The New Knowledge Economy

Overseas examples have pinpointed the importance of a knowledge economy to regional prosperity. An obvious example is Silicon Valley in the US, but the Silicon Fen (or Cambridge Cluster) in Cambridge, UK, is another example of rapid knowledge economy development based on research, industrial development and both large and small scale investment. The important characteristic of these economies is their ability not only to generate but to commercialise new knowledge.

The most concerted efforts to decentralise metropolitan jobs by downgrading the fashionability and status of central business districts have been in the USA. These were not deliberate policies, they were the indirect results of fiscal arrangements which led to poor maintenance of public assets in the downtown areas. Silicon Valley is listed as the pre-eminent example of a suburban, car-based knowledge economy but the same applies to the office employment established around the beltways which circumscribe various American cities. However, even in the US the major CBDs showed resilience. New York City, Chicago, Boston and Philadelphia began to refurbish their transit systems, finding them necessary supports to the knowledge economy, and other cities including Los Angeles and Dallas began the costly (and not always successful) task of retrofitting mass transit. Even if the congregation of knowledge-economy jobs in central cities is but a matter of fashion, it is a fashion which is difficult to break.

Creativity is also pivotal to a knowledge economy. In today’s economy, successful regions develop an advantage based on their ability to quickly mobilise talented and creative people, resources and capabilities that can turn innovations into new business ideas and commercial products. Studies have shown that these people are attracted to regions that tolerate and accept diversity – same sex households, migrants and artists of all types – and that this kind of area is ideal for nurturing the creativity and innovation that characterise the knowledge economy.

Business incubators throughout the region have proved to be a successful way of developing and growing local industry. Offering accommodation and support for start-up businesses, these incubator services can be extended to offer young people the opportunity to start businesses in areas like ICT, design and new media. Support, such as new financial services and micro-loans, are vitally important in the early phases of new business development. There is an important correlation between the region’s incubators and appropriately targeted finance.

In the near future, the local manufacturing industry will need to deal with the impact of climate change, with its problems and costs. This means that the application of research and innovation to improve efficiency is even more important – ignoring this issue now will only create competitive disadvantage in the future.

The lack of an equitable telecommunications service has been recognised as a barrier to the development of a knowledge economy in many areas. The outer and rapidly developing parts of a region are particularly affected. It is important that businesses and households have equitable, affordable and high standards of connection to broadband services – both businesses and households must be able to compete in an increasingly globalised economy.

Young people are attracted to the income-earning, educational, cultural and entertainment opportunities of the metropolitan centres and can more easily adjust to high housing costs than people with family responsibilities. The same is true of some empty-nest seniors. However, people will continue to desire greater housing space as they form families, hence the problems of appropriate investment in commuting infrastructure. 

State of Australia’s knowledge economy  

Judging by patent applications, Australia’s most intensive knowledge-based regions are its metropolitan centres, though several of its independent cities are shaping up. Most regions are connected to the knowledge economy via a metropolitan city, either as suburbs or as hinterlands. An important weakness of the northern Australian regions, and hence of the country as a whole, is that they have no readily-accessible metropolitan centre through which they can be linked to the world knowledge economy. 

The Internet, as yet, is doing little to disperse the knowledge economy to Australia’s regions. If a region outside of these centres is determined to develop towards an Internet based knowledge economy, the effectiveness of local strategies is crucial. In this case lifestyle attributes as well as high speed connections are required to attract knowledge economy workers. In some regional areas, a lack of capacity of local government to understand Internet-related opportunities and threats combined with a low level of knowledge economy skills (as there have been few opportunities for residents to develop these skills) within their region are barriers to diversifying the knowledge economy to a wider geography outside of the traditional knowledge economy regions. These changes are cultural and social as well as economic and new ways of working, new ideas can face considerable hostility in some places. This is why a regional strategy to develop the knowledge economy in regions which wish to do so is vital, as is support and consideration for a region’s Internet entrepreneurs.

