requirements for implementing the public and private action initiatives developed . . . “ The report also provided “guidelines that Connecticut’s public and private leaders [could] use to shape the nextgeneration state economy.” Highlighted in the report were the top issues, priority recommendations and infrastructure needs for each of the six clusters studied. (A synthesis of the report is given in Exhibit 1.)

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As the competitiveness initiative progressed, the gubernatorial race began capturing the public’s attention. Governor Weicker announced late in the race that he would not run for reelection, having been crippled politically by his 1991 decision to institute the personal income tax. Republican John Rowland ran again, against Democrat Bill Curry, Independent Tom Scott, and Connecticut Party candidate Eunice Groark, Weicker’s lieutenant governor. Each of the candidates was briefed on the cluster project, the final report for which was due out that fall.

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campaign in 1993–1994. In 1995, money from the fund was used to implement the tourism recommendations in DRI’s “The Connecticut Connection.”

In 1995, the tourism cluster retained SRI International to work with industry leaders, the Connecticut Tourism Council, and the Connecticut Office of Tourism on a strategic plan. While the tourism cluster continued to progress, the rest of the competitiveness initiative ended with the publication of the report.

A New Governor and a New Strategy

Businesses with 100 or fewer employees accounted for about 65% of all net new jobs created in the state between 1975 and 1993—compared with about 50% of those nationally.28 Businesses employing 20 or fewer workers accounted for about one-third of the net new jobs.29 Large companies remained important but had not been major job generators. Meanwhile, Connecticut was becoming increasingly international. Exports from Connecticut had been rising steadily, consistently outpacing U.S. export growth. By the mid-1990s, Connecticut companies were trading with more than 170 countries worldwide, and their activities were globalizing.30

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29 Ibid.

Regions of the state were experiencing very different economic trends. The New LondonNorwich economy was strong due to the opening and rapid growth of the Foxwoods and Mohegan Sun casinos. In fact, by the year 2000, gaming revenue, including casino revenue and state-sponsored lotteries, had surpassed the corporate income tax to become the third-largest revenue source in the state budget, behind personal income taxes and sales taxes.32 The New Haven-Bridgeport-StamfordDanbury-Waterbury area was enjoying growth in pharmaceutical jobs but was losing jobs in aerospace vehicles and defense. Hartford continued to lose jobs in metal manufacturing while holding its position in financial services. The larger cities had lost ground versus the rest of the state.

In the first two years of his administration, Governor Rowland made significant progress in a number of areas. Investment in education and training was increased; the corporate tax rate was

27 U.S. Bureau of Labor Statistics. 28 Connecticut State Labor Department. 30 “Governor Rowland to Address Connecticut’s First Africa Business Conference,” State of Connecticut, Executive Chambers

Press Release, April 20, 1999. 31 Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School. 32Christina L. Pappas, “Connecticut Mayors on Casinos: Know When to Hold ‘em, Fold ‘em,” Worcester Business Journal, July 30, 2001.

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Although metal manufacturing continued to be an important contributor to Connecticut’s economy, Connecticut’s share of national output in the cluster had been falling, and the number of jobs had also been falling steadily. Overall financial services share had also declined.31

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John Rowland was elected governor in November and took office in January 1995. At 37, he was the youngest person ever elected governor of Connecticut and was the youngest governor in the United States at the time. The Connecticut economy had stabilized, but it was becoming clear that it was undergoing some fundamental changes. Connecticut’s total nonfarm employment had dropped almost 6% from 1990-1994, while total United States employment had risen almost 4% over the same period.27 One business leader noted, “People began seeing that the economy was not coming back the way it used to be. There were major structural shifts under way, and everyone was being affected.”

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reduced from 11.75% to 7.5%; household taxes including the state income tax, the gas tax, and the inheritance tax were reduced; and the state budget deficit was eliminated. Tax credits for companies purchasing and installing additional machinery, which were to be phased in over several years according to previous legislation, were expedited. However, James Smith, chairman and CEO of Webster Bank, the largest bank in the state in terms of Connecticut-based assets, captured the sentiment among leaders: Connecticut is at an economic crossroads . . . Will we be lulled into complacency by the modest economic recovery and choose incremental, introspective initiatives, only to be rendered increasingly irrelevant as an economic force the next time the economic tide goes out? Or will we forge a collaboration among business, government, labor, and education, creating an environment and attracting the resources which can transform Connecticut into an international force?

Governor Rowland had made it clear from the start that a new approach to economic development, with a focus on technology, would be a key part of his administration. New legislation in 1995 led to the merger of the former Department of Economic Development (DED) and the former Department of Housing (DOH) into a new Department of Economic and Community Development (DECD). Peter Ellef, a former insurance executive, was appointed DECD’s first commissioner, and William Kaufmann, former senior executive at Chase Manhattan Bank and a leader in the National Urban Coalition, was named senior advisor. In the process of reorganizing the department, a new Industry Cluster/International Division was created. In the fall of 1995, DECD staff set out to identify clusters using an eclectic methodology involving employment levels, location quotients, and judgments based on the staff’s experience and knowledge of the state’s economy. The resulting clusters were health, manufacturing, financial services, telecommunications and information, high technology, and tourism. In June 1995, the legislature approved “An Act Concerning Cluster-based Economic Development.” The act charged the DECD commissioner with oversight of the clusters initiative. In the fall of 1996, Fleet Bank agreed to loan James Abromaitis, vice president at the bank, to DECD to be executive director of the new Industry Cluster/International Division for one year.

