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21st Century Cities in Canada: The Geography of Innovation

Authors:
David A. Wolfe
Foreword by
Anne Golden
21st Century Cities in Canada:
The Geography of Innovation
THE 2009 CIBC SCHOLAR-IN-RESIDENCE LECTURE
by David A. Wolfe
Foreword by Anne Golden
The Conference Board of Canada • Ottawa, Ontario • 2009
©2009 The Conference Board of Canada*
All rights reserved.
ISBN-13: 978-0-88763-946-3
ISBN-10: 0-88763-946-1
Agreement No. 40063028
*Incorporated as AERIC Inc.
The Conference Board of Canada
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Library and Archives Canada Cataloguing in Publication
Wolfe, David
21st century cities in Canada : the geography of innovation : 2009
CIBC scholar-in-residence lecture / David A. Wolfe.
ISBN 978-0-88763-946-3
1. Cities and towns. 2. Sociology, Urban. 3. Urban
economics. I. Conference Board of Canada II. Title.
III. Title: Twenty-first century cities in Canada.
HT155.W65 2009 307.1’16 C2009-906162-7
Printed and bound in Canada by Gilmore Printing Services Inc.
Cover design, page design, and layout by Scott Grimes, The Conference Board of Canada.
Cover illustration and design by Robyn Bragg, The Conference Board of Canada.
CIBC logo is a trademark of Canadian Imperial Bank of Commerce.
This book is dedicated to David Pecaut, Chair of the Toronto City
Summit Alliance, who embodies the true spirit and qualities of a civic
entrepreneur and serves as an inspiration to all who care as passionately
as he does about the future of Canada’s cities.
v
AUTHOR’S ACKNOWLEDGEMENTS
A number of people have contributed immeasurably to this book. The
book would not exist without Anne Golden’s generous invitation to
serve as the CIBC Scholar-in-Residence at The Conference Board of
Canada, and I am indebted to Anne and to Michael Bloom for their
helpful comments and suggestions. Over the past decade, I have been
privileged to work with a talented group of colleagues in the Innovation
Systems Research Network. The ideas and research presented in
this book reflect the results of our collective research. Research sup-
port for the network has been provided by the Social Sciences and
Humanities Research Council, Infrastructure Canada, the National
Research Council, the Ontario Ministry of Research and Innovation,
the Toronto Region Research Alliance, and the University of Toronto.
Some of the key ideas presented in the book took shape in the course of
my collaboration with Meric Gertler, Allison Bramwell, and Jen Nelles.
Their support is deeply appreciated. The charts and tables were gen-
erated by Greg Spencer, and the maps were prepared by Zack Taylor.
Trevor Barnes, Neil Bradford, Allison Bramwell, Meric Gertler, Jill
Grant, Adam Holbrook, Tom Hutton, Jen Nelles, Enid Slack, and Zack
Taylor took time to read and comment on all or parts of the manuscript,
which helped to sharpen the focus considerably. Responsibility for any
remaining errors or omissions is mine alone.
I am grateful to Lisa, Michael, and Rachel for their love and support
throughout the project.
vii
ACKNOWLEDGEMENTS
The Conference Board of Canada is deeply grateful to CIBC for its
farsighted investment in the Scholar-in-Residence Program, which
made this volume possible and is supporting a decade of cutting-edge
research into topics of vital importance to Canada’s future.
We thank our media partner, The Toronto Star, for publicizing the
May 2009 lecture that resulted in this volume and for giving Canadians
an advance look at the arguments presented here.
At the Conference Board, Anne Golden and Michael Bloom organized
the 2008–09 Scholar-in-Residence Program, and Laura Paquet edited
this volume.
And, of course, we thank David A. Wolfe, as well as David Pecaut,
Carl Zehr, Judith Wolfson, and John Honderich, for their extraordinary
contributions to Canadian public debate.
ix
ABOUT THE CONFERENCE BOARD OF CANADA
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Funded exclusively through the fees we charge for services to the
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to provide services for all levels of government.
Independent from, but affiliated with, The Conference Board, Inc. of
New York, which serves nearly 2,000 companies in 60 nations and
has offices in Brussels and Hong Kong.
xi
THE AUTHOR
David A. Wolfe, Professor, Political Science, University of Toronto,
and Co-Director, Program on Globalization and Regional Innovation
Systems, Munk Centre for International Studies.
David A. Wolfe is a professor of political science at the University of
Toronto Mississauga and a co-director of the Program on Globalization
and Regional Innovation Systems (PROGRIS) at the Munk Centre
for International Studies. PROGRIS is the national secretariat for
the Innovation Systems Research Network (ISRN). Dr. Wolfe serves
as National Coordinator of the ISRN and is currently Principal
Investigator on the ISRN project entitled “Social Dynamics of Economic
Performance: Innovation and Creativity in City-Regions.”
He holds a B.A. and an M.A. in Political Science from Carleton
University and a Ph.D. from the University of Toronto. From October
1990 to August 1993, he served as Executive Coordinator for Economic
and Labour Policy in the Cabinet Office of the Government of Ontario.
