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Innovation, creativity and governance: Social dynamics of economic performance in city-regions

David A Wolfe
Professor of Political Science, Program on Globalization and Regional Innovation Systems, Centre for International Studies, University of Toronto, Toronto ON, Canada

Allison Bramwell
Centre for International Studies, University of Toronto, Toronto ON, Canada

Abstract

The pressure towards a globalizing, knowledge-based economy raises questions about the underlying determinants of economic performance in city regions. The creation and diffusion of new knowledge drives innovation in knowledge-intensive production and service activities, which in turn, drives economic performance and growth. Although these processes are strongly shaped by national institutions and global knowledge flows, recent analyses of innovation and creativity emphasize the continuing relevance of regions in general and urban regions, in particular, as critical sites for determining economic performance. This work also suggests that the underlying social dynamics of urban regions are particularly significant in shaping economic outcomes. This paper explores some recent evidence on the social nature of innovation dynamics in urban regions, the increasing significance of talent and creativity in urban economies and their implications for the economic performance of city regions. It concludes with a discussion of the need for the strategic management of urban economies to cope with the challenges they face.

Keywords

knowledge-based economy, city/region economic performance, innovation dynamics, urban economies, strategic management

Article Text

The pressure towards a globalizing, knowledge-based economy raises questions about the underlying determinants of economic performance in city regions. The creation and diffusion of new knowledge drives innovation in knowledge-intensive production and service activities, which in turn, drives economic performance and growth. Although these processes are strongly shaped by national institutions and global knowledge flows, recent analyses of innovation and creativity emphasize the continuing relevance of regions in general and urban regions, in particular, as critical sites for determining economic performance. Many aspects of the contemporary economic changes make cities more, not less, important as principal sites for innovation, creativity and the production of knowledge-intensive goods and services.

This work also suggests that the underlying social dynamics of urban regions are particularly significant in shaping economic outcomes. The interactive and social nature of innovation makes city-regions the ideal space in which social learning processes can unfold. Knowledge transfer between highly skilled people happens more easily in cities, because the sheer density and concentration of economic players in large cities offer multiple opportunities for contact, interaction and knowledge circulation (Orlando & Verba 2005). From this perspective, the foundations of economic success in an increasingly competitive world are the social qualities and properties of urban places. Decisions that shape the social character of cities also have a direct impact on our economic well-being.

A number of pressing questions remain. First, while there is an emerging consensus around the role that city-regions play in facilitating the circulation of knowledge that underlies innovation, a debate remains over precisely how knowledge circulates within cities. Some analysts view the most important dynamics arising from the inter-firm, labour market and knowledge externalities that occur within individual sectors or clusters (Porter 2000), while others emphasize the learning opportunities that arise from knowledge circulating across sectoral and cluster boundaries within the city-region (Audretsch 2002). In this view, ideas that are commonplace within one particular sector may have novelty value in another and the possibility of inter-sectoral (or cross-cluster) knowledge exchange and spillovers arising from this economic variety enhances the learning potential for local economic actors. This dichotomy is usually framed in terms of the diversity vs. specialization - or Jacobs vs. Marshall-Arrow-Romer - (MAR) debate (Glaeser et al. 1992). The issue of industrial concentration versus diversification also has key implications for the ability of city regions to cope with the changing competitive dynamics flowing from the rapid globalization of industries, including knowledge-based ones. Second, while there is substantial agreement on the advantages that accrue to the largest city-regions as centres of innovative activity, there is less consensus on the prospects for mid-size and smaller urban regions in this regard (Orlando & Verba 2005; Duranton & Puga 2005). Small and medium cities often operate from a narrower and more specialized industrial base that benefits from the MAR externalities, but their economic future may be closely tied to the specific industries in which they have historically specialized. An alternative perspective suggests that specialization vs. diversity may be less important than what sectors a city-region is specialized in.

Finally, global shifts in knowledge-intensive production and service activities are associated with a complex set of challenges to the social well-being of cities. There is growing evidence that urban size may be related to significant diseconomies of scale and negative externalities. Population size tends to be positively associated with higher income per capita, but only up to a certain point; beyond that statistical analysis by the OECD indicates that the size-income relationship turns negative due to significant diseconomies associated with greater transportation congestion, the cost of logistics and transportation, higher rents and environmental degradation. (2006: 51). Another body of work suggests that quality of place is also a significant factor underlying the social dynamics of city regions and, in turn, influences their economic performance (Florida, Mellander & Stolarick 2007; Gertler et al. 2002; Florida 2002). From this perspective, urban regions that are successful in developing tolerant and welcoming attitudes towards tolerance and social diversity are likely to succeed in attracting and retaining highly educated workers. Yet a growing body of evidence in Canada and elsewhere concludes the reverse is occurring, especially in large urban centres: while some benefit from highly-skilled jobs in creative industries, many others remain trapped in low wage, contingent jobs, resulting in increasing social polarization in urban centres.

This paper explores some of these issues in a more systematic fashion and link the conceptual issues outlined above to the rapidly growing body of empirical research on the economic performance of city regions. This is undertaken in the context of an analysis of the social dynamics of economic performance in city regions across Canada.

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