Musings on Entrepreneurship and Innovation
Thursday, July 22, 2004
Flight of the Creative Class
Earlier this morning, Don Iannone, author of the Economic Development Futures Web Journal, pointed out an Arizona Republic column on economic development idea entrepreneur Richard Florida. The column summarizes Florida's key message as it has emerged from the crucible of his defense of his book, The Rise of the Creative Class:
"Every human being is creative," [Florida] says...value-added comes from their minds. Creativity is becoming the primary engine of wealth creation..."Creativity is the new raw material and the source is human beings. How to grow, attract and nurture talent is the thing."
Apparently as a preview of his new book, The Flight of the Creative Class, Florida extends his thesis:
[Florida's] big worry is that America is too distracted to realize that the worldwide competition for creative talent is "the greatest economic threat we've faced in our mature history."
I, too, hear the footsteps of hundreds of millions of well-educated, ambitious, and economically emancipated people in Asia and Eastern Europe, in particular. They represent great opportunity and competition. As I understand it, Florida believes that the key dimension of economic development will be the agglomeration of creative capital:
[C]reativity needs density. Or, as [Florida] put it, "You sprawl, you die."
That's a nice line, but I suspect that it's an idea that is simplistic, rather than elegantly simple.
Don't get me wrong, even as an enthusiastic advocate of the potential for rewarding economic life on the frontier, I acknowledge the urban advantage. In 1998, Sir Peter Hall, in his massive work, Cities in Civilization, asks and, persuasively answers, the core question:
Why should the creative flame burn so especially, so uniquely, in cities and not in the countryside?
What makes a particular city, at a particular time, suddenly become immensely creative, exceptionally innovative? Why should this spirit flow for a few years, generally a decade or two at most, and then disappear as suddenly as it came? Why do so few cities have more than one such golden age?
From an economic perspective, I suspect that part of the answer is found in the interplay between the following relationships:
Creative genius is largely a social phenomenon. Even with improvements in communication and collaboration technologies, physical proximity matters. Consequently, I think it's reasonable to believe Florida's assertion that the density of creative capital is an important factor in the knowledge economy. In other words, an increase in the density of creative capital causes an increase in entrepreneurial potential, which causes an increase in entrepreneurial action. The higher the rate of entrepreneurial action, the greater the rate of wealth creation. Wealth, and the cultural and environmental amenities it brings, tends to attract and retain creative people, which brings us full circle in a reinforcing cycle of building creative capital.
Operating in parallel, however, is another cycle. As wealth increases, people, companies, and communities tend to fall into what Adrian Slywotzky calls the big opportunity trap. That is, as wealth increases, so does opportunity cost. That means the expected return threshold (in absolute terms) increases, which tends to reduce the rate of entrepreneurial experimentation. (This, argues Amar Bhidé in The Origin and Evolution of New Businesses, is why rich people tend not to start promising startups.) Over time, a reduction in entrepreneurial action causes a decline in relative wealth, which can trigger a viscious cycle: the flight of the creative class.
The interplay between these two cycles - one reinforcing and one balancing - might help explain the emergence and subsequent decline of economic creativity in a place. But the devil is in the details, which makes me suspicious of Florida's density (urban)=good, sprawl (non-urban)=bad dichotomy.
For instance, environmental amenities have attracted educated and skilled people to my hometown of Bozeman, Montana, a micropolis, but not urban. Once newbies get here, they find that there are few high-paying jobs (or alternatives to the jobs that brought them). As a consequence, immigrants' individual opportunity costs go down. As a result, they become highly motivated to act entrepreneurially. (After all, what have they got to lose?) On the other hand, the number of entrepreneurial opportunities in Bozeman is relatively low for a number of reasons - notably our small local market and our isolation from the flow of ideas that compose the emerging, global knowledge economy. What will be the net result? It's not clear. However, the experience of the last decade suggests that a relatively high level of sustained economic growth is feasible. It seems at least plausible that a modestly strong "building creative capital" feedback loop is dominating a very weak "big opportunity trap" loop.
Cleveland, on the other hand, seems to represent the opposite situation. As I believe Ed Morrison would attest, Cleveland has accumulated an enviable array of cultural, physical, intellectual, and financial resources due to its historical economic success stretching back a hundred years. However, I perceive that the city has fallen into the big opportunity trap, which means relatively little of its entrepreneurial potential is being translated into entrepreneurial action and new wealth creation. If the "big opportunity trap" cycle is dominant, it may well turn the reinforcing "building creative capital" cycle into a viscious cycle that could be extraordinarily difficult to reverse.
In short, urban Cleveland, even with its absolute advantage in terms of accumulated creative capital, may face lower growth prospects than tiny, rural Bozeman, which has a much, much lower level of creative capital upon which to build. It seems, then, that economic success is not just a function of how many entrepreneurial opportunities you create but how many you have the motivation and skill to act upon. That's one reason why single factor solutions such as focusing solely upon the recruitment of "creatives" don't tend to work. Alternatively, if Ed and his colleagues are successful in helping to boost the entrepreneurial opportunity conversion rate in Cleveland, the city is likely to find its success in attracting and retaining creatives will go up, too. Given its already high base, Cleveland is positioned to create enormous wealth, if it can get back in the increasing return game of building creative capital.
Richard Florida managed to provoke discussion and controvery with The Rise of the Creative Class. I don't expect the debate to diminish upon the publication of The Flight of the Creative Class.