Upon his return to the University of Toronto, he served as a research
associate in the Canadian Institute for Advanced Research’s Program
on Law and the Determinants of Social Ordering, a post he held from
1993 until 1997. He is editor or co-editor of seven books and numerous
scholarly articles and public policy reports. In 2003, he co-authored the
report Community Participation and Multilevel Governance in Economic
Development Policy for the Government of Ontario’s Panel on the Role
of Government.
xii
THE COMMENTATORS
Anne Golden, President and CEO, The Conference Board of Canada
Anne Golden has been President and Chief Executive Officer of The
Conference Board of Canada since October 2001. Previous to that,
Dr. Golden served as President of The United Way of Greater Toronto
for 14 years. She has gained national recognition for her role in the
public policy arena through chairing two influential task forces: one in
1996 for the provincial government on the future of the Toronto area,
and another in 1998 for the City of Toronto and the federal govern-
ment on homelessness. Dr. Golden is also a member of the Board of
Directors of the Toronto Region Research Alliance.
In 2003, Dr. Golden’s commitment to social justice was recognized in
her appointment by the Governor General as a Member of the Order
of Canada. Author of numerous publications on public policy issues,
Dr. Golden has received several honorary doctorates. Her many civic
awards include the Urban Leadership Award for City Engagement from
the Canadian Urban Institute, and the Women’s Executive Network’s
Canada’s Most Powerful Women: Top 100 Award.
xiii
Judith Wolfson, Vice-President, University Relations, University of Toronto
Judith Wolfson is a former President and Chief Executive Officer of
Interac Association/Acxsys Corporation, the national electronic finan-
cial services network serving Canada’s financial institutions and related
industries. She spent 10 years with the Government of Ontario in sev-
eral senior positions, serving under three premiers: David Peterson, Bob
Rae, and Mike Harris. As Assistant Deputy Minister in the Ministry of
Industry, Trade and Technology, she was involved in Canada’s free trade
negotiations. She also served as Deputy Minister, Intergovernmental
Affairs; Deputy Minister, Economic Development, Trade and Tourism;
and Deputy Minister, Consumer and Commercial Relations. In 2003,
Ms. Wolfson received the Queen’s Jubilee Medal for leadership and
service to the community in recognition of her contributions to a wide
range of major community organizations.
xiv
Carl Zehr, Mayor, City of Kitchener
Carl Zehr is Mayor of the City of Kitchener. He was first elected to
the position in November 1997 and was re-elected in 2000, 2003, and
2006. Mr. Zehr also served as a councillor for the City of Kitchener
from 1985 to 1994, and as a councillor for the Regional Municipality
of Waterloo for four terms (1988–94 and 1997–present).
During his previous and current terms of elected office, he has served
on a lengthy and varied list of municipal and regional council commit-
tees, and has actively supported and served many community organiza-
tions. His roles include, or have included, treasurer of the SEED Loan
Fund, chair of the Independent Living Centre, past president of the
Rotary Club of Kitchener, and member of the Mennonite Foundation
of Canada Finance Committee. He has also served the Toronto Region
Research Alliance and the Kitchener-Waterloo Skating Club.
Mr. Zehr was a partner in the CGA firm of Mercer, Hildebrand & Zehr
from 1981 to 2002. Previously, Mr. Zehr held corporate and staff pos-
itions with Hybrid Turkeys Limited and associated companies, the
University of Waterloo, and Kitchener-Waterloo Hospital.
xv
David K. Pecaut, Senior Partner and Director, The Boston Consulting
Group; and Chair, Toronto City Alliance Summit
David K. Pecaut is the voluntary Chair of the Toronto City Summit
Alliance (TCSA), a diverse coalition of civic leaders whose mis-
sion is to accelerate social and economic development in the Toronto
region. Through the TCSA, he has helped to mobilize the Toronto
Region Immigrant Employment Council, the Toronto Region Research
Alliance, the Strong Neighbourhoods Task Force, the Task Force on
Modernizing Income Security for Working-Age Adults, Luminato (the
Toronto Festival of Arts and Creativity), and Greening Greater Toronto.
Mr. Pecaut has taken his passion for the community and Canada to the
national level. His accomplishments include founding and co-chairing
the Canadian E-Business Opportunities Roundtable; co-founding Career
Edge, the national youth internship program; serving on the Prime
Minister’s External Advisory Committee on Cities and Communities;
co-chairing the Leaders’ Roundtable on Commercialization, a blue-
ribbon panel set up by The Conference Board of Canada; and serving
on the boards of Canada Basketball, the United Way of Greater Toronto,
and Pathways to Education.
