Innovative Cities

James Simmie

• Publisher: Routledge
• Year: 2003
• ISBN:
  9781134574247
• Edition: 1
• Topic: Architecture
• Subtopic: Urban Planning & Landscaping

Innovative Cities presents a unique international comparison of innovation in Amsterdam, London, Milan, Paris and Stuttgart. Based on research funded by the ESRC program on 'Cities: Competitiveness and Cohesion', it compares and contrasts the reasons why these sites are among the top ten innovative cities in Europe. Innovation is one of the key driving forces of economic growth in modern economies.
The research reported here takes a careful and directly comparable look at what characteristics and conditions in the five cities have led to the flourishing of innovation in them. Researchers with detailed local knowledge have applied the same analytical tools and survey techniques to investigating this question and the result present a unique international comparison of innovation in the five cities.

1	Innovation and Agglomeration Theory
	James Simmie

Introduction

This chapter examines the answers to two main questions. These are ‘Why and when does innovation take place?’ and ‘Why is it concentrated in some places rather than others?’ Answers to the first of these will be sought in Schumpeterian evolutionary economic theory. The rudiments of this rich vein will be outlined to provide an explanatory background that will be used to evaluate alternative answers to the second question. Explanations of the geography of innovation, which forms one of the central concerns of this book, will be summarised and evaluated. Elements of these different explanations will then be combined to form theoretical analyses of why innovation is especially concentrated in the five European cities studied here.

The chapter is divided into three main sections. The first section outlines the original Schumpeterian arguments explaining innovation. This focuses on the Schumpeter I model. This argues that exogenous inventions are sought out by entrepreneurs, brought into their small companies and turned into commercial innovations. Swarms of these emerge around the depression and recovery periods of long waves of economic change. This process is pushed along by new technological inventions.

This formed the basis of early attempts to explain the spatial concentration of innovations. It was combined with the traditional agglomeration theory of Marshall (1919) and Scitovsky (1963) by Hoover (1948), Vernon (1966) and Perroux (1950) to form the basis of product life-cycle and growth pole theory. These theories formed the conventional wisdom of how to explain the relationships between innovation and space up to the 1970s.

The second section evaluates the two main alternatives to these original arguments that emerged during the 1970s and 1980s. The first of these was inspired by the work of Piore and Sabel (1984). They argued that there was a sea change taking place in firm structures and relationships. The key features of this were the breakdown of vertically integrated corporations and the adoption of flexible specialisation among the resulting networks of smaller firms. The two main critiques, inspired by these arguments, of the traditional innovation agglomeration theories were the new industrial districts thesis of Becattini (1990), along with the concept of innovative milieu developed by the GREMI, and institutional analyses also drawing on the work of Coase (1937) and Williamson (1975). Both argued the need for smaller innovative firms to concentrate in local production systems in order to accommodate continuous change and minimise networking and transaction costs.

The first of these critiques relies on the assumptions that firms are in general deverticalising and that the resulting congeries of smaller firms must group together in order to work as close-knit production networks. In reality many successful firms are increasing their degrees of vertical integration through growth, mergers and acquisitions. They are also not so much concerned with local production systems as international markets. So far, only a few unique examples of new industrial districts have been identified empirically.

The closely related concept of an innovative milieu, while offering descriptions of several local productions areas well known for their exceptional rates of innovation, does not provide much by way of explanation of why they exist. It is essentially a descriptive concept. It also lapses into tautology when describing causal sequences in the emergence of milieux.

The second major alternative to traditional evolutionary economics explanations why innovations tend to be concentrated in particular spaces is institutional analysis. This is inspired by the work of Coase (1937) and Williamson (1975). They argue that there is a third alternative to neoclassical economics assumptions about the structure and relationships between firms. While the neo-classical position is that firms are either organised into large-scale hierarchies or separate entities related by market transactions, institutionalists argue that they may also be organised into networks.

