Skills and Creativity

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                   Discussion paper prepared for the Victorian Government’s
                             Innovation Economy Advisory Board

                                          August 2004


This paper reviews and evaluates recent work that argues for the rising importance of Creative
Capital, and of creativity in general, in the context of the Innovation Economy. Each of these key
terms - innovation, Creative Capital and creativity - is ambiguous, and requires further

The paper has two main parts. First, it seeks to provide a working definition of creativity and
discusses shifts in the advanced industrial economies leading to the emergence of the Innovation
Economy; a structural transition which has been characterised by a shift in economic focus from
tangible to intangible assets, and from commodity manufacturing to services and “elaborately
transformed” manufactures. The paper also briefly examines how these developments relate to
the literature on creativity and innovation, including the transition from the “knowledge” to the
“creative worker”.

Second, it reviews current trends in economic development policy in relation to creativity, from
both a sectoral (Creative Industries) and an occupational (Creative Class) perspective, including
implications for Victoria. Finally, it lists a number of issues and potential actions for further

                                             Office of the Innovation Economy Advisory Board
                                  Department of Innovation, Industry and Regional Development

        “In [the UK] Government, we have always been a champion of the Creative
        Industries… but now, I believe we need to move to a new challenge – to promote
        creativity and innovation in every part of our economy… In today’s world, we
        need creativity; we need innovation, in every part of our society and our
        economy. In a world that is changing faster than anyone could have foreseen, our
        creativity is the key to our future...”

                                          (Speech by The Rt Hon Patricia Hewitt, Secretary of State and Industry,
                                                         UK Government, to Citigroup, London, 29 June, 2004)

        “People with ideas – people who own ideas – have become more powerful than
        people who work machines, and in many cased, more powerful than people who
        own machines”

                                                                           (The Creative Economy, John Howkins, 2001)

Table of contents:

Preamble ......................................................................................................................................... i
1.0  Introduction: Creativity and Innovation ........................................................................ 1
1.1     What is creativity, and why does it matter? .................................................................... 1
1.2     Context – the Innovation Economy ................................................................................. 2
1.3     From Knowledge Worker to Creative Worker ................................................................ 3
2.0  International Policy Perspective – Creative Workers, Creative Work and the
     Creative Sector .................................................................................................................. 3
2.1     The Creative Industries Model ........................................................................................ 4
2.2     The Creative Class Model ............................................................................................... 4
3.0  Conclusion .......................................................................................................................... 6
3.1     Key Challenges ............................................................................................................... 6

Building Victoria’s Innovation Capacity through Creativity

      “The real assets of the modern economy come out of our heads, not out of the ground:
      imagination, knowledge, skills, talent and creativity.” 1

1.0       Introduction: Creativity and Innovation

Today’s economy increasingly runs on knowledge, creativity and innovation. As the economic
focus of the advanced industrialised nations has shifted from the consumption of natural
resources to the utilisation of intangible assets, a new (post-industrial ) economic order based on
the production, distribution and use of knowledge has emerged (OECD, 1996),2 what the US
Federal Reserve’s chairman Alan Greenspan has termed the ‘weightless economy’, what
Charles Leadbeater (1999)3 has described as ‘living on thin air’, and Barry Jones as the
‘dematerialisation’ of the economy.

According to The Harvard Business Review, the Masters of Fine Arts (MFA) is rapidly
becoming the new MBA and the essential qualification for a successful business career. 4

The concepts of “creativity” and “innovation” are often used interchangeably, and there are
almost as many misconceptions about creativity as there are definitions. Creativity is not a
“mystical talent” which some people have and others do not; it is both an intrinsic human
capability and a high-order set of skills which can be learnt. Nor is creativity the preserve of the
arts and cultural sector; it can equally be found in industry, in the sciences, engineering and
education. Creativity is not about self-expression, and while it involves an element of risk, it is
not about chaos. Creativity is about focused inquiry, problem solving, productive outcomes,
discipline and teamwork.

