Recent Research III: The Role of Innovation in the Urban Economy

Cities play a pivotal role in producing the technologies that sustain high-tech industries, hosting a majority of the businesses and individuals that comprise those industries. Modern urban theory, including the work of Edward Glaeser and Richard Florida, has popularized the idea of cities as key nodes in which new knowledge is created, spread and adopted by innovative businesses and entrepreneurs. Successful high-tech cities have a self-sustaining quality, according to Florida, in which a city's reputation for innovation attracts more skilled and creative workers and entrepreneurs, which in turn spurs further economic growth.

 

This process is symptomatic of a greater trend, according to a recent article by Luís Bettencourt, José Lobo, Dirk Helbing, Christian Kühnert and Geoffrey West. The authors argue that urban life and metropolitan economies develop according to a predictable pattern, one that closely resembles patterns observed in other types of social organization and in biological organisms. Cities with higher populations tend to experience faster rates of innovation and greater productivity in their urban economy.

 

Bettencourt, et al. find that indicators of urban activity tend to fall into three categories. The first involves indicators that relate to the needs of individuals. As a city accumulates new residents, each of those residents requires employment, housing and utilities. Thus, as population increases, these indicators tend to grow linearly.

 

A second group of indicators is affected by economies of scale. By concentrating a large population within a limited geographic area, cities are often able to increase the efficiency of their economy by reducing the number of gas stations or gas sold per capita, or the per capita length of the city's electrical cables. This effect can drive growth by reducing the amount of resources dedicated to the city's infrastructure while maintaining or increasing productivity. The benefits of economies of scale, however, appear to plateau over time as a city reaches the limits of its ability to provide services to its citizens. Eventually economies of scale can no longer be counted on to drive or support growth.

 

The final category consists of indicators that measuring the creation of knowledge, wealth and resources. The authors find that many of these indicators, including new patents, number of inventors and private R&D employment and establishments, increase even more rapidly than population. Remarkably, many of these indicators appear to grow at a similar rate, the authors observe. The pace of discovery and innovation in cities accelerates as the city grows, they say, and continued growth depends on a constantly increasing rate of knowledge production and distribution.

 

These findings suggest that it may be possible to predict future rates of urban innovation and high-tech economic development as a city's population grows. In addition, expanding urban economies may require increasing investment in innovation and R&D to support their economic and population growth and to avoid economic collapse.

 

Access "Growth, Innovation, Scaling, and the Pace of Life in Cities" from the April issue of the Proceedings of the National Academy of Sciences of the United States of America at: http://www.pnas.org/cgi/reprint/104/17/7301

 

Links to the report and more than 4,500 additional TBED-related research reports, strategic plans and other papers also can be found at the Tech-based Economic Development (TBED) Resource Center, jointly developed by the Technology Administration and SSTI, at http://www.tbedresourcecenter.org/.