Posts Tagged ‘Robert Lucas’

Richard Florida
by Richard Florida
Sun Jul 5th 2009 at 1:09pm UTC

Density Matters

Sunday, July 5th, 2009

Jane Jacobs and Robert Lucas long ago argued that the clustering and density of talented people is a key driver of innovation and economic growth. A new study, “Productivity and the Density of Human Capital,” by Jaison Abel of the NY Fed, Ishita Dey of the University at Buffalo, and Todd M. Gabe of the University of Maine, provides clear evidence of density’s effects on regional economic output (pointer from Kevin Stolarick).

We estimate a model of urban productivity in which the agglomeration effect of density is enhanced by a metropolitan area’s stock of human capital. Using new measures of output per worker for U.S. metropolitan areas along with two measures of density that account for different aspects of the spatial distribution of population, we find that a doubling of density increases productivity by 10 to 20 percent. Consistent with theories of learning and knowledge spillovers in cities, we demonstrate that the elasticity of average labor productivity with respect to density increases with human capital. Metropolitan areas with a human capital stock that is one standard deviation below the mean level realize around half of the average productivity gain, while doubling density in metropolitan areas with a human capital stock that is one standard deviation above the mean level yields productivity benefits that are about 1.5 times larger than average.

To download the study click here.

Richard Florida
by Richard Florida
Sun Jul 5th 2009 at 10:45am UTC

You Get What You Pay For

Sunday, July 5th, 2009

Even with the bursting of the housing bubble, it still costs a whole lot more to live in some places than others. New York City, Washington, D.C., L.A., and San Francisco, for example, remain much more expensive than most other U.S. cities and regions. But why?

There’s the old real estate adage: location, location, location – people pay more to be in more central and better places. But that still begs the question of what makes certain places better?

The clustering of people and firms in cities, as Jane Jacobs and Robert Lucas famously have written, surely plays a role. And successful cities seem to speed up productivity and innovation benefiting from faster rates of urban metabolism: New Yorkers, it’s often said, talk faster and walk faster than others. Some cities also benefit from higher quality of life – warm, sunny climates, great coastlines, greater scenery – and amenities like great cultural institutions and restaurants – which enable them to attract affluent, ambitious, and talented people. How to parse the relative effects of productivity and quality of life?

Fascinating new research by David Albouy of the University of Michigan does just that, creating new measures of quality of life and looking closely at the relationship between productivity and amenities. He finds that amenities really matter to the location decisions of people, and that there is a relationship between productivity and quality of life. San Francisco, L.A., New York, and Boston are some of the cities that sit atop his list of high quality of life, high productivity places.

US News and World Report has a nice summary of his research. A paper on measuring quality of life is here; another examining the relationship between quality of life and productivity, here.

Richard Florida
by Richard Florida
Wed May 20th 2009 at 8:34pm UTC

Globalization and Cities

Wednesday, May 20th, 2009

Ed Glaeser asks: “If the world is so flat, then why are cities growing so quickly, especially in the third world?” He explains:

In the developing world, urbanization has often taken the form of exploding populations in megacities. Mumbai’s population increased to 19 million in 2007 from 10.8 million in 1985. Bangalore, the urban symbol of the flat world, has had its population double over two decades, to 6.8 million today from 3.4 million in 1985.

The growth of these cities and the continuing strength of older urban areas – like New York, London and Paris – is no accident. Globalization and new technologies attract people to big cities, by increasing the returns to urban proximity …

Globalization and technological change have increased the returns to being smart; human beings are a social species that get smart by hanging around smart people.

This powerful clustering force – identified by Jane Jacobs and Robert Lucas, among others – is making the world more geographically concentrated everyday.

Figuring out ways to adjust to it – especially how to address the huge costs being borne by people and places being left behind – remains one of the most pressing domestic and international public policy questions of our time.

Richard Florida
by Richard Florida
Wed May 20th 2009 at 8:00pm UTC

Class and the Wealth of Nations

Wednesday, May 20th, 2009

Living through the current economic downturn, none of us take economic prosperity for granted anymore. We’re aware now, more than ever, of how important it is to cultivate the things that contribute to long-run economic growth and sustained prosperity as well as to regulate and cope with those which can come to jeopardize that prosperity.

Economists mainly agree that there are two things that power long-run economic growth. Thanks to the Nobel-prize winning work of Robert Solow, we know that technology is one. Human capital is another. Detailed empirical studies by Harvard’s Robert Barro and others show the connection between human capital and economic growth.