The Connecticut Business Initiative
In late 1996, Governor Rowland initiated a dialogue involving state government, the legislature, business leaders, and the newly reconstituted CECB on regional economic development strategies and the role of clusters. Then in February 1997, the governor launched the “Connecticut Business Agenda: Building the State of the Future,” an effort to develop a new economic strategy for the state. Business leaders and the government were charged with convening over the next 100 days to “1) Develop specific recommendations to sharply improve the business environment and allow Connecticut companies and citizens to better compete in the global marketplace; and, 2) Determine whether an ongoing, high-powered industry cluster initiative should be launched, and if so, put forward the recommended steps to make it a reality.” Tourism, represented by the Connecticut Tourism Council, continued to pursue its efforts independently. With invitations coming directly from the governor, five cluster groups were convened, in financial services, telecommunications and information, health services, manufacturing, and high technology, totaling about 100 of the state’s most influential CEOs. Abromaitis and Kaufmann made dozens of phone calls and visits. The governor made several calls personally. Most of February and March were spent getting the cluster groups formed. Each cluster group met three or four times in

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April and May to develop recommendations. A team composed of DECD staff, CERC staff, and outside contractors acted as liaisons and facilitated cluster task force meetings. DECD senior staff worked with the commissioner to ensure the governor was briefed and that the government was prepared for the recommendations. Each cluster group evolved differently. When Doug Rose, CEO of Aerogear, was invited by DECD to help form the manufacturing cluster, he saw it as an opportunity to address the concerns of aerospace components manufacturers that were threatened by overseas competition and highly dependent on Pratt & Whitney. A group of six to ten aerospace components manufacturers was already meeting regularly prior to the 100-days process and cooperating on developing an industrydriven curriculum for local community colleges and technical schools centered on training in precision machining. The manufacturing cluster recommended the establishment of “submanufacturing” clusters, including aerospace components, and the manufacturing group quickly evolved into an aerospace components manufacturing cluster. The health cluster task force focused on bioscience. Recommendations included increasing biotech lab space, establishing loan guarantees for entrepreneurial biotech efforts, creating a biotech institute, and calling for aggressive support for the growth of the biotech industry by government. The high-tech cluster group included a diverse array of companies whose business challenges tended to group around narrower interests. The group was subdivided into three more focused clusters: biotechnology, photonics, and software/information technology. The biotechnology firms and major pharmaceutical companies became part of the bioscience cluster. The software/IT cluster emerged, albeit at a slower pace. While the photonics cluster group met sporadically, the cluster was never formally activated. As one cluster participant noted: “You can use methodology to guide the cluster development process, but in practice it will come down to who has a shared set of needs that can be addressed through cooperation and who has the motivation and commitment to act to address those needs.”

The “Partnership for Growth” Report and Connecticut’s Cluster Bill
On June 11, 1997, the cluster advisory boards presented their recommendations to Governor Rowland and state legislators. (A report summarizing the recommendations, “Industry Clusters Report to the Governor,” is shown in Exhibit 2.) At the meeting, the governor issued a “call to action” to develop an implementation plan for cluster activation and the cross-cluster recommendations. An economic competitiveness legislative package was to be developed by yearend.

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In September 1997, Abromaitis was appointed commissioner of DECD and resigned from Fleet Bank. Advisors were identified to work with each of the cluster groups and with cross-cutting issues advisory boards on infrastructure, workforce, regulatory, capital, technology, and an urban initiative. DECD and its advisors took the lead in compiling recommendations and getting the report approved by the groups to meet the year-end deadline. In February 1998, the “Partnership for Growth” report was published (highlights are presented in Exhibit 3). Governor Rowland termed it “the most important economic plan in 50 years” at a meeting at the Old State House with the advisory boards and other business, academic, and government leaders. The report launched a new approach to regional economic development that the leaders called “industry cluster economic development,” called for the reorganization of agencies, and made specific policy recommendations. The report articulated three overarching goals: “1) Aggressively supporting the formation and reshaping of the initial cluster groups, as well as the
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creation of new clusters; 2) Establishing a Governor’s Economic Competitiveness and Technology Council; and 3) Approving the priority initiatives to immediately strengthen Connecticut’s Economic Foundations, a term used to identify cross-cutting business environment and infrastructure issues. The “Partnership for Growth” report called on government and education leaders to “adjust their historic operating paradigms, and build new types of relationships with the private sector.” There was bipartisan support for the new economic strategy, and legislation incorporating the report’s recommendations was submitted during the 1998 legislative session. The governor’s strong support and his popularity helped ensure the passage of the first Cluster Bill during that spring’s legislative session.33 The bill authorized $3 million for “cluster activation,” $4 million from a previously passed Manufacturing Assistance Act for cluster development, $30 million in bond funds through Connecticut Innovations Inc. (CII) for building laboratory space, and expansion of the full 6% research and development tax credit for small businesses. Many of the cluster group leaders lobbied for the bill, with the bioscience group making among the most significant efforts. The Cluster Bill passed unanimously in both the House and the Senate in May 1998.

Activating Clusters

The staff of DECD worked with the cluster groups over the next several months to implement the new legislation. The process of cluster activation involved six key steps: 1) convening a broader group of business leaders in the cluster; 2) articulating a set of shared needs and reasons for working together; 3) conducting an in-depth analysis of the cluster’s current competitive position; 4) articulating a vision of where the cluster could progress in the future; 5) developing a strategic plan for government, university, and collective private action; and 6) selling the strategy to DECD so as to become formally “activated” and gain funding and support. In anticipation of the passage of the Cluster Bill, the DECD had begun accepting proposals for cluster activation in the summer of 1997. The bioscience, aerospace components manufacturing, photonics, software, and aqua-agriculture/marine clusters were already in active discussion with DECD about the formal activation process. The state of cluster proposals was uneven, and DECD staff worked closely with the cluster group members to improve them.

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The group wrestled with whether Connecticut had a sustainable case for developing and strengthening the bioscience cluster. It concluded that a major initiative was possible because of the state’s location, the presence of four major pharmaceutical companies, the emergence of a growing number of smaller pharmaceutical companies, and the presence of two major research universities— Yale and the University of Connecticut.

