Innovation Economy Notes 1

Moretti, Enrico. 2012. The New Geography of Jobs. Houghton Mifflin Harcourt.


“Great Divergence” – cities w/ “right” industries and human capital base attract good employers/offer high wages while cities w/ “wrong” industries and limited human cap have dead-end jobs/low wages (4); increasing sorting along education rather than by race (what would Massey and Denton say?) (4).

College-educated residents change local econ, productivity of all workers (low and high skilled); divide primarily economic, but also affects cultural identity, health, family stability, and politics (5)

(7) book examines long-term trends (over last 3 decades); secular, not cyclical changes.

(9) Apple: product design, software dev, product management, marketing in USA; production overseas; creativity & ingenuity are important here, not labor costs.

(10) human capital: consists of people’s skills and ingenuity (cf Becker, Human capital: a theoretical and empirical analysis…,1964); same forces that have killed manufacturing – globalization and tech progress – are driving innovation sector (includes info tech, life sciences, med devices, robotics, materials, nanotech…also entertainment, environmental, financial innovators) (11); innovation matters for most American workers; local jobs are effect not cause of econ growth (12); 2/3 of americans are in local service and innovation drives job creation; multiplier effect (1 innovation job à 5 service; 3 times as large of an effect as manufacturing) (13).

14-15) Friedman was wrong in World is flat…innovation “depends on entire ecosystem tht surrounds it). clustering.

17) pioneer square – zygna and blue nile

Chapter 1 – American Rust

26) Wall St didn’t kill blue-collar America, history did. American manf jobs are structural and reflect deep econ forces, globalization and tech progress (my question: how are these econ forces not related to wall street??)

30-32) small scale ‘hipster’ manf…not a return of manf, a driver of job growth, but a result of wealth created in a.nother sector.

33) economists agree on ‘comparative advantage’ – if each country concentrates on its most productive industries, everyone wins; most to gain from trade & least to lose from job losses (35). US still manufactures high end nonconsumer goods: planes, machines, med devices, but productivity has decreased number of workers required (36)

40-41) polarization: high skill, high wage vs low skill, low wage…labor market “losing its middle.” Not interested in reviving manufacturing…(44).

Chapter 2: smart labor

47: innovation at its best: “a fusion of technical creativity and artistic expression that generates something new and valuable. Manf decreases, innovation increases and will soon be “america’s main engine of prosperity.” Innovation jobs all have in common: make intensive use of human capital and human ingenuity (48).

52: growth in biotech and life science (300% over 20 yrs). 53: innovation includes science, engineering, entertainment, industrial design, marketing, finance.

55: important to note: econ engine is not necessarily the largest sector of an economy; innovation sector jobs are about 10% of US jobs and will never constitute majority. 56: most jobs are in local services (non-traded sector): yoga, therapy. Most innovation jobs in innovation and man are in traded sector – prosperity depends primarily on the sector (57). Its productivity increases over time thanks to tech progress. 59: local services cluster around high tech workers supporting personal needs: multiplier effect. 61: boeing employs more but msft creates more jobs.

67) most innov jobs: main costs are r&d

71) economic rent: charging a price on new product that is much higher than production costs.

Chapter 3: great divergence

73: slu (unnamed) & cap hill; 74: pioneer square: zygna, discovery bay, blue nile, maveron. Seattle: sense of community, entrepenurial energy, cosmopolitan vice; pre-eminent innovation hub. 74-77: seattle vs Detroit. 77: innovation can reshape econ fate, culture, urban form, local amenities, political attitudes.

79: seattle has one of the largest concentrations of software engineers in the world. 79: two major points on msft: 1 – when msft came here, it increased city’s attractiveness to other high-tech companies (AMZN). 2 – people leave msft and create startup…also negative effects, housing prices and gentrification.

82-88) hub locations

90) w/ manf, physical cap is req’d for high salaries, w/ innovation, it is human cap.

99) cities w/ high number of college grads increase salaries for everyone. Three reasons for this relation: skilled and unskilled workers complement each other, better educated workforce adopts better tech, increase of overall human cap creates human capital externalities (see moretti’s 2004 paper). Knowledge spillover – sharing knowledge through formal and informal reactions.

