Shanghai: The Innovative City

Speech to Mayor of Shanghai’s International Business Leaders Advisory Council

Shanghai November 5th, 2006

I want to thank the city of Shanghai for this invitation to speak to IBLAC: it’s both a pleasure and an honour.

I want to say a few things about what makes a city a creative and innovative place to live and work.

But first I want to dispel some myths about innovation, which is a much misunderstood activity.

It is commonly thought that innovation comes from a flash of insight. On the contrary, usually innovation is cumulative, one idea building upon another.

We assume innovation is about the creation of something new, a product or technology. Yet just as often innovation is about re-using older things or adapting technologies in use. The biggest productivity gains from technical innovation do not come in the early stages, when a technology is being invented, the stage that attracts all the attention. The productivity gains usually come much later when the technology is being applied and adapted.

We are led to think that innovation is a series of discrete events, starting with the moment when an invention is born and organised along a pipeline, which leads from the boffins in the lab at one end to the end users at the other. Innovation rarely happens in such a linear fashion. Usually it depends on an ebb and flow of ideas, from users back to developers and then researchers.

We think that innovation comes from special people, working in special places, often wearing special clothes and eating and working at odd times of day: the boffin in their white coat toiling in the lab; the designer in jeans and T-shirt in their studio. Yet these days with cheaper, more distributed technology, that allows people to connect to and collaborate with other people very easily, more innovation is going to come from users and consumers, who want to be participants, players in the action not mere spectators on the sidelines. We are living in an era when creativity and innovation could become mass, participative activities.

Finally we often make the mistake of thinking that innovation is all about the creation of new technologies. But even when a new technology comes on the scene, like mobile communications, it needs to be fitted into social life, business models need to change to sell products and services. Invariably technological innovation is brought to life by complementary social and organisational innovation. And in any city of course, social innovation is critical: to invent new ways of transporting millions of people around; removing the waste they leave; providing mass health care and education.

And in that context I just want to note in passing a major difference in the way we talk about innovation in business circles in Europe and the US and the kind of innovation that China needs. In highly competitive, mature markets innovation is a vital tool of competition to provide a business with a source of differentiation. Innovation makes you stand out from the crowd through lower costs or added functionality.

But in China the demands of innovation are less about differentiation and more about the basic needs of development. China’s rapid growth demands innovation in very basic aspects of life: how houses are built, energy generated, water supplied and people move around. Indeed it is quite possible China will be the source of radical innovations in future precisely because it will have to reinvent, at very low cost, some of the basic technologies for energy, communications and transport: a few weeks ago I was in Ericsson’s R & D centre in Beijing where they are working on network routers for mobile phones that are orders of magnitude cheaper than anything made in Europe. Innovation at the bottom of the pyramid could be highly disruptive in mature markets.

So having dispelled some myths about innovation let me set out some ideas about where it comes from and what that means for cities. Because I spend part of my time as a consultant I find I can only think in two-by-twos or snappy little lists. So let me give you the six C’s of innovation and cities.

The first C is combination.

Most innovation comes from combining different ideas and viewpoints to create a new idea. Usually that means creating a new recipe or blend of ideas or technologies that already exist. Creative people and companies are good at spotting these new combinations. Cirque du Soleil is now a world famous circus act which plays to 8m people around the world. There is nothing new in Cirque du Soleil – it’s part circus, part rock opera. But when they are brought together that is something new. There is nothing really new in Wagamamma, the noodle bar that is circling the world: what’s new is taking traditional Asian noodles, in a cheap fast food setting into Western shopping centres. An old idea becomes new when it is in a different setting.

So if you want innovation in a city you must encourage the kind of mixing and mingling that makes it easier for these new hybrids and combinations to emerge.

That means creative cities have to be relatively open and cosmopolitan; they have to attract different people, with ambition and talent and then find ways to mix them together. A city can have a diverse social make up but not be particularly creative if everyone lives in their own neighbourhoods, cut off from one another.

Put it another way: look at cities that were once creative. Vienna was one of the most creative cities in the world in the early 20th century, the home to a wave of ideas in science, philosophy and psychoanalysis that shaped the century. Yet Vienna would not top anyone’s list of a creative city now. In the early 20th century people, ideas and power flowed through Vienna. Now it is a inward looking backwater, living off its glorious past.

Cities create new ideas when they are on the cusp of change, when they are mixing outsiders and insiders, an old order is decaying and a new one coming into being, when central planning meets the market economy. Often in creative cities there is this sense of friction, turmoil even: the challenge is to make sure it leads to creativity and growth rather than instability.