But what about class – does it matter? Using data from the International Labour Organization, Charlotta Mellander developed class profiles for nations of the world. The graphs below show the relationship between two main classes – the creative class and the working class – and two common measures of economic growth - gross domestic product (GDP) per capita and total factor productivity (TFP).

The results could not be more striking.

The creative class is strongly related to both GDP per capita and total factor productivity. In preliminary statistical analysis conducted by Mellander, the creative class effect was even stronger than that from the well-established human capital measure.

Now look at the graphs for the working class. Societies with large concentrations of the working class have lower levels of GDP per capita and total factor productivity.

Source of all graphics: Martin Prosperity Institute

Richard Florida
by Richard Florida
Thu Feb 26th 2009 at 1:42pm UTC

The Path to Prosperity

Thursday, February 26th, 2009

David Crane says innovation, not creativity, is the key to the future:

The big question in looking to Ontario’s future has to be: How do we create the climate for innovation that will lead to new industries and jobs based on new goods and services we can sell the rest of the world? This is where the report falls short.

Its focus on expanding the size of the so-called “creative class” runs into the law of diminishing returns, the same law that spells out the limits on physical capital accumulation.

While computers represented a big gain initially for the economy when they were first introduced, at some point additional computers had no value unless they were much better than the original computers.

Likewise, growth in the number of people with university degrees can bolster the economy, but at some point there is little need for an additional graduate if there is no job for him or her.

Unless there are new or expanding industries to hire these new graduates, simply increasing the supply doesn’t do much.

First off, let me say that while I am a big admirer of Crane’s writing, he’s dead wrong here. We are not just calling for more creative class jobs, but for increasing the creativity content of all jobs – service as well as manufacturing and agriculture too.  And that creativity does not spring from anywhere, but from real places that engender it and create the ecosystem to utilize it and put it to work.

A core focus of our work at the MPI is about why and how it is not enough to increase supply of creative work, but to build demand for it.  That too occurs in places. That is why we have to build new infrastructure and break with the old housing-auto-industrial complex (making housing and cars cheaper) to free up demand for the products and services of more creative work.  Our colleague Chris Kennedy and his collaborators have made a fundamental contribution here, and my recent Atlantic essay and a good portion of our ongoing MPI work picks up this challenge.

Crane then brings in a big gun, Stanford economist Paul Romer, to bolster his argument

In other words, as economist Paul Romer has emphasized in his work on innovation and economic growth, an economy cannot grow simply by accumulating more of the same.

Romer, who was a key figure in the economic growth program of the Canadian Institute for Advanced Research, argued many years ago that “the increases in standards of living that we achieved in the last century were possible only because of the discoveries and innovation that let new physical capital and new human capital be put to work in high return activities.” So for him, “the most important job for economic policy is to create an institutional environment that supports technological change.”

In fact, Romer has argued, the nations that “are most successful in creating institutions that foster discovery and innovation will be the worldwide technological leaders.”

Innovation has to include greater investment by both government and business. A recent study by the Information Technology and Innovation Foundation in Washington found that there has been a dramatic increase in the number of innovations in the U.S. that are federally funded.

In other words, government plays a crucial role in fostering and facilitating innovation. The Ontario report fails to address innovation policy.

I’m a big fan of Romer. But on this score Crane is again wrong. Innovation, as I point out in Rise of the Creative Class, is not an end-in-itself, but a piece of a much larger and more fundamental category of human existence – creativity. It’s not government that fosters innovation, it’s the place itself. That is the shift our report urges and Ontario needs to make.

By way of background, the entire first part of my academic career was as a student of technological innovation. In 1990, I wrote a book on the limits of an innovation-oriented strategy, called The Breakthrough Illusion. My experience in Pittsburgh showed me once and for all how incredibly advanced and technologically innovative regions can fall behind. And not just Pittsburgh, places like Rochester and even Detroit continue to lead in terms of conventional measure of innovation like patents. Innovative, high-tech industries account for less than 10 percent of GDP – it’s pretty hard to build a robust, balanced, and prosperous economy around those.

That’s why we have come to focus on the 3Ts of economic development. Technology is the first T. It is a necessary but, in itself, insufficient condition for regional prosperity. To achieve sustainable prosperity a region needs two other Ts – talent as Romer’s work points out and tolerance – or openness to new people and new ideas.

