Creative Class

Last week the Global Entrepreneurship Research Association (GERA) had its annual meeting in Santiago, Chile and launched the 2010 Global Entrepreneurship Monitor (GEM) executive report. The annual meeting was held in a developing country for the first time. The meeting is a mixture of media events, planning meetings, and strategic decision-making. In addition, social events make this a welcome activity.

The 2010 GEM executive report, in addition to reporting on the state of entrepreneurship in the world, had sections on the economic crisis and social entrepreneurship. The main finding was that entrepreneurial activity had declined in the developed countries but not in the developing countries. In other words, do not look to Europe to lead the world in the future. As a founder of the Hungarian team, the so-called transition countries are not going to lead either. The labor force of Europe is in decline and, therefore, Europe and Japan are in no position to provide entrepreneurial leadership in the future as they age.

By the year 2050, most of the labor force in Europe will be aging and the under 40 labor force will be in the developing world according to my colleague Jack Goldstone at George Mason University. In other words, the creative, innovative and entrepreneurial talent will be in Brazil, Chile, India, China, and Indonesia. The developing world will have to provide the economic leadership for the market. While the world will be flat, hot, and crowded, the creative talent will also be in these places. GERA is uniquely positioned to measure and track the progress that the world is making in shifting the creative epicenter from Europe to Asia and South America.

This seminal meeting of the GERA represents the first step of the association in this transition. After spending the first 10 years of this decade trying to figure out if Denmark is more entrepreneurial than the United States, we are now shifting to measuring the entrepreneurial progress of the developing countries. As Richard Florida said to me a few years ago, the young are the same all over the world. If that is the case they will surely be the leaders in the future.

Many things are interesting, but one of the most interesting is how people use creativity to become more innovative. I call this entrepreneurship. People in all countries are creative and want to make a better life for themselves and their families. How well are they doing?

Over the past few years, my colleagues at the Global Entrepreneurship Monitor have developed a way to measure this activity, and to suggest ways in which countries can improve on their performance. The Global Entrepreneurship Index is a tool that allows countries to understand how your country is doing on a wide range of indicators. You can download a copy for free. While lots of indexes exist, for almost everything, they very seldom allow you to actually see how to improve your current position.

Last week at a conference in Istanbul I presented the index to an audience and suggested how the world would be able to improve its well-being by following along. The results were interesting and over the next few weeks, I will be presenting a step-by-step report on the index, how it works, how it can be improved, and how it can improve lives.

I have been involved with GEM for almost a decade and have helped move this organization toward its present global position. I hope that this new index will propel it to a new level.

It’s my pleasure to announce the release of a new study of immigrant entrepreneurs in the U.S. high-tech sector, which I co-authored with David Hart and Spencer Tracy. The central finding of the study is that about 16 percent of the nationally representative sample of high-impact, high-tech businesses that we surveyed count at least one foreign-born person among their founding team.

Only about three percent of the founders of high-impact, high-tech companies are foreigners (60 out of 2034). 97 percent are U.S. citizens, and specifically 87 percent are U.S.-born, while the other 10 percent are naturalized U.S. citizens. Furthermore, most foreign-born founders lived in the US for decades.  These founders are statistically very similar to the average U.S. population in terms of birth and immigration status.

An interesting but unanswered aspect of the study is how these high-tech immigrants (many not new), part of the international creative class, help integrate U.S. business in a post-American world? Do they as some have claimed strengthen America in a post-American world, or is it a non-issue? If they strengthen our connection to the rest of the world through “brain circulation” is the flight of the creative class not a major public policy issue?

A second issue has to do with closing the borders. If America closed the borders to high impact entrepreneurs, would its own citizens fill the breach? Would more students become better high school students and go on to college and graduate school in engineering and the sciences? This is a much more difficult question to answer, but is again at the heart of public policy today.

Most people think the biggest threat to globalization is mounting economic nationalism and trade protectionism. That may well be true. But in a thoughtful and provocative article in the Harvard Business Review, George Stalk argues that globalization faces another threat – a looming infrastructure crisis that is creating huge bottlenecks in the flow of global products and services.