xvii
Table of Contents
Foreword 1
by Dr. Anne Golden
CHAPTER 1—Introduction 9
Social Dynamics of Innovation and Creativity 15
Civic Engagement and Strategic Governance 19
Outline of the Monograph 21
CHAPTER 2—Innovation and Creativity in City-Regions 25
Introduction 27
Industrial Evolution and the Life Cycle of City-Regions 30
Diversity and the Emergence of an International Hierarchy
of Cities 40
Urban Agglomeration and the Concentration of Talent
and Creativity 44
From the “Creative Class” to the “Creative Economy”:
Cities as “Schumpeterian Hubs” 46
Specialization Versus Diversity: Some Final Observations 50
CHAPTER 3—Innovation, Talent, and Creativity in Canadian Cities 53
Introduction 55
Cities in the Canadian Urban System 57
Competition Between Toronto and Montréal for Dominance
of the Urban System 61
xviii
Innovation and Growth in Canadian Cities: Specialization,
Diversity, and Relative Size 64
The Role of Large Cities in the Innovation Economy 73
Innovation Patterns in Canada’s Medium-Sized and
Small Cities 80
The Role of Talent and Creativity in Canadian Cities 86
Creative Industries and Creative Occupations in
Canadian Cities 90
Immigration, Creativity, and Inclusion in Canadian Cities 102
Final Thoughts 105
CHAPTER 4—From Government to Governance 107
The Role of Civic Capital in Urban Economic Development 107
Introduction 109
Changing Patterns of Governance 114
Urban Governance in a Multi-Level Setting 117
Governance and Social Learning 121
Civic Capital and Urban Governance 123
Strategic Planning in the Urban Economy 130
From Government to Governance: Final Observations 134
CHAPTER 5—Urban Governance and Strategic Planning in
Canadian Cities 135
Introduction 137
Urban Governance and Civic Engagement in Canada’s
Largest Cities 138
xix
Civic Engagement and Multi-Level Governance in the
Greater Vancouver Region 140
The Toronto Region: Strong Cities, Weak Region 146
Civic Engagement, Multi-Level Governance, and Strategic
Planning in the Montréal Region 153
Regional Governance in Ottawa 157
Prospects and Challenges for Urban Governance in
Mid-Sized Cities 163
Civic Engagement and Strategic Management in Waterloo
and London 163
Civic Engagement and Creative Planning in Halifax,
Nova Scotia 171
Civic Engagement and Strategic Planning in Canadian Cities:
Key Findings 174
CHAPTER 6—Challenges and Choices for Canadian Cities 177
Introduction 179
Industrial Structure and Economic Growth in City-Regions 180
Urban Economic Transformation Through Civic Engagement 185
Conclusion 190
From the Lecture: Anne Golden’s SIRP Lecture Comments
(presented on behalf of Judith Wolfson) 191
From the Lecture: Carl Zehr’s SIRP Lecture Comments 197
From the Lecture: David Pecaut’s SIRP Lecture Comments 203
From the Lecture: Panel Discussion and Q & A 213
Foreword
by Dr. Anne Golden
C.M., President and Chief Executive Ofcer
The Conference Board of Canada
3Foreword
I
am privileged to introduce the work of Professor David Wolfe, The
Conference Board of Canada’s 2009 CIBC Scholar-in-Residence.
Since the early 1990s, economists have predicted that the world
is moving to a global economy—one that is based on the exchange of
information. Economists have also advised that industries built around
the production and distribution of knowledge will become key drivers
of our economy. But they warn that Canada is not competitive in these
emerging areas the way it has been in the natural resources sector. This
year’s devastating recession has driven these points home.
At The Conference Board of Canada, we are particularly concerned
that the vital contribution our cities make to national prosperity has not
been fully acknowledged. Nor has the role they are destined to play in
the new global knowledge economy been fully understood. Professor
Wolfe’s research helps to clarify this role.
There are still many questions to resolve about which elements are
most important in determining the economic performance of a city region.
Should reliance be placed on urban specialization—as Harvard profes-
sor Michael Porter claims? Do knowledge spillovers among clusters of
geographically concentrated groups of firms in similar or related indus-
tries make the most important contribution to growth? Or should we
trust in diversity—as the late urban expert Jane Jacobs believed? Does
the exchange of knowledge and complementary ideas across a variety of
firms generate the greatest return for those firms that are able to recognize
and capitalize on the newly forming knowledge bases?
Professor Wolfe argues that we have reached a stage where we
are ready to transcend this debate. He has found empirical evidence
to support assertions that both specialized and diversified industrial
structures stimulate economic growth. Dr. Wolfe is leading a five-
year national study of urban industrial clusters, involving an extensive
research network of people across the country. In 21st Century Cities
in Canada: The Geography of Innovation, Professor Wolfe summar-
izes the key insights and findings from that study. He found that while
concentration and diversity can still be crucial, additional factors must
also be taken into account when considering the economic perform-
ance of cities. For each city, we need to consider its relative size, active
4 21st Century Cities in Canada
economic sectors, fit in the evolving global hierarchy of urban centres,
state of the evolution of its industrial structure toward higher-end busi-
nesses, and services associated with the new knowledge economy.
Size does matter, Professor Wolfe found. Canada’s largest cities are
adapting to the new global economy while smaller cities struggle with
new challenges. However, it is encouraging to be able to report that
Professor Wolfe’s findings also offer hope to smaller cities. When they
grow into medium-sized cities, they too can become centres of innova-
tion. Similar and related industries, and chains of suppliers, develop
within these medium-sized cities and form clusters of common interest.
And when this pattern is reinforced by support from government at all
levels and from progressive educational institutions, the city can move
forward as a centre of innovation and creativity.
Professor Wolfe’s monograph complements and builds upon earlier
work undertaken by the Conference Board. For several years now, the
Conference Board has explored the links among cities, productivity
growth, and innovation. In our 2006 report Canada’s Hub Cities: A
Driving Force of the National Economy, we used what economists call
“convergence theory” to examine GDP—measuring per capita growth
in nine of Canada’s largest cities in relation to their hinterlands. We
found that these nine hub cities serve as the economic drivers of their
respective provinces, or in the case of Halifax, for the entire Atlantic
region. In fact, we show that when hub cities grow and prosper, the
surrounding communities grow at an even faster pace than the hub
cities themselves. We incorporated these findings into Volume III of
our Canada Project Report, Mission Possible, which highlighted the
importance of Canada’s cities to our nation’s future prosperity. We
emphasized that cities today are the crucibles of innovation and produc-
tion centres of knowledge-intensive goods and services. And we placed
cities at the centre of the innovation dynamic, where brain-power
is concentrated and where the sharing of ideas is most intense due
to proximity.
