A study of the quality of policymaking in 40 cities around the world, considering how supportive city governments are to entrepreneurs and tech startups, has ranked New York at the top of its ‘innovation friendly’ index, followed by London, Helsinki, Barcelona and Amsterdam. So Big Apple aside, the report suggests city policymakers across Europe are getting their grove on when it comes to digital thinking.
The CITIE: City initiatives for technology, innovation and entrepreneurship report was compiled by U.K. innovation charity Nesta, partnering with management consultancy firm Accenture and smart cities organisation Future Cities Catapult. It offers a granular analysis intended as a guide for city policymakers aiming to foster local startup activity.
The key questions the researchers considered were: is the city open to new businesses? Has the city put the necessary infrastructure in place to support tech startups? And does the city build “entrepreneurship and innovation” into its own operations and processes?
New York got this sooner than other people… They also just think big.
How does one measure and rank amorphous concepts like ‘innovation’ and ‘entrepreneurship’? With great difficulty and subjectivity of course. The researchers behind the 56-page report created a framework based on three overarching “policy dimensions” which they judged city governments have direct influence over (namely: openness, infrastructure and leadership), and under that nine “policy roles” cities can adopt to foster startup activity.
They then identified and measured 36 “policy levers” sitting within those areas, generating 1,440 original data points in the process of compiling the report — observing “whether, and if so how extensively” each of the cities had implemented particular policies. They then slice and dice the results in various ways — not just offering the overall city ranking noted above, but benchmarking cities across the nine roles (regulator, advocate, customer, host, investor, connector, strategist, digital governor, datavore). And dividing them into different clusters, based on their thrust of their policy decisions. You can find the full report on the CITIE website.
Cities and the shared economy
It’s worth noting the core concept for the report came from both Nesta, specifically its director of government innovation John Gibson, a former policy advisor to the U.K. government, and also from Greg Marsh, the CEO of ‘posh Airbnb’ collaborative consumption startup onefinestay. So the analysis has an inevitable bias towards shared economy startups — as Gibson himself readily admits when I discussed the findings with him.
There’s a world of difference between an ‘Uber for X’ business vs an Internet of Things device making hardware startup, for example. So the report is benchmarking policy support for a particular sub-set of startups, as well it must given how much variety there is in the digital business space.
“In our report we used ‘shared economy’ case studies to test how well they’re doing this. So we looked at private hire and we looked at shared lets. That was the things that we measured. But it’s not the complete picture,” says Gibson, adding: “We would never pretend that the city is able to completely dictate how the local tech community would fare.”
Still, he argues cities are being increasingly drawn into digital debates. “There’s definitely other markets starting to arise where the city as a regulator becomes more important. I noticed recently that the Los Angeles City Council is considering a measure that would restrict the way that Waze, the traffic app, routes people around the city — after residents started complaining about cars being put onto quiet suburban streets. And so a slightly different market from onefinestay or Uber but another example of the city being drawn in to making decisions about the regulatory framework that will matter to the way that these kind of tech companies work.”
The research also steered clear of factoring in hot-button topics like house prices, or softer stuff like quality of life and cultural vitality, all of which can and absolutely does influence whether startup founders choose to set up shop in a particular city. But the intention was to restrict the analysis to “core business policy”, as Gibson puts it, and concentrate on factors that city governments can more easily influence with policymaking.
“It’s certainly the case that there’s a degree of subjectivity in it… We measured the quality of policy not the quantity of startups,” he adds. “Although a city like Copenhagen, for example, if they do this well is unlikely to compete with San Francisco or New York in the near future, nevertheless they are able to be the best version of themselves, so to speak. They can create the best possible environment for their own ecosystem to grow.”
Amsterdam vs Berlin: A tale of two startup cities
Discussing surprises thrown up by the research, Gibson notes the fact that the quality of policymaking in three less high profile (in terms of ‘tech hub’ status) European cities — Helsinki, Barcelona and Amsterdam — ranked so highly in the index.
“Cities like Berlin and Tel Aviv and Seattle and Los Angeles that have much more established tech communities were somewhat lower down the list. And I think the reason for that is what we were measuring wasn’t the quantity of tech companies or the volume of venture capital flowing through a city but rather the quality of the policy environment that was created by city government. So seeing those three cities up there was kind of a pleasant surprise,” he says.