1.1       What is creativity, and why does it matter?

      “Creativity involves thinking a problem afresh and from first principals;
      experimentation; originality; the capacity to rewrite rules; to be unconventional; to
      discover common threads amid the seemingly disparate; to look at situations laterally
      and with flexibility” 5

In a globally connected and Information and Communications Technology (ICT) enabled world,
access to knowledge is no longer enough - it is how you use it that matters. Knowledge,
creativity and imagination are the wellsprings of innovation, and innovation is the critical 21st
century asset – supplanting land, labour and capital – and source of competitive advantage.i

Creativity is a pervasive and important enabling capability which contributes to innovation,
productivity and competitiveness. Creativity is:
         imaginative activity leading to productive outcomes that are both original and of value;

  Surfing the Long Wave – Knowledge Entrepreneurship in Britain, Charles Leadbeater and Kate Oakley,
  The Knowledge-based Economy, Organisation for Economic Co-operation and Development, 1996
   Living On thin Air, Charles Leadbeater, 1999
  The Harvard Business Review, ‘Breakthrough Business Ideas for 2004’, Daniel Pink, February 2004
  The Creative City, Charles Landry and Franco Bianchini, 1995

         the capacity to generate ideas, concepts and processes (Creative Capital);
         a process, a type of thinking and an approach to problem solving;
         an intrinsic human capability, and a high-order skill which can be taught and learnt;
         not limited to any one sector or area of economic activity – it applies equally across the
          economy in multiple industry sectors.

Webster’s Dictionary defines creativity as “the ability to create meaningful new forms” and
innovation as “the introduction of something new” and as “a new idea, method, or device”.
Traditionally, creativity is defined as the process whereby ideas (for new products, services or
processes) are generated, and innovation as the process of shifting, refining and (critically)
implementing these ideas - that is, creativity is about “divergent thinking” and the generation of
ideas, while innovation is about “convergent thinking” and putting ideas into action. Creativity is
a core capability for the innovation economy:
         A source of competitiveness - the shift from tangible to intangible value;
         A driver of innovation and Intellectual Property - the shift from comparative advantage
          to competitive advantage;
         A source of authenticity and differentiation in an increasingly globalised, connected,
          open and standardised world;
         Has the capacity to generate significant spill-overs; and
         Builds on established and recognised expertise/strengthens in Victoria.

While the characteristics and general attributes of creativity, and of creative people and creative
environments, are well documented in the literature less is known and understood about the
conditions that foster and sustain creativity, and the mechanisms, processes and resources that
transform new ideas into successful innovations.

1.2       Context – the Innovation Economy

The world economy is changing - rapidly and profoundly. New, open global markets for goods,
services, talent and finance are emerging. As these markets “churn” jobs, products and whole
industries at an accelerating rate, they place a premium on innovation. Worldwide, the demand
for people who use creativity, ideas and knowledge rather than physical effort to solve complex
problems, devise new products and services and find better ways of doing things is increasing.

The nature of work is also changing, becoming more knowledge and information intensive.
Nearly a third of the workforce in the advance economies is now employed in the knowledge
and services based industries – science, engineering, health care, finance, law, medicine,
personal services, media and the arts.

Talent is increasingly mobile, and having low costs is no longer enough - companies are
choosing to locate themselves in places with think labour markets, good infrastructure, high
levels of Creative Capital and strengths in knowledge, research and development and
technology. Increasingly, it is cities and regions rather than countries that are competing
globally – presenting particular opportunities for Victoria.

1.3      From Knowledge Worker to Creative Worker

This new economic order demands new skills. In the early 1990’s Robert Reich 6 - Labour
Secretary under the Clinton administration - argued that America’s future prosperity would
depend on the skills and knowledge of its workers, not the profitability of its corporations. Reich
attributed this transition to the move form “high volume” to “high value” enterprises, in which
the knowledge, know how and creativity embedded in new products, processes and services are
the primary source of value.

In turn, Peter Drucker characterised this as the transition from the industrial to the “knowledge
economy”, in which

      “The basic economic resource – “the means of production”, to use the economist’s term
      – is no longer capital, nor natural resources (the economist’s “land”), nor labour. It is
      and will be knowledge. . .” 7

This line of reasoning – which postulates the need for a new type of worker for a new kind of
economy - can be traced back to Daniel Bell’s8 pioneering work of the 1970’s, in which he
argued that the institutional and functional shifts then taking place in the United States (and the
advanced industrial nations), when taken together, heralded the emergence of a new “post-
industrial” society. This increasing focus on Human Capitalii and, by extension, its container the
innovative worker, anticipated the present wave of interest in fostering a creative workforce.

