In a recent talk (Social Progress and Competitive Growth), Michael Porter illustrated the concept of an industry cluster using the Cairns tourism sector as an example (see figure below from Porter’s presentation). Basically I think it illustrates just how difficult it can be to develop new industries, because a whole range of supporting businesses and institutions are needed to support particular industries. To me, this means that governments shouldn’t try to pick winners but should instead try to get the basics right (e.g. education and training, law and order, efficient tax system, minimal regulation) and let the market sort out the rest. In the case of Cairns, the idea of a tourism cluster shows just how vulnerable somewhere like Cairns is to a downturn in tourists, because so many businesses are involved in servicing tourists. Luckily tourism to Cairns and the broader Far North is starting to recover, thanks in large part to Chinese tourists (e.g. see the recent discussion in Pete Faulkner’s Conus Quarterly).
Queensland Economy Watch 
Gene
There is no doubt about the complexity of functions involved in an industry cluster – and that the market needs to sort these out.
However there is also no doubt that those functions can be stimulated in a market-responsive manner to accelerate the development of industry cluster (and raise national productivity / competitiveness) providing one goes about it the right way (see A Case for Innovative Economic Leadership ). I had the opportunity to actually experiment with such a process at one stage – and found that it worked reasonably well and produced significant potential economic benefits – though political considerations interfered and would need to be kept at arm’s length.
Regards
John Craig
John, thanks for your comment. I agree it is possible to stimulate the development of clusters. But it’s very difficult to do so and a lot of things have to go right. Hence I’d never recommend trying to do it.
The interesting thing is that while tourism is not an ‘industry’ but encompasses many sectors that Far North is actually the most diversified region in Queensland in terms of employment sectors. Not sure but think you may find this in OESR regional profiles.
Mark, thanks for the tip. I’ll have a look.