Traditionally, thinking has it that innovation is something concentrated in large, urban areas. The agglomeration effect is a topic I’ve touched on before, and basically suggests that large populations are great for innovation not only because they bring diverse populations together to create ideas and develop them into products, but the large local market also helps in those incredibly fragile early stages as the idea is taken to market.
Of course, recent years have also seen a stark social, economic and political divide between these large cities and smaller towns and rural areas, with many such places feeling left behind by both globalization and the political classes. New research from Penn State suggests that this lack of attention is perhaps unwarranted, and indeed rural places may actually be hotbeds of innovation.
The researchers argue that these hidden innovators bring a wide range of social and economic benefits to not only the local businesses and communities, but also the wider economy. As such, they urge policy makers to look again at rural communities as potential hubs for innovation.
“The way we traditionally measure innovation is very narrow, and focuses primarily on new products or processes that result in a patent or involve R&D spending. This overlooks another kind of innovation–the incremental improvements that businesses make to their products and processes as a result of information they obtain from outside their firm,” the researchers explain. “Our measure shows that this latent, or hidden, innovation is at least as important to local income and employment growth as patent-level innovation.”
Latent innovation
The researchers built upon previous work that highlighted the crucial role networks played in the success of any innovation, with these networks especially potent in bridging between industries. These connections help innovators find suppliers and customers to help bring their ideas to scale, and traditionally thinkers have believed that large cities are the best place to find such connections.
“We know that inter-industry exchanges foster cross-fertilization of ideas, or knowledge spillovers, which in turn seeds innovation,” the researchers explain. “We wanted to explore these interactions more closely in order to better understand where the opportunities for innovation are greatest, including in rural and urbanized areas that are remote from cities.”
The researchers analyzed the situation by looking at the national Input-Output (I/O) table, which documents annual sales and purchases across the entire range of industries in the United States. The researchers focused their attentions specifically on 381 intermediate industries, and analyzed the diversity of the transactions that industry made with both customers and suppliers. This diversity was gauged in terms of both the various industries they engaged with, and the spread of these interactions across industry.
Geography was then incorporated into the analysis to fully understand the role place had on innovation, with the location of businesses across each of the 381 industries mapped using both employment data and business pattern data. They also included economic data to map the industrial makeup of each county in the United States to try and capture any spillover in industry interactions that may occur due to the proximity of the businesses.
Collectively, this enabled the researchers to develop what they refer to as a ‘latent innovation index’, which ranked every county in the United States depending on their potential for latent innovation.
Untapped potential
The researchers, perhaps understandably, found that those counties with the highest innovation scores also scored highly in terms of employment levels and income growth, but what was most interesting is that this kind of activity was present in both densely populated urban areas and sparsely populated rural areas.
“What these correlations suggest is that it’s not just patent-based innovation that brings economic benefits to businesses and communities, and innovation is not restricted to urban centers with large populations,” the researchers explain. “This type of latent or hidden innovation is not recorded and tracked the way patents are, but it appears to be at least as important in terms of economic growth and it is happening in all types of places–rural and urban and in-between.”
The researchers believe their work marks a clear divergence from the innovation orthodoxy that regards urban centers, with their strong agglomeration effects, as the hubs of innovation. Indeed, they believe that it might even warrant a shift in policy making strategy against the desire to build extensive innovation ecosystems in these large urban areas and instead try and spread innovation more broadly across the country.
“Yes, places like Silicon Valley, Seattle and Boston are home to tech firms that are developing entirely new products and technologies,” they explain. “But at the same time many non-tech businesses also engage in innovative activity that is less obvious but nonetheless moving their industries forward and, more importantly, keeping them competitive.”
In a previous article I explored some of the ways in which rural innovation can be supported, with networking support especially potent. Some countries, such as Switzerland, have managed to foster rural innovation successfully, but it isn’t a case of transplanting policies from urban areas into the countryside.
There is a growing body of research highlighting the potential of rural areas however, and hopefully, if nothing else, it will force a shift in mindset among policy makers so that their gradual decline is not seen as inevitable.
