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September 14, 2014

What Makes and Keeps a City Hot?

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What Makes and Keeps a City Hot?

How can cities attract and maintain the innovation that drives growth? Also, some unlikely hot spots from the last year.

One word: jobs. But what creates lots of good jobs? Innovation, says Enrico Moretti, professor of urban economics at University of California, Berkeley. One job in an innovation-based industry like high-tech, biotech, pharmaceuticals, or digital entertainment produces five additional professional and service jobs, Moretti says. Traditional manufacturing produces only 1.6 additional jobs, he adds.

Top 10 Deal Gainers in 2012

Cities that saw the greatest year-over-year increases in deal volume during 2012 included some unexpected entries.

1. Wilmington, 
N.C.: +338%
2. Tulsa, Okla.: +184%
3. Tucson: +136%
4. Seattle: +121%
5. Lexington, Ky.: +93%
6. Martin/St. Lucie, Fla.: +89%
7. Stamford, Conn.: +88%
8. Columbia, S.C .: +88%
9. Austin, Texas: +80%
10. Savannah, Ga.: +70%

Source: Real Capital Analytics, based on preliminary Q4 data and covering deals of $2.5 million or more.

High-tech jobs also attract more high-tech jobs, as newer innovators are drawn to an existing ecosystem of creative ideas and highly specialized vendors. The bad news: This tendency to concentrate where innovative companies already exist is creating a split between winning and losing cities, which Moretti in his recent book, The New Geography of Jobs, calls “The Great Divergence.”

So how can a city join the ranks of hot innovation centers like San Jose, Boston, Austin, Raleigh, and Seattle? “By and large, it’s a matter of chance,” says Moretti. For example, he says, the young Bill Gates moved Microsoft to Seattle from Albuquerque to be near his family.

Cities can take steps to help move into the innovation column, however. A well-educated labor force, good universities, a business-friendly climate, financial incentives, low taxes, and a vibrant social scene all help. “Cities can create a fertile soil for the seed of innovation to germinate, but they can’t plant the seed,” says Moretti.

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