Innovation districts - how cities accelerate the velocity of circulation of ideas

Tuesday, December 10, 2019

A paradox of the contemporary knowledge economy is that it is both dispersed and concentrated. Technologies make it possible to organise activity anywhere on the planet. Yet the most advanced knowledge-based industries cluster together, primarily in small areas of big cities. Nesta’s Creative Nation research showed, for example, that in the UK 53 per cent of employment and 44 per cent of businesses in the creative economy are found in the top five locations.

Cities are accelerators. Their growth depends on their ability to speed up the velocity of circulation of ideas, people and money. Size helps and the size of cities roughly correlates with productivity (a doubling of size leads on average to productivity growth of 2-5%). Clever cities learn how to support circulation, interaction and combination - not just through random interaction but also through institutions and places that help orchestrate, curate and channel creative combination in useful ways.

The clustering of economic activity has been a topic of conversation at least since the 19th century when Alfred Marshall first offered a serious theoretical analysis of business clusters, which he termed ‘industrial districts’: concentrations of specialised industries in particular localities. In the last quarter of the 20th century many other authors developed these insights—from Charles Sabel and Giacomo Becattini to Peter Hall. Hall’s analysis of creative cities throughout history, and the role of particular milieux, remains unmatched in its sophistication. Michael Porter later successfully popularised and commercialised some of these ideas.

Over the last 30 years many cities have focused on growing dynamic and intensive innovation districts as an alternative to the out-of-town science parks that dominated in previous decades. They link start-ups, universities, accelerators and investors. Many nations and cities now want more of these kinds of cluster, hoping for a knock-on effect in terms of jobs and prosperity. But how should they cultivate them? And what has been learned about how to make them work? Here I suggest some answers, based on looking at dozens of these districts, from Boston to Medellin, Shenzen to Toronto (the long version of this blog can be found here).

First, construction needs to be matched by curation. Innovation districts depend on a sense of place, often working best in 19th century buildings, with streets not towers, bricks more than concrete, flexible spaces rather than overdetermined ones, character rather than conformity. But buildings are not enough. The planners and developers of clusters of this kind prioritise physical development too much. They need to also understand them as a kind of collective intelligence, and one that is highly dependent on relationships. Run well they ensure sharing of data, insight, ideas, creativity between large numbers of people, firms, universities and other institutions, using both online and offline links, formal and informal connections.

Instead of focusing only on buildings the alternative model grows emerging ecosystems, curates the key linkages, and flows, and then develops a physical infrastructure around them. This is roughly what London’s Tech City did. It grew faster before the Cameron government decided to back it, than after, but that backing did help it to consolidate and become denser, even in the absence of anchor institutions and any coherent plan for physical infrastructures and buildings (plenty of building did take place - but adhoc rather than planned).

This experience echoes the consistent finding of research on the key value universities provide to business and clusters. Rather than this being primarily embodied in linear flows of IP from researchers in universities to startups or existing firms, this value is much better understood as a kind of collective intelligence - providing knowledge, relationships, ideas rather than the classic technology transfer model.

So innovation districts need to be understood in terms of their intangible links as well as their tangible buildings. But what’s happening to value? As clusters succeed they attract in businesses for which there is a great advantage in being close to others – whether in Wall Street or Hollywood, Gangnam or central Toronto. This tends to give large capital windfalls to landowners many of whom have contributed little to the wealth they capture. In the UK the biggest beneficiaries of a growing creative economy are aristocratic owners of land in cities like London. In Silicon Valley a surprisingly high share of new value is being captured by land. Economic theory frowns on windfalls of this kind and encourages policy-makers to come up with smart ways of recycling them. Yet no major cities are doing so, and none are recycling money into future creativity (for example giving young children experience of innovation and invention, which evidence suggests is a better way to fuel future prosperity than tax breaks and subsidies).

Finally, because districts are often caught up in self-promotion there has been little interest in more rigorous attention to evidence, or critical analysis of the value they create, or how best to organise tools such as accelerators and testbeds, or how to design physical spaces to maximise their impact. A more honest, and experimental approach, with pooling of evidence and experience, could pay big dividends. Nesta’s Innovation Growth Lab supports dozens of experiments in business support around the world, and we think these methods should be extended to innovation districts, testing out empirically, for example, different ways of ensuring spillovers to the rest of the city.

Urban innovation districts have become an extraordinary source of dynamism, often in neighbourhoods that seemed condemned to decline only a generation ago. But they will need a few shifts of gear if they are to be as successful in the next decade.

Geoff Mulgan is CEO of Nesta, and author of ‘Big Mind: how collective intelligence can change our world’ published by Princeton University Press.

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