2.0    International Policy Perspective – Creative Workers, Creative Work and
       the Creative Sector
      “We traditionally think of creativity as an attribute of an artist or the arts. Yet creativity
      is a broad, fundamental notion . . . [that] encompasses innovation, entrepreneurship and
      expression. It connotes both the art of giving birth to new ideas and the discipline of
      sharing and applying those ideas to the stage of realised value.” 9

Examining recent public policy and current literature on creativity and creative work, two broad
themes emerge. The first argues that the creative sector and, in particular, the Creative Industries
are a rapidly growing part of the modern economy. The second postulates that there is a growing
global “Creative Class”, accounting for between 25 and 30 percent of the workforce in the
advanced economies, and that the new economic winners are those cities and regions that are
abundant in ideas and talent, rather than raw materials or cheap labour.

Essentially, the debate can be characterised as being between a perspective which views
creativity as primarily an output of a particular sector of the economy (the Creative Industries)
and one that sees it as a means to a (business) end; that is, between creativity as “product” and

  The Work of Nations – Preparing Ourselves for 21st Century Capitalism, Robert Reich, 1991
  Post-Capitalist Society, Peter Drucker, 1993.
  The Coming of Post-Industrial Society, Daniel Bell, 1973
  The Creative Community: Leveraging Creativity and Cultural Participation for Silicon Valley's Economic and
Civic Future, Collaborative Economics, 2001

2.1       The Creative Industries Model

Mainstreamed in the United Kingdom by the Blair Labour Government, and still strongly
identified with that country, this model focuses on a specific (if fragmented) sector of the
economy and applies a range of traditional industry development strategies to grow the sector,

         Collection, aggregation and analysis of data across a range of sectors/activities;
         Access to finance and business advice/support for start-up, micro and SMEs;
         Export assistance, support and advice; and
         Marketing, brand building and positioning, i.e. “Cool Britannia”.

The Creative Industries are broadly defined as those sectors of economic activity whose outputs
are governed by intellectual property (IP) law, including the sciences and the subsidised arts and
cultural sector.iii

Exemplified by authors such as John Howkins and Charles Leadbeater, the principal policy
questions for advocates of a sectoral “Creative Industries” approach to creativity are concerned
with “How best to define, measure and understand the creative industries/sector”, and “What are
the most appropriate strategies to promote its growth?” The Creative Industries model has been
widely copied nationally and internationally, including recent initiatives in Queensland, New
Zealand and Singapore.

2.2       The Creative Class Model

Originating in the United States, this more controversial and still evolving model views
creativity as vital to the economy as a whole. Centered on a specific and growing class of
“creative” occupations (and the individuals who hold them), the Creative Class model
emphasizes the importance of Creative Capital to regional, organisational and individual
innovation, productivity and competitiveness. Richard Florida, Heinz Professor of Economic
Development, Carnegie Mellon University, Pittsburgh, author of The Rise of the Creative Class
(2002) and originator of the “Creative Class Theory” of regional economic development, is the
best known advocate of this approach.iv

Focusing on changes to a specific class of occupations (and the individuals who hold them)
rather than a specific sector of the economy, the Creative Class model argues that attracting
creative talent – via Florida’s “Three Ts” (Technology, Tolerance and Talent) - is the key to
economic development, and that
         High tech industries are attracted to locations with large Creative Class populations;
         High-value jobs increasingly follow talent, and not the other way around;
         Talent is increasingly mobile, intrinsically motivated and in demand; and
         Location choices of the global “Creative Class” are primarily lifestyle and values driven.

Traditionally, employees have been seen to be motivated extrinsically by money and security.
The Creative Class Theory begs the question; “What are the economic implications of a
workforce motivated by what they do and where they live, rather than what they earn?”

Examples of Creative Class derived economic development initiatives include “Creative Tampa
Bay” (Florida), and “Creative Memphis” (Tennessee). These U.S. initiatives are primarily
lifestyle and urban/civic amenities focused, and are intended to stem or reverse the flight of
talent from their host cities.