The activation of the bioscience cluster was announced by Governor Rowland on October 7, 1998. An initial DECD grant of $150,000 was leveraged with $700,000 of industry contributions. The group
33 Governor Rowland’s reelection campaign was going well. A March 1998 poll showed Rowland leading his Democratic challenger, Congresswoman Barbara B. Kennelly, by 21 percentage points. His reelection was expected.

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The Bioscience Cluster Bioscience was the first cluster to be activated. Many of the corporate leaders had been working together through CURE since 1990. At the urging of the leaders, DECD agreed to bring in an industry expert, Mark Dibner, to facilitate the activation process. Dibner had an MBA and a Ph.D. in Neuropharmacology and ran a consulting firm focused on biotechnology and biopharmaceuticals. As one government official noted, “Dibner knew a lot more than any of us at DECD about bioscience and had instant credibility with cluster leaders.”

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focused its initial efforts on expanding the state’s laboratory space. The $30 million biotech facilities fund that had been approved by the legislature was established, administered through Connecticut Innovations, the state’s technology investment arm. The fund was intended to underwrite the development of at least 150,000 square feet of incubator and lab space.

The Aerospace Components Manufacturing (ACM) Cluster DECD invited Michael Werle, a respected facilitator with relevant industry experience, to work with the ACM cluster under the leadership of Rose, CEO of Aerogear. The cluster group started with six aerospace components manufacturers, reaching 15 by the end of 1997. The group took the initiative to form a “breakfast club” of the two or three most committed companies, which, with the support of the other members, took the lead in setting the agenda, putting ideas together, and testing them with the larger group.
The ACM cluster identified manufacturing efficiency as a key issue, since Connecticut manufacturers were losing business to lower-cost foreign producers. United Technologies, which owned Pratt & Whitney, was promoting a “lean manufacturing” initiative among its suppliers. A Japanese consultant, Yoshihisa Doi, was retained by the cluster to facilitate a lean manufacturing effort for the aerospace components cluster. A former executive in Toyota’s Shingijutsu Consulting Group, Doi quickly became almost a cult figure in the cluster. The smaller companies cooperated to purchase some of his time when he was in Connecticut visiting Pratt & Whitney. Productivity began to rise in the participating manufacturing facilities.

Creating the Governor’s Council

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On December 15, 1998, Governor Rowland signed an executive order creating the Governor’s Council on Economic Competitiveness and Technology, another recommendation in the February 1998 “Partnership for Growth” report. The governor invited Smith, chairman and CEO of Webster Bank, to co-chair the Governor’s Council with him. The mission of the Governor’s Council was to “encourage and assist private sector industry cluster activation and effectiveness, advise and assist the executive and legislative branches of Connecticut state government and the private sector on matters relating to industry cluster economic development and monitor, assess and evaluate the activation and effectiveness of industry clusters in Connecticut.”

The council comprised about 75 executives including CEOs, legislative leaders, presidents of major universities, commissioners, and civic and labor representatives. The group represented many of the most influential individuals and organizations in the state. “I was initially skeptical,” said one member, “but because it was the governor asking us to do this, I agreed to try it.” The council met three times a year, including before and after the legislative session. A smaller leadership group of 10 to 14 council members met before the plenary sessions to agree on the agenda, discuss issues, and otherwise ensure an effective session. The leadership group meetings were transparent to all council members. Regular surveys of members were instituted to ensure satisfaction with the working of the council, the content of the meetings, and the issues addressed.
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George Milne Jr., president of Pfizer Central Research in Groton, joined Harry Penner Jr., CEO of Neurogen Corporation, in chairing the bioscience cluster effort. The group decided to leverage CURE’s existing activities and rename it Connecticut’s Bioscience Cluster in order to most effectively use the public and private resources available. The progress made on the lab space discussions helped convince Milne that the Connecticut government was committed to developing the cluster. At the same time, Pfizer, under the leadership of Milne, began seriously considering Connecticut among the potential sites of its new, state-of-the-art, worldwide research headquarters facility. Governor Rowland was named “Governor of the Year” by the national Biotechnology Industry Organization (BIO) in 1998.

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The governor attended every council meeting, arriving early in most cases. He implemented most of the recommendations. Cluster leaders used the meetings as a venue for communicating their needs to the highest decision makers in the state. According to one council member, “Most of the energy within the council [came] from cluster groups and the advisory boards who gave update presentations at each council meeting.”

One of the first recommendations of the Governor’s Council was a bill to extend the period a company could carry forward operating losses from five to 20 years, introduced in the January 1999 legislative session. Among the proponents of the bill were cluster group leaders, particularly in the bioscience cluster due to the long lead times required to bring a product to market. The bill was passed, and one council member attributed the bill’s passage to having “an issue that was clearly defined, recommendations that were developed through consensus that could be achieved in such a small group, and the political will within the legislature to make changes.”