100) Jane Jacobs on “new work”; reason for increasing compensation for the econ benefits that college grads create (subsidize education!).

101) first market failure: lack of education subsidies

102) US pop becoming more segregated across cities and regions.

111) social multiplier effect: ~high ed, high health, low ed, low health.

117) top counties gaining political cap

118) increasing charity contributions following innovation sector dollars (Paul Allen)

Chapter 4 – forces of attraction

121) difficult to explain geog concentration of innovative industries (vs manf which is located near resources; ~manchester in coal fields). 124: w/r/t locating in urban area: in world of innovation, productivity/creativity outweigh lab/real estate costs (check to see of maragaret o’mara mentions anything like this in her Cities of Knowledge). “forces of agglomeration”:

1) thick market (lots of choice employees/employers; 125-131)

2) presence of specialized service providers (132-138; accessing ecosystem: venture capital, clients, advertising, legal support, tech and management consulting, shipping, repair, engineering support.

3) knowledge spillover (138-144; Krugman on knowledge flows (139); traced by patent records; propinquity increases flows; 142-143: spaces for “radical collaboration” – “the creative energy is palpable”).

129) second market failure: clustering firms enjoy and generate benefits in terms of higher productivity but they are not compensated for the latter.

144) 3 forces of agglom “are responsible for turning a collection of individual workers and firms into an integrated creative commons ha is much larger than the sum of its parts” (all enslaved by cap! – my annotation; plane of organization); localized economies of scale (increasing efficiency as companies grow). Result: hubs increase productivity b/c of agglomeration so this is more efficient that spreading innovation out across all cities (also creates winners and losers, competition; great divergence).

146-7) implications:

1) as cities attract innovation, their economy shifts to accommodate other sim outfits – self sustaining equilibrium.

2) once a cluster is established, it is hard to move (stratification?)

3) regions w/out a cluster will find it difficult to start

148-9) schumpeter’s “creative destruction is capitalism’s greatest strength and the engine of it’s growth.” It has been ensuring prosperity since the indus rev (did Schumpeter celebrate this??). Therefore “whether or not our innovation clusters can adapt and reinvent themselves to maintain their edge” should be a central concern. 150) they must be proactive and not end up like Detroit, which  failed to “redirect to its economic”).

153) two moves to make: 1) retain, foster and strengthen innovation hubs and 2) help remaining cities that don’t have good jobs and are lagging behind (how?).

Chapter 5 – inequality of mobility and cost of living

158) reducing unemployment: relocation vouchers good for everyone – low skilled workers (higher unemployment than college-educated workers) can find work in new cities and reduce demand in original location (162: negative externality (staying) vs positive externality (moving)). 163: “spatial mismatch” (1968, John F Kain): structural disadvantage btwn housing and jobs in city, primarily affects low-skilled laborers (his example is inner city housing vs suburban jobs but isn’t it closer to opposite w/ SLU?).

167) cost of living: “clear correlation btwn local labor market conditions and cost of living.”

173-176) transformation into innov hubs not just econ but also remade social texture of city, urban form, and quality of life: gentrification. 174: typically opposed via

1) limiting construction of office bldgs

2) limiting market-rate construction in transforming neighborhoods

however, moretti doesn’t think either of these are effective:

1)   constraining office construction reduces the number of new jobs a city can create (which in turn affects poor b/c of multiplier effect)

2)   amounts to creating jobs but denying access to people from elsewhere. Glaeser: adopting restrictive housing leads to increase in housing costs vs wages.

176-7) Seattle’s infill development and retail-based urban center; gentrification as a good problem to have since it’s a sign of econ success and job growth; simultaneously serious social consequences (no shit). Solution: manage econ growth in smart ways: minimize negative consequences for weakest residents and maximize econ benefits for all…(no tactics beyond tis suggestion).