Our report also points out that while Ontario does well as the third T, it does not do a good enough job of investing in or leveraging its first two Ts, especially technology. It points this out explicitly and challenges the province to do more.

But a classic 1990s innovation strategy of the kind Crane advocates is too limited – and experience shows it simply will not work.

We’ve run the data – over and over again. We’ve looked closely at measures of technological innovation, of  high-tech industry and the share of scientists and engineers. They are an important part of the economic prosperity equation but not all of it. Without a place that is open, that has an ecosystem that invests in and harnesses talent, that attracts and energizes new people, that creates demand for creative effort, technology and talent simply flow away.   Does Crane really believe that if we somehow build the world’s best innovation policy that would put us on the path to sustained and balanced prosperity? Real, enduring prosperity requires much, much more.

And that’s why Romer’s own thesis advisor, the Nobel-prize winner Robert Lucas, went back to Jane Jacobs. It’s not innovation that drives economic growth, according to Lucas and Jacobs, it is the concentration of creative people using and combining their full talents in real, dense, open places called cities – that, Lucas says, is the real underlying mechanism driving economic growth. And it’s for identifying this fundamental mechanism which he dubs “human capital externalities” or Jane Jacobs externalities that he said Jacobs deserved a Nobel prize of her own.  It’s place that’s the driving force. It’s place that provides the underlying framework and ecosystem for innovation and productivity growth. It does so by attracting people, by enhancing their creative capabilities, by being open to new people and new ideas, and by bringing us together in ways that make us far more innovative and productive than we would otherwise be.

Crane knows better. As someone who cares deeply about urbanism and real places, it’s hard to believe he falls into the trap of believing an absrtact and placeless innovation strategy can somehow bring us the long-run prosperity we need. We can do better than 1980s or 1990s thinking about innovation as the driving force of economic growth. We need to make people and place, not technological artifacts, the center of our dialogue and strategy.

That’s the underlying goal of our work. And it’s a big reason why we decided to set up the MPI in Ontario. Because this is a place which intituitively understands the need to go beyond technology to a broader, fuller approach that understands that enduring prosperity can only come by harnessing the full talent and capabilities of real people in real places. It’s in the very DNA of this province, this city and this place. Our goal at the MPI is to make Toronto a center for the new ideas and new thinking and new empirical research that a fuller understanding of the full gamut of technological, industrial, human, and place-based factors regional prosperity requires.

To do that we must do two things: One, we must tap and harness the full talent capabilities of every single person no matter where they work; and two, we must build a new way of living that breaks with the fordist auto-housing-industrial complex so that we can create large-scale demand for the products and services of the creative age.

That’s the essence of what  we’re up to here.

Richard Florida
by Richard Florida
Wed Sep 24th 2008 at 8:29am UTC

What is the Future of the City?

Wednesday, September 24th, 2008

That’s the question asked here.

[N]ow the piggy bank is empty, the cards are maxed out, the NA meetings are every night at 7 and the house is upside-down. The layoffs are coming: will you be one of them or will you just be picking up a few extra hours of work to fill in for the ones who were? The slender times have begun. How will cities fare against the suburbs now? If cities really were an efficiency, a greener solution to a worn out and wasteful suburban culture, would not they have boomed in the early 90s and the late 70s? Where will Americans ride these times out? And will we learn anything from the collective experience of the past two decades?

The post advances some interesting criticisms of my own and theorizes about cities as arenas for leisure and consumption. As I hope my work makes clear, especially WYC, my viewpoint is that cities are primarily vehicles for productivity improvement and innovation, inspired by Jane Jacobs and especially Robert Lucas who famously theorized that:

The theory of production contains nothing to hold a city together. A city is simply a collection of factors of production – capital, people and land and people – and land is always far cheaper outside the city than inside. Why don’t capital and people move outside, combining themselves with cheaper land and thereby increasing profits? Of course people like to live near shopping and shops need to be located close to their customers, but circular considerations of this kind explain only shopping centers, not cities. Cities are centered on wholesale trade and primary producers and a theory that accounts for their existence has to explain why these producers are apparently choosing high rather than low cost modes of operation… It seems to me the ‘force’ we need to postulate for the central role of cities in economic life is of exactly the same character of ‘external human capital’ I have postulated as a force in aggregate development… What can people be paying Manhattan or downtown Chicago rents for if not to be around other people?

The theory of cities is a theory of production and development. They are one in the same thing.