The Smartest Places on Earth

by Antoine van Agtmael

  We believe that we need a new set of metrics, that we can develop them, and that there is tremendous urgency for us to do so. With greater computer power and new methods of data analytics, we should be able to directly capture the crucial contribution of innovation and smarter products rather than measure them as a residual as we do now.

  The productivity paradox, as this lack of alignment between the huge increase in computer power and marginal improvement in productivity is called, is usually defined as the discrepancy between measures of investment in information technology and measures of output at the national level. We would go one step further and call it the missing hole in a doughnut. Like a magic trick, the more productive or efficient innovation activity is, the less it shows up in statistics like gross domestic product (GDP) or the Consumer Price Index (CPI), two key numbers that policy makers and business executives use every day. In fact, traditional macroeconomic statistics reward inefficiency and punish efficiency and creativity. Why? Sectors such as health care and education with rising prices are so bloated that they weigh more heavily in the total. The opposite is true for the innovation economy, from information technology to smart manufacturing, where prices are constantly falling.

  We will leave it to one of the next winners of the Nobel Prize in Economics to solve this riddle, but there is something weird about the way we measure the productivity of innovation if a new drug sold at an exorbitant price shows up prominently in GDP or inflation statistics, but free services like Google Search or Google Maps that have become part of everyday life are not accounted for in consumer spending simply because they do not cost anything.

  Let’s look at this a little more deeply. When consumers buy a chair, a cup of coffee, a bottle of aspirin, or a theater ticket, the transaction is included in GDP because each item has a known price. But what happens when they do a Google search on the Internet? It is free, so it does not count. But could you write a report, find a nearby restaurant, or look up a recipe without a search? Doesn’t this have a value to most people that may be greater than a book, a newspaper, a theater ticket, or even a new couch?

  When we talk of a “residual” value, it sounds like an afterthought—the foam on the beer (or cappuccino, if you prefer)—but this hard-to-measure component encompasses qualitative improvements in the labor pool and machinery, new inventions, better materials, less waste, preemptive repairs and all types of new discoveries. Innovation is in fact the main driver of growth, typically trumping capital (from new investment) and growth of the labor pool. So it matters whether innovation happens, how much of it there is, and how we make it happen.

  What about inflation? Larry Summers famously cites the example of how, using 1983 as a 100-scale basis, health-care and higher education costs have increased to 600, while the cost of a television or computer has dropped to 6—a one-hundred-fold rise in their relative prices. Do those two new prices reflect the value these two “goods” have to us? Summers worries that the very success of the sectors that have been most productive has made them statistically so small in the overall economy that they do not really matter anymore—and will matter even less in the future. Aneesh Chopra, chief technology officer of the United States, sees this as an enormous opportunity. As he put it, “health care, energy, and education have not yet been plugged into the Internet until recently, but now we see an explosion of innovation in health care.”4

  It would not be the first time that new metrics become part of the dashboard of policy makers and business leaders. National Public Radio’s Planet Money told the story of how it took several decades before the consumer sentiment index (developed by researchers at the University of Michigan and published since 1952) found its way into “mainstream” economic metrics simply because it measured emotions—how people felt—and many economists were of the opinion that feelings don’t measure anything.5 Now it is an indispensable tool for businesses, markets, and policy makers.

  Not only is macroeconomic productivity too important to be a residual, the impact of sharing brainpower and integrating new production techniques, new materials, new data analytics, and new discoveries into everything—from agriculture to manufacturing and services—is becoming increasingly visible in revitalizing whole cities and regions. Just as data analytics and wireless data collection can be used to measure productivity better, peer group analysis would provide useful insights into the contribution of the established and emerging brainbelts.

  The relative success of brainbelt ecosystems could be evaluated in a qualitative manner by a questionnaire that would include questions covering such issues as:

  • Focus/specialization

  • Collaboration at various levels

  • Ability of local universities to attract research funding

  • Corporate funding of research activities

  • License activity of universities

  • Success record of incubators

  • Number of spin-offs and start-ups and their three- and five-year survival rates

  • Ability to attract private funding for new inventions from venture capital, angel investors, and other sources of capital

  • Integration of a local supply/value chain

  • Role of academic hospitals in stimulating innovation

  • Scope, type, and success of on-the-job training programs

  • Success of local community colleges and other post-secondary-school training in placing workers in the region and elsewhere

  • Ability to attract foreign and out-of-state knowledge workers to the local talent pool

  In Europe, Eindhoven and Dresden scored high on this list, and in the United States, Akron did better than others, but when we rated the brainbelts we visited and studied, each had its own strengths and weaknesses, even if most of the basic ingredients were present. Particularly revealing were, for example, the differences between government funding and licensing income as well as the development of local supply chains. Obviously, the importance of hospitals was paramount in places like Cambridge, Portland, Minneapolis, and Oulu, with their life-science orientation. Brainbelts in Northern Europe scored high on work-study programs; in the United States these initiatives were often based on European models.

