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i BUILDING VICTORIA’S INNOVATION CAPACITY THROUGH CREATIVITY Discussion paper prepared for the Victorian Government’s Innovation Economy Advisory Board August 2004 Preamble 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 definition. 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 consideration. Office of the Innovation Economy Advisory Board Department of Innovation, Industry and Regional Development ii “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 1 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; 1 Surfing the Long Wave – Knowledge Entrepreneurship in Britain, Charles Leadbeater and Kate Oakley, 2001 2 The Knowledge-based Economy, Organisation for Economic Co-operation and Development, 1996 3 Living On thin Air, Charles Leadbeater, 1999 4 The Harvard Business Review, ‘Breakthrough Business Ideas for 2004’, Daniel Pink, February 2004 5 The Creative City, Charles Landry and Franco Bianchini, 1995 2 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. 3 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 “process”. 6 The Work of Nations – Preparing Ourselves for 21st Century Capitalism, Robert Reich, 1991 7 Post-Capitalist Society, Peter Drucker, 1993. 8 The Coming of Post-Industrial Society, Daniel Bell, 1973 9 The Creative Community: Leveraging Creativity and Cultural Participation for Silicon Valley's Economic and Civic Future, Collaborative Economics, 2001 4 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, including: 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?” 5 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 10 The Economist, 2003 11 Melbourne Creativity, National Institute of Economic and Industry Research, February 2003 6 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 7 - 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. Endnotes: i 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. ii 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. iii 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). iv 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: www.ndol.org/print.cfm?contentid=252300) and Steven Malanga, “The Curse of the Creative Class (available at: www.manhattan-institute.org/cfml/printable.cfm?id=1203). In turn, see Florida’s response “Revenge of the Squelchers” (available at: www.americancity.org/Archives/Issue5/florida.html). v 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). vi “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. vii 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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