1. Economics
September 12, 2023

Centre for Cities warns against sector-centric strategy for innovation hotspots

Research shows narrow sector focus impedes innovation hotspot success, Centre for Cities advises.

By City Monitor Staff

Innovation has long been hailed as the engine that propels economies forward. Governments worldwide have sought to cultivate innovation hotspots as catalysts for growth and prosperity. Yet, the recent research findings by the Centre for Cities suggest that a myopic focus on sector-specific hotspots might hinder, rather than ignite, the flames of innovation.

Birmingham and city innovation
Birmingham cityscape after the city council declared its financial challenges on 6 September in Birmingham. (Photo by Christopher Furlong/Getty Images)

The UK government’s Investment Zones policy, while well-intentioned, could inadvertently limit the potential for productivity growth in major cities. The crux of the matter lies in the narrow targeting of innovation within specific sectors. The Centre for Cities’ study, titled ‘”‘Innovation Hotspots: Clustering the New Economy’, paints a different picture – one that highlights the cross-pollination of ideas and innovation across a spectrum of related activities rather than within a single industry.

The reality is that innovation thrives within ecosystems that nurture diverse talents, ideas and industries. Hotspots of innovation are, by their very nature, magnets for dynamic enterprises across various sectors. Attempting to pigeonhole these hubs into singular sectors overlooks the inherent interconnectivity and symbiosis that make them thrive.

Policies aimed at fostering these ‘new economy’ activity hubs should not confine them to a single track but should instead leverage the common characteristics that underpin their success. Elements like robust transport infrastructure, ample office space, access to a pool of highly skilled workers, and proximity to anchor institutions, such as research-intensive universities and high-tech employers, all contribute to these ecosystems’ vitality.

City innovation: by numbers

The numbers from the Centre for Cities’ research paint a compelling picture. The 344 hotspots identified represent a mere 0.6% of all registered businesses in the UK, yet their collective contribution to the nation’s economic output stands at a significant 1%, amounting to £18.5bn in 2019.

Furthermore, the study underscores that innovation hotspots are not confined to London but are distributed across every region of the UK. Four out of five people live within ten miles of at least one such hotspot. These innovation centres tend to gravitate toward city centres, where they can tap into deep labour markets, access abundant commercial space for growth, and draw from the collective expertise of like-minded peers.

However, a concerning trend emerges outside of London – many of the UK’s major cities are underperforming in clustering ‘new economy’ firms relative to their size. This deficiency is partly responsible for the shortage of innovation hotspots outside the Greater South East. Despite their considerable size, Birmingham, Nottingham, Newcastle, Liverpool, Sheffield and Glasgow lag in creating an environment conducive to innovative enterprises.

Andrew Carter, chief executive of Centre for Cities, argued in a statement that the government’s intent to increase investment in thriving innovative hubs is well placed. These hotspots represent the crucibles where future productivity growth will emanate. The proposed Investment Zones, if calibrated correctly, hold the potential to bolster high-growth, innovative activities even further.

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In the past, policymakers have often assumed the role of champions for specific sectors poised for growth and innovation. However, the Centre for Cities’ research calls for a more holistic approach. Attempting to narrow the focus of innovation hotspots may inadvertently stifle their potential, preventing them from fulfilling their primary role – nurturing environments that offer a multitude of benefits to a wide array of firms with high growth potential.

[Read more: London is a major reason for the UK’s inequality problem. City leaders don’t want to talk about it.]

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