Chapter 6 poverty traps and sexy cities

178-180) thriving cities: example of biotech: 3 locations w/ highest concentration; in 1973 there was no indication that these would be hubs: [remember moretti has a paper on biotech coming out early 2013 on his website)

1) boston-cambridge metro (kendall square full of biotech, but area was original opposed to genetic engineering; even in 1985 it was primarily textile factories)

2) sf bay

3) san diego (most unlikely – previously sailors, fishermen, etc –  now biotech beach and la jolla) (Raleigh-durham mention on 185 – seattle never mention as biotech, but only software…)

conventional wisdom: universities nearby, but this happens many places

181-2) real reason is location of “academic stars” who publish on new discoveries; two reasons:

1)   scientists/researchers need to be close to vanguard academic research

2)   stars often personally involved in startups

188) two approaches to revitalizing struggling city: demand side (attracting employees) and supply side (attracting employers)

1) demand side, ~ down w/ r florida!: city needs to have cultural and liberal attitude…art as default tool for econ dev (karrie Jacobs, 2010). Moretti says ‘coolness’ is effect, not cause, and uses seattle as an example. Cleveland has amenities, Berlin is super-cool but there aren’t many jobs; main econ engine is tourism.

193-6) universities as engines of growth:

1)   increase both supply of college students and attracts others from outside

2)   academic research generates knowledge spillovers

3)   med schools and associated hospital: labor- and skill-intensive jobs.

Still these are no guarantee that universities can guarantee econ success.

197-203)  2) supply side

big push: infusion of cash; coordinated policy that breaks impasse and brings skilled workers, employers, specialized biz service to a new place (SLU). To work, “the push needs to be really big.” Jane Jacobs a critic (cataclysmic money? – see her article on TVA, 1984…also maybe look into Cities and Wealth of Nations. 202: Today what is needed in human capital and attracting it is more complex. 203 Brookings Inst on high-tech presence being an effect of aggressive recruitment by local gov).

204) big push for solar in fremont, ca not working out (solyndra)…206: 2 lessons: 1) too hard to predict winners. 2) seek sound econ rationale for investments of public funds.

208) competition to entice biz: tax breaks, subsidized loans, infrastructure,  export assistance, training, marketing – SLU definitely, both at state & municipal levels. Provision of subsidy should be ~= to magnitude of social benefit.

211-4) place-based policy: @ neighborhood level, empowerment zone program, early 90s.

Chapter 7 – “human capital century”

215: good jobs/salaries increasingly come from prod of new ideas, knowledge, tech. 216: we are too focused on short term @ expense of future. Instead, we need policies that can increase growth, even if marginally…217: human capital and research are engines that sustain American econ & its workforce.

217: prob w/ us econ: 1) pub/priv investments in research are insufficient; compensation for such work does not reflect its full effects. Investing in manufacturing is essentially being stuck in an old econ mindset. 219: investment in innov gives private return to investors but also creates (via knowledge spillovers) a social return that benefits other companies too. 2) (221): America doesn’t create enough human capital. 224: more demand and less supply for college grads. 225: becker on human cap.

229: obstacles to more ed: 1) getting loans requires collateral but human cap is immaterial (~autonomists); hence private companies aren’t jumping to help people get education. 2) children who grow up around others who aren’t interested in college are less likely to go (social multiplier).

231: not as good at math as international students…236: “innovation hubs are a magnet for hardworking foreign-born entrepreneurs and scientists” – immigration policy (245); these workers don’t compete with low-skilled labor, so we should radically reform policy to encourage highly educated immigrants.
247: cities are human ecosystems (jane Jacobs; where does she say this? Death and Life or Cities and Wealth…?). 248: innovation happens when people interact in fertile urban environment…increased globalization & localization: most emails, phone calls, etc are still local, and these forces are reshaping work environments and fabric of our communities.

Further reading

Atkinson, Robert D., and Stephen J. Ezell. 2012. Innovation Economics: The Race for Global Advantage. Yale University Press.

Lerner, Joshua. 2012. The Architecture of Innovation: The Economics of Creative Organizations. Harvard Business Review Press.

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One Response to Innovation Economy Notes 1

  1. Pingback: Statewide Innovation | My Desiring-Machines

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