Why is it that only a few cities and regions around the world have become successful innovation hubs, even though many have tried? For the last few years I have been intrigued by this question.
Silicon Valley and the Boston-Cambridge area are among the most prominent such innovation hubs in the world. Their leading positions as technology-based innovation centers have been near impossible to replicate. Others have tried to become the Next Silicon Valley. A few of these efforts have achieved modest success, but most have fallen short of their goals.
Why is it so difficult? The reasons are varied. The prominence of Silicon Valley and the Boston-Cambridge area is closely related to the great engineering universities in their midst – Stanford and UC Berkeley, and MIT, respectively. It clearly takes quite a long time to build such world class universities.
Even harder to replicate is the entrepreneurial culture of these universities. They strive to bring innovations to market by partnering with the private sector, including VCs to help them start new companies and established enterprises to jointly develop and commercialize new ideas. Many other top universities have a more ivory tower culture that causes them to be suspicious of anything having to do with commerce.
These two regions have worked long and hard to establish their entrepreneurial culture. Their innovation efforts have achieved remarkable network effects over the years that give them advantages in scale that cannot be easily replicated. They have managed to bring together a large and fluid community of technologists and entrepreneurs who share ideas as they move from company to company - as founders, employees, managers, board members or investors. They spend considerable efforts nurturing such communities of technologists and entrepreneurs through organizations aimed at bringing them together to create the right innovation brew, such as The Churchill Club which calls itself: “Silicon Valley's premier business and technology forum”
In a New York Times article from December of 2007, Steve Lohr wrote: “a look at the microclusters within Silicon Valley demonstrates the business relationships, the social connections and the seamless communication that animate the region’s economy. It also suggests the human nuance behind the Valley’s success and shows why that success is not easy to copy, export or outsource.”
“How to be Silicon Valley” by Paul Graham, provides a very interesting explanation for what it takes to become a successful innovation hub. “If you could get the right ten thousand people to move from Silicon Valley to Buffalo, Buffalo would become Silicon Valley.”
The key, of course, is to get the right people. “I think you only need two kinds of people to create a technology hub: rich people and nerds.” Silicon Valley and the Boston-Cambridge area have attracted a large number of both kinds of people over the years. To a lesser extent so do Seattle and Austin. Other cities like Pittsburgh and Ithaca have very smart, nerdy people living around their excellent universities, but fewer rich ones to fund their ideas, says Graham.
What about world class cities like New York and London? I have a strong personal interest in both cities. The New York area has been my home for almost forty years - it is where my children were born and grew up. My daughter has been living in London for the last few years, and that, plus my affiliation with the Imperial College Innovation and Entrepreneurship Group have now made London a kind of second home city for me.
Let me focus my remarks on New York, which I clearly know much better, although I believe that most of what I say applies to London as well.
New York has lots of rich people, but not necessarily enough of the right kind. Rich people clearly have money to invest. But, adds Graham, “Startup investors are a distinct type of rich people. They tend to have a lot of experience themselves in the technology business. This (a) helps them pick the right startups, and (b) means they can supply advice and connections as well as money. And the fact that they have a personal stake in the outcome makes them really pay attention.”
The city also attract lots of young, creative, ambitious young people, but few nerds. New York, says Graham, is all about glamour, style and fame. These are the qualities that will attract prospective artists, writers, dancers and actors, but not nerds, who care little about glamour and are therefore not willing to pay a fortune for a small, dark, noisy apartment to be around really cool and attractive people. He adds:
“Nerds will pay a premium to live in a town where the smart people are really smart, but you don't have to pay as much for that. It's supply and demand: glamour is popular, so you have to pay a lot for it. Most nerds like quieter pleasures. They like cafes instead of clubs; used bookshops instead of fashionable clothing shops; hiking instead of dancing; sunlight instead of tall buildings. A nerd's idea of paradise is Berkeley or Boulder.”
While I like the “rich people and nerds” metaphor, I think it is too limiting when discussing major cities like New York.
Throughout history, certain cities and the regions around them have been major centers of innovation as a result of their unique accumulation of talent and wealth. Think of Venice and Florence in the transition from the Middle Ages to the Renaissance. Think of London and New York in leading the transition to the industrial age through the second half of the 19th century and the first half of the 20th century.