As supply and distribution chains have become longer and more complex, companies have begun to realize that increased logistics costs can reduce or even eliminate the benefits of manufacturing where labor is cheap. The congestion and bottlenecks of a transportation system strained beyond capacity compound the problem, making supply chains seem even longer and more unpredictable.

There’s a lot of talk about improving transport times for people, but at this time of rapidly falling imports and exports, there’s not much talk of increasing capacity for goods. High fuel prices are not the only issue here. It’s also the other costs of congestion: higher cost of inventory for goods that are locked up longer in transit; the costs of uncertain, more variable transport times; and the inability to react to changes in consumer demand.

Stalk argues that while the crisis provides a temporary reprieve, the stimulus is not addressing this looming longer-run economic threat.

If pre-recession trends reappear when the economy recovers, lack of infrastructure capacity, in combination with rising oil prices, will constrain global trade and drive up costs. The U.S. stimulus package, with its focus on “shovel-ready” projects that quickly create jobs, will produce newly painted bridges and newly paved roads but is unlikely to address the capacity problem.

The June unemployment numbers do not look very pretty for the United States. After four months of improvements in the number of jobs lost, the numbers again increased to 467,000 up from 322,000 in May. The unemployment rate, now at 9.5 percent, is the highest in 26 years. The recession is entering its 20th month and will soon reach two years with little end in sight.

While the great recession of the 21st century grinds on, explanations for it continue to elude us. Some think that it is a depression and they may be right. I suggest that we have at least four issues on our plate that have emerged as a perfect story. The solutions to all are institutional. First, let’s start with the financial crisis. This financial crisis resulted from market failure. The lack of rules or what some like to call regulatory arbitrage, that is, working the rules led to the financial meltdown. We are still not out of the woods on this one because the rules have not been fixed. Without rules markets cannot work.

Second, we now have a global recession with falling demand and rising unemployment. A classic case of underused resources. The recession was in part caused by the financial crisis, but only in part. It is clear now that at least two interpretations are in order. First, it was a classic case of over-investment in housing. We have about two to three million too many houses. It will take about six years to work this off through population growth and attrition. This “inventory recession,” to use an old phrase, is nothing new, only the sector is – housing. The other interpretation is that it was caused by imbalances in the global economy between rich and poor countries. In either case, as Richard Florida pointed out with housing, or Business Week with global imbalances, new rules are needed.

Third, we have finally realized that we do indeed have a sustainability issue in the environment. It is both about the carbon footprint and about the type and amount of energy used. This is not a cause of our current financial and economic problems but it impacts it directly since it is about investment, and with a huge amount of uncertainty where to invest it is also putting a drag on the economy. Rules would help.

Finally, we are just realizing that globalization that started a few decades ago might be a dead end. It is a dead end not because the world does not want to globalize (most do) but because markets cannot work without rules. And in a global economy we need global rules. Here is the rub. All of the above problems in some way suffer from having a global economy without a set of global rules. When the last era of globalization ended at the dawn of the first world war, the rules that governed up to then also evaporated and it took decades to put them back in place after the second world war.

We are now into the second decade of the second globalization of the world economy. Until we are able to put the “rules of the game” in place markets, I am afraid the economy, and the financial sector, cannot be expected to lead to growth. The environmental rules are even more onerous. We just might need to start working on the rules of the game sooner rather than later. This seems like a task for the creative class. What is needed is talent and honesty in order to put a global structure in place where all can prosper. This is no small task.

Globalization skeptics have long complained about the alleged out-sourcing of good, high-paying American jobs. But even globo-optimists, like Tom Friedman, have conceded that U.S. jobs are vulnerable with the rise of a flat world. In a 2006 essay in Foreign Affairs, Princeton economist and Obama adviser Alan Blinder argued that globalization would likely bring about a mass off-shoring of American jobs. Blinder later used Bureau of Labor Statistics data to estimate that some 30 to 40 million U.S. jobs, 22 to 29 percent of all, including significant numbers of jobs in knowledge work and high end services were “potentially off-shoreable.”

