Innovation in Real Places: Strategies for Prosperity in an Unforgiving World

Summary of Innovation in Real Places

1. 1

   The Ghost Towns That Tell Our Future

   

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   A former silver mining town in northern Ontario holds an unexpected lesson about prosperity. Cobalt boomed spectacularly when silver was discovered, then withered when the mines closed. Meanwhile, Toronto-which had built sophisticated financial networks to fund those distant mines-continued thriving long after the last nugget was extracted. This contrast reveals something profound: sustainable prosperity doesn't come from chasing resources or replicating someone else's success. It comes from building capabilities that endure. Today, as communities worldwide scramble to become "the next Silicon Valley," they're repeating Cobalt's mistake-pursuing someone else's formula rather than developing their own strengths. What if the path to shared prosperity requires abandoning this copycat approach entirely?

2. 2

   The Global Jenga Tower

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   Innovation isn't about inventing shiny gadgets - it's transforming ideas into products people actually use. Japanese company Shimano revolutionized cycling through specialized components, while Taiwanese manufacturer Giant transformed the industry through materials innovation. Neither became the "Silicon Valley of bicycles" - they found their own distinctive edge. The global economy now resembles a Jenga tower, with production stages scattered worldwide. Digitization, transportation advances, and trade liberalization shattered the old model where single companies controlled everything. Taiwan's TSMC became the world's most valuable semiconductor company not by designing chips, but by mastering their production. Innovation has fragmented into four distinct stages. Stage 1 transforms breakthrough inventions into useful products - Silicon Valley's specialty. Stage 2 turns vague concepts into manufacturable designs, exemplified by Taiwan's electronics design houses and Italy's luxury goods artisans. Stage 3 improves existing products, making them better and more accessible. Stage 4 masters the physical creation of fully defined products, perfected in China's Pearl River Delta. Communities must choose which stage matches their strengths rather than blindly chasing stage 1 glamour.

3. 3

   When Success Stories Become Cautionary Tales

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   Cleveland once dominated American innovation, producing more patents per capita than anywhere else by 1900. Then it collapsed-productivity plummeted, population fled, manufacturing evaporated. Today's regions have tried avoiding this fate by emulating Silicon Valley, spawning countless "Silicon Hyphen" nicknames. Atlanta seemed destined for similar greatness. Like Silicon Valley, it evolved from agriculture and defense industries, with Georgia Tech producing graduates who launched technology companies. By the 1980s, Atlanta dominated data communications with DCA's IRMA, Hayes modems, and Microstuf's Crosstalk. Yet every one of these companies eventually failed or was acquired. Since 2006, not a single Atlanta startup has reached NASDAQ listing. The problem? Atlanta became a "feeder cluster" to established tech hubs. Companies like Appcelerator start there but relocate to Silicon Valley, Boston, or New York. With 75% of American venture capital concentrated in three states, 40% of Atlanta's top-funded startups leave within three years. Despite massive investment, Silicon-Hyphens function as minor leagues-developing talent and companies that enrich the majors while yielding minimal local benefits.

4. Chapter 4

   The Prosperity Paradox

   Tech hub success rarely benefits local communities. BlackBerry refused venture capital and used local investors, so its IPO profits stayed with Canadian employees and communities. Shopify took typical VC funding-by IPO, American investors owned over 42%, sending most gains to Wall Street instead of Ottawa. Israel exemplifies innovation's dark side. From 109,187% inflation in the 1980s, it became a global powerhouse leading in business R&D investment. Yet this miracle produced a nightmare: with over 95% of VC capital being foreign, financial exits meant profits leaving entirely. Israel became two economies-a small slice of high-skilled workers with startup "lottery tickets" and the majority running on a treadmill to nowhere. The results are devastating: Israel transformed from the second-most-egalitarian Western society to the second-most-unequal, with every fifth household below the poverty line. The VC model demands exits at valuations two orders of magnitude higher within 3-5 years, following the "one in ten" rule-needing one massive success to cover nine failures. This creates insider-versus-outsider war zones where tech workers enjoy fabulous salaries while others struggle to afford housing.

   Chapter 5

   Beyond False Choices

   Many economists present a false binary: revive manufacturing or chase tech startups. Paul Krugman dismissed reopening steel plants as "fantasy," while Steve Jobs told President Obama that Apple's manufacturing jobs "aren't coming back." This oversimplified framing forces regions into costly mistakes. Innovation means any action enabling better products or services at current or lower costs - a manufacturer implementing robotics, a food producer developing new preservation techniques. Sacramento and Colorado Springs failed by betting on specific companies rather than developing regional capabilities, spending millions on tax incentives while ignoring existing strengths. Successful regions like Shenzhen and North Carolina's Research Triangle attract corporations by building specialized innovation ecosystems. Shenzhen developed rapid prototyping expertise; North Carolina leveraged universities to create a biotech hub. Companies seek the rarest resource: knowledge and the ability to transform it into useful products. Pittsburgh transformed from steel town to robotics hub by building on engineering heritage. Greenville, South Carolina evolved from textiles to advanced manufacturing through workforce development. These regions transcend the manufacturing-versus-tech dichotomy by focusing on distinctive strengths.

   Chapter 6

   Building What Matters

   Innovation means taking new ideas and creating improved products and services for market-it's driven by firms and individuals, not universities. Successful innovation regions develop four synergistic elements: bidirectional flows of local-global knowledge through strategic coupling; supply of public goods from specialized skills to shared facilities; local ecosystems providing critical resources like appropriate financing; and co-evolution capability allowing fundamentals and policy to adapt. Shenzhen exemplifies these fundamentals, becoming the world's premier manufacturing location for novel ICT products-no equivalent pool of stage 4 innovation skills combined with production exists elsewhere. Taiwan demonstrates stage 3 success, building an ecosystem since the 1960s enabling companies to excel at improving existing technologies. When RCA transferred obsolete semiconductor technology to Taiwan in 1976, it seemed like hand-me-downs. By 1979, the Taiwanese team achieved better yields than RCA and began selling chips. This "outdated" technology became Taiwan's path to stage 3 success. The government established Hsinchu Science-Based Industrial Park, concentrating the complete semiconductor chain within a half-hour radius. Total government investment of only $35 million over less than a decade transformed Taiwan's economy-possibly the most cost-effective innovation policy ever implemented.

   Chapter 7

   Reclaiming the Future

   Human ingenuity and community agency matter more than deterministic forces. Pittsburgh's shift from steel to robotics and Eindhoven's transformation from industrial decline to high-tech ecosystem prove social structures remain malleable through deliberate choices. Communities pursuing innovation must navigate three dysfunctional domains. Current intellectual property regimes prioritize "strong" rights that block competition rather than enable spillover effects. Since finance can't be fixed, adopt a "growth and delay" strategy-help local companies scale substantially before financial exits, increasing odds they'll maintain local operations post-acquisition. Data has become the new commodity being extracted globally, with multinationals racing to exploit it while local policymakers remain unaware of its value. COVID-19 revealed the value of stages 2-4 innovation for distributed resilience. Communities with local manufacturing, digital infrastructure, and workforce development weathered the pandemic better. Innovation policy should equip people and firms with needed capacities while supporting their ecosystem. Your community needn't become the next Silicon Valley-it needs to become the first version of itself. Build on distinctive strengths and create prosperity that stays local. The future belongs to communities willing to experiment and build innovation systems reflecting their unique circumstances and values.

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