Another issue that began to emerge in the Governor’s Council almost immediately was Bradley Airport, the largest airport in the state near Hartford. The volume of traffic and freight through Bradley Airport was increasing, and making the airport user friendly and business oriented were high priorities. In early 1999, the council created a Transportation Advisory Board and charged it with carefully reviewing and benchmarking Bradley’s operations, finances, and management structure. The council developed options for Bradley in the spring of 2000. The Program Review and Investigations Committee of the legislature also conducted an evaluation of Bradley to assess its performance in meeting the economic development objectives of Connecticut and to make recommendations for improvement. A public hearing on Bradley Airport was held on October 12, 2000 by the Program Review and Investigations Committee. On October 31, the committee sponsored a forum on airport management with invited presenters. On December 15, the committee voted in support of legislation designed to allow the state-owned airport to operate more independently through assembling a private sector-led board of directors with broad authority within the Department of Transportation. Bradley was also made a priority issue by the Connecticut Business Industry Association (CBIA) under the chairmanship of Robert Patricelli, chairman/CEO of Women’s Health and vice chair of the Governor’s Council. Michael Morris, CEO of Northeast Utilities and also vice chair of the Governor’s Council, commented on the politically sensitive nature of the Bradley issue, “The governor, rather than taking on the issue himself, worked with the business leaders in the council to create a mandate for change.” Another CEO attributed progress to “the governor’s sensitivity to protocol and relationships that was maintained throughout the discussions.” Other issues outlined in the “Partnership for Growth” report were also moved forward. In February of 1999 the first pilot programs for manufacturing career development were announced by the governor as part of the recommended Workforce Development Campaign. In March 1999, in concert with new federal legislation, the governor formed a Jobs Cabinet to coordinate the multiple agencies working on workforce development issues. Mary Ann Hanley, former chief counsel to the governor with both an MPA from Trinity College and a law degree from the University of Connecticut, was named as the governor’s principal advisor on workforce investment matters and chairperson of the Jobs Cabinet. In March 1999, the state economic development agenda expanded. The governor announced the Connecticut Inner City Business Strategy, a business-oriented economic development initiative for Connecticut’s inner-city economies in Bridgeport, Hartford, New Britain, New Haven, and Waterbury. The large Connecticut cities were struggling economically, and unemployment was high
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especially among minorities. A yearlong partnership of the Governor's Council on Competitiveness and Technology, the DECD, and the Initiative for a Competitive Inner City (ICIC), a nonprofit organization, guided the initiative. Local leaders in the five cities developed market-based strategies to strengthen their inner-city business base. The objective was to increase prosperity and employment opportunities for inner-city residents by promoting business development.

Each city's efforts were led by a “city champion”—a local CEO who contributed significant time, energy, and contacts to the project. An advisory board composed of 20–25 business, government, and community leaders guided the effort. Working teams made up of community leaders, economic development professionals, and academics identified market-based opportunities for inner-city business growth and deficiencies to be addressed. The Inner City Business Strategy became one of the Governor’s Council’s key agenda items, complemented by the hundreds of millions of dollars of infrastructure investments that Governor Rowland had already committed to the cities. In 1999, a grant of $125,000 for year two of the bioscience cluster was approved. The ACM cluster was formally activated in the fall of 1999. The state’s investment of $125,000 in this cluster was matched by the firms involved. The group began to look at shared needs, including progressive manufacturing, workforce development, consolidated purchasing, and the identification of future sales opportunities in the evolving worldwide aerospace market. Although the software and information technology cluster had been meeting periodically prior to 1999, it was formally announced by the governor in October. The group was comprised of business leaders who were also members of the Connecticut Technology Council. The group received $150,000 in state seed money and more than matched it with private sector resources. This cluster set out immediately to address workforce development issues and developed a program for positioning Connecticut as a high-tech center.

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Looking Ahead

Also in 1999, the Governor’s Council, in conjunction with the cluster advisory boards, launched the marketing campaign “You Belong in Connecticut” to attract and retain talent in the region. DECD formally contracted with CERC, the former, nonprofit marketing partner of the old Department of Economic Development, to assist DECD’s Industry Cluster/International Division in supporting the cluster initiative. As one government official noted, “DECD’s restructuring enabled the agency to continue its day-to-day operations including the management and negotiation of specific corporate location transactions, while overseeing the strategy and activities of the governor’s cluster-based economic development strategy.”

“We are making progress, but the whole effort depends on maintaining engagement,” noted one of the key government facilitators of the program. “Without continued strengthening of the private sector, sustainability is a real issue.” The entire economic development program was also still heavily associated with Governor Rowland.
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In 1999, the metal manufacturing cluster was activated as an outgrowth of the Connecticut Inner City Business Strategy initiative. The cluster was originally launched with a $10,000 grant followed by a $125,000 cluster activation grant from DECD. The newly formed Metal Manufacturing Education and Training Alliance (METAL) subsequently won a $1.7 million federal workforce training grant for a two-year project to provide demand-driven training in new workplace technologies and manufacturing processes. Other cluster groups had submitted proposals for formal activation without DECD/CERC involvement, but the proposals were not developed enough to cause DECD to initially embrace them.

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The bioscience and ACM clusters were progressing, and the software/IT and metal manufacturing clusters were showing promise in their early efforts. Others, however, were moving more slowly, and DECD staff began to wonder how many more cluster groups could develop and how many more they should facilitate (see Exhibits 4-5). There was also the issue of the resources needed to work with more clusters, particularly given the major business environment priorities including the transportation issue, and the new Connecticut Inner City Business Strategy. The political debate over Bradley Airport raged on. Additionally, while the Inner City Business Strategy was supported by the members of the Governor’s Council, one city leader acknowledged that “the direct connection to the rest of the government’s cluster-based economic development strategy was not immediately clear.” There were some government and business officials who were more inclined to have DECD focus its resources and attention on the agency’s traditional role of providing funding and support for transactional deals with individual companies.

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Exhibit 1

Excerpts from DRI/McGraw Hill's “The Connecticut Connection Report”

I.
Key Findings

EXECUTIVE SUMMARY

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The vital cycle (defined as the relationship between the changing needs of industries and the sources of inputs) environment has three major requirements: 1. Recognizing economic links to facilitate relationships between business and the economic infrastructure 2. Adapting faster to change and becoming demand driven in policy development 3. Reinvesting for the Future by recognizing that continuous improvement is necessary

Chapter

Description

I.

Shaping Connecticut’s Vision: A Vital Cycle for an Agile Economy

The logic of a new economic culture that promotes demand-driven, collaborative economic strategy

II.