“What we’re inferring from this is that Amsterdam, Helsinki and Barcelona have got their policy set-up right in advance of having incredibly rich tech communities,” he adds. “So if our hypothesis is correct you’d expect to see those three cities really start to boom over the next few years because they’ve kind of got the infrastructure in place.”
Another observation triggered by the research is that an absence of policymaking can also foster startup innovation — aka the “benign neglect” route. So rather than actively trying to create startup-friendly policies, cities taking a hands off approach to regulation may also be helpful in attracting startup founders — which Gibson suggests may be why Berlin, a noted European tech hub, has not ranked so highly in this analysis.
The thing that makes Berlin quite attractive is almost the absence of government.
“Berlin was a bit of a puzzle for us. It’s obviously one of the most vibrant communities in Europe at the moment. It’s doing incredibly well, and it does okay in our scoring but it’s far from being one of the top performers. So we reached the conclusion in the end that the thing that makes Berlin quite attractive is almost the absence of government. It’s the fact that there’s loads of big old warehouses and low rent and not a lot of people around and you can tuck yourself in there and get on with it… And that’s been really great for them,” he says.
“Because we’re measuring the role of government there’s a tendency towards favoring activism to an extent — but Berlin is an interesting counter example that says actually government staying the hell away can be quite important too. It will be interesting to see how this plays out in the next few years in the sense that benign neglect probably has its limits, and if the government starts to get involved in heavily regulating the industries that have built up there that could have a limiting impact on growth.
“And also you imagine that when other cities start to build up things like really high quality wireless infrastructure and brilliant walkable, connected city centers the neglect starts to become a limiter, I’d have thought.”
Gibson directly contrasts Amsterdam’s extreme pro-activity in tech policymaking with Berlin’s hands off approach — adding it will be “almost a competition between two philosophies of government” to see which policy approach prevails over the longer term.
Thinking big and sustainable
So what has New York been getting so right, according to this policymaking analysis? It’s been focusing on tech investment for a long time, and thinking very big, says Gibson. “They got this sooner than other people. Having Bloomberg in charge was instrumental in that I think. They also just think big. They think big in a way that few others do — and so things like the redevelopment of Roosevelt Island is just on an impressive scale that it’s hard to see matched in other cities,” he says.
Focusing on the “pipeline of skills” is also something New York has been doing more recently that he reckons will bring sustainability to the homegrown tech ecosystem there. “The new mayor de Blasio is taking it further… His angle on this is about making the tech sector inclusive, and making sure the benefits of this success spread to different parts of the city. Hence getting kids up to speed in STEM skills. And that’s a really smart thing to do. And you’d imagine that over the next decade it’s that kind of investment that will see New York stick around at the top.”
Back over the pond, there’s evidently also plenty of supportive action for startups going on in Europe — albeit without New York’s head start, but able to follow the Big Apple’s lead.
“If you get under the hood of the data there are some cities in Europe that do this stuff really well. And are making some really bit commitments. And they’re very explicit about it. And it’s very interesting to see. Actually there’s quite a lot of divergence in European scores across the data as a whole — whereas in North American there’s much less variation. They tend to be sort of average and above. Europe tends to spread right the way across the distribution. But there is a lot of buzzy stuff going on in Europe,” says Gibson.
“City government in Europe at the moment has definitely caught on to the idea that innovation and entrepreneurship are going to be important in the near future and they’re starting to invest a lot of time and energy in building good policy. And they’re also getting some good people into play. Amsterdam’s CTO is really great, and Paris has some great people working in their economy development office that are making really big progress.”
That said, he also points to the regulatory battles ongoing in certain European cities around on-demand services businesses such as Uber and Airbnb — characterizing those as “warning signs” for the region “if it wants to fulfill its potential here”.
“Some European cities are struggling at the moment to figure out how they accommodate businesses like Airbnb and Uber. And it’s a shame, in some respects, because there’s a plausible argument that says that European cities because they’re very high density relative to North American ones have some in-built natural advantage to these on-demand services. But if you then block them down with bad regulation you’re not taking that opportunity that’s presented to you by geography. So there are interesting warning signs on the horizon that will probably need to be dealt with if Europe wants to fulfill its potential here,” he adds.
Of course “bad regulation” is another subjective judgment — talk to the taxi industry in most of these cities and they would likely complain that existing regulations are not being equally applied to startups, giving them an unfair competitive advantage. It’s how cities navigate such tricky two-sided debates, and implement level-headed policy that works for all the various urban stakeholders, that remains one of the biggest stories of the digital economy.