Shanghai has long been China’s window on the world, its most outward looking and cosmopolitan city, with a tradition for tolerance and co-existence. Large port cities are always crossing points for cultures: that is perhaps why Liverpool in the UK produced the Beatles, whose music was influenced by the blues brought in by ships from America.

The second C is for conversation.

Those new combinations I was talking about usually come about through conversation. Indeed I would go so far as to say that conversation is at the root of all innovation.

A good conversation is not a lecture nor a negotiation: good conversations allow ideas to flow, to be challenged, developed upon, tested. In a good conversation you often end up saying things you did not expect and you leave with a shared understanding of an issue. Many of the biggest advances in modern science came through conversation.

Neils Bohr, Werner Heisenberg and their many colleagues developed most of the ideas of modern physics, which underpin the modern electronics industry, in a swirling series of conversations around Bohr’s lab in Stockholm in the 1920s. They talked and talked.

Watson and Crick unravelled the double helix structure of DNA in 1953 through endless conversation, which melded the ideas of a biologist and a chemist.

Even Thomas Edison, the greatest lone inventor worked through intense exchanges with a group of close colleagues whose names are largely unknown. Organisations or cities that want to encourage innovation have to encourage the right kinds of conversations to let ideas flow.

All over Asia you see the creation of new science and knowledge parks where some of these conversations will take place: Singapore’s One North development is a case in point. But these alone are unlikely to make a city creative. There needs to be a culture in which people feel they can speak their minds, openly, an everyday democratic culture.

London became one of Europe’s leading financial centres thanks to conversations that started in coffee shops, which ultimately lead to the creation of sophisticated financial markets. Silicon Valley is innovative because ideas travel so fast, carried by high velocity labour markets. Increasingly ideas are shared in organisations for Chinese and Indian engineers.

There is a danger that all this talk of conversation might sound a little soggy.

So the third C is challenge.

Innovative cultures thrive on challenge. Ideas have to be challenged and tested. Incumbents need to be open to challenge from upstart new entrants. Established elites often need to be challenged by rising social classes. Ideas rarely start off being good from day one: they become good ideas by being tested and challenged.

Often these challenges come from rising social groups on the margins. Los Angeles became home to the film business in part because the New York establishment gave it no space. In the UK, Manchester and Birmingham were home to the industrial revolution of the 19th century because they were more open to emerging classes of factory owners than London.

One of the characteristics of the modern economy is that the margins become the mainstream faster than ever. A creative city has to encourage that to happen.

The fourth C is more of a mouthful : co-evolution.

Innovation is a high risk activity if producers or indeed policy makers try to find a need or gap in the market and then try to fill it. Many innovations fail because it proves so hard to get into the heads of consumers, to understand what they really want. That is why more organisations are innovating with people not just for them. More innovation will become a participative activity. Innovation by the masses not just for the masses.

Cities are prime examples of innovation as a process of co-evolution, because to live in a city successfully with others is a process of co-evolving. City life is all about creating new ways to live together. In cities we enjoy a particularly social form of freedom. The presence of many other people gives us more options, more choice and diversity. But it also constraints what we can do.

When the American writer Emerson was asked where creativity came from, he replied: over crowding.

What he meant was that it came from a mix of intense jostling and competition but also a density that allows ideas to mix and meld. In Shanghai average housing space per capita is doubled to more than 15 sq metres since 1990. The area covered by urban parks has risen 35%. But one of the critical issues for Shanghai will be what kind of creative cultures will emerge from the dense housing and work developments built in the last decade.

Indeed in any fast growing city like Shanghai, pulling in millions of people from the countryside, the biggest challenge is likely to be social innovation, of the most basic kind: how do you transform rural peasants into urban citizens within a decade?

Creative cities do not just have a creative class or a creative cultural quarter. Cities are experiments in mass, social innovation.

The fifth C is commitment.

Let me ask you a question: how many of you know how to swim?
Let me ask you another question: how many of you had a swimming strategy document?

You do not learn to swim by practising your strokes on the side of the pool. You have to get into the water, however deep and cold it is.
Innovation is not a theoretical activity but a very practical one. You have to try, fail a bit, learn, adapt, try again.

That means organisation and cities that want to innovate have to take risks and learn from failure. They also need a way of committing resources to ideas to scale them up. It is not for the faint hearted. You see that in abundance in Shanghai: the commitment of resources to the city’s future, creating public infrastructures which will sustain future private economic development. The metro system which currently takes 1.4m travellers a day, will take 10m by 2020. About 20 million square metres of buildings are expected to be built every two years: that is the equivalent of adding a city the size of Shanghai in 1949.

