Innovation in Cities: the paradoxical search for urban innovation data in an innovation rich urban setting

by John Powers and Natalie Koot

Introduction

Amidst all the excitement and rhetoric about cities becoming smarter, questions pertaining to the role of innovation in making cities better places for the future of our economies and societies have scarcely been more relevant.  Cities around the world are increasingly making innovation a central organizing concept in order to better secure their future, and allocating significant resources and policy effort to promoting it.  For example, “New York:  making NYC the most innovative, tech-friendly, and equitable big city in the world” or the innovation strategy of the Paris region:  “Smart and sustainable Paris:  a view of 2020 and beyond” which emphasizes the city’s vision of transforming itself through innovation and technology in order to better address its residents’ needs as well as pressing economic, social, and environment issues.  Much of this focus derives from an affirmation that cities are in many ways the locus of innovation and thus central drivers for economic development more broadly.  This leads us to ask if cities are supposedly at the center of so much innovation, as is commonly argued, are we adequately understanding innovative processes and innovative outcomes at the city level?  Moreover, are cities really tracking the innovative activities occurring in their midst?  Could the goals of supporting innovation be better realized if innovative activity was better understood at an urban scale?

Growing importance of cities as drivers of innovation and growth

The economic power of cities is of course not new.  However, the proposition that cities by their nature may have a structural relationship to innovative processes through things like density, diversity, the presence of key anchor institutions (e.g. research universities, medical facilities), or the large pool effects for skilled labor and even for industrial knowledge as a function of their size, is not altogether clear.  However, even the most cursory glance at some of the data shows a more than substantial connection running between key indicators of economic performance based on innovation, on the one hand, and geographical concentration in city-regions, on the other.

For instance, following a study of the World Bank, of the 750 global cities analyzed, three-quarters have grown faster than their national economies since the early 2000s.  Recent studies on economic growth of cities in the EU found comparable results.  Between 2000 and 2013, GDP growth in cities was 50% higher than in the rest of the EU and employment in cities grew by 7% while it declined slightly in the remainder of the EU.[1]  Based on an aggregation of national surveys, half of the research and development activity (R&D) carried out in the OECD area is performed in only 10% of its regions, while almost half of all private sector R&D expenditure is concentrated in only 700 firms (OECD, 2010).  Patents, one of the primary sources of data on innovative activity, is when viewed by organization, also heavily concentrated within cities, as are the proportion of high-growth firms on a per capita basis.  Recently, Richard Florida (2016) has shown that the venture capital deal flow in the world’s most advanced economies is even more concentrated than R&D.  These facts do not of course prove the kind of causal link between innovation as a social and economic process and the unique attributes and spatial geography of cities.  However, they do lead us to wonder more about the characteristics of cities that may serve to propel innovation forward.  And if this connection is indeed strong, which it appears to be, then what more can cities do to expand the scope and productive potential of innovation to benefit more people?

Cities and innovation:  what are they doing, and what obstacles exist to doing more?

As innovation is fast becoming a central pillar of urban economic development strategy, there is a need to clarify, and perhaps simplify, our understanding of the approaches being taken, and to identify where some of the key constraints are for designing better policies and delivering enhanced outcomes.  Even though there is considerable heterogeneity in innovation-related supports occurring within cities today, we submit these activities can nevertheless be broken down into six broad categories:

Education, skills, and research – policies aimed at influencing the supply of skilled residents and workers at multiple levels of the educational and occupational structure with a recognition that secondary education is a crucial bridge to other innovation actors.

Institutional and organizational supports– a wide-ranging set of initiatives involving a general elevating of the importance of innovation such as flexible regulation, commercial and legal environment, and strategic procurement to support innovative entrepreneurship.

Infrastructure, spatial, and physical development – since access to urban land is a key policy lever, cities are getting involved in substantial redevelopment to support innovation through a variety of facility development efforts, including supporting innovation districts.

Industry, sector, and entrepreneurial development – more commonly associated with national-level industrial policies, many cities are increasingly seeking to diverse their economic base through fiscal means and other incentive-based policies.

Investment promotion and human capital attraction – much of the conventional work of cities aimed at marketing, promotion, persuasion, branding, fiscal incentives, amenity provision and urban place-making to attract innovative activity and innovators themselves.

Information, data, and knowledge management – many cities are developing new collaborative processes through opening data and facilitating public-private partnerships and knowledge exchanges that support innovation activity, including social innovation.

These efforts on the part of cities, and the categories advanced above, are often over-lapping between them, and mutually reinforcing.  They also indicate that although most cities have limited powers to influence the level of aggregate employment within their jurisdictions, they nonetheless have multiple ways to effect the continuous, often highly open, localized, and interactive processes central to innovation.  However, it is in the connection between innovation process and innovation outcomes where there seems to be a lack of knowledge about assessing impact within cities, and especially whether city governments can know what they are getting out of it with respect to what they are putting into it.  Can city governments more effectively know whether they are doing the right thing?

This dilemma stems from the fact that the most high quality innovation data is still aggregated at the national level.  Despite the current attention being given to designing always more indices of innovation, competitiveness, and now ‘smart’ cities or countries, many of the metrics used in these analyses draw on important features of local/regional innovation systems.  Curiously, however, they do not appear to be a function of strong data collection strategies or efforts focusing on innovation on the part of cities themselves.  According to our preliminary research, apart from a few exceptions such as Eindhoven and Paris which collect and produce yearly statistics on innovation on the input and output side;  most cities are not tracking the key inputs pertaining to upstream research,  high-value labor, and collaborative processes that lead to downstream outputs of innovation such as commercialization of research, new firm formation, scientific papers and patents, or new partnerships that lead to further economic and technological opportunity.  This belies a more fundamental problem in that there appears to be no coherent definition of inputs and outputs for innovation, as well as limited data on innovation that is truly urban in nature.  Given the preponderance of evidence, empirical as well as anecdotal, that suggests innovation to be linked in many important ways to the nature of cities themselves, this is an important obstacle to tracking what cities are getting out of the increasingly considerable efforts being put in to support innovation.  It also hampers the design of more targeted and effective policies to support this important part of today’s urbanizing economies.

To pursue more clarity and perhaps advance elements of a new framework to address these and other key questions, the Lee Kuan Yew Centre for Innovative Cities is starting a research program on Innovation in Cities.  Broadly speaking, the aim is to carry out international comparative research about what it means for cities in the contemporary period to be innovative through a more rigorous approach to analyzing the connections between innovative process and innovative outcomes.

References

Florida, R., 2016, “A Closer Look at the Geography of Venture Capital in the US,” (23 February), City Lab, The Atlantic.

OECD, 2010, “Innovation to Strengthen Growth and Address Global and Social Challenges,” Ministerial Report on the OECD Innovation Strategy, OECD, Paris, France.

Shearmur, R., 2012, “Are Cities the Font of Innovation?  A Critical Review of the Literature on Cities and Innovation,” Cities, Vol. 29, S9-S18.

UN Habitat, 2017, The State of European Cities 2016:  cities leading the way to a better future,” UN Habitat and the European Union.

[1]  The state of European cities, European Commission and UN habitat, 2016.