Achieving the Vision: Strategic Directions and Priority Actions

A summary of the challenges and priority public and private actions identified by participants in the collaborative strategy process

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Cluster Groups in the Collaborative Process: 1. Aerospace and Advanced Manufacturing 2. Communications, Information & Education 3. Financial Services 4. Business Services 5. Health & Biomedicine 6. Tourism & Entertainment These clusters identified their competitiveness hurdles, set visions for overcoming their shared challenges, and developed “business plans” for priority actions that the private and public sectors should take together.

III. Implementing Connecticut’s Strategy: Sustaining Progress

A proposal for a new economic development mechanism for Connecticut to help implement the action initiatives developed by stakeholders in the state economy

To ensure that Connecticut’s economic strategy is sustained, the state needs to design and establish an appropriate organizational structure to implement the initiatives. Recommended option: The Connecticut Connection 1. High-level leadership from both public and private sectors 2. Frequent communications between organizational entities 3. Formal links, particularly for infrastructure initiatives, to government agencies 4. Autonomous flagship initiatives 5. Ongoing cluster action initiative development with regional representation This option is proposed as an equal financial partnership between the public and private sectors. Moving the strategy process forward can be accomplished in three steps: Step 1: Confirm accomplishments and institutionalize process Step 2: Sustain and reinforce actions Step 3: Build Cross-Cutting “Flagship” Initiatives 1. Find commonalities across clusters, such as connecting human resources to the economy; increasing entrepreneurship; enhancing financing; expanding transportation; becoming tax and regulation friendly 2. Link institutional and industry stakeholders together 3. Inaugurate flagships Connecticut’s progress toward establishing its vital cycle includes monitoring: 1. Process achievements 2. Overall economic performance 3. Cluster competitiveness 4. Infrastructure responsiveness 5. Managing the tracking process

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IV. Maintaining Momentum: Strategy and Reality

Checkpoints for moving forward toward Connecticut’s next-generation economy

V.

Appendix: Tracking Connecticut’s Progress

Recommended steps for monitoring and evaluating the implementation process for the state’s economic strategy

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Exhibit 1 (continued)

II. “THE CONNECTICUT CONNECTION REPORT,” SUMMARY OF CLUSTER PRIORITIES
Priority Recommendations ! ! ! ! Improve energy costs Reduce tax burden Support quality workforce Improve export position Infrastructure Needs ! Capital needed to transfer defense technologies to civilian markets ! Replace aging workforce ! Level playing field for tax & regulatory ! Develop stronger network of local suppliers ! ! ! ! Availability of skilled, entry-level workers Tech transfer from defense, manufacturing Competitive tax rates Capital availability is critical ! Advanced telecommunications networks ! Highly skilled professionals ! Affordable housing

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Key Issues Severe job loss Loss of market share Defense dependent Cost competitiveness

Advanced Manufacturing

! ! ! !

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! ! ! !

Business Services

! Slow productivity growth ! Slower-than-average job growth ! Competitive markets

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! Stimulate local demand ! Establish centers of excellence ! Promote export of specialized services ! Develop new niche industries for downsized workers ! Provide specialized training for laid-off workers ! Develop new products through joint ventures with technology firms

Financial Services

! Weak growth prospects ! Restructuring of banking sector ! Globalization of financial markets

Communications, Information & Education

! Slow job growth ! High productivity growth ! Declining market share

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! Market higher education as an export industry ! Facilitate entrepreneurial activity ! Develop training linkage with other clusters ! Strengthen local vendor base for medical instruments firms ! Create alliances between hospitals and insurers for spin-off business ! NA

Develop highly educated workforce Focus core technological competencies Accelerate product development cycle Strengthen university-industry partnerships ! Competitive wage rates ! Tech transfer from labs to firms ! Increasing demand will require more workers ! Surplus hospital beds ! NA

Health & Biomedical

! ! ! ! Good job growth High productivity growth Hospitals restructuring, downsizing Noncompetitive costs

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Tourism

! NA

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Exhibit 1 (continued) III. RECOMMENDED STRUCTURE

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Flagship Initiatives
Governor Business Leader
Business Services Health and Biomedical

Technology Flagship: Expand Connecticut’s technology capture Human Resources Flagship: Next generation workforce preparation

Finance Flagship: Increase overall deal volume in the state

Advanced Infrastructure Flagship: Build leading edge telecom and transportation systems

Regional Representation

Cluster Leadership Group
Financial Services

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Aerospace and Advanced Manufacturing

Cluster Working Groups
Tourism and Entertainment

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Communication, Information and Education

Action Initiatives
The Connecticut Connection Report, DRI/McGraw Hill, November 1994, prepared for the Connecticut Economic Conference Board.

Source:

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Tax and Regulation Flagship: Achieve customer focused system Quality of Life Flagship: Create a health care service advantage

State Agency Partners

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Exhibit 2
Manufacturing
Revamp voc tech schools Develop training standards ! Conduct training needsassessment inventory Develop specialized curricula at community and 4 yr. institutions Establish downtown campus for higher education Incentives for establishing scholarships, training, job guarantees ! Promote technology careers among secondary schools through materials and speakers ! ! ! ! Design 5 yr. voc tech training colleges ! Refocus curricula, incentives & structure ! !

Rowland Initiative: Results of the 100 Days Process, 1997
Financial Services Telecom & Info High Tech

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! ! !

Health

Human Resources (Education and training to have skilled and adaptable workforce)

!

Develop specialized training programs to support managed care

!

Biotech training in universities (Phd, MA, tech)

!