Both cities had great wealth - including bankers and industrialists who together ushered major innovations into the world, including railroads, cars, electricity, telephones, radio and television. They also had open cultures that valued diversity of ideas an experiences. They valued entrepreneurship. Their open societies absorbed huge numbers of ambitious immigrants from all over the world. These immigrants, and their more educated children and grandchildren provided the required human energy and talent. They were full of ideas, willing to work very long hours, and eager to create all kinds of new companies as well as whole new industries.
What happened to both cities in the last fifty years? How did New York lose its innovation edge? Why did it cede its innovation leadership to Silicon Valley and similar such centers?
One answer can be found in the nature of the digital technologies that have powered so many of the new companies and industries over the last several decades. As we mentioned earlier, many of the ideas, talent and new companies grew up around top engineering universities. While New York has excellent universities, they are not quite in the top engineering ranks that attracted the attention of VCs.
But, I believe there is another, more profound answer. New York forgot its roots. The entrepreneurial city that successfully built so many exciting companies and industries in the decades before World War 2, became a center of corporate capitalism and financial engineering from the 1950s on.
Bankers became increasingly interested in wealth accumulation for its own sake - casino capitalism, - instead of in helping to start new companies in the real economy, - that is, the economy of production capital, long-term investment and job creation. They amassed huge personal fortunes but, as we have seen in the aftermath of the financial crisis, they have left behind little societal value to show for their efforts. Most of the VCs and others that have helped create exciting new companies in the recent past are not from the New York area
In New York, the entrepreneurial capitalism of the first half of the 20th century started to fade after WW2. It gave way to a bureaucratic corporate culture, much more interested in preserving its power and managing a kind of orderly prosperity. Instead of creativity, hard work and individualism, we got The Organization Man that William Whyte wrote about in his classic book, where well-rounded team players were viewed as more valuable than brilliant, but potentially disruptive men. Entrepreneurial capitalism moved elsewhere.
Is there a third act for New York, in the aftermath of the financial crisis. Can it once more become a global center of innovation? I believe so. But, if and only if New York returns to its roots, - the entrepreneurial qualities that help it become a world class city, - and leaves behind the bad habits acquired in the last fifty years.
This third act must be powered by the increasing interest around the world in the future of cities. The study of cities has become a hot subject because our planet is becoming increasingly urbanized. The world’s urban population now equals its rural population. From now on, cities will absorb all the population growth expected over the next decades while continuing to draw some of the rural population. By 2050, cities are projected to have around 70 percent of our planet’s population.
Massive innovation is badly needed to help cities absorb all those people and provide them the right infrastructure, jobs, places to live, public safety, education, health care and many other services, all the while being cognizant of the impact that this growing urbanization will have on the sustainability of the planet. Fortunately, advances in technology, science and engineering are providing us with all kinds of new knowledge, new ideas and concrete tools to help us in this monumental undertaking.
There is growing interest in now applying the new digital technologies and systems thinking emerging all around us to help us better understand and manage the various major components of a city: its physical infrastructure - e.g., transportation, utilities, communications; its economic policies - e.g., regulations, taxation, investments; and its human services - e.g., education, health care, public safety.
Even more exciting is to not only look at cities as separate collections of these individual systems, but as systems of systems. A city, like other highly complex systems, is a lot more than the sum of its parts. We need to better understand how these various parts of a system behave and interact with each other, to help us better design, manage, operate and continuously improve these growing urban environments. Companies like IBM have launched such Smart Cities projects, and so have universities like Imperial College with its Design London initiative
This new wave of technology-based innovations will likely give rise to many new companies and jobs. Cities like New York and London, with their large wealth and talent base are well positioned to assume leading positions in this new wave. Being major urban environments, they are natural center in which to study the problems of large cities, as well as being test-beds for experimenting with exciting new solutions. Their tradition of welcoming people and ideas from all over the world make them natural global centers for research and education in urban environments.
The opportunities are all there, but it will not be easy. There will be stiff competition from other cities and regions around the world. Those who succeed will do so because they were able to bring together their private and public sectors, along with their educational and research institutions to all work closely together toward a common objective: become a leading global center of urban innovation and of the many related subjects that will spring up around it.
It will be fascinating to see how it all plays out.