Cities, systems of innovation and economic development.(PART 1: CITY ISSUES AND IMPORTANCE)

INTRODUCTION

Cities play a vital role in the social and economic development of countries. Dynamically efficient and productive cities are essential for national economic growth and strong urban economies are essential for generating the resources needed for public and private investment in infrastructure, education and health, improved living conditions and poverty alleviation. Nowadays sustainability has joined the list of tasks cities will need to address. The road to sustainable development will go through administrative, organisational, institutional and technical innovation. Cities have often been described as the cradles of creativity and as innovative environments and their problem solving capacity has often, but by no means always, been impressive. This paper addresses some issues about how and why some cities are innovative and argues that cities must develop sustainable systems of innovation if they are to solve major questions of sustainability.

Cities have long been thought of as innovative centres. Giovanni Botero (1544-1617) probably first expressed this clearly. In The Magnificence and Greatness of Cities (originally published in Italian in 1588 and in English in 1606), Botero described the importance of great cities for countries and their rulers. He suggested that neither the pleasures of living in a great city nor the necessity of the protection provided to its people explained its magnificence. What matter most, he said, are the city's diversity of industry, trades and crafts, interaction with surrounding agricultural districts, the presence of a community which accepts and includes immigrants, has an efficient and effective justice system, schools and studies, and a physical location with access to good ports, which makes trade with other cities and countries possible. Only cities can provide the necessary environment for increasing incomes and power, he thought.

Discussing the origins of the now strong evolutionary alternative to mainstream thinking about economic development, Reinert (2007: 73) observes that '... it was very clear to people early on that most wealth was to be found in the cities, and particularly in certain cities' and argues that Antonio Serra's 1613 observation that the larger the number of different professions present, the richer the city is still valid (Reinert 2007: 281).

More than 300 years later, Jane Jacobs (1969) used similar arguments about the importance of diversity of trades and crafts to explain how cities may stimulate innovation and economic growth. Even agriculture was developed in cities, she says, since only in a densely populated area, where people from different places, with different competencies and trades met to interact, were there possibilities for the new combinations and insights that led to the transition from hunting and gathering to settled agriculture in the neolithic revolution.

In his book Cities in Civilization, Peter Hall (1998) takes the argument further, describing great cities in their golden ages as 'innovative milieus' and 'cradles of creativity' of many kinds, where artistic/cultural, technological, and organisational shifts take place and provide the intersections that can lead to the combinations of artistic and technological creativities involved, for instance, in the new fields of movies, recorded music, television and multimedia displays. The factors that shape cultural and artistic creativity are to a large extent the same as the ones that shape technological innovation, Hall argues, and these are largely found in cities.

CITIES ARE DRIVERS OF INNOVATION BUT WHAT MAKES THEM INNOVATIVE?

The reasons given for the location of innovation in cities by Botero, Serra, Jacobs, Hall and other scholars who view cities as engines of income and growth rely on supply side arguments. The conditions for production and growth, they say, are better in cities than in less urbanized areas because the factors of production (capital and labour) are relatively available, abundant, efficient and complementary and because cities offer relatively good infrastructure for productive activities. In addition, the production structure is more diversified, which supports the development of synergies and hence the innovation which makes the economy robust and dynamic.

More recently, some demand side arguments have been added to the analysis. These centre on the presence of a diverse population that includes people with not only different occupations, competences and social background but also with the higher wages and tastes that create a high and differentiated level of consumer demand. Fast consumer learning supports the growth of this demand over time.

In addition, cities are complex and often disordered places, where interactions create all kinds of problems which involve private players but also public authorities. City governments have to constantly redesign and rebuild urban order and especially the infrastructure of streets, water supply, sewage systems, solid waste disposal, energy, transport and so on. The constant recreation of urban order adds a potentially high and increasing level of public demand to the private one. In this sense, the demand side in the economy of cities harmonizes with the supply side and gives cities a higher growth potential than other places (Johnson & Meuller 1973).

Cities are not endlessly creative, however, and innovation levels are not constant or evenly distributed over space and time. The term 'creativity' here refers to the ability to produce, combine and recombine knowledge and competences in ways, which lead to something new, such as new technologies, organisations and institutions. Even if the majority of economically important institutional and technological changes have been initiated and developed in city-like areas, this does not mean that all cities are creative. Cities alone are innovative spaces but not every city is innovative and most cities are never noted for their innovativeness--there has to be a combination of specific factors at specific times for urban innovation to be strong. The failure of other cities to develop and maintain growth and innovation may result from difficulties in matching technology with institutional arrangements and supply side factors with demand side factors.

Production can be usefully described as a result of three basic factors of production--materials, energy and knowledge (Boulding 1981) which together transform materials from one form to another, a transformation which requires energy and is controlled and directed by knowledge. Since the industrial revolution, energy use, knowledge and materials have grown explosively and the relative importance of knowledge has increased via the globalizing learning economy (Lundvall 2002). In particular, it is increasingly important to note that most of the environmental problems that accompany economic growth are connected to the use of energy and materials but the solutions hinge on the utilization and development of knowledge. Cities have always been the locations of the main producers of knowledge and vehicles for economic growth and development, bringing these two production factors together.

Diversity and turbulent creativity

Processes of communication, transaction and interaction are key phenomena in city dynamics. These processes are not necessarily harmonious and balanced. On the contrary, in describing the dynamics of cities, Hall (1998) uses expressions such as structural instability, mismatch, lack of equilibrium and asynchrony. Cities are turbulent; turbulence rather than comfort is the cradle of creativity. When economic expansion has developed or followed from creative outbursts, it has not been in the form of balanced, incremental growth but rather in the form of what Schumpeter (1942) called 'creative destruction', fundamentally discontinuous change including the emergence of qualitative novelty and not simply quantitative change. Long run development is not a continuous and steady process but is rather an 'uneven and combined' (Mandel 1975) process and the 'golden periods' of cities' are often 'in-between' times, in which some activities expand and others decline faster than normal and where perspectives and outlooks change. Often these periods of transitions are culminations of long gestation periods in which contradictions and tensions have built up. The ability to manage these conflicts is important for the sustainability of the city's development.

The existence of variety within a city's population and activities is a critical element of urban innovation because innovation is highly interactive, building on the recombination of different elements of knowledge and competence. Variety may be seen in the population's age structure, culture, occupation, skills, competences and tastes, in the organisation of production in terms of firm size and mode of organization, in the city's institutional variety and in the diversity of the production and supply of public as well as of private goods and services.

Variety creates the potential for innovation. Whether this potential is utilized or not depends basically on two further factors. First, it requires some kind of proximity between the persons and organizations that have the potential to interact and recombine different kinds of knowledge as the costs of interaction must not be too high. The relatively short physical distances and dense communication networks of well-functioning cities support face-to-face as well as other types of communication, which support interactive learning and innovation.

Second, realisation of the potential provided by variety requires investments in the development of knowledge. Knowledge may be intangible but it does not recombine without costs; innovation requires expenditures on materials, equipment, testing, training, education and associated matters. The need for investments is obvious for technical innovation (process and product innovation) but the necessary associated organizational innovation also requires investment of resources, at least in terms of human capital. Economically vibrant city economies provide both demand for these kinds of investment and the resources to invest--spending propensities are high in cities (Johnson & Meuller 1973). Development has been described as the mobilization and utilization of 'hidden, scattered and badly utilized resources' (Hirschman 1958); cities are relatively good at such mobilisation and utilisation, both on the supply and demand side.

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