Economic development, innovation and creativity are undoubtedly connected. Squabbling about which comes first misses the point.
Last week, a post over at Forbes blared the headline “Richard Florida is Wrong About Creative Cities." The post, written by Adam Ozimek of the Modeled Behavior blog, reviews University of California Berkeley economist Enrico Moretti's book The New Geography of Jobs.
Moretti’s book devotes several hundred pages to the roles that clustering and concentration play in innovation, firm formation, and job creation, echoing observations made by Michael Porter, Edward Glaeser, and me. Then, in about two or three pages, he criticizes my alleged theory that, as Ozimek puts it, “making a city an interesting place to live is a good prescription for economic development.”
Pointing to Seattle and Berlin, Moretti declares that I essentially get “causation backwards.” In his words:
A good quality of life does help cities attract talent and grow economically, but on its own, it is unlikely to be the engine that turns a struggling community into an innovation cluster. If it is not working for Berlin, it is hard to see how it could work for Flint.
This is a tired critique, first raised a decade ago by Joel Kotkin and Steven Malanga. It attacks not my theory, but rather a straw man of my critics’ creation. It’s time to give up this kind of reductionist, chicken-and-egg thinking about cities, innovation, and economic growth. This is not an either/or proposition.
I don’t mince words when I say that communities that invest large sums of public money in mega-projects like sports arenas, convention centers, and massive new digs for the "SOBs" – the symphony, opera, and ballet – are sorely mistaken if they suppose this will somehow lead to economic growth and development.
The key mechanism at work here is the city itself. Dense and interactive connectors, cities are economic and social organizing machines. They bring people and ideas together, providing the platform for them to combine and recombine in myriad ways, spurring both artistic and cultural creativity and technological innovation, entrepreneurship, and economic growth.
This is what Jane Jacobs taught us long ago in her book The Economy of Cities. This is what the Nobel Prize winning economist Robert Lucas meant when he formalized Jacob’s argument into a theory of "human capital externalities" that stem from the dense clustering of people in cities as the basic mechanism of economic growth. Cities themselves power economic progress, driving artistic, technological, and overall economic growth at one and the same time.
It’s always been that way, as detailed archaeological and anthropological studies show. Stephen Shennan at University College London, for example, looked at the sudden spikes of artistic and technological progress that occurred in Europe, Africa, and the Middle East throughout prehistory and concluded that what they all had in common was the growth of local population densities.
Arts and culture can and do at times precede and influence subsequent economic development, according to a groundbreaking historical study. The study, published in the journal Labour Economics, examined, of all things, the effects that seventeenth and eighteenth century German opera houses had on talent attraction and economic growth in later periods. Guess what: those Baroque opera houses mattered to later economic growth. The study takes the form of a "natural experiment," according to its authors, as construction of those opera houses predated the rise of the bourgeoisie and skilled workers who later grew up in those locations. The cities and towns that had such opera houses realized higher rates of economic growth over the long run, because of the human capital that they attracted. “[I]t is the local level of high-human-capital employees who value their proximity to a baroque opera house that shifts a location to a higher growth path,” the study finds.
Many other studies find that arts and culture play key roles in attracting skilled people who in turn power innovation, firm formation and economic growth and development. A large-scale Gallup Knight Soul of the Community survey finds that quality of place and openness are the most highly ranked factors in peoples’ satisfaction and emotional attachment to their communities, trumping even job opportunities. Terry Clark and his colleagues highlight the role of the “city as entertainment machine,” identifying the directly productive role of artistic and cultural scenes. The economists Jesse Shapiro and David Albouy have documented the role of quality of life and amenities in attracting skilled people and spurring economic growth. My own research with Charlotta Mellander and Kevin Stolarick finds that arts and culture occupations are one of three major occupational groups (the others are science and engineering and business and management) that add to regional wages and productivity.
What really surprised me about Moretti’s argument and Ozimek’s summary of it is their history by anecdote approach. Do they seriously believe that Moretti’s cursory impressions of Seattle and Berlin can disprove mine or anybody else’s theories? These are economists who work with large data sets; of all people, they should know better.
When it comes to Berlin, Moretti is simply misreading the facts. Berlin is an extreme outlier; a very special case. The city, remember, was partitioned after World War II into a capitalist West and a communist East. Many of its leading scientists, engineers and arts and cultural innovators fled to the West. Companies moved out too, including Deutsche Bank, Commerz Bank and Dresdner Bank, the insurance giant Allianz, and massive industrial concerns like AEG and Siemens.
That’s why Berlin is gritty and its rents have remained low. The economic boom that was predicted after the wall came down didn’t materialize, McClaren notes, because the companies that had relocated had tremendous sunk investments in their new locations. She quotes Nikolaus Wolf, professor and director of the Department of Economic History at Humboldt-Universität zu Berlin:
For Siemens and AEG, for example, there was absolutely no incentive to come back, and not one of the big banks or the insurance companies actually moved back. Nearly no one did. So that means that the negative shock of division and the positive shock of reunification were different. The negative shock was much, much bigger than the positive shock was.
But despite all of those disruptions, Berlin is becoming a tech center, so much so that Twitter recently selected Berlin over Frankfurt, the country's industrial and financial hub, Hamburg (home to Facebook and Google), and Munich, where Apple, Amazon and Microsoft are based, as the site for its German offices. As Der Spiegel recently reported, the “onslaught of entrepreneurs and programmers from around the world…. are descending on the hyped capital city to establish their own tech start-ups. Attracted by the city's creative class, its world-class culture, a rich alternative scene and its affordability, more and more tech entrepreneurs are setting up shop here."
After visiting Berlin, the tech-writer Om Malik concluded that Berlin was poised to be "Europe’s next tech hub."
Entrepreneurship is rampant in this city. Some say there are somewhere between 100 to 400 startups in Berlin. I was in Berlin for about 70 hours and I met with over 40. I am pretty sure – if I stuck around for another week – I would have met many more. The central Mitte district that is home to many of these is called Silicon Allee (aka Silicon Avenue.)
I asked geographer Melanie Fasche, who lives in Berlin and has studied the city extensively, about the intersection of artistic creativity and tech-based development there. "Berlin is in fact a very good example that the paradigm of the creative city works. Here art and culture have been evolving organically," she says. "In terms of economic development, Berlin is no longer only the hope for individual freedom but increasingly also the hope for individual prosperity. Berlin has become a frontier for micro and small entrepreneurs who really want to make it."
She notes that the city’s rapid economic development has led to increasing "disparities” which have engendered a budding anti-gentrification movement. Its leaders, interestingly enough, complain that "arts and culture are being used to spur economic and urban development."
Given that we can’t sort out causality, we shouldn’t focus on just one side of the equation. Mayors, economic development leaders and city builders are best served by investing in both an appealing people climate and a competitive business climate, together.
To that end, they should eschew overly-generous business incentives and avoid large-scale investments in pro sports stadiums, convention centers, and big-time arts and cultural institutions. They are much better served by placing many smaller bets on school upgrades, the creation of parks and green spaces, and historical preservation - the kinds of quality of place improvements that Jane Jacobs long ago emphasized will stay rooted in and create benefits for their communities for a long time to come.
That’s been my message all along.