Retrain health-care workers

No
Develop programs to motivate students to enter technology and stay in Connecticut: grants for students in sciences; loans forgiven if work in CT; corporate internships supported by financial or tax incentives

Implement nationally recognized education programs focused on science, math, technology . . . at all educational levels, and for workers needing to make a job change Create industry, government academic advisory committee to define, communicate, and implement higher education plans

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! Establish training – mentoring programs to respond to rapidly changing needs ! Create “just in time” learning capability to respond to rapidly changing needs Agencies adopt less adversarial approach Technical assistance to help vs. enforcement mentality ! Develop standards Improve link between state and federal environment and labor regulations Reengineer licensing and permitting (15 agencies and 100 forms) “One stop” ! Create system to allow people and information to move quickly throughout CT ! ! Establish Bradley as true international airport ! Build high-speed rail links to knit labor and jobs and better access regional financial markets (NY and Boston) ! Construct leading-edge telecommunications systems ! ! ! Study financial services regulatory and public policy environment in other states ! Recommend regulatory structure and policies which give CT a competitive advantage

Regulatory / Tax Climate (Procompetitive) ! ! !

!

Simplify state health-care licensing and regulatory program

!

!

Incentives to encourage better health care at less cost

!

Reduce sales tax on scientific equipment

! !

Scale back Certificate of Need permitting process

! !

Support emerging businesses

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Advanced Infrastructure

!

Increase biotech lab space

Build intl. telecommunications gateway

Expand Bradley into significant intl. airport for passengers and cargo

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Establish business meeting center at Bradley Create World Trade Center in CT ! Develop manufacturing resource center

Accessible Technology

!

University-developed applied research program

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Exhibit 2 (continued)
Manufacturing
Expand guarantee loan program Create single agency to oversee loan programs ! Review R&D incentives and propose competitive improvements ! Recommend incentives and policies to retain and attract targeted businesses Recognize, promote, and provide incentives for R&D ! ! !

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Financial Services Telecom & Info High Tech
! ! Identify and support banks, medium and small companies ! Better leverage SBA Create world-class package of financial incentives to entice leading high-tech firms to stay, start, and move to CT . . . (R&D training, investment, energy, infrastructure) Strategic subsidies to high-tech firms

Health

Capital Availability / Incentives

!

Expand venture capital tax credit for insurance (PA 94-214) to other industries

!

Biotech and “early phase” incentives !

!

Expand financing for new types of health-care facilities (CHEFA)

! ! Continue mfg. advisory board Establish financial services growth collaborative ! ! ! ! Establish mfg. subclusters Expand participation in cluster effort ! ! Develop industry-driven strategic plan ! Hold an economic summit: “A Learning Journey” !

Loan guarantees for new biotech firms

No
! Create state marketing oversight committee to develop strategy

Creating Collaboratives & Institutions

!

Establish CEO forum

!

Create biotech institute (CBI) to drive industry growth

!

Broaden representation from other sectors

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Establish intl. advisory board ! Determine if “infrastructure” firms like telecom and electronics should be part of all clusters ! Consider restructuring cluster, separating service providers and manufacturers ! ! ! ! Develop ongoing marketing campaign for internal and external audience directed at showing CT as a great place to keep, grow, start, and relocate a business !

Convene an industry-led growth partnership to recommend strategy and oversee implementation Use “economic development” as unifying principle of state programs Expand bipartisan and legislative participation Provide strong, active support of regional cluster initiatives Create high-powered communications campaign with a high-tech focus

State Leadership and Marketing

!

Take steps to become world’s managed-care capital

!

Target list of potential out-ofstate MCO companies for recruitment

!

Aggressively support growth of biotech industry

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Strong governor leadership for cluster initiative, as well as active legislative support and involvement

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Source:

Connecticut Industry Cluster Recommendations. Presented to Governor Rowland on June 11, 1997.

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Exhibit 3

Excerpts from the Partnership for Growth Report, February 1998

I. Rowland Initiative: Overview of 1998/99 Priority Initiatives
Strategic Component Framework for Launching Connecticut’s Industry Cluster Initiative Description

Bipartisan agreement to aggressively introduce the industry cluster approach to economic development in Connecticut will be a major unifying step in increasing the State’s business competitiveness, economic opportunities and quality of life. This can be done by: 1. Aggressively supporting the formation and reshaping of the initial cluster groups, as well as the creation of new clusters 2. Establishing a Governor’s Economic Competitiveness and Technology Council 3. Approving the Priority Initiatives to immediately strengthen Connecticut’s “economic foundations”

Guiding Principles

1. Business leadership: Business leaders must be willing to take primary responsibility for leading the industry cluster initiative, since their decisions largely drive the economic growth and prosperity of Connecticut. 2. Bipartisan support: To be successful, the cluster initiative will require bipartisan support, and a medium-term commitment that transcends the political calendar. 3. Medium and small companies: Making Connecticut a much more attractive location for medium and small firms is essential, and attracting the new knowledge-based, high-value-added “sunrise” industries is particularly important. 4. Entrepreneurial energy: Re-igniting Connecticut’s entrepreneurial energy among institutions and individuals will be essential in order to become a more competitive and innovative economy. 5. Upgrade all clusters: Government should support the upgrading of all industry clusters that build upon the State’s existing strengths, and not try to choose “winners or losers.” 6. Extensive collaboration: Without changing their fundamental roles in society, it will be necessary for business executives, educators, government agency heads and legislators to recognize and participate in a new level of collaboration with other sectors. 7. Reallocate existing resources: The public sector funding necessary to launch the cluster initiative should come largely from a reallocation of existing resources, programs and authorizations. 8. Regional cluster activities are essential: It will be essential to reinforce and support the leadership of other regional and local organizations already working on cluster-driven economic and workforce development issues. 9. Understanding global competitiveness: Economic growth and opportunities in Connecticut will be greatly enhanced if business, educational, and public policy executives, as well as employees and their families, have a clear understanding of the realities of global competition.

Do

22
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No

tC

op yo

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The State of Connecticut: Strategy for Economic Development

703-426

Exhibit 3 (continued)
Strategic Component Strategy Overview: Cluster Activation and Economic Foundations Description Cluster Activation: •

Cluster activation is a call to action to the business leaders from large and small companies to organize themselves into working industry cluster groups.