Since 2007, the Conference Board has benchmarked the attract-
iveness of Canada’s 27 census metropolitan areas (CMAs) to answer
the question, “Do our cities have what it takes to attract increasingly
5Foreword
mobile skilled workers?” And in our City Magnets report, we showed
that the places with the highest rankings are also the places with high
in-migration.
In Professor Wolfe’s monograph, a central theme is the link between
a city’s ability to innovate—making effective use of local universi-
ties and social networks—and its approach to governance. Shifting to
knowledge-based economies from traditional industrial platforms is
difficult enough, but the current economic recession and restructuring
is accelerating the transformation. This is especially true in the manu-
facturing industries that have been a mainstay of cities in the Ontario–
Quebec industrial corridor.
Professor Wolfe is adamant that most cities do have the potential
to mobilize resources in pursuit of new, local-development strategies.
However, he stresses, their success depends on two factors. The first is
whether the city can adopt “strategic cooperation”—a flexible, innova-
tive approach to local economic development that provides better align-
ment and coordination of available programs and policy instruments
across all three levels of government. The second factor is whether the
city can obtain a broader range of civic associations and actors—under
what the Conference Board and others are calling the “big tent”—and
involve them directly as active participants in the design and implemen-
tation of this strategic cooperation process. When the author says that
“governance matters,” he means that the administrative and political
structures governing the urban region must both be open to, and accept,
a new level of civic engagement.
For many readers, the most compelling chapter in Professor Wolfe’s
monograph involves the case studies that document how these new
models of urban governance and civic engagement are taking hold
in Canada’s cities. The stories of efforts in Vancouver, Montréal,
Toronto—as well as a number of mid-sized cities, such as London,
Hamilton, Halifax, and Waterloo—are fascinating, even inspiring. In
each case, the approaches are quite different.
The account of the progress of the Toronto City Summit Alliance
(TCSA), with which I was personally involved, underscores a view
that I have long held. Much depends on the leadership of civic
6 21st Century Cities in Canada
entrepreneurs. Professor Wolfe’s dedication of this monograph to
Canada’s most extraordinary civic entrepreneur, David Pecaut, the
acknowledged dynamo of the TCSA, is therefore most appropriate.
The depth and scope of the evidence that Professor Wolfe has
analyzed and summarized for us in this year’s publication confirms the
thesis that cities have become the primary sites for innovation. His find-
ings reinforce what some of us have argued for some time—that our
cities are different, they play different roles in what geographers call
the “urban system, and that recognition of this significant variation
is essential.
Professor Wolfe spent considerable time in Waterloo. That’s because
he found a highly developed tradition of strategic cooperation and inclu-
sion of non-governmental organizations and individuals in this mid-
sized Ontario city. He believes Waterloo has been particularly astute in
identifying existing federal and provincial resources and programs that
the city could tap into, draw down to the community level, and use to
its advantage.
Other cities need more than merely aspiration to replicate the
Waterloo experience. Professor Wolfe shows that each individual city
has to follow a trajectory that grows out of its own history and circum-
stances. But other cities can certainly adopt the entrepreneurial spirit of
Waterloo. In a sense, Waterloo becomes the poster child for the kind of
“big tent” mixture of government and governance that Professor Wolfe
believes we must develop to create successful 21st century cites.
Professor Wolfe’s monograph reminds me of the lecture of our first
Scholar-in-Residence, Janice Gross Stein. Professor Stein set out her
vision of “networked federalism” to deal with the multiplying flows
of information that are an inherent part of globalization. She called for
non-siloed, horizontal decision making that brings all orders of govern-
ment, as well as non-governmental organizations and individuals, into
“shared policy space.”
David Wolfe agrees that in a world of increasing policy complexity,
jurisdictional overlap, and constrained government resources, we need to
make room for all the key players. We need to find new ways of working
together to devise strategies that will secure Canada’s future prosperity.
7Foreword
He concludes by warning us not to be lulled into a false sense of secur-
ity by global demand for our commodities. But in the end, the author’s
message is empowering and optimistic. Canada’s innovation agenda is
an urban agenda, both by necessity and by default. We can meet the
challenges of the 21st century and beyond—if we can find ways to be
truly inclusive and collaborative, and to align policies and programs of
all levels of government in support of the right strategies. Not an easy
task in Canada’s federal system . . . but not beyond our reach.
Introduction
1
11Chapter 1
The economic shock of the past year has dramatized the
changing nature of Canada’s economy and the challenges that
lie ahead. The industries and resources that have powered
Canada’s growth for the past six decades are in flux, and the contours
of the next economy are still taking shape. The requests for govern-
ment assistance from a growing number of economic sectors under-
score the pressure these sectors face, but they also highlight the need
for strategic thinking about the future role of government support for
economic development.