3.         Implications for Victoria
       “It was naïve to imagine that the global reach of the internet would make geography
       irrelevant. Wireline and wireless technologies have bound the virtual and physical
       worlds closer than ever… Actually, geography is far from dead.” 10

News of the death of geography (like that of history itself) has proved premature, and
exaggerated – recent research suggests that space and location are increasingly important, and
that a new economic geography of globally connected, creative cities is emerging. v Research
undertaken by the National Institute for Economic and Industry Research 11 on behalf of the
Board, and applying Florida’s “Creative Class Theory” indices to Melbourne, Sydney and
selected jurisdictions, found that Victoria is a regionally significant centre of Creative Capital,
with strengthens in science and technology. Research findings include:
           Melbourne Central scored higher than Sydney Central for the Creativity Index (1026
            versus 1020);
           Both Melbourne Central and Sydney Central ranked 4th when compared to US regions;
           Relative to the US, Melbourne rates highly in terms of bohemians (those employed in
            artistic and creative occupations), diversity (proportion of same-sex couples), creative
            class (those employed in high skilled occupations), foreign born and talent (proportion of
            those with bachelor degree or higher qualifications);
           High growth between 1996 and 2001 in the proportion of those employed in high skilled
            and creative occupations (for Melbourne Central an increase from 44.6 to 49.5 per cent);
           High growth between 1996 and 2001 in the proportion of the population aged 15 and
            over who have obtained a bachelor degree or higher qualification (for Melbourne Central
            an increase from 30.7 to 38.2 per cent).

However, this research also indicates that Victoria's performance in leveraging its Creative
Capital to realise economic, social and cultural value currently lags that of other leading “best-
practice” jurisdictions, most noticeably the United States and Nordic countries. While additional
research is need to determine those factors affecting Victoria’s performance, matching
international best-practice is likely to result in significant economic gains.

Victoria does not have an overarching Creative Industries strategy. Various Creative Industry
sectors, however, are addressed through a range of State Government strategies and policies,
including State of Design – Future Directions (design), Creative Capacity + (arts and culture),
the Biotechnology Strategic Development Plan (2004-2007), Game Plan: Game On and Next
Level (interactive computer games), VicStart (technology commercialisation), Growing
Tomorrow’s Industries Today (ICT) and various Film and Television related initiatives,
including Melbourne on Screen and the Central City Studios. Additional research and analysis is

     The Economist, 2003
     Melbourne Creativity, National Institute of Economic and Industry Research, February 2003

required to determine whether positioning these initiatives within a single strategic policy
framework would deliver demonstrable benefit.

The identification of design as a key strategic capability of the Innovation Economy (and the
State of Design – Future Directions initiative) is significant in that it positions design (an
intangible inputvi) as an important cross-sectoral enabler – along with Information and
Communications Technologies and Biotechnology – capable of transforming the way that all
sectors of the economy operate, and with potential to develop new hybrid industries, products
and services. This is in addition to design services being a key growth sector and potential export
earner in its own right.

3.0       Conclusion
Worldwide, economies (and economic policy makers) are being squeezed by a combination of
the “big three” – convergence, digitalisation and globalisation.vii Although the idea that
government intervention can create national wealth is not universally endorsed, there is
increasingly support for the notion that economic development strategies based solely on micro-
economic efficiency gains and liberalisation cannot produce the desired “push-up” the value
chain to innovative, high-value add industries and jobs. At the same time, both in the literature
and in public policy circles, increasing attention is being paid to creativity as a means of driving
innovation, the generation of intellectual property and competitiveness.

There would seem little doubt that creativity and Creative Capital, however ill-defined, have an
important economic function. To date, the majority of initiatives undertaken in this area have
utilised a sectoral and industry based approach rather than an occupational one, and have sought
to foster and promote the Creative Industries – including, explicitly or by default, the subsidised
arts and cultural sector. Little work has been done, either in Australia or internationally, to
position creativity as a potential “whole-of-economy” strategic capability.

3.1       Key Challenges

Victoria’s ability to harness and better utilise the intrinsic creative capacity and capabilities of a
majority of its workforce, and a majority of its public and private sector enterprises (irrespective
of their size and the sectors of the economy in which they operate) will be critical to determining
competitiveness and prosperity in the 21st Century Innovation Economy. If one accepts the
premise that creativity is an increasingly important Innovation Economy input, a number of
implications flow from this, including:
         The critical role of (primary and secondary) education in ensuring that students are
          equipped with the necessary skills and attributes to succeed in the Innovation Economy;
         The need to ensure that Victorian businesses, and its business culture, are open and
          receptive to new ideas, innovation and creativity and have the requisite skills and
          capability to turn ideas (irrespective of their source) into productive outcomes; including
             -   The importance of leadership in fostering an organisational climate and culture of
                 innovation and creativity
             -   The important role of (tertiary) business education in equipping managers with
                 the skills to successfully manage creativity and creative workers, and

                   -   The importance of the “cross-fertilisation” of ideas, technologies and knowledge
                       between and across industries and sectors
               The need to ensure that public policy formulation and application in Victoria is equally
                creative and responsive, and able to utilise innovative thinking to enhance public good.