International economist Richard Baldwin takes a close look at the actual figures and finds a very different trend. Examining IMF data on the dollar volume of trade in services originally compiled by economists, Mary Amiti and Shang-Jin Wei, Baldwin plots the dollar volume of out-sourced U.S. service work against the dollar-volume of service work that has been attracted to or in-sourced by the United States.

As the chart shows, the U.S. is a net in-sourcer of service jobs, with the U.S. in-sourcing gap actually increasing over time. Based on this, Baldwin concludes that:

The US, as it turns out, is a net “insourcer.” That is, the world sends more service sector jobs to the US than the US sends to the world, where the jobs under discussion involve trade in services of computing (which includes computer software designs) and other business services (which include accounting and other back-office operations. … Blinder is right in that the US importing an ever-growing range of commercial services – or as he would say, the third industrial revolution has resulted in the offshoring of ever more service sector jobs. However, the US is also “insourcing” an ever-growing number of service sector jobs via its growing service exports. The startling fact is that not only is the trade not a one-way ticket to job destruction, the US is actually running a surplus.

The data only cover the period 1980 to 2003, so it is certainly possible that the trend-line has changed since then, but Baldwin argues that the logic of trade in services suggests this basic trend will continue.

Since services are highly differentiated products, and indivisibilities limit head-to-head competition, my guess is that we shall see a continuation of the trends in the chart. Lots more service jobs “offshored” and lots more “onshored”. What governments should be doing is helping their service exporters to compete, not wringing their hands about one-way competition from low-wage nations.

The Iranian Presidential Election will be held this Friday. Against seemingly insurmountable odds, Hossein Mousavi, a moderate and progressive candidate (by Iranian standards) has emerged as a serious contender to the incumbent Mahmoud Ahmadinejad.

While his “Green Revolution,” at first seemed nothing more than a Sisyphean struggle by a group of young moderate Iranians against a totalitarian and despotic government – destined for failure despite their greatest efforts – the winds of change have dramatically and suddenly tipped in Mousavi’s favor and, at this point, it’s anyone’s race.

Iran’s state-controlled media has given Mr. Mousavi no air-time, the government has banned his party from hosting peaceful rallies in sports stadiums and other public venues, and those rallies which have occurred spontaneously in the street have been met with hostilities from government officials. Still, his candidacy built momentum.

So how did Mr. Mousavi, whose supporters promise “a new greeting to the world,” emerge as a serious contender to Mr Ahmadinejad despite a state-wide government campaign to quell his movement? The answer: FACEBOOK. Mousavi’s supporters – mostly young people and educated urban dwellers – have taken to the Web, garnering support and enthusiasm on Facebook and on blogs, posting videos of their candidate on YouTube, and organizing impromptu street rallies by mass-texting fellow supporters literally on the fly. The result: a highly organized, energetic, and sophisticated force for change.

Mousavi supporter Emad Mortazavi, a 24-year-old sociology student, said, “Last week, there was suddenly this feeling that it was possible, that Mousavi could get enough votes. Social-networking sites and text-messaging have played a big role in spreading the message.”

In typical form, Ahmadinejad blocked Facebook in May in an attempt to silence his opposition, but to no avail (it was opened back up three days later). In the end, Iran’s youth proved more tech-savvy than anyone in Ahmadinejad’s government.

In an uncanny mirror image of the U.S. election last year, it appears the Net-Generation – people born between 1980 and 1996 – may once again anchor the winning candidate by embracing progressive attitudes and exploiting the power of the internet to collaborate and organize for their candidate. Evidence of a seismic demographic shift, the precipitous rise of Mousavi proves that young Iranians are a force to be reckoned with.

The AFP reports:

“With more than 60 percent of Iranians born after their nation’s Islamic revolution in 1979, the under-30 vote will be crucial in next week’s election in which hardline President Mahmoud Ahmadinejad is being challenged by three fiercely critical rivals.