The impossibility of satisfying all of these demands simulta-
neously suggests that governments need to align their policies more
effectively across competing jurisdictions and that they have to ensure
current and future investments in economic development have the max-
imum impact on the economic transition underway. Such an approach
requires that policy development and implementation be sensitive to
regional variations and that they consider the perspectives of the array
of local actors who are concerned about the economic prospects of the
communities where they live and work. A coordinated approach to
economic development at the regional and local levels requires an inte-
grated perspective on policy planning at the governance level, cutting
across existing programs and levels of government, to achieve a greater
degree of policy alignment.
The impact of the current recession and the economic consequences
that flow from it are increasing the pressure on government to deploy
its resources more strategically to achieve maximum impact and facili-
tate the structural transformation needed. The task of responding to
these challenges in order to promote a more innovative and competi-
tive economy that is also cognizant of the growing trend toward social
polarization demands a coordinated response across all three levels of
government in this country. However, our track record in this area is not
particularly impressive. One response is to adopt a scattershot approach
and liberally spread public resources across the country. An alternative
response is to align policy strategically to ensure that it is tailored to,
and suitable for, the specific capabilities and needs of individual city-
regions across the country. Governments need to do the latter.
12 21st Century Cities in Canada
Another consequence of the transition underway is that the import-
ance of cities, where a significant proportion of economic activity in
Canada occurs, is bound to grow.1 As the processes of globalization
gathered steam from the mid-1970s onwards, manufacturing activity
has moved offshore driven by the search for lower cost production
sites, making the connection between cities and their economic base
of activity appear more tenuous. The containerization revolution of the
1970s was a critical innovation that facilitated this development, while
the diffusion of new information and communications technologies
in the following decade accelerated the trend with respect to service
activities. By the turn of the millennium, confident predictions were
being made about the elimination of space as an economic factor, or
the “death of distance.2
Despite this trend, there is growing evidence to suggest that many
aspects of the contemporary global economy are making cities more
important as sites of economic activity and innovation. Paradoxically,
as certain aspects of the economy become more globalized in their
scale of operation, the local scale of activity assumes an even greater
significance. In Richard Florida’s apt phrase, “the world is spiky,3 not
flat, and becoming more so all the time.
With each layer that is added—population density,
economic activity, and innovation—the map becomes
increasingly concentrated. . . . The world gets spikier
and spikier the farther you climb up the ladder of eco-
nomic development, from producing basic goods to
undertaking significant new innovations.4
1 Natalie Brender, Marni Cappe, and Anne Golden, Mission Possible: Successful Canadian Cities,
The Canada Project nal report (Ottawa: The Conference Board of Canada, 2007).
2 Frances Cairncross, The Death of Distance: How the Communications Revolution Is Changing
Our Lives (Boston: Harvard Business School Press, 2001).
3 Richard Florida, “The World Is Spiky,” The Atlantic Monthly (October 2005), p. 48.
4 Ibid., Who’s Your City? How the Creative Economy Is Making Where You Live the Most Important
Decision of Your Life (Toronto: Random House Canada, 2008), p. 30.
13Chapter 1
But as Florida recognizes, the converse side of these global spikes
are the valleys, where population, economic activity, and innovation are
far less densely concentrated. The spiky nature of economic activity
means that some regions, which already have a greater concentration
of economic activity, will do well, while others may fall behind. The
spikes are increasing in Canada’s urban economy as the rate of growth
of the largest cities rapidly outpaces that of the medium-sized and
smaller ones. However, our strong commitment to regional equaliza-
tion and social equity means that policy solutions cannot be fashioned
to ensure prosperity in the spiky regions alone, but must take account of
the valleys as well. The challenge is to ensure that the policy supports
in place can be customized sufficiently to accommodate the different
needs and realities of the diverse regions of the country. In other words,
we must acknowledge that, in Canada, one size does not fit all.
Most Canadians live in city-regions. In its simplest terms, a city-
region is a continuous network of urban communities, whose “bound-
aries move outward—or halt—only as city economic energy dictates.5
More precisely, it can be defined as “the presence of a core city linked
by functional ties to a hinterland. The nature of those ties . . . generally
includes a combination of economic, housing market, travel-to-work,
marketing, or retail catchment factors.6 According to the 2006 Census,
nearly 25 million people—or four-fifths of Canada’s population—live
in urban areas and two-thirds reside in the 27 census metropolitan areas
(the large statistical areas that correspond most closely to the concept of
a city-region).7 Most population growth in Canada between 2001 and
2006 took place in city-regions. According to the Conference Board,
Canada’s 10 major city-regions accounted for 51 per cent of gross
domestic product (GDP) and 51 per cent of employment in 2005. Over
5 Jane Jacobs, Cities and the Wealth of Nations: Principles of Economic Life (New York: Random
House, 1984), p. 45.
6 Andrés Rodríguez-Pose, “The Rise of the ‘City-Region’ Concept and Its Development Policy
Implications,” European Planning Studies 16, 8 (September 2008), p. 1027.
7 Statistics Canada denes a census metropolitan area as an urban core with a population of at
least 100,000 and adjacent urban or rural areas that have a high level of economic and social
integration with the core.
14 21st Century Cities in Canada
the previous decade, 65 per cent of the net new jobs created in the country
were located in the major city-regions and the level of output grew by
3.6 per cent annually in those cities, compared with only 2.9 per cent in
the rest of the country.8 Clearly, Canada is a highly urban society and
becoming more so with each passing decade. Its city-regions are not just
the dominant sites of economic activity; they are also the leading edges
of innovation that will generate the new ideas, new products, and new
industries that will drive the economy in the future.
