Countries around the world are trying to develop innovation ecosystems, and indeed, I’ve covered a few of these in previous articles. These countries are inspired by the success of Silicon Valley in driving economic growth in the United States, and set out to replicate that success in their country.
One of the first ecosystems in London was Tech City in the Shoreditch district. This area, colloquially known as Silicon Roundabout, began to attract official attention from policy makers in 2010 when it became part of the government’s cluster acceleration program.
A recent paper explores just how effective this intervention was in fostering innovation in the area. The paper describes how the government mixed branding and promotion of the area with direct policy interventions around areas such as taxation and business support. In many ways it was a relatively light-touch approach that attempted to cultivate what was already emerging in the area.
Indeed, so common is the perception that this approach was successful, that it was transformed into Tech Nation and rolled out across the UK. Did it work though?
Approaches to cluster building
The paper outlines the three distinct form of cluster building that is common around the world. The first of these involves formal national partnerships, the second revolves around rezoning policies, and the third sees a more light touch approach adopted. This latter most aptly describes the approach taken in Tech City in that policy makers tried to go with the grain of the local ecosystem rather than impose some top down redevelopment interventions.
The paper begins by looking at the trade offs between growing success of the cluster, which facilitates the kind of interactions between people and firms that helps the cluster thrive, and the inevitably rising costs this precipitates as popularity grows.
The analysis suggests that while the policy was successful in creating a larger and more densely populated cluster, this didn’t translate into higher revenue worker for all but the largest members of the cluster.
The author argues that this is largely due to something known as ‘cluster disruption’, which explains how some firms crowded around the center of the district, thus forcing other firms to the extremities, which deprived them of growth prospects.
Shifting sands
Whilst this is a process that was underway before government intervention, it was something that was undoubtedly quickened after the Tech City program began. The interventions of government appear to have concentrated the gains of the small number of larger and more established firms, with the consequence of crowding out younger and smaller firms.
Whilst the approach did indeed appear to make the cluster bigger, it was less impactful in terms of making the cluster more effective.
“I find that the policy substantively increased cluster size and density, most clearly for the younger, newer group of digital tech plants, and with increasing impact over time,” the researcher says. “But this larger, denser cluster seems not to have consistently increased tech firm productivity, with only digital content firms seeing higher revenue / worker in the post-policy period.”
Whilst it’s always likely that any interventions will produce winners and losers, if the aim is to provide a rising tide to lift all boats, then it could be argued that Tech City failed in that mission. The paper doesn’t provide conclusive conclusions about the right approach for Tech City, or indeed for other clusters that take a different approach, but is interesting reading for anyone with a passing interest in innovation policy and ecosystem development.