 Developing Australia’s knowledge economy

Recent statistical work has documented a general tendency for average earnings at the centre of metropolitan areas to increase as the size of the metropolitan area increases. The basic reason for high earnings in city centres is summarised as the economies of agglomeration – the greater the labour market that a central place draws on, the greater the productivity of its workers. In other words, city centres are the hotspots of the knowledge economy.

Australia’s difficulties in adopting the knowledge economy would be eased if knowledge economy jobs could be decentralised. This has proved very difficult, though there has been some decentralisation to inner metropolitan suburbs (particularly when they share the walkability of the city centre) and some to regions with attractive lifestyle options. Further decentralisation is likely to be incremental. It will require infrastructure support, especially investment in telecommunications and transport.

Infrastructure deficiencies make it difficult for low productivity/high unemployment regions to increase productivity. Relatively low housing costs are an advantage for regions seeking to attach themselves to the knowledge economy, as are lifestyle choices; these assist in attracting knowledge workers. However, such workers must be provided with the means to be productive, by placing themselves at the interface between the local economic base (particularly export industries) and the global economy. This requires investment in telecommunications and transport. It also requires low-key local investment so that every main street becomes an outpost of the knowledge economy.

The affordability of metropolitan housing could be addressed directly by investment in mass transit to make additional fringe areas available for commuter housing and by investment in local transit to extend pedestrian range and so support the geographic expansion of knowledge-based regions. It will also be important to support the diffusion of knowledge into hinterland regions, and back from the hinterland regions so that the combination of hinterland and metropolitan know-how generates innovation: telecommunications and transport are again required. Even if all of Australia’s knowledge regions are combined, they are but small compared to the megametropolitan regions of Asia, Europe and North America. Further economies of agglomeration could be achieved if the metropolitan areas were integrated to become a single globally-positioned knowledge economy. This will require a retreat from parochial mindsets, more interaction and more specialisation. Competition between states and regions should be re-focused on competition with the world at large. Yet again this would be facilitated by investment in improved telecommunications and transport.

Among those who concede the reality of economies of agglomeration, it was proposed that transport congestion on the routes into the CBD could to be relieved by the decentralisation of knowledge economy work into a limited number of major urban sub-centres strategically located within each metropolitan area, each of which would replicate the agglomeration advantages of the city centre. This ‘City of Cities’ approach relies on diminishing returns to agglomeration; the idea that there is a threshold above which there is no point in adding to any city centre.

If knowledge-economy jobs cannot be decentralised to beltway or suburban centres, why not disperse them widely and especially into lifestyle locations, beyond the urban fringe? This argument appeals to the proposition that telecommunications would substitute for personal contact, so freeing knowledge-economy work from locational constraints. Without challenging the importance of telecommunications as a foundation for the knowledge economy, practical experience has been that they do not substitute for the importance of meeting personally. This seems to be essential to the development of trust between economic participants and can also have serendipitous consequences when people with complementary ideas come into contact.

The least ambitious, and most practical, way to disperse knowledge-economy jobs within metropolitan areas is the expansion of city centres to include the inner suburbs. This reduces the distance from the fringe to the edge of the knowledge-economy region by a few kilometres and saves on expensive high-rise construction in the city centres but requires investment to connect inner suburbs to the centre and to each other by rapid, congestion-free transport. It is also important to maintain the walkability of the inner suburbs, all of which antedate the age of motoring and are hence at least potentially walkable. The typical European metropolis achieves this with a metro system backed up by on-street public transport. Sydney, Melbourne and Brisbane are all moving, tentatively, in this direction.

The bottom line is that until the National Broadband Network is completed the growth in knowledge economy firms and government online services will continue to be constrained, holding back the competitive position of firms, and, in government services, delaying cost savings that could have been achieved by online service delivery. High speed broadband is an essential part of this economic integration.