In his thought-provoking book "Innovation in Real Places," Dan Breznitz challenges conventional wisdom about innovation and economic development. He offers a refreshing take on how communities can foster sustainable growth and prosperity in today's globalized economy. This summary explores the key ideas presented in the book, providing insights into a new model of innovation that goes beyond the typical "Silicon Valley" approach.
Introduction: Rethinking Innovation
For decades, cities and regions worldwide have been sold a dream: become the next Silicon Valley, and prosperity will follow. However, Breznitz argues that this narrow view of innovation has led many communities down a path of disappointment and uneven development. The book sets out to debunk common myths about innovation and present a more nuanced, practical approach to fostering economic growth.
The Silicon Valley Myth
Breznitz begins by examining the widespread belief that replicating Silicon Valley's success is the key to economic prosperity. He uses the example of Atlanta, Georgia, to illustrate the pitfalls of this approach.
The Atlanta Experience
In the 1980s and 1990s, Atlanta seemed poised to become a major tech hub. The city was home to pioneering companies in emerging sectors like modems, software, and internet security. Firms such as Scientific Atlanta, MSA, and Internet Security Systems became global leaders in their respective niches.
However, this initial success didn't translate into lasting local prosperity. Many of these companies were acquired by out-of-state firms or left the city shortly after receiving venture capital funding. In fact, 40% of Atlanta startups that received VC funding between 1999 and 2007 left the city within three years of their first funding round.
This example highlights a crucial problem with the Silicon Valley model: while it may succeed in developing startups, it often fails to create an inclusive innovation ecosystem that benefits the broader community. Instead, it can lead to a short-term startup launchpad where companies briefly stop before migrating to other cities.
Three Myths of Innovation
Breznitz identifies three core myths that underpin the misguided model of innovation and economic development:
Innovation means new gadgets and startups: This narrow view of innovation overlooks the vast array of everyday improvements that drive progress and development. Innovation, at its core, is about making products and services better or cheaper, not just about breakthrough inventions.
Venture capital fuels growth by funding visionary startups: This myth ignores the fact that VCs are primarily focused on generating huge short-term returns for investors, not on fostering stable, long-term development for communities. The VC approach often leads to increased inequality, instability, and short-term thinking.
Copying Silicon Valley leads to prosperity: This belief fails to recognize that the VC-funded tech startup model typically benefits a limited group of people, creating stark divides between tech industry insiders and outsiders struggling with rising costs. Regions that attempt to replicate Silicon Valley often end up becoming "feeder communities" for bigger cities, losing talent and profits over time.
Lessons from American Manufacturing
To understand the potential for a new model of innovation, Breznitz examines the history of American manufacturing, particularly in regions like the Rust Belt.
The Rise and Fall of Vertical Integration
For over a century, American manufacturing was synonymous with giant, vertically integrated factories that turned raw materials into finished products under one roof. The Ford River Rouge plant, where iron ore arrived by boat and Model Ts rolled out the door, exemplifies this model.
While vertical integration provided powerful efficiency gains, it also created rigidity. After World War II, as Asian competitors emerged, integrated American firms struggled to adapt. Many hoped that newer, high-tech manufacturing would compensate for these losses. In the 1990s, clusters like Sacramento and Colorado Springs successfully attracted high-tech firms, including Apple computer plants.
However, this success was short-lived. As globalization progressed, companies like Apple began contracting out manufacturing to Asia, abandoning their US plants. This trend led many to believe that American manufacturing's best days were in the past.
A False Dichotomy
Breznitz argues that the choice between reviving old-style manufacturing and chasing tech unicorns is a false dichotomy. He suggests that globalization, while splintering production across borders, has also opened new possibilities for innovation in manufacturing.
The Four Stages of Innovation
To understand these new possibilities, Breznitz breaks down innovation into four distinct stages:
Novelty: This is the headline-grabbing stage of innovation, involving breakthrough inventions and radical new ideas. While important, it's only the beginning of the innovation process.
Design, Prototyping, and Production Engineering: This stage involves turning vague concepts into manufacturable products. Specialists in this stage excel at collaborative innovation, enabling clients' novel visions while sustaining local employment.
Incremental Improvement: This "workhorse" stage drives progress through constant small tweaks and improvements. While not flashy, it delivers immense change over time and is responsible for much of the economic value created by innovation.
Manufacturing, Assembly, and Production: Companies at this stage excel by making things faster, better, and more cheaply. This involves optimizing flexible manufacturing, changing materials, and creating systems for mass customization.
Breznitz emphasizes that innovation applies to any action that improves products, services, or efficiency. While radical innovation gets the most attention, gradual improvements along the entire value chain have delivered most growth throughout history.
Specialization and Capabilities
The author argues that regions can now specialize in capabilities for specific innovation stages, rather than focusing on entire industries. This approach creates diverse opportunities that aren't seen in either the vertical integration model or the tech startup model.
The Power of Specialized Capabilities
Breznitz provides examples of regions that have thrived by specializing in specific capabilities:
- Shenzhen, China excels at nimble, flexible production skills suited to information and communication technologies.
- North Carolina leads in biopharma through expertise in handling sterile processes.
Both of these regions attract global firms not through subsidies, but by offering uniquely-suited workers and capabilities.
