The local government has a crucial role to play in creating an appropriate, dynamic eco-system for start-ups, and thus drive growth clusters forward. The basic idea is to create the enabling conditions for entrepreneurial activity to take off (as opposed to picking winners), and tackling the bottlenecks and constraints head-on.
Here are excerpts from a recent McKinsey article on how the local government can help to create growth clusters.
[…]To flourish, entrepreneurial activity requires a concentration of talent, infrastructure, capital, and networks—key success factors of a start-up ecosystem, as epitomized by Silicon Valley. Not all economic-policy instruments aimed at nurturing start-ups are at the city level. Still, local policy makers should think systematically about what it takes to support a start-up ecosystem. When doing so, their focus could be on tackling the bottlenecks and constraints that might otherwise inhibit a vibrant start-up ecosystem rather than picking winners by supporting investment in particular sectors or business models.
More specifically, such local initiatives can help link entrepreneurs to schools and universities, ease administrative matters for foreign workers and founders wishing to settle in a location, support development of suitable infrastructure and connectivity, and communicate and market the attractiveness of a location vis-à-vis other start-up centers. New York, for example, founded a tech campus for applied sciences; Tel Aviv built working spaces for entrepreneurs; Berlin is in the process of setting up a privately managed fund to raise capital for start-ups.
[…]But policy makers must be realistic. Start-ups are a moving target, so cities likely won’t get their initiatives right the first time, no matter how cautiously they plan. As such, successful delivery units don’t waste time searching for the perfect design. Instead, policy makers should mimic the approach taken by most start-ups: launch the initiative, analyze the launch, learn what went wrong—and then adjust it and relaunch. This rapid prototyping allows policy makers to maximize the utility of an initiative by repeatedly and quickly adjusting to the needs of start-ups and sustaining momentum through prompt action, all while running at minimum cost.
[…]As the competition for investment and entrepreneurial talent reaches global proportions, municipal support for nascent entrepreneurial clusters becomes a must-have, especially for large metropolitan areas. City policy makers may find delivery units useful as they try to strengthen a start-up ecosystem. In introducing such an approach, policy makers should pursue the start-up model: rather than designing the perfect instrument and policy, they should see themselves as continuous problem solvers and work closely with the entrepreneurs and innovators around them.