You can visit lots of cities around the world that get this wrong. There are cities like Lagos in Nigeria which are a babble of entrepreneurship and creativity, much of it illegal. A traffic jam in Lagos quickly becomes a shopping mall, with street traders thronging around your car. But the lack of any reliable public infrastructure means that most people remain poor.

Equally you can visit cities – the former Soviet Union has more than its fair share – where central planning killed off the scope for local initiative.

Public leadership cannot deliver a new city to its people. A city has to be created by the people living there. But public leadership can create the platforms and infrastructure, the tools and rules that make that process of mass innovation easier. Public platforms become much more valuable if they can then attract a mass of private investment on top.

Shanghai’s achievements in the last 15 years are remarkable. No one who comes can fail to be impressed at the scale and speed with which resources have been mobilised. But the city will face huge challenges and dilemmas in future and it may well be that the recipe it needs in the future will differ from the one that got it from 1990 to 2005 especially if it wants to be a global centre of innovation. You cannot build a culture of innovation in the way you build a new road.

The sixth and final C is connection.

It is said that we live in a global economy but in reality it’s an international, inter-city economy. Cities that innovate are increasingly tightly connected to one another. Networks of cities provide the core business and political infrastructure for the world economy. London and New York, connected by the busiest air route in the world, have become so integrated in finance, media, law, accounting and advertising – through companies like WPP – that people refer to it as NY-LON. If you do a similar test of Shanghai’s air links you see how connected it is by air with Taipei and Tokyo.

Global cities need to be plug and play, as easy to connect with as a USB port in a computer. That is what you see in Dubai: plug and play capitalism. Global firms need a standardised, easy to use infrastructure. But successful cities also need to differentiate themselves from their peers and competitors within these networks of innovation.

A good example is commodities trading. Commodities come from 80 main countries in the world, and are used all over the world. But they are traded through five main centres, Tokyo, London, New York, Chicago and Atlanta, with a further 15 financial centres strong in a handful of products: Shanghai excels in copper, Sao Paulo in coffee and gold. The more global and intangible the activity the more likely it is to be concentrated through a few, highly connected, global cities.

Shanghai’s potential in this regard is huge. Take airport traffic as one measure of connection. London is still the world’s leading airport hub with between 30 and 32m arrivals and departures a year. New York is just behind with 28 to 30m. Los Angeles is at 16-18m and Tokyo 6 – 8m. Shanghai is on a par with Cairo, Moscow and Buenos Aires at 2 – 4m. For its size and significance Shanghai is still vastly under connected internationally.

In the last two decades Shanghai’s story has been an epic of building to accommodate the inflow of millions from the countryside. In the next two decades Shanghai’s changing external relationships with other cities, not least through the World Expo in 2010, may take on greater prominence. Imagine how innovative this city will be when it is as connected as New York and London. There is much, much more to come from Shanghai.

By 2050 perhaps 75% of the world’s population will be in cities, many of them in Asia. Cities are where we face many of our most intense challenges and threats: cities breed disease and environmental degradation; they contain extremes of wealth and poverty; terrorists threaten cities not farmland.

What are some of the challenges Shanghai will face?

What kind of quality of life and creativity will emerge from the dense housing developments in the city centre?

Can the city continue to absorb rural migrants in their millions and create a vibrant urban culture of citizens and sophisticated consumers?

How will the city strike the right balance between its ambitions to be an industrial powerhouse in cars and petrochemicals with its ambitions to be innovative and creative?

How will the city maintain the quality of its environment with such rapid growth, including car usage? 75% of green house gas emissions come from cities. Shanghai should lead the way in creating an Asian model for a sustainable city.

We must wish Shanghai well in this enormous undertaking because so much rides on it and I for one am glad I do not have to take the decisions the Municipal leadership faces.

People living many thousands of miles away have a stake in Shanghai’s success because Shanghai is such an important model for what the big cities of Asia should become: open, cosmopolitan, sustainable and innovative. And innovative not just because the city provides a base for innovative companies, nor because it produces new technologies, which I am sure it will do, but because it also creates new ways of living together, new ways of city life.

The history of the city in the 20th century was mainly written in the US and Europe, from New York and Los Angeles, to Vienna and Berlin, Paris and London. Cities in Asia will write that history in this century, Shanghai will be one of the main actors in that drama.

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