However, city-regions are more than just locations where people
live and work. Cities are also social and political spaces that shape our
social, cultural, and political institutions. Any analysis of the factors
contributing to the current development of Canadian cities must include
this broader set of influences, in addition to the economic ones. We
need a better understanding of how the interplay between the economic
dimensions of urban centres and their social and political character
affects their overall pattern of development. The political decisions that
are taken about local strategies—to promote economic growth, expand
the talent base of the local economy, and reduce social inequality—
have important consequences for their economic performance.
Despite their underlying significance, recognizing the role of city-
regions is not a particular strength of Canadian politics. Nor are city-
regions well represented in the architecture of the federal system,
where the local “voice” is often absent from the table. As Janice Stein
perceptively argued in her 2006 CIBC Scholar-in-Residence lecture:
It is in cities that the intermingling of federal and prov-
incial jurisdictions stands out most clearly, and it is
here that they are tested most sharply. It is impossible
to imagine that these overlapping jurisdictions could
be disentangled from our city-regions, which are at the
core of our future economic success.9
8 Brender, Cappe, and Golden, p. 5.
9 Janice Gross Stein, “Canada by Mondrian: Networked Federalism in an Era of Globalization.”
In Roger Gibbons, Antonia Maioni, and Janice Gross Stein, Canada by Picasso: The Faces of
Federalism (Ottawa: The Conference Board of Canada, 2006), p. 35.
15Chapter 1
At the same time, municipal boundaries rarely correspond to the
real economic geography of Canada’s city-regions. This jurisdictional
fragmentation compounds the pre-existing problem of the subordin-
ate status of Canadian cities in the federal system. The result, as the
Conference Board argued in Mission Possible, is that, “[t]he difficulty
of coordinating local and regional—and even provincial and federal—
activities and policies is one of the most critical challenges facing all
our major cities.”10
The accelerating trend toward globalization and the emergence of a
more knowledge-based and creative economy pose a set of challenges
and opportunities for city-regions. Formulation of a suitable response
must begin with a better understanding of the current factors driving
innovation and growth in city-regions. This monograph addresses this
question by exploring three specific dimensions of the way in which
innovation and creativity contribute to the economic dynamism of city-
regions: the nature of the innovation process in city-regions; the grow-
ing importance of talent attraction and retention to urban economic
development; and more inclusive processes for civic engagement and
policy development at the urban level. The following sections lay out
some of the relevant dimensions that will be explored.
SOCIAL DYNAMICS OF INNOVATION AND CREATIVITY
Innovation is increasingly recognized as a social process; it depends
on interaction and social learning among economic agents. A substan-
tial proportion of that innovation occurs via interaction between tech-
nology users and technology producers, or with supporting institutions.
The city-region is a critical scale for innovation and creativity because
spatial proximity between economic actors and the institutions that
support their activities enables the easy circulation of knowledge. As
Brian Kahin has eloquently argued:
10 Brender, Cappe, and Golden, p. 68.
16 21st Century Cities in Canada
Conventional thinking is that location matters less
now, but this thinking again confuses information with
knowledge. In a flat world where information flows
easily and freely, virtual tools and virtual organiza-
tions are accessible to everyone. Advantage lies in the
ability to generate and manage knowledge in all its
recalcitrant complexity. The richness of [collocation]
provides a competitive edge against the world by offer-
ing the nuance and rich interaction that physical pres-
ence makes possible. Where smart, ambitious, creative
people get to know and trust each other, innovation is
“in the air.11
The relationships that transform ubiquitous pieces of information
into commercially valuable forms of knowledge are underpinned by
the presence of local infrastructure for knowledge generation in city-
regions: specialized educational and research institutions, unique sup-
port services for industry, and institutions that build and strengthen
networks among firms and other actors to expedite the circulation of
knowledge. At the same time, city-regions act as crucial hubs for tap-
ping into global knowledge flows and disseminating that knowledge
and learning to their regional hinterlands.
Some city-regions benefit from specialization in activities in the
same and related industries, which generates positive effects related
to the concentration of suppliers, a dense labour market, and the spill-
over of ideas among related firms.12 Some observers also point to the
benefits of a diverse mix of economic activities. The urban economics
literature, following Jane Jacobs, suggests that ideas that are common-
place in one sector of the economy may be novel in another. Thus, the
opportunity for knowledge spillovers across economic sectors enhances
11 Brian Kahin, “Beyond the Box: Innovation Policy in an Innovation-Driven Economy,” Science
Progress [online]. (July 2009). www.scienceprogress.org/2009/07/beyond-the-box, p. 11.
12 Michael E. Porter, “Clusters and the New Economics of Competition,” Harvard Business
Review 77, 6 (November–December 1998), pp. 77–90.
17Chapter 1
the potential for innovation and the generation of new economic ideas
among local firms.13 However, a number of questions remain. There
is little agreement on the relative advantages of specialization versus
diversity, nor have discussions of these factors been linked to an under-
standing of the roles different cities play in a country’s urban system.