  Economic productivity can no longer be reduced to a simple spreadsheet that measures the most effective use of labor and capital. The coming decades will be just as much about the creative use of talent, knowledge, ideas, and new technologies in the most effective way. From now on, it is not about being cheaper anymore, but about being smarter.

  Infrastructure and Environment

  Just as innovation requires a new set of metrics, innovation hubs require physical infrastructure that is very different from the kinds of workplaces and ecosystems of traditional industrial centers and even the innovation parks of the twentieth-century model. Today, many people with creative minds prefer cities to suburbs and respond to urban diversity more than to the sterility of the corporate campus. They favor public transportation, bicycle-friendly cities, and access to vehicle sharing. They expect ubiquitous high-speed wireless access, seek affordable housing, and also want easy access to recreational spaces and the great outdoors. They would rather shop at a farmers’ market than at a supermarket and at affordable local boutique-type specialty stores than at monster shopping malls featuring national chains.

  This is precisely why rustbelt cities like Akron, Lund-Malmö, Portland, and Zurich have become brainbelts. This is far from an exclusive list. We could easily add the area surrounding Carnegie Mellon in Pittsburgh, Washington University in St. Louis, Drexel University in Philadelphia, Cambridge University in the United Kingdom, and many others. Seoul in South Korea, Tel Aviv in Israel, Berlin in Germany, and Stockholm in Sweden are other examples of innovation hotspots. They offered just what was needed: low-cost facilities, convenient urban locations, and abandoned warehouse and factory districts that could be transformed into flexible, roomy work-and-live spaces where people could engage with one another in many wa
ys. In other words, sharing brainpower and smart manufacturing are largely about connectivity, both digital and physical.

  In the brainbelts we visited, we saw many examples of ways in which states, localities, companies, and individuals contribute to environments conducive to brainsharing. In North Carolina, for example, the state supported the rebuilding of the old tobacco factories, warehouses, and textile plants with a subsidy of more than $1 billion. In the Netherlands, entrepreneur Rattan Chadha, founder of the international textile company Mexx, is setting up a chain of flexible office facilities called Spaces. It is Chadha’s vision that young people think of their laptop as their workplace. At Spaces, you can rent the physical setting you need—perhaps just a chair and a desk, or maybe an entire floor—and pay by the day or month. You can make use of shared administrative services, get some coaching, and meet up in the wine bar. Examples of popular shared working spaces in the United States are New Work City in New York City, Work Bar in Boston, Independents Hall in Philadelphia (no, this is not a misspelling), Office Nomads in Seattle, and Hera Hub in San Diego.6

  As we have seen, large companies are almost always important participants in the brainbelt environment, and we are seeing more and more of them establish facilities close to universities in city centers such as Pittsburgh, reversing the decades-long trend to locate in suburbs and corporate parks. Local authorities are encouraging and responding to the inward flight by creating light-rail connections, protected bike lanes, and other infrastructural elements that meet the needs of employees and their families.

  The digital environment is created through the cloud, which is available to everyone and provides smaller players with services and capabilities that only the big companies could previously afford. Led by Amazon, a constellation of international and local telecommunications companies offer storage, sharing, download, and backup services. Arsenal Digital Solutions, based in Durham, North Carolina, is a good example of a company offering pay-as-you-go services. Start-ups and small shops that can’t afford expensive investments in hardware and software can now access the same digital management tools that multinationals have been able to rely on.

  Here are ways to further encourage the creation of environments and infrastructures that support brainsharing:

  • Support initiatives that establish smart manufacturing facilities. There is still an assumption that a factory must be, by definition, big, polluting, and a lousy urban citizen. This is no longer true. Factories can be small, clean, and great places to work for people with creative minds, genuine contributors to a positive urban environment, and places where people looking to develop post-secondary-school skills can receive on-the-job training. The Buffalo Billion initiative, a collaboration of New York state with SUNY Poly’s NanoTech Complex in Albany is a good example, although its largest project, Elon Musk’s SolarCity, is viewed with some skepticism (as well as envy) by other cities.

  • Update and adjust state or local zoning regulations that mandate the separation of work, residential, and recreation areas. Innovators today want to work in areas where specialized laboratory facilities, retail shops, public spaces, green zones, and a variety of housing options are proximate to one another, so as to create lively, thriving, diverse, and stimulating environments. In Portland and Zurich, different approaches led to the creation of vibrant new districts.

  • Focus developments on sharing brainpower. When city leaders seek to develop abandoned or dilapidated districts, they should focus on approaches that encourage innovation and create diverse ecosystems, rather than taking a building-by-building approach. It matters a great deal how the economic assets of a city—including universities, hospitals, research- oriented anchor corporations, and start-ups—are configured and connected. In Dresden and Portland, for example, local authorities are very conscious of keeping life-science activities in close proximity to one another.