Cultivating Skills and Institutions
The author suggests that communities should identify targeted capabilities where they can realistically excel at one of the four production stages. They should then focus on cultivating the skills and institutions that this stage demands.
This approach requires sustained, specialized investment and a supportive local culture. While efforts to build up particular companies often fail (as successful companies may leave), investing in fostering skills can attract diverse, sustainable opportunities.
A New Model for Manufacturing Innovation
Breznitz argues that the future of manufacturing lies not in relics of vertical integration, but in flexible, distributed networks of innovation. He emphasizes that innovation isn't just about the next killer app or mode of transportation. More often, it means continuous incremental improvements to existing goods and services.
Continuous Adaptation
As technology, supply chains, and materials are ever-evolving, communities must continually upgrade workforce skills, tools, and infrastructure. This ongoing process of adaptation is crucial for maintaining a competitive edge in the global economy.
Beyond the Tech Startup Model
While the allure of venture capital-backed tech startups is strong, Breznitz cautions communities against aspiring to be mere feeder clusters for major technology hubs. Instead, he encourages them to investigate all four innovation stages and seek a path to development that's tailored to their unique needs and strengths.
Practical Implications for Communities
Breznitz's ideas have several important implications for communities seeking to foster innovation and economic growth:
Broaden the definition of innovation: Communities should recognize that innovation encompasses a wide range of activities beyond just creating new technologies or starting tech companies.
Focus on capabilities, not industries: Instead of trying to attract specific industries, communities should identify and develop capabilities that align with their strengths and resources.
Invest in skills and institutions: Long-term success comes from cultivating a skilled workforce and supportive institutions, rather than relying on short-term incentives to attract companies.
Embrace incremental innovation: While breakthrough innovations are important, communities shouldn't overlook the value of continuous, small-scale improvements across various sectors.
Develop a unique strategy: Each community should develop a tailored approach to innovation based on its specific strengths, resources, and goals, rather than trying to copy successful models from other regions.
Foster collaboration: Building networks of innovation often requires collaboration between businesses, educational institutions, and government agencies.
Think long-term: Sustainable economic growth requires a long-term perspective, focusing on building capabilities and institutions rather than chasing quick wins.
Adapt to global trends: Communities need to stay aware of global economic trends and be willing to adapt their strategies as circumstances change.
Case Studies and Examples
Throughout the book, Breznitz provides numerous case studies and examples to illustrate his points. Some notable ones include:
- Atlanta's tech hub aspirations: Highlighting the challenges of trying to replicate Silicon Valley's success.
- The transformation of American manufacturing: Exploring the shift from vertically integrated factories to global supply chains.
- Shenzhen's specialization in flexible production: Demonstrating the power of focusing on specific capabilities.
- North Carolina's biopharma cluster: Showing how specialized knowledge can attract global firms.
- Apple's attempts to reshore manufacturing: Illustrating the challenges of rebuilding lost capabilities.
These real-world examples help to ground Breznitz's theoretical arguments in practical realities, making his ideas more accessible and applicable for readers.
Challenges and Considerations
While Breznitz's model offers a promising alternative to traditional approaches to innovation and economic development, it's important to note some potential challenges:
Identifying the right capabilities: Communities may struggle to accurately assess their strengths and identify the most promising areas for specialization.
Balancing specialization and diversification: While specializing in specific capabilities can be beneficial, communities also need to maintain a degree of economic diversity to be resilient in the face of changing global trends.
Overcoming entrenched interests: Shifting away from traditional models of economic development may face resistance from established interests within a community.
Securing long-term investment: Developing specialized capabilities and institutions often requires sustained investment over many years, which can be challenging in political environments that favor short-term results.
Adapting to rapid technological change: As technology continues to evolve at an accelerating pace, communities may need to frequently reassess and adjust their strategies.
Addressing inequality: While Breznitz's model aims to create more inclusive growth, communities will still need to actively work to ensure that the benefits of innovation are widely shared.
Final Thoughts: Unlocking America's Productive Potential
Breznitz concludes that America hasn't lost its productive potential; it just needs to unlock a more innovative model. By moving beyond the narrow focus on tech startups and embracing a broader, more nuanced approach to innovation, communities can find their place in the global economy and foster sustainable, inclusive growth.
The key takeaways from "Innovation in Real Places" include:
Innovation is not limited to breakthrough inventions or tech startups; it encompasses a wide range of activities that improve products, services, and processes.
Communities should focus on developing specialized capabilities rather than trying to replicate Silicon Valley or attract specific industries.
The four stages of innovation (novelty, design and engineering, incremental improvement, and production) offer diverse opportunities for communities to specialize and excel.
Long-term success comes from investing in skills, institutions, and collaborative networks rather than relying on short-term incentives or chasing after individual companies.
Each community needs to develop a unique strategy based on its specific strengths and resources, rather than following a one-size-fits-all approach.
Continuous adaptation and learning are crucial in the face of ongoing technological and economic changes.
By embracing these principles, communities can move beyond the limitations of traditional economic development models and unlock new pathways to innovation and prosperity. Breznitz's work offers a valuable roadmap for policymakers, business leaders, and community stakeholders looking to foster sustainable economic growth in an increasingly complex and interconnected global economy.