While the advantages of the largest city-regions as centres of innova-
tive activity appear to be well established, there is less consensus on
the prospects for mid-sized and smaller urban regions in the evolving
urban system. While the continuing importance of global linkages to
local economic activity is recognized, there is still little understanding
of how these distant connections complement the local dynamics of
knowledge circulation in city-regions.14
The analysis presented in this monograph explores the relationship
between specialization and diversity in city-regions; the difference
size makes to the nature of economic activity in different cities across
the country, as well as to their economic performance; and, finally, the
way the global embeddedness of the Canadian economy and its city-
regions affects the knowledge flows that contribute to innovation and
economic growth.
While scientific research and engineering capabilities have long
been seen as the keys to innovation and economic growth, there is also
recognition that additional skills associated with the cultural and cre-
ative occupations are important for economic success. This insight sug-
gests that cities with local concentrations of highly skilled and creative
workers have a potential advantage in attracting and retaining globally
mobile investment, as well as in generating indigenous growth in the
local economy. It is the social characteristics of particular places that
make them attractive to talented workers who are of primary import-
ance in sustaining local economic growth and prosperity. Such talent is
attracted to cities that can provide a wide range of employment oppor-
tunity, a critical mass of cultural activity and social diversity, and a
13 Jane Jacobs, The Economy of Cities (New York: Random House, 1969).
14 James Simmie and P. Wood, “Innovation and Competitive Cities in the Global Economy: Intro-
duction to the Special Issue,” European Planning Studies 10, 2 (March 2002), pp. 149–151.
18 21st Century Cities in Canada
welcoming attitude for newcomers. There is also increasing evidence
to indicate that the scientific and engineering occupations, tradition-
ally seen as essential for the growth of an innovative economy, are
also attracted to cities with strong concentrations of creative industries
and occupations.
A related attribute of city-regions that makes them centres of dyna-
mism and growth is their role as centres for the production of a range of
cultural products, including products as diverse as books and magazines,
television shows, films and videos, live and recorded music, new media,
advertising, design, live theatre, and museums. The common attributes of
these products are their high degree of creative content and the distinct-
ive pattern of innovation required to make them. Innovation in the cre-
ative and cultural industries is driven by the generation of content or the
creation of products, embodying a high degree of design, which are then
brought to market through a particular medium—be it books, television,
film, music, art, or digital media. Developing, attracting, and retaining
the talent capable of creating this content is critical to the vitality of these
industries. A common feature of most of these industries is the project-
based nature of their production process, which relies on the presence of
a large, diverse talent pool that can be assembled quickly and easily into
project teams to create individual productions. As Allen Scott and others
have argued, cities have long been the pre-eminent sites for the creation
of such cultural products.15
The migration of skilled labour has been an important factor in
shaping the character and geography of Canadian cities. However, it
has had a highly differentiated impact on specific places, according to
city size and relative location. Immigration has contributed to the dyna-
mism of the largest metropolitan areas, especially Toronto, Vancouver,
Montréal, Calgary, and Ottawa, by providing a key source of human
capital and talent. Immigration flows have enriched the cultural econ-
omies of these city-regions by endowing them with distinctive forms
of cultural capital. However, the benefits of immigration have not
15 Allen J. Scott, The Cultural Economy of Cities: Essays on the Geography of Image-Producing
Industries (London, and Thousand Oaks, Calif.: SAGE Publications, 2000).
19Chapter 1
been equitably distributed across all city-regions in the country. Mid-
sized and smaller cities, especially those more distant from large urban
regions, have limited prospects of benefiting from these flows of immi-
gration. Many are trying to cope with the loss of their own talent to
other parts of the country, as well as their inability to attract and retain
educated migrants from other countries.
While there is growing acceptance that the pursuit of a talent-based
strategy is essential for tapping into the full knowledge resources of
the labour force and the creative potential of cities, some question the
degree of social inclusion in this approach. A key challenge for urban
policy is to create the broader conditions to foster access to the educa-
tion, skills, and labour market opportunities that all groups in society
need to realize their full creative potential. Several questions follow
from this idea. For instance, how effectively are concerns regarding
social inclusion being incorporated into the talent-based development
strategies adopted by Canadian cities? An equally pressing concern is
how this approach applies to mid-sized and smaller cities. While many
larger urban regions exhibit a strong quality of place that can attract
and retain talented labour, will smaller urban regions with less distinct-
ive characters be relegated to the status of also-rans?
