Connection and Diversity Spur Economic Development

by Michele Reeves on November 27, 2010

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There is a traditional top down model, implemented the world over, in which cities build infrastructure in an attempt to cluster technical industries and spur job growth, which Vivek Wadhwa discussed recently in the Chronicle of Higher Education:

All of those are well-intentioned efforts to build Silicon Valley-style technology hubs, but they are based on the same flawed assumptions: that government planners can pick industries they want to develop and, by erecting buildings and providing money to entrepreneurs and university researchers, make innovation happen.

Regional planners and some academics get very defensive when asked to produce evidence of cluster theory’s success. They commonly tout Silicon Valley and North Carolina’s Research Triangle Park as examples of the success of government-supported clusters. Research Triangle Park is a 50-year-old project that achieved success decades ago but lost momentum in the Internet era. And the success of Silicon Valley was achieved without government involvement.

Economic development, whether it be on a neighborhood scale or from a city-wide perspective, can be fostered by focusing on connectivity and diversity, not unlike the interactions needed to encourage physical revitalization, as I laid out in my post on ants and revitalization.

There is an excellent article by Steven Johnson in the Financial Times about the thriving New York high tech scene. I was surprised to learn that the New York area is now second only to Silicon Valley in attracting venture funds to start-up internet firms. And, as Mr. Johnson argues in his piece, the route to reproducing the conditions that existed prior to the success of Silicon Valley, or the NY tech scene, need not require top down planning and large public expenditures.

Mr. Johnson believes that “one secret to New York’s technological success lies in the Interactive Telecommunications Program (ITP), a two-year graduate course at New York University.” This course brings together students of varied backgrounds, from artists with no technical expertise to hard core coders, and out of that cauldron of diversity comes creativity and ingenious ideas. The graduates of this program go on to work in, or found, copius numbers of start-up ventures in the region.

The physical density of the city also encourages innovation. Many start-ups, both now and during the first, late-1990s internet boom, share offices. This creates informal networks of influence, where ideas can pass from one company to the other over casual conversation at the espresso machine or water cooler… .

Economists have a telling phrase for the kind of sharing that happens in these densely populated environments: “information spillover.” When you share a civic culture with millions of people, good ideas have a tendency to flow from mind to mind, even when their creators try to keep them secret.

All of these spaces – the graduate schools, the co-working offices, the media environments – exhibit the final trait that has been key to New York’s technological success: its diversity. A number of studies have established an essential connection between diversity and innovation. One such study, by the Stanford Business School professor Martin Ruef, interviewed 766 graduates of the school who had gone on to have entrepreneurial careers. Ruef was interested in the diversity of professions and disciplines, not of race or sexual orientation. He created an elaborate system for scoring innovation based on a combination of factors: the introduction of new products, say, or the filing of trademarks and patents. Then he tracked each graduate’s social network – not just the number of acquaintances but the kind of acquaintances they had. Some graduates had large social networks that were clustered within their organisation; others had small insular groups dominated by friends and family. Some had wide-ranging connections outside their inner circle of friends and colleagues.

Ruef discovered that the most creative individuals consistently had broad social networks that extended outside their organisation and involved people from various fields of expertise. In groups united by shared values and long-term familiarity, conformity and convention tended to dampen any potential creative sparks. The limited reach of the network meant that concepts from the outside rarely entered the entrepreneur’s consciousness. But the entrepreneurs who built bridges outside their “islands,” as Ruef called them, were able to borrow or co-opt new ideas from these external environments.

Let sophisticated behavior trickle up. Get your citizens talking to one another. Encourage inter-disciplinary cooperation. Bring people together from varied and different backgrounds — both from a cultural and professional perspective. Strengthen the connections between the private sector and universities. And, as Vivek Wadhwa says, teach entrepreneurship to students and experienced workers alike, finding ways to eliminate the stigma associated with failure.

Then, get out of the way!!

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