The Geography of Innovation

Richard Shearmur challenges prevailing knowledge on the geography of innovation.

Innovation, whether understood as a process (transforming an idea or technology into an implemented product or solution) or as a material object (as in: ‘3-D printers are an innovation’), pervades most public discourse. Heroic entrepreneurs – such as Elon Musk, Steve Jobs or Bill Gates – are looked up to, admired, and referred to in blogs, political speeches and water-cooler discussions. New gizmos – the latest IPhone, a new app, novel bike designs or new financial instruments – are amply discussed, and are believed to be driving the economy forward, encouraging consumption and improving some aspects of everyday life.

A number of ideas have developed, especially since the 1980s, that purport to explain under what conditions innovation can and does take place. In particular, it is widely accepted that geography – the region or city within which entrepreneurs are located – plays an important role in determining whether the entrepreneur will be innovative. Whilst there are many nuances to the ideas that have been developed, it has by and large been accepted that the geographic clustering of similar firms, the clash of ideas that urban areas enable, and the dense local markets that cities offer are conducive to innovation. It has also by and large been assumed that when innovation occurs in a region, local economic development (which, for the local population, should translate into jobs and rising incomes) will occur there too.

The forthcoming Handbook on the Geographies of Innovation sets out to question these ideas. The rationale for doing so is threefold. First, the idea that geographic proximity between actors (be it within clusters or urban areas) is necessary for ideas to be exchanged and collaboration to occur was developed in the pre-Internet era. Since the early 2000s there have been many empirical results questioning not only the role of proximity in enhancing innovation, but also the nature of the interactions between economic agents who happen to be co-located. Second, and related to this first point, studies that focus on clusters and cities have increasingly incorporated the idea that these can only sustain innovation if they are well connected to other clusters and cities: they cannot be considered as self-contained. Most contributions to the Handbook look closely at the way in which innovation plays out across space, with emphasis on the changes brought about by information and communication technologies, the ways in which innovation processes differ in different contexts, and the increasing problems that inhere in actually associating innovation processes with particular locations.

A third rationale – which is somewhat underrepresented in the handbook but which merits further exploration – relates to the connection between development and innovation.

This connection has rarely been studied. It is, rather, an underlying theoretical tenet: innovation allows entrepreneurs to expand their markets by producing better products (i.e. more sought-after in the market) or by producing similar products more efficiently. Both of these processes, it is believed, lead to increased overall utility, allow firms to remain competitive, and ensure local development.

This theoretical tenet can, however, be questioned from two perspectives. First, even if we assume that innovation does increase overall utility, does this mean that local innovation increases local utility? Clearly, the answer is ‘not necessarily’. It is entirely feasible that innovation occurs in one place and that the benefits accrue in another. For instance, aluminium smelters in small Québec towns have become substantially more efficient and productive, thereby leading to increased profits for the owners but to decreased employment and overall income in these towns. Likewise, when Google scours the planet buying up innovative start-ups, it is not the localities from which the innovation emanates that will benefit from the returns to innovation. This essentially geographic argument has its social counterparts.

Workers and company owners who pay the cost of innovation – by losing their jobs and livelihoods – are not compensated by those who benefit: the destructive side of creative destruction can destroy people’s lives and livelihoods.

A second limitation of the theoretical tenet lies in the assumption that innovation increases overall – i.e. social – utility: in other words, compensation may not even be possible in theory, even if it does not occur in practice. Indeed, a successful innovation will increase utility for the entrepreneur, but may decrease social utility. For instance, the financial innovations of the 1990s and 2000s certainly benefited the bankers who designed them and obtained commissions, but the world-wide recession and hesitant recovery since 2008 suggest that the social utility of these innovations was negative. Likewise, continuous marginal innovations introduced in electronics and computers benefit the entrepreneurs, but at the cost of rising mountains of e-waste, of the depletion of rare metals, and of the declining health of low-paid workers who disassemble the devices in developing countries. The problem that these examples highlight is the disconnection between privatised profit and socialised costs. This is true for finance and electronics, but also for any other innovation that has diffuse negative externalities: long-term environmental and social costs (such as unemployment, community dislocation, localised poverty) are not borne by the entrepreneurs whose innovations generate them, but are spread across society at large and across future generations. The total costs may be immense, but are not accounted for, whereas the entrepreneur’s gains, even if small by comparison, are included in economic calculations.

The Handbook addresses these questions tangentially – only the last section looks at them more closely: indeed, few mainstream students of innovation have yet questioned whether innovation is ‘a good thing’. However, even if one assumes that innovation is, overall, desirable, the distributional question – which is both a geographic and a social one – touches upon the connection between rising inequality and innovation, a question that concerned the Luddites over 200 years ago and which now concerns politicians, social scientists and even the World Bank.

Richard Shearmur is Professor in the School of Urban Planning at McGill University, Canada.

Handbook on the Geographies of Innovation edited by Richard Shearmur, Christophe Carrincazeaux and David Doloreux is out later this month.