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Where Innovation Thrives

Innovation does not require an urban area or a suburban area—it can happen in the city or in a small town. What it requires is open knowledge networks and the movement of people from different places.
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Buck's Restaurant, a regular hangout for Silicon Valley venture capitalists. (Photo: Intel Free Press/Flickr)

Buck's Restaurant, a regular hangout for Silicon Valley venture capitalists. (Photo: Intel Free Press/Flickr)

Writing for the Urban Land Institute in 2013, Richard Florida posed a rhetorical question, "If cities, as Jane Jacobs so memorably argued, are nonpareil engines of innovation, how is it that high tech—the most innovative of industries—has mostly thrived outside them?" Given that young adult talent prefers to live in cities, Florida dispenses with the query as "moot." Retorting to Jesse Jackson on Saturday Night Live, the question is not moot.

If suburbs are nonpareil engines of innovation, then how did Silicon Valley eat the lunch of Route 128 (suburban ring around Boston)? For scholar AnnaLee Saxenian, the question wasn't moot but a dissertation. Why did innovation boom in suburban Silicon Valley but not suburban Boston (Route 128)? History provided Saxenian with a great natural experiment. The geography of innovation didn't matter. It was controlled. Both places were suburban. Better yet, Saxenian has a null hypothesis. Around 1980, she predicted that San Jose would crumble. It didn't. Turns out that Boston's innovation corridor was cursed with a Rust Belt malaise:

The Boston area was organized around these big, vertically integrated minicomputer companies — DEC, Data General. They were classic postwar American companies, with vertical hierarchies and career ladders. Planning and research happened at the top of the organization and then funneled down. Whereas in Silicon Valley you had, really by chance not design, a series of flat companies, with project-based teams that moved around. People moved between companies much more fluidly. At a time that technology and know-how were sort of trapped within the vertically integrated companies of Route 128, they were being continually recombined in Silicon Valley. That gave them a real edge in innovation.

Putting my own spin on Saxenian's observation, the where of innovation took a backseat to the structure of the company and labor mobility (in the economic sense of the term). When research and development is locked up in a large multinational firm, it is supposed to stay there for the sake of shareholder value and corporate profit. If companies couldn't protect intellectual property, so the trope goes, they wouldn't invest in innovation. Silicon Valley proved that such fears were unfounded.

Regarding innovation, the paths of Route 128 and Silicon Valley were divergent. I yield the floor to the words of Harvard economist Edward Glaeser about the work of another economist, when New York City ate Pittsburgh's lunch:

Pittsburgh had large, fully integrated steel companies that sucked up the financing, labor and practically the air itself in the city. Who, in those days, would want to compete with U.S. Steel?

In the almost 50 years since Mr. Chinitz wrote his paper, his insights been regularly affirmed. Pittsburgh has continued to decline; New York has survived. Few now doubt that entrepreneurship is an important ingredient in local success. AnnaLee Saxenian’s now-classic comparison of the technology clusters in Silicon Valley and Boston’s Route 128 took a page from Mr. Chinitz and argued that Silicon Valley’s success owed much to its abundance of smaller, non-integrated firms. Statistical work confirms that diversity and competition predict urban success; there is a strong connection between abundant, independent suppliers and the level of local entrepreneurship.

As Chinitz described how New York City outpaced Pittsburgh, so Saxenian argues that Silicon Valley outpaced Boston. In terms of entrepreneurship, urban New York bested urban Pittsburgh. Concerning the same terms, suburban Silicon Valley bested suburban Boston. Route 128's knowledge economy mirrored Pittsburgh's sick manufacturing economy.

But neither Pittsburgh nor Boston has "continued to decline," to use Glaeser's words. More obviously, Boston is booming. Perhaps speaking too soon, I contend that Pittsburgh is booming. Both metros would seem to have outlasted the Chinitz problem. In Boston, innovation somehow migrated from isolated silos of the vertical industries located in the suburbs to the more open and global networks of the region's universities. I'm not ready to tackle that story. As for Pittsburgh, manufacturing collapsed in epic fashion during the 1980s. Local universities were the only places left to house industry's great legacy of research and development. Both Boston and Pittsburgh, probably by accident, ended up with innovation networks like the ones Saxenian saw in Silicon Valley. If you would like to read more about such networks in a Rust Belt context, I recommend this paper by Sean Safford, "Searching for Silicon Valley in the Rust Belt: The Evolution of Knowledge Networks in Akron and Rochester."

Innovation thrives in open knowledge networks. Innovation does not require an urban area or a suburban area. It can happen in the city or in a small town. Avoid the Chinitz problem and spur entrepreneurship. Which brings me back to the contention that creativity thrives in dense and culturally diverse cities. As articulated above, density hasn't mattered for innovation. But what about diversity? "Cultural Diversity and Entrepreneurship: Evidence From England and Wales":

Our principal finding, however, is twofold:

First, birthplace diversity is more strongly associated with start-ups, particularly when knowledge-intensive in nature. This supports the idea that it is new migrants, with skills and perspectives that complement the local labour force, who are the real enhancers of the environment for entrepreneurship.

Secondly, it is diversity within the ranks of the highly skilled that matters most, again especially for knowledge-intensive start-ups. This finding is consistent with the idea that more skilled minorities and migrants are better able to integrate and share their knowledge, perspectives, and complementary skills to unlock the benefits of diversity. For the unskilled, not only are complementarities less significant in magnitude, but the ability to share is hindered by barriers to integration.

People from different places, not different ethnicities, drive innovation. Birthplace diversity is more important than cultural diversity. These findings resonate well with what we know about knowledge networks and the success of suburban Silicon Valley. People with ideas flow from firm to firm, spreading entrepreneurship. Likewise, people with ideas flow from place to place, spreading entrepreneurship. The geography doesn't matter. It just so happens that cities attract a lot of people born far away. Hence the assertion that density and cultural diversity foment creative behavior. Urban advocates correctly identified the trend while misunderstanding the mechanism of innovation.