 Microsoft is often cited as the quintessential “new economy” firm – with a mere 5 per cent of the tangible assets held by General
Motors, by the mid-1990s, Microsoft had achieved a market capitalisation three times that of the former industrial giant.
Microsoft’s profits are derived primarily from the creativity and intellectual capacity of its employees – high level skills that are
increasingly in demand across all industry sectors.
  Human Capital is both the accumulated stock of skills, talents, capabilities and experience of a firm’s employees’, which makes
its workers more productive, and the capacity of individuals to create, understand and utilise knowledge to create commercial
value. Human Capital is composed of creative, social and intellectual capital.

  The UK Department of Culture, Media and Sport (DCMS) defines the Creative Industries as “those activities which have their
origin in individual creativity, skill and talent and which have the potential for wealth and job creation through the generation and
exploitation of intellectual property”. According to DCMS, the Creative Industries include the advertising, architecture, design,
designer fashion, craft, film, television and radio production, visual and performing arts, software, interactive computer games,
music and (print, software and electronic) publishing industries (DCMS, 1998, Creative Industries in the United Kingdom).

In 2001 the Allen Consulting Group (The Economic Contribution of Australia’s Copyright Industries, 2001) estimated that
Australia’s copyright industries contributed $19.2 Billion in industry gross product (IGP) in 1999-2000, and that in terms of
value-adding, this represented 3.3 percent of Australia’s Gross Domestic Product (GDP). Also, that over the period 1996-97 to
1999-2000 the copyright industries in Australian grew at an average annual growth rate of 5.7 percent, which exceeded the
average annual growth rate of the total economy over the same period (4.85 percent per year).

   Florida’s “creative class” consists of a super-creative core of people in the sciences and engineering, architecture and design,
education, arts, music and entertainment whose primary job is to create new ideas, technologies and creative content. In addition
to the super-creatives, there is a broader group of creative professionals in business and finance, law, health care and related
fields. The “creative class”, according to Florida, comprises some 25 – 30% of total employment in the United States and
accounts for “nearly half of all wage and salary incomes – as much as the manufacturing and service sectors combined”.

Florida is not without his critics, however; see for example Joel Kotkin and Fred Siegel’s “Too Much Froth” (available at: and Steven Malanga, “The Curse of the Creative Class (available at: In turn, see Florida’s response “Revenge of the Squelchers”
(available at:

  A convergence of urbanising flows – of people, ideas and investment – means that cities are more important than ever for
human well-being and prosperity. Internationally, increasing attention is being paid to the role of cities as centres of creativity
and innovation. Examples from the literature included Jane Jacobs’ seminal The Death and Life of Great American Cities (1961),
Richard Florida’s The Rise of the Creative Class: And How It’s Transforming Work, Leisure, Community and Everyday Life
(2002), Polese and Stren’s The Social Sustainability of Cities: Diversity and the Management of Change (2000); Healey’s
Collaborative Planning: Shaping Places in Fragmented Societies (1997), Fischer’s Citizens, Experts and the Environment: The
Politics of Local Knowledge (2000) and Charles Landry’s The Creative City: A Tool Kit for Urban Innovators (2000).

   “Tangible” resources are physical inputs such as machinery, plant and equipment that have a clearly defined market value. An
intangible input is more difficult to measure because it has no material properties. The value of an intangible asset to a particular
firm may vary depending on the relationship between different sets of intangibles within a particular workplace. “Value-add” is
increasingly obtained through combining intangible inputs into the production process (for example, closer links with customers
and suppliers) with knowledge and creativity-related intangible inputs such as R and D, intellectual property, patents, design and
market research. The shift in favour of services has meant that intangible inputs are an increasingly important input into the
production process of “old economy” industries as well as new ones. For example, seventy per cent of the value of a car is now
attributable to knowledge-based elements such as styling, design and software.
  Globalisation is not simply about firms exporting more to other countries. A more important trend is the proportion of the
world economy that is “globally contestable”, with firms from other countries able to compete in what were once closed local or
domestic markets – estimated to be worth some US$21 trillion in 2000 alone.

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