•

Cluster activation recognizes the importance of key business and trade associations and encourages them to continue to use their unique influence to champion cluster competitiveness and strengthen cluster linkages. The 100 executives who have been involved in developing the recommendations in the Partnership for Growth Report provide a strong and credible leadership team to draw upon in activating Connecticut’s industry clusters.

•

Do

No

tC

op yo
Economic Foundations • •

The Economic Foundation proposals are specific, cross-cutting recommendations that will improve the business environment for a large number of industries. The economic foundation proposals are in the following areas: workforce development, manufacturing technology, transportation infrastructure, regulatory environment, and capital & incentives. Cluster advisory boards also put forward recommendations not normally referred to as economic foundations: urban development, marketing, and performance measurement.

DECD’s international strategy has not been included in this competitiveness package, but is an integral part of the cluster initiative.

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23

703-426

-24-

Exhibit 3 (continued)

II. Rowland Initiative: Economic Foundations Recommendations
Action Steps
• Establish a team of the cluster Workforce Development Board, CETC, DOL and partner state agencies to oversee creation of the cluster networking matching grant program, technology communication campaign, Study of “Workforce Learning Inc.” • Develop legislative and budgetary proposals to implement recommendations • Develop and pass permanent statutory authority for the CONN/STEP program under the DECD, and provide for the matching state funding stream as recommended. • Expand CONN/STEP’s board to include members of the Manufacturing Cluster Advisory Board, representatives from supportive large companies, and more experts on “lean manufacturing” and advance technologies.

Do

Issue Area

Recommendations

Workforce Development

• • • •

Establish cluster-based networks for training and education. Launch a high-powered, technology-focused promotion campaign. Study creation of “Workforce Learning, Inc.” Institutionalize the Industry Cluster Workforce Advisory Board.

Manufacturing Technology

• Create a Manufacturing Resource Center by enhancing the current Connecticut Technology Extension Program, CONN/STEP, to help stabilize Connecticut’s manufacturing base by increasing the use of “lean manufacturing” and advanced technology. • Connecticut’s investment in CONN/STEP, currently $1 million a year, should be increased to $1.5 million the first year, $2.0 million in year two, and $3 million for the third year. Federal funding, which CONN/STEP already receives, would be similarly increased.

No

tC

Transportation Infrastructure

Bradley International Airport • Assess opportunities available for private sector management of selected airport functions. • Explore potential for master planning and development of land near Bradley International Airport. • Support the work of the Bradley Development League and the MetroHartford Millennium Project to make the Perishables Center a reality. Coastal Corridor Coalition • Support Coastal Corridor Coalition recs to reduce traffic in the Merritt Parkway Corridor. • Continue to expand current effort to improve rail freight service to Connecticut.

op yo

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Regulatory Environment

• Improve licensing and permitting processes (high-efficiency licensing program). • Evaluate and simplify the Certificate of Need process at the Office of Health Care Access. • Create industry cluster tech. assistance centers in each agency responsible for regulatory guidance. • Improve competitiveness of regulatory requirements. • Continue reengineering agency operations.

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Exhibit 3 (continued)
Action Steps

Issue Area

Do No tC
• • • • • •

Recommendations

Capital and Incentives

Tax Incentives • Put high job-producing small and midsized businesses on an equal footing with large companies. • Modify tax credit and tax loss carryforward provisions to make them meaningful for those types of companies that require years of investment before achieving taxable income. • Encourage Connecticut businesses to create new jobs. • Make overall tax policy competitive with other Northeast states in fostering economic growth. • Target urban areas for support by providing greater tax incentives. Capital Formation • Encourage individuals and firms to invest directly in Connecticut companies. • Broaden the applicability to other clusters of the present tax credit program, which fosters the formation of Connecticut-focused venture funds investing in insurancerelated businesses. • Encourage the formation by Connecticut Innovations of a “seed” fund for biotech and other emerging technologies.

Urban Development

• Establish an Urban Development Advisory Board, linked to the Governor’s Council, to develop recommendations to link industry clusters to urban development. • Identify model education programs in the state and across the nation that have been successful in helping residents increase academic performance and employment skills. Expand Connecticut’s two current pilots and launch two additional pilots. • Identify ways to increase urban entrepreneurial opportunity and training. • Review tax incentives available statewide and recommend premiums for urban areas. Compare with other states to ensure best practices are applied in Connecticut. • Implement a recognition program for companies that have promoted urban development.

op yo

• Form the Urban Development Advisory Board; identify urban leaders to be appointed to the Urban Development Advisory Board. • Work with the Governor’s Economic Competitiveness and Technology Council and related advisory boards to develop expansion plans for urban education academy pilots; recommendations for actions to promote urban entrepreneurial activity, especially in cluster industries; expansion plans for urban entrepreneurial training; identification of regulation streamlining and tax incentive improvements; recommendations for urban partnership awards. • Draft legislation to adapt existing urban tax incentives to include all cluster industries.

This document is authorized for use only by Sergio Marroquin until June 2012. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.
Create a high-energy, distinctive, entrepreneurial identity. Build a “perpetual organization”. Develop a positioning and promotional path. Target stakeholders through persuasive messages. Conduct brand research. Integrate key constituencies in the campaign.

Marketing

• Create a campaign to develop Connecticut’s image as an attractive, healthy environment for building or expanding a business, and a great location in which people can live.

Performance Measurement

• Establish a new performance measurement system for Connecticut.

• DECD should issue a request for proposal for the purpose of developing a “Connecticut Index” to track state progress.