  • Build innovation districts that align with the preferences of innovation-minded people and entities. The districts should be physically compact, accessible by public and shared transportation, and feature a mix of housing, workplace, and retail elements interlaced with bicycle paths, public spaces, pedestrian-friendly streets and plenty of green zones.7 In Philadelphia, Boston, Durham, Roosevelt Island in New York, Cortex in St. Louis, and many other places, such efforts are underway.

  Education and Training

  “By 2020, the United States will be short 5 million workers with the necessary technical skills to meet employer demand,” said Anthony Carnevale, director of Georgetown University’s Center on Education and the Workforce, who has studied this issue extensively. By 2020, 65 percent of all American jobs will require some postsecondary-school education.8 In 2011, according to the consulting firm Deloitte,9 there were 600,000 unfilled manufacturing jobs in the United States, a number that is expected to rise to 2 million by 2025. So, rather than continuing to moan about the problem of job loss in this country, we should focus on the emerging skills gap and the growing demand for workers with strengths in the STEM—science, technology, engineering, and math—areas.

  One cause of the skills gap in the United States is, simply put, college. Too many young people waste their talents and don’t realize their full earning potential because so much emphasis is placed on the necessity of going to a traditional, four-year college. One problem is that only 54 percent of college students earn a degree within six years, so they lose time that might be better spent working or gaining practical skills. Colleges, in designing their curricula, and students, in deciding what college to attend and which courses to take, pay far too little attention to matching their abilities and studies with the skills needed in the job market now and in the future. To make matters worse, students often take on debt to pay for tuition, with the result that total college debt has reached $1.2 trillion in the United States.

  The old assumptions about the value of a college education need to be challenged. As a four-year college education became an emblem of social and intellectual status, a work life in a manufacturing plant—which for many decades was seen as a solid and fulfilling career choice—was stigmatized. But, as Harvard’s Robert B. Schwartz has said, “The proposition that most middle-class Americans bought into, that a four-year education was the ticket to success in the labor market, is no longer holding up.”10 What’s more, as Lisa Skaggs, human resources director at Dow Chemical, put it to us, “Young people don’t understand how many interesting jobs there are in manufacturing.”11 Parents and students, therefore, place a lot of emphasis on nonmanufacturing professions and the four-year college programs they think will ensure careers in them, especially those in the vaunted “knowledge economy.” They’re not aware of, don’t understand, or don’t value other forms of education and training that can be much more useful for many young people, particularly the offerings of two-year community colleges.

  Community Colleges

  To help change the view of students and parents, many community colleges are developing programs that seek to help them make different and better educational choices. In our journey, we came across many brainbelts in which a community college was an essential participant in the brainsharing ecosystem. In the Hudson Tech Valley, for example, the explosion of new smart-manufacturing activity has created a demand for, and provided a boost to, education.

  Just outside the gate of the GlobalFoundries plant, for example, we visited a training program called TEC-SMART, short for the Training and Education Center for Semiconductor Manufacturing and Alternative and Renewable Technologies, which is part of the Hudson Valley Community College.12 Penny Hill, TEC-SMART’s associate dean, showed us around the facility, which is housed in a Leadership in Energy and Environmental Design (LEED) Platinum green building and draws a significant portion of its energy from the solar panels and wind turbines arrayed outside, benefiting as well from a passive-solar design. We observed a group of twelve students, new GlobalFoundries hires, who were engaged in a one-week work-study course on the company
’s manufacturing process. One of the enthusiastic instructors told us how the course came to be. When a plant technician checked the gauges of the air circulation system, he saw the pressure had fallen to zero. Worried, he swapped out all the gauges, but that didn’t solve the problem. Others realized that the pressure had been at zero because the air system had been unintentionally shut down. Time and money had been wasted.

  GlobalFoundries found that many of its new hires did not have the necessary skills and training to work in such an advanced facility. Many even lacked basic abilities such as how to use simple tools like wrenches. Although many new employees hold master’s degrees, others concluded their formal education with a high-school diploma. Now, all of GlobalFoundries new hires, whatever their level of education, undergo seven weeks of training, including the two-week manufacturing class.

  TEC-SMART offers a range of courses and programs, in addition to the two-week GlobalFoundries orientation. It runs a two-year course in semiconductor manufacturing for midcareer students that prepares them for jobs at GlobalFoundries as well as other companies such as GE and Applied Materials. The course is constantly being fine-tuned, as Hudson Valley Community College works with the companies to determine what knowledge and skills their employees will need. The college also offers a program for juniors and seniors at nearby Ballston Spa High School. Five mornings a week, 140 young people hop on buses that transport them to the TEC-SMART facility, where they learn the basics of automated manufacturing. The program, which is modeled on an IBM initiative established in Brooklyn, New York, combines classroom knowledge of STEM concepts with critical thinking and hands-on summer internships.