Several analysts predict a high urban youth turnout in favour of former premier Mir Hossein Mousavi…Tehran has been gripped by a new fashion frenzy ahead of the June 12 vote, with scores of teenagers and 20-somethings sporting green wristbands, scarves and T-shirts.”

Iranian youth ultimately face many of the same problems as young people in Canada, the U.S., and Europe. In a time of economic turmoil they want a candidate who can answer their questions and who can appeal to their better instincts; not some religious zealot who spends most of his time demonizing the Western World and threatening the extinction of its neighbors. The DailyKos writes,

“The economy is a key issue, and many young people with college degrees cannot find jobs or acceptable living arrangements in Tehran and other major cities…the ruling elites cannot ignore the desires of such an enormous percentage of the nation for long. Iran is in for some major shifts due to demographics alone.”

Tomorrow, the Iranian people will take to the polls. The sun may rise Saturday morning on a very different looking Middle East.

Web 2.0 is the network as platform, spanning all connected devices; Web 2.0 applications are those that make the most of the intrinsic advantages of that platform: delivering software as a continually-updated service that gets better the more people use it, consuming and remixing data from multiple sources, including individual users, while providing their own data and services in a form that allows remixing by others, creating network effects through an “architecture of participation,” and going beyond the page metaphor of Web 1.0 to deliver rich user experiences.

- Tim O’Reilly

To the popular press “hacker” means someone who breaks into computers. Among programmers it means a good programmer. But the two meanings are connected. To programmers, “hackers” connotes mastery in the most literal sense: someone who can make a computer do what he wants-whether the computer wants to or not.

- Paul Graham, Hackers & Painters

Welcome to the Open Cities blog on CCE. My name is David Eaves and I’ve been writing, speaking, and thinking about open, citizen engagement and public policy for a number of years. Most recently, I worked to help push forward the City of Vancouver motion that requires the city to share more data, adopt open standards, and treat open source and proprietary software equally.

Cities have always been platforms – geographic and legal platforms upon which people collaborate to create enterprises, exchange ideas, educate themselves, celebrate their culture, start families, found communities, and raise children. Today the power of information technology is extending this platform, granting us new ways to collaborate and be creative. As Clay Shirky notes in Here Comes Everybody, this new (dis)order is powerful. For the meaning and operation of cities, it will be transformative.

How transformative? The change created by information technology is driving what will perhaps be seen as the greatest citizen-led renewal of urban spaces in our history. Indeed, I believe it may even be creating a new type of city, one whose governance models, economies and notions of citizenship are still emerging, but different from their predecessors. These new cities are Open Cities: cities that, like the network of web 2.0, are architected for participation and so allow individuals to create self-organized solutions and allow governments to tap into the long-tail of public policy.

And just in the nick of time. To succeed in the 21st century, cities will have to simultaneously thrive in a global economy, adapt to climate change, integrate a tsunami of rural and/or foreign migrants, as well as deal with innumerable other challenges and opportunities. These issues go far beyond the capacity and scope of almost any government – not to mention the all-too-often under-resourced City Hall.

Open Cities address this capacity shortfall by drawing on the social capital of their citizens. Online, city dwellers are hacking the virtual manifestation of their city which, in turn, is giving them the power to shape the physical space. Google transit, DIYcity, Apps for Democracy are great urban hacks, they allow cities to work for citizens in ways that were previously impossible. And this is only the beginning.

Still more exciting, hacking is a positive sum game. The more people hack their city – not in the poorly misunderstood popular press meaning of breaking into computers but in (sometimes artful, sometimes amateur) way of making a system (read city) work for their benefit – the more useful data and services they create and remix. Ultimately, Open Cities will be increasingly vibrant and safe because they are hackable. This will allow their citizens to unleash their creativity, foster new services, find conveniences and efficiencies, notice safety problems, and build communities.