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Exhibit 3 (continued)

III. Rowland Initiative: Recommended Organizational Structure

Do
Foundation and Issue Advi sory Groups

Governor
Co-chair of Council

Commissioner of DE CD

No
Regulation Work Force Capital Infrastructure Marketing Urban
•Convened by Council •Address cross-cutting issues

Administrative Support Provides policy advice for competitiveness, technology and cluster activation. Members: Governor, CEOs, Legislative leadership, Educators, Association leadership, Labor, Regional and Local cluster leaders, “Champions”

tC

Governor’s Council on Economic Competitiveness and Technology

Secretariat Industry Cluster Groups

•Provides staff to Council •Engages private and public sector resources to implement decisions

op yo

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Economic Development Support Group

Supports Cluster Activation

Source:

Partnership for Growth Report.

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Exhibit 4

Do
Aerospace Engines (18.6, -30.9)

Connecticut's Clusters: Specialization by Traded Cluster

6%

5%

No
Pharmaceuticals and Biotechnology Aerospace Vehicles and Defense

4%
Lighting and Electrical Equipment

Percentage Financial Services of Share 3% Communications National Equipment Education and Knowledge Creation Analytical Instruments Cluster Medical Devices Employment 2% Production Metal Manufacturing Technology in 1999
Transportation and Logistics Business Services Distribution Services Plastics Heavy Construction Services IT Processed Food Hospitality and Tourism

tC
= 50,000–74,999

Connecticut’s Average Share = 1.38%

1%

op yo
50
= 10,000–49,999

0% -50 0

100

Percentage of Change, 1990–1999 Percentage Change in Share, 1990-1999
Number of Jobs
= 0–9,999

This document is authorized for use only by Sergio Marroquin until June 2012. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.

Source:

Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School.

Note:

Graph uses narrow cluster definitions to eliminate overlapping employment across clusters. Data points too large to fit on the graph are placed on the borders and the values are given as: (yaxis, x-axis).

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703-426

The State of Connecticut: Strategy for Economic Development

Exhibit 5

Jobs, Wages, and Patenting Activity per Traded Cluster in Connecticut, 1990 – 1999 Jobs, 1999
102,276 60,689 45,951 27,921 26,953 25,607 21,240 20,569 19,724 18,998 16,893 15,750 15,158 13,521 12,723 11,337 11,122 10,979 10,687 10,307 7,360 6,561 5,793 5,197 3,877

Cluster
Financial Services Business Services Education and Knowledge Creation Entertainment Metal Manufacturing Distribution Services Heavy Construction Services Hospitality and Tourism Transportation and Logistics Aerospace Engines Analytical Instruments Aerospace Vehicles and Defense Publishing and Printing Biopharmaceuticals Communications Equipment Automotive Production Technology Processed Food Lighting and Electrical Equipment Plastics Information Technology Medical Devices Power Generation and Transmission Building Fixtures, Equipment and Services Textiles Chemical Products Forest Products Motor Driven Products

Jobs Gained (Lost) 19901999
22,537 16,695 12,389 22,566 -2,542 6,812 4,199 2,062 -10,248 -12,770 -5,619

Job Growth, 1990 - 1999
2.80% 3.64% 3.55% 20.14% -1.00% 3.50% 2.48% 1.18% -4.54% -5.55% -3.14%

op yo
59,429 52,471 -19,270 -3,113 6,046 -8.50% 6.81% -2.05% 51,124 70,850 -4,549 1,014 -808 690 -4,857 -3.34% 1.05% -3.95% 41,779 42,939 40,730 -0.79% 0.77% 36,607 -3,043 776 -2.75% 1.25% 41,554 46,988 71,633 -1,200 930 -5 -1.85% 1.96% -0.01% -3.98% -8.16% -3.07% -4.36% -1.62% -1.30% -0.75% -6.65% -9.52% -0.29% 2.43% 3.07% -3.71% 6.70% 0.82% -10.19% -14.93% 60,912 34,295 35,750 43,634 57,809 35,839 32,785 40,422 39,211 35,866 42,334 39,678 38,446 49,097 35,703 32,722 32,187 20,208 -1,709 -3,856 -1,591 -409 -297 -161 -1,919 -2,488 -36 228 270 -424 194 18 -365 -23 -1,075

tC

3,347 3,320 3,222 2,576 2,385 2,290 2,237 1,704

No

Jewelry and Precious Metals Sporting, Recreational and Children's Goods Heavy Machinery Leather and Related Products Apparel Construction Materials Furniture Agricultural Products Prefabricated Enclosures Tobacco Fishing and Fishing Products Oil and Gas Products and Services Footwear Source:

1,380 1,174 1,132 1,046 439 253 224 7

Do

Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School.

28
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Wages , 1999
81,136 58,586 36,139

Wage Growth, 1990 - 1999
9.00% 4.70% 4.00%

Patents, 1999
0 3 6

Patent Growth, 1990 - 1999
4.90% 4.80% 2.20% 0.30% 4.30% 8.20% 8.00% 0.40% 1.80% 1.10% 3.70% 9.50% 2.00% 2.20% 1.60% 4.40% -0.20% 2.20% 4.80% 6.40% 2.20% 3.30% -0.50% 1.40% 0.50% 3.80% -0.60% 5.40% 2.50% 0.60% 4.10% 1.00% 3.60% 1.10% 3.20% -2.90% 1.30% 1.1% -7.9%

37,318

4.90%

17 1 5

40,903

4.40%

66

-0.70% 0.50%

55,431 23,039

4.40% 4.30%

42,621

3.10%

10 3 3

37,727

1.30% 4.30%

4.80% 6.60% 6.40% 4.40% 3.40% 3.70% 3.80% 4.10% 5.90% 8.70% 4.70% 13.80% 3.10% 8.90% 1.70% 2.50% 3.90% 3.20% 6.90% 4.30% 5.50% 9.00% 2.60% 7.40% 4.60%

123 15 12 106 120 95 120 30 29 100 117 88 15 24 9 106 8 47 1 6 34 9 4 12 5 3 6 0 1

2.8%

8 1