Story tools

Print this article

Email to a friend

Your feedback

Innovative cities can drive the economic recovery. Innovation â?? the successful commercialisation of new ideas â?? is the key driver of economic growth. Cities are where this happens.

Cities support the development of new products and services by bringing businesses, people and institutions (such as universities) together. Despite this, and at odds with the localism agenda, recent government policy has sought to centralise some the key levers needed to support innovation and growth.

In our latest report entitled Streets Ahead: what makes a city innovative?, which formed part of our Cities 2020 research programme, we consider how cities and government can use local innovation policy to drive economic recovery. The government is committed to radical localism in  which cities are given powers to tailor policy according to local circumstances. Innovation policy is no different, and we need a place-based innovation policy which recognises that not all cities are the same. For example, an economy rooted in knowledge-intensive business services, such as cities like Milton Keynes, require a very different set of policy responses compared to a city specialising in high tech manufacturing.

For too long innovation policy has ignored the importance of the service sector in driving economic growth and generating employment opportunities. The services are the life blood of our economy and now account for the lions share of both employment and output growth. Firms in the sector cover a diverse range of activities but also share a set of commonalities – they are focused on serving the customer rather than producing physical goods, and the focus is often interactive and intangible in nature. Innovation in the services – often characterised as a process of collective problem solving - is very different to innovation in manufacturing. Services innovation includes, for example, innovation through the development of new business models, customer interfaces and new service products.   

Because innovation in the services is different it requires a distinct set of policy responses. Firms within the digital media sector, for instance, are characterised by exceptionally high levels of external networking and inter-firm linkages. They are more likely – than manufacturing firms – to be engaged in collaboration and strategic partnerships, allowing companies to share the risk of bringing new ideas to market. These factors emphasise the importance, for local policy, of developing strong effective networks between local firms, intermediary institutions and universities.

Networks are an important mechanism for stimulating innovation in the services by increasing levels of collaboration and supporting the development of new business models.  The help good ideas to spread - generating additional value - they facilitate the flow of skills and expertise and they provide a forum for learning and collaboration. For those cities whose economies are strongly rooted in knowledge intensive services, developing the right sector networks and the right links to strong networks of supporting services (such as banks and legal and accounting services) is crucial.

Local government - as well as other local public services institutions –also have a key role to play in supporting economic growth, by stimulating services innovation via public procurement. Public procurement can be an important tool for developing the market for new goods and services, pulling in private sector knowledge and investment and creating more efficient and effective services.         

If cities in the UK are going to be able to drive the recovery and harness the next wave if innovation led growth we need to allow them the flexibility to tailor innovation policy to their own particular strengths – whether that is as strong service led economies or economies driven by high tech manufacturing firms.  But in both cases we need to make sure that we have the right institutions and networks on the ground right now. This means forging new public private partnerships, using public procurement to stimulate the demand for new products and services, and developing the right sector networks and intermediary organisations.

In our report we identify cities based on their innovative capacities.  They are:

 
·  High performing cities are highly productive, specialised in a range of knowledge intensive innovative sector, and benefit form a concentration of skilled labour. This set of cities include London as well as other cities located in the Greater South East: the cities of Guildford, Peterborough, Southampton and Swindon.

·  Service sector innovators have highly productive economies but are specialised in high tech services and businesses services activities. They include the cities of Milton Keynes, Glasgow, Manchester, Reading and Bristol.

·  High technology innovators generate significant economic output and are specialised in high tech manufacturing activities. The include Coventry, Derby, Northampton, Preston and Warrington/Wigan. These high tech clusters are often anchored by one large global firm, such as Rolls Royce in Derby and Coventry.