Why are cities such hubs of innovation and productivity? Consider the following from Triumph of the City by economist Edward Glaeser.

Americans who live in metropolitan areas with more than a million residents are, on average, more than 50 percent more productive than Americans who live in smaller metropolitan areas.

To further illustrate this phenomenon consider the following.

In 2010**,* in the journal Nature, a pair of physicists at the Santa Fe Institute showed that when the population of a city doubles, economic productivity goes up by an average of 130 percent.*

If your city doubles in size, you become 30% more productive.

As cities get bigger, we get more productive and innovative, but why? I will suggest two main answers: (1) cities attract people who complement each other, and (2) cities encourage innovation by encouraging innovators to meet.

Cities are labor markets; an invisible sign hangs over them:

Hiring – people who complement each other

Salary – TBD

The key term is – complement. Economics suggests that when comparing any two goods, they are either complements or substitutes. A complement raises the value of a given item, while a substitute lowers the value.  If you are given a single left shoe and need to purchase a second, you will pay quite a bit for the complementing right shoe and will likely pay zero for a substitute – a second left shoe.

Labor markets work the same way. While it isn’t always pleasant to think of everyone in economic terms, the reality is every person either raises/lowers your value by complementing/substituting your skill set.

Cities are constantly trying to get rid of extra left shoes and bring in complementing right shoes. People move from city to city given they are escaping substitutes and seeking compliments. The TBD salary above is the degree to which you can complement a given city.

Thus, it isn’t so much that productive people en masse move to cities. It is more that people seek out places to maximize their productivity. They seek out those who complement their skills and avoid those who substitute. If this process is very fluid, we see productive cities emerge.

Every city has a sector that is the most innovative and drives growth. Famous examples include computer programming in Silicon Valley, films in Hollywood, finance in Manhattan, and robotics in Boston. While these are famous examples, every city has certain key industries that they are built around. People who complement these industries seek out these cities.

If a talented director moved to Silicon Valley and a top-end computer programmer was set up to work in Hollywood, they would both likely make a good living, but if they swamped geographic locations, both the geographic locations and the people would be better off.

Cities generate productivity by simply sitting still and allowing a place for people who complement each other to meet. With that said, we are still missing a big component. We see why certain people flock to cities with particular innovative sectors, but where did the innovation required for such sectors come from?

Innovation is a complex process, but we can think of it as the output of something with two main inputs: (1) skilled people and (2) luck. We have the first part covered, but why do cities help with luck?

Serendipity is “an unplanned fortunate discovery.” Serendipity, as such, often unpins science and innovation.

Most discoveries and inventions are a synergy of searching, relaxing, accidents and serendipity ~ Vadim Innovarsity

Innovation rarely happens in a vacuum; it occurs given certain people are in the right place at the right time. Cities minimize the time and space between people. They attract the right people and put them in close proximity to each other.

Cities are accidentally brilliant by encouraging serendipity.

Up to this point, we have been discussing a largely pre-internet world. The internet is improving and allowing people to connect as if face-to-face. This will no doubt change the dynamics above.

Cities don’t need to be physically close if they are digitally close. Network cities and online communities will replace the office space and neighborhood parks with digital counterparts. But it doesn’t change the underlying dynamic.

To achieve productivity gains and innovation, we still need the building blocks that cities have enabled.

Why are cities such hubs of innovation and productivity? Consider the following from Triumph of the City by economist Edward Glaeser.

Americans who live in metropolitan areas with more than a million residents are, on average, more than 50 percent more productive than Americans who live in smaller metropolitan areas.

To further illustrate this phenomenon consider the following.

In 2010**,* in the journal Nature, a pair of physicists at the Santa Fe Institute showed that when the population of a city doubles, economic productivity goes up by an average of 130 percent.*

If your city doubles in size, you become 30% more productive.

As cities get bigger, we get more productive and innovative, but why? I will suggest two main answers: (1) cities attract people who complement each other, and (2) cities encourage innovation by encouraging innovators to meet.

Cities are labor markets; an invisible sign hangs over them:

Hiring – people who complement each other

Salary – TBD

The key term is – complement. Economics suggests that when comparing any two goods, they are either complements or substitutes. A complement raises the value of a given item, while a substitute lowers the value.  If you are given a single left shoe and need to purchase a second, you will pay quite a bit for the complementing right shoe and will likely pay zero for a substitute – a second left shoe.

Labor markets work the same way. While it isn’t always pleasant to think of everyone in economic terms, the reality is every person either raises/lowers your value by complementing/substituting your skill set.

Cities are constantly trying to get rid of extra left shoes and bring in complementing right shoes. People move from city to city given they are escaping substitutes and seeking compliments. The TBD salary above is the degree to which you can complement a given city.

Thus, it isn’t so much that productive people en masse move to cities. It is more that people seek out places to maximize their productivity. They seek out those who complement their skills and avoid those who substitute. If this process is very fluid, we see productive cities emerge.

Every city has a sector that is the most innovative and drives growth. Famous examples include computer programming in Silicon Valley, films in Hollywood, finance in Manhattan, and robotics in Boston. While these are famous examples, every city has certain key industries that they are built around. People who complement these industries seek out these cities.

If a talented director moved to Silicon Valley and a top-end computer programmer was set up to work in Hollywood, they would both likely make a good living, but if they swamped geographic locations, both the geographic locations and the people would be better off.

Cities generate productivity by simply sitting still and allowing a place for people who complement each other to meet. With that said, we are still missing a big component. We see why certain people flock to cities with particular innovative sectors, but where did the innovation required for such sectors come from?

Innovation is a complex process, but we can think of it as the output of something with two main inputs: (1) skilled people and (2) luck. We have the first part covered, but why do cities help with luck?

Serendipity is “an unplanned fortunate discovery.” Serendipity, as such, often unpins science and innovation.

Most discoveries and inventions are a synergy of searching, relaxing, accidents and serendipity ~ Vadim Innovarsity

Innovation rarely happens in a vacuum; it occurs given certain people are in the right place at the right time. Cities minimize the time and space between people. They attract the right people and put them in close proximity to each other.

Cities are accidentally brilliant by encouraging serendipity.

Up to this point, we have been discussing a largely pre-internet world. The internet is improving and allowing people to connect as if face-to-face. This will no doubt change the dynamics above.

Cities don’t need to be physically close if they are digitally close. Network cities and online communities will replace the office space and neighborhood parks with digital counterparts. But it doesn’t change the underlying dynamic.

To achieve productivity gains and innovation, we still need the building blocks that cities have enabled.