In short, the cities that harness the collective ingenuity, creativity, and energy of its citizenry will thrive. Those that don’t – those that remain closed – won’t. And this divide – open vs. closed – could become the new dividing line of our age. And it is through this lens that this blog will look at the challenges and opportunities facing cities, their citizens, and institutions. Let’s see who’s open, how they’re getting open, and what it will all mean.

Michael Lind argues New York and London are in for the biggest fall:

New York, London, and other financial centers were heavily dependent on financial-sector profits. Throw in the technology-driven collapse of the publishing and broadcast industries headquartered in such places, and those cities are likely to suffer devastating blows. Capitals of both politics and commerce, such as Paris and Tokyo, will adjust the best in the new state-capitalist world. Purely commercial centers such as New York and Frankfurt will suffer the most. Without the obscenely rich investment bankers and the legions of well-paid retainers who supported their lifestyles, formerly flourishing parts of these former financial capitals may become as derelict as Detroit or the crumbling industrial towns of northern Britain and Germany’s Ruhr region.

Not so fast.

NYC and London are much more than financial centers – and always have been. Sure, finance generated a lot of income, especially in the top ranks, but the data show that greater NY is not overly dependent on finance and has significant capabilities across a broad range of creative industries. Ed Glaeser has advanced several compelling explanations for why NYC’s unemployment has remained relatively low in the face of what was supposed to be devastating losses from the financial crisis, With Washington, D.C. in its mega-region gambit, New York will do just fine even if you believe Lind about the coming era of “state capitalism.”

London is admittedly more finance-dependent, but it too has considerable capabilities in media, entertainment, fashion, and as a draw for global talent. How many other cities around the world can say that? And both NYC and London have withstood far more serious blows and and emerged stronger and more resilient, as Youssef Cassis’ landmark study of global financial centers shows.

Paris and Tokyo are much more likely to lose as the global city system consolidates. This year’s edition of the Global Financial Centres Index shows NYC and London consolidating their hold on global finance in the heat of the crisis, while Paris and Tokyo are getting clobbered.

The winners in the new era of capitalism are more likely than not to share the same fundamental characteristics that have defined leading-edge global cities in previous capitalist epochs – the economic benefits of diversity and openness in attracting talent, and of density and speed in mixing to create new innovations, new firms, and new industries. Those advantages will only compound in the future.

Hiring people with international living experience may become a priority in future creative workplaces. According to recent psychology research reported in The Economist, people who have lived abroad are better problem-solvers than those who have never lived anywhere but in the USA.

[Researchers] presented 155 American business students and 55 foreign ones studying in America with a test used by psychologists as a measure of creativity. Given a candle, some matches and a box of drawing pins, the students were asked to attach the candle to a cardboard wall so that no wax would drip on the floor when the candle was lit. (The solution is to use the box as a candleholder and fix it to the wall with the pins.) They found 60% of students who were either living abroad or had spent some time doing so, solved the problem, whereas only 42% of those who had not lived abroad did so.

A follow-up study with 72 Americans and 36 foreigners explored their creative negotiating skills…. where both negotiators had lived abroad 70% struck a deal …. When neither of the negotiators had lived abroad, none was able to reach a deal.

Just having traveled abroad was apparently not enough to improve a person’s likelihood of solving the problems. Also, the researchers claim they found a way to filter out factors like the possibility that better problem-solvers are the ones more willing to live abroad.

As creative talent remains in short supply, improving the problem-solving skills of employees will be a priority at many companies. If further research in this area continues to support the findings, we may see employers who need a creative workforce – with top problem-solving skills – seeking to hire people with experience living abroad (which, of course, includes immigrants who by definition have done so). A global firm may even offer to give people that experience early in their careers, stationing people outside their home countries.

Or, as another recent Economist article reports, right now some companies are offering jobs to people – next year. What if they helped them to live and volunteer abroad in the meantime? Perhaps paying a small stipend. They’d score the double bonus of securing talent for when the economy rebounds and improving the problem solving skills of that talent.

Have you lived abroad? Do you think it improved your problem-solving skills?