tel-aviv-night

Bring new ideas to market. Create jobs. What’s not to like? Kyle Chayka investigates the dark side of innovation districts:

While innovation districts may catalyze growth, it remains to be seen how sustainable that growth will be. In the world of entrepreneurial technology, ephemerality and competition are king: The losers are quickly weeded out and the winners go on to be absorbed into larger winners. The process only benefits a thin spectrum of the population that already has access to the kinds of capital—education, real estate, connections—that the innovation economy thrives on. The rest, it leaves behind.

Cities such as Boston build innovation districts for the haves. The have-nots take the bus to the end of the line and then walk a few miles to suburban poverty. How they get back to clean offices in anchor institutions (PDF) is anyone’s guess. But that’s not my gripe. I have a date with density (PDF):

As the role of these innovative industries and occupations has grown in size and importance, so too, then, has the value of density and agglomeration. The benefits of clustering that produced industrial districts, and then science parks, are intensifying in ways that we are just beginning to understand. A growing body of research shows that employment density not only eases resource, goods, and labor sharing, but also enhances innovation. This happens by enabling a more seamless transfer of knowledge within and across firms, workers, and supporting institutions—in turn facilitating the creation and exchange of new ideas that fuel even greater economic activity and growth. …

… The proximity effect is significant. Recent research conducted by Gerald Carlino and Robert Hunt found the clustering of R&D labs to be by far the “most significant” at very small spatial scales, such as distances of about one-quarter of a mile. They also discovered the clustering effect to quickly dissipate with distance, concluding knowledge spillovers to be “highly localized.” Isaac Kohane and several colleagues at Harvard Medical School found that even working in the same building on an academic medical campus makes a difference for scientific breakthroughs; “Otherwise, it’s really out of sight, out of mind.”

Density also matters when it comes to workers. The large number of employers within an urban area allows workers to change jobs more easily, giving them both greater flexibility and stability than employees in non-urban locales. This concentration of employment, which economists refer to as “labor market pooling,” also contributes to labor productivity. One seminal study found that doubling employment density increases average productivity by around 6 percent.

That’s from the Brookings report (“The Rise of Innovation Districts: A New Geography of Innovation in America.”) Chayka unpacks from the economic inequality angle. I’m interested in the efficacy angle. Can innovation districts do what Brookings claims they can do?

Before I address the “proximity effect,” note the emphasis on “employment density” instead of “residential density.” Much of the research celebrating agglomeration and clustering references population density, not employment density. Distinction made, the positive correlation between population density and, say, economic efficiency is still there. Greater density is the answer. What’s the question?

Pointing out that residential sprawl doesn’t undermine the supposed employment density dividend of innovation won’t win you many friends in urban planning circles. And if employment density is the key variable, then let’s build an innovation field of dreams in an Iowa cornfield where land (and talent) is cheaper. We don’t need a city to generate the requisite employment density for innovation.

Therein lies the problem: Employment density, like residential density, doesn’t matter. An urban innovation district is a real estate development boondoggle. Another Brookings think-tanker explains:

My research suggests that the difficulties in transferring and diffusing productive knowhow can explain many economic processes. For instance, countries become productive in making products which their geographic neighbors are good at, suggesting that knowhow diffuses strongly at shorter distances. In addition, in a follow up study, I find a country becomes more productive in products intensively exported in the home countries of its immigrants as well as in the destination countries of its emigrants. This suggests that migration flows–rather than trade or FDI–are drivers of productive knowhow.

Emphasis added and well said. I’m highlighting the part of the passage that undermines my argument and bolsters the “proximity effect” ascribed to the innovation district. Why would I pull such a rhetorical stunt? Because proximity explains a lot of migration. You go where you know. You know next door, not an innovation district located halfway around the world.

[M]igration flows—rather than trade or FDI—are drivers of productive knowhow.”

Notice that greater density isn’t mentioned as a driver of productive knowhow. The densest cities are popular destinations for migrants from other places, other countries. A gravity model of migration (PDF):

A place-to-place migration model that assumes that interregional migration is directly related to the population of the origin and of the destination regions and inversely related to the distance between them.

If you don’t go where you know, then you’ll likely end up in a place with a much larger population than your hometown. Big, dense cities have tremendous gravity. That attraction is a driver of productive knowhow. If greater density didn’t beget in-migration, then the Brookings district wouldn’t beget innovation.

Israel, clearly the densest country on the planet, holds the title of Start-Up Nation. Lately, innovation has been lacking. Does Israel need to get denser? Not according to Yanki Margalit:

“I hear too many people talking about the ‘brain drain’, [people] who like to treat Israel like a ‘ghetto of minds’. Instead, let’s bring the experts here and let’s encourage our great minds to leave Israel. I would like to claim that the ideal model for Israel as a world power in high tech is a global hub of innovation that both imports and exports knowledge and seeks to integrate itself into the larger international community.” Margalit argues Israel should strive to become an “open ecosystem”, to invite, as he put it, Chinese engineers, Indian doctors and American salespeople, to work in their companies, just as international companies have already begun to hire talented Israeli programmers and researchers.

The Brookings innovation district is a ghetto of minds, the very problem plaguing Start-Up Nation. Go ahead and make that employment ghetto as dense as you can. Epic fail:

Thus, the challenge of the developing world is to find ways to acquire the productive knowhow that will translate into productivity increases, at the industry or aggregate level. For instance, encouraging brain circulation through migration policies could fulfill this purpose. This is not news: larger firms send their employees to train abroad with this purpose in mind. The challenge is in identifying the market or institutional failures that prevent small firms, abundant in developing nations, to do so. Only by securing access to productive knowhow may countries overcome their productivity curse.

This is not news to those who study knowledge transfer and innovation. Migration, not greater density, drives technological change. Hence this advice for Pittsburgh:

One area all the cities hoped to do a better job with is retaining talented international students who graduate from their universities.

One way to do that, said Neil Ruiz, a senior policy analyst at the Brookings Institution, is to find out where foreign students come from and place them with companies that can do business with their home cities.

In a study due to be published this summer, Mr. Ruiz has analyzed the international student population in dozens of metro areas in the United States. Pittsburgh, for example, has 13,326 international students, primarily at Carnegie Mellon University and the University of Pittsburgh, and nearly 60 percent of them are majoring in science, engineering or technology fields. The top five cities of origin: Beijing, Seoul, Mumbai, Shanghai and Singapore.

Pittsburgh can’t compete with the gravity of New York City. Pittsburgh can draw talent from Beijing, Seoul, Mumbai, Shanghai, and Singapore without a formal innovation district. Migration isn’t a zero-sum game. The move to improve links two places. Innovation happens between them, not in a ghetto.