The Californian School has used this assumption to argue that networked production systems group together in order to minimise transaction costs (Scott, 1990) or to maximise the benefits of untraded interdependencies (Storper, 1994a). In both cases there is a focus on local production systems to the relative exclusion of the significance of international markets. Some of the empirical examples used are also confined to older, design and craft-based industries, such as the Parisian high fashion industry and smaller firms, such as the Emilia-Romagna ceramic tile industry. These are not representative of the dominant high-technology corporations who are the major players of the new knowledge-based international economy.

The third section goes on to evaluate modern evolutionary theory and to combine it with new trade theory in order to provide some explanation of why innovation is particularly concentrated in world cities and other large metropolitan international trading nodes. This starts with the Schumpeter II model. This recognises the growing significance of large corporations and the systematic R&D carried out within them.

Following Schumpeter, Nelson and Winter (1982) and Dosi et al. (1988) have developed the modern version of evolutionary economic theory. Collectively, they emphasise the significance for innovation of uncertainty, selection and path dependency confronting firms both in terms of the difficulties facing them and the circumstances in which they must operate for most of the time.

Within this theoretical framework a number of analysts have pointed to individual phenomena that cause particular areas to become centres of innovative production. These include the power of firms to acquire both public and private funding for their R&D which then may lead to innovations (Markusen, 1985b). The local cultures within which this power is exercised and the entrepreneurial attitudes of the actors located in particular places are also said to play a role in the relative innovativeness of those areas (Saxenian, 1994).

Innovation is also argued to be a crucial element in the developing knowledge economy. National systems of innovation have been identified (Lundvall, 1992). These are reflected in how good local innovation systems are at acquiring and using new economic knowledge. Their relative capabilities in doing this are an important selection mechanism sorting the more from the less innovative cities.

Knowledge workers are crucial to the availability and use of new economic knowledge. Such workers are in high demand in advanced economies. Without them innovation cannot take place. It is therefore argued that the factors leading to the spatial concentration of such workers are also important in determining where innovation may take place.

There is a tendency in both traditional evolutionary theory and the more recent alternatives to focus on local production systems. However, in order to be commercially successful, innovations need to be internationally competitive and to be traded successfully around the globe. Markets, competitiveness and trade are therefore important requirements for successful innovation.

This was recognised by Vernon (1979) and Utterback (1988) in their updating of Vernon’s (1966) original formulation of the product life-cycle theory. Subsequently, Porter (1990) has argued for the benefits of local competition in stimulating more world-class company performance. Krugman (1991) has also developed the idea that comparative advantages have been lost by most first world economies to lower wage regions. This means that they are now more dependent on absolute advantages that are often based on their innovative capabilities.

The ability to generate absolute trading advantages in high-tech and innovative activities is confined to a relatively small number of regions. These are often those that are the focus of international knowledge flows. They tend to be the international knowledge hubs of the global economy.

Contrary to some of the alternative theories’ belief in the formation of new industrial districts and regions, urban hierarchies, and those among them that are especially innovative, have been extremely persistent over many decades. The more innovative among them tend to be at or near the top of their national urban systems.

Taken together, all these factors lead to systematic cumulative causation. Most of them favour world cities at the peak of their national urban hierarchies. Some other large metropolitan areas, high in their national urban systems, are also noted for their innovative capacities. All of them may be characterised as international knowledge trading hubs. They are among the first places to receive new knowledge from abroad, to recombine it into innovations, and to export them to international clients and customers.

Before proceeding to expand these analyses it is essential to define the main object of analysis in this book, i.e. innovation. Schumpeter provides one of the best, and most enduring early definitions. He defined innovation as a process of ‘creative destruction’. He regarded it as the driving force of economic development. He defined innovation as including ‘new commodities, new technologies, new sources of supply and new types of organisation’. This kind of ‘quality competition’, he argued, ‘strikes not at the margins of the profits and the outputs of the existing firms, but at their foundations and their very lives’ (Schumpeter, 1942).

Since then, innovation has moved to the heart of economic policy-making. As a result, definitions of the concept have multiplied. Among those that capture the way in which it is understood today is that of the European Commission’s Directorate XIII which is responsible for Science and Technology. It defines innovation as:

the commercially successful exploitation of new technologies, ideas or methods through the introduction of new products or processes, or through the improvement of existing ones. Innovation is a result of an interactive learning process that involves often several actors from inside and outside the companies.

(EC DG XIII and XVI, 1996, p. 54)

Innovation is now monitored on a Europe-wide basis by the Community Innovation Survey and in the UK by such organisations as 3M and NatWest who have been producing an annual ‘Innovation Trends Survey’ for the last ten years. They say that:

Innovation occurs when a new or changed product is introduced to the market, or when a new or changed process is used in commercial production. The innovation process is the combination of activities (such as design, research, market investigation, process development, organisational restructuring, employee development and so on) which are necessary to develop and support an innovative product or production process.

(1999 3M–NatWest Innovation Trends Survey, 10th anniversary, p. 6)

Early theorists used to view innovation as a more or less linear process but this is no longer the case. There is now general agreement with the view that ‘innovation is a complex interactive process involving multiple links between new science and technology, potential producers and consumers’ (Rothwell, 1991). These multiple, interactive links also change over time according to industrial sector, the types of innovation involved and the timing of economic developments.

With these definitions in mind we shall now move on to outline the foundations of evolutionary theory and its application to understanding the geography of innovation.

The Beginnings of Evolutionary Economics

Schumpeter I

For many years Joseph Schumpeter was described as a ‘footnote’ in economic theory. It was generally believed that following Keynesian demand management policy governments could avoid any repetition of the deep depressions of the late 1920s and early 1930s. This belief was dented in the 1970s and was subjected to severe theoretical and practical shocks at the end of that decade and the early 1980s. The depression of the early 1980s, in particular, sparked a major revival of interest in neo-Schumpeterianism or evolutionary theory. The reasons for this are partly because of its focus on economic cycles and partly because it also opens up the ‘black box’ of the role of science and technology in economic growth and change.

Given the acknowledged importance of innovation as a main basis for competitiveness and economic growth, the first main questions examined in this chapter are, why does it take place and what are its causes? To trace the intellectual history of the main answers to these questions it is essential to summarise the main starting points for the debates and controversies in the work of Schumpeter himself. This is not a simple task because his analyses are both complex and change over time. Some economists such as Philips (1971) have distinguished ‘two Schumpeters’ and their accompanying theoretical differences. The first is the young pre-First World War economist who stressed the role of the entrepreneur and the small innovative enterprise. The second is the older Schumpeter emphasising the role of the big, monopolistic firm and the bureaucratised process of technical change.

Exogenous Invention

The differences in these two approaches are sufficiently significant to constitute two models of original Schumpeterian thought. In the first model Schumpeter examines how micro-economic factors can account for the causes of long waves in the economy (Davelaar, 1989; Marshall, 1987). The main focus of this model is inventions which are largely exogenous to existing firms and the creative entrepreneurs who take the risks involved in turning the inventions into commercial innovations (Freeman, 1982).

This view gives rise to the question of where firms that do not conduct much of their own research and development (R&D) acquire their new economic knowledge. One answer is that they spill over from third party firms or research institutions such as universities (Baptista, 1997). If this is the case, then this would provide a reason for small firms to locate in proximity to such sources of new knowledge.

Entrepreneurs

Entrepreneurs are said to play a crucial role in this explanation of innovation. They are the ones who recognise the importance of inventions when they see them. They are also the actors that bring together other resources necessary for the production and commercialisation of these new ideas.

Small Firms

In the Schumpeter I model entrepreneurs and small firms are the main engines of innovations and ec...

Table of contents

• Cover Page
• Half Title
• Title Page
• Copyright Page
• Dedication
• Contents
• Notes on contributors
• Acknowledgements
• Introduction
• Chapter 1 Innovation and Agglomeration Theory
• Chapter 2 Innovative Clusters and Innovation Processes in the Stuttgart Region
• Chapter 3 Milan: Dynamic Urbanisation Economies vs. Milieu Economies
• Chapter 4 Innovation in the Amsterdam Region
• Chapter 5 Paris: Urban Area, Technopolitan Spaces and Innovative Firms: The Dynamics of Innovation
• Chapter 6 London: International Trading Metropolis
• Chapter 7 Conclusions: Innovative Cities in Europe
• Index