CIVIC ENGAGEMENT AND STRATEGIC GOVERNANCE
The need to forge better linkages among relevant institutions and
associated actors is a critical factor in urban economic development
policy. The Conference Board describes the shift from a top-down, gov-
ernment-knows-best approach to a more inclusive, multi-sectoral style
of local governance as “the big tent.16 Yet, recognizing the importance
of collaboration and coordination to effective policy development is only
part of the challenge; one must also understand the conditions that con-
tribute to their emergence and development. Among those conditions is
16 Brender, Cappe, and Golden, p. 76.
20 21st Century Cities in Canada
the emergence of strong, dynamic civic leaders with the ability to forge
broad and inclusive local development coalitions. A development coali-
tion is a place-based coalition of a diverse cross-section of social and
economic groups committed to the economic development of a specific
city-region.17 Effective policy coordination also requires a conception of
policy learning that focuses on the capacity of community-based organ-
izations and local governments to devise strategies to promote urban
economic growth in a knowledge-based and innovation-intensive era.18
The recognition that policy outcomes depend on the interaction
among a wide range of social and economic actors—including sub-
national governments, business, and not-for-profit organizations—has
led to a growing focus on the role of governance as opposed to govern-
ment. Central to the concept is the development of styles of governing
in which the boundaries between public and private actors, and even
across different levels of government, are blurred. Despite the inherent
challenge in moving to a more participatory and inclusive “big-tent”
approach to urban governance, there is evidence that such initiatives
are underway in a growing number of cities and city-regions across the
country. A number of them are engaging in strategic planning processes
to identify and mobilize their knowledge assets and chart a new direc-
tion for their local economy. The monograph draws on case studies
from across the country to investigate the specific conditions that facili-
tate or inhibit the emergence of effective collaborative leadership and
the broadly based civic engagement that integrates community stake-
holders into a more strategic approach to urban economic development.
This approach can succeed only if the prevailing structures of urban
governance provide the necessary support to allow strategic planning
exercises to be effective.
17 Michael Keating, “Governing Cities and Regions: Territorial Restructuring in a Global Age.” In
Allen J. Scott, ed., Global City-Regions: Trends, Theory, Policy (Oxford and New York: Oxford
University Press, 2001), p. 379.
18 Neil Bradford, Cities and Communities That Work: Innovative Practices, Enabling Policies
(Ottawa: Canadian Policy Research Networks, 2003), p. 11.
21Chapter 1
Despite the number of initiatives underway across the country, there
is concern about whether cities can mobilize sufficient policy and fiscal
resources to alter their economic futures. However, even though such
civic resources are necessary if a city-region is to develop an alternative
urban development strategy, they are not enough. The reality remains
that the preponderance of fiscal resources fall within the purview of
the two senior levels of government, not Canada’s urban governments.
The key challenge remains to effectively coordinate public expendi-
tures across all three levels of government in support of these goals and
objectives. That will require a more effective degree of policy alignment
across Canada’s multiple levels of governance. The mobilization of a
broad range of community-based actors can help align the expenditure
of public resources in the city-region in support of the strategic vision
that has been developed. This bottom-up, demand-pull perspective on
urban economic development can be thought of as the equivalent of a
“market signal” that tells senior levels of government where and how to
establish priorities and allocate funds.
OUTLINE OF THE MONOGRAPH
The economic future of Canada’s city-regions will be profoundly
affected by their performance on each of the dimensions discussed
above: the social nature of the innovation process in city-regions and
how it varies across cities of different sizes; the social foundations
of talent attraction and retention, and the extent to which these tasks
are carried out in a socially inclusive manner; and the degree of civic
engagement and the extent to which the relevant social and economic
actors gather under a “big tent” to formulate strategies for managing
their economic future.
The monograph investigates each of these themes in greater depth
by drawing on a broad selection of case studies on the role of innova-
tion and creativity in the economic performance of 16 cities and city-
regions across the country, undertaken by members of the Innovation
22 21st Century Cities in Canada
Systems Research Network over the past five years.19 The goal is to
develop a better understanding of the factors that influence the pattern
of urban economic development, particularly with respect to the role of
innovation across a range of large, medium-sized, and small Canadian
cities, and the role of talent and creativity, both cultural and scientific,
in fostering urban economic growth. The monograph explores the
implications of the shift from government to governance for the way
policy is formulated and implemented.
The second chapter surveys the findings and insights of recent
research from North America, Europe, and Asia on the role of innova-
tion and creativity in city-regions. It argues that the underlying social
dynamics of city-regions exert a strong influence on their innovative
performance and economic outcomes. While national institutions play
an important role in setting and delimiting the context for urban eco-
nomic development, the social and economic qualities of city-regions,
the relative degree of specialization and diversity in their industrial
structure, and the ways in which they are linked to the global economy
are critical to their overall economic performance. There is growing
evidence that the activities associated with the cultural and creative
industries, as well as industries that rely on design, are growing in sig-
nificance in the emerging cognitive-cultural economy. However, this
pattern is playing out differently across cities of different sizes, with
critical implications for their economic future.
The third chapter examines the relative standing of large, medium-
sized, and small cities in the Canadian urban system. It draws on a
range of case studies of different-sized cities to analyze how their rela-
tive degree of specialization or diversity affects their prospects for
economic growth. Particularly important is the changing role of the
creative and cultural industries in city-regions of different sizes, and
the way in which talent attraction and retention are influencing the
19 More details on the project can be found online at www.utoronto.ca/isrn/city-region_initiative/
index.html. Detailed conference presentations and conference papers on the results of the
individual case studies can also be found online at www.utoronto.ca/isrn/publications/NatMeeting/
index.html.
23Chapter 1
economic performance of these cities. The chapter also draws on data
for all of Canada’s census metropolitan areas and census agglomera-
tions to examine changes in their economic performance along some of
the key dimensions of innovation and creativity.
The fourth chapter explores the broader literature and research on
changing patterns of governance in urban regions. It examines the role
of civic leadership in building local civic capital and forging cohesive
development coalitions that can pursue strategic approaches to urban
economic development.
The fifth chapter draws on the Canadian case study literature to
analyze the recent experience of cities of differing sizes in increasing
civic engagement and adopting a more strategic approach to fostering
innovation and urban economic development. It also examines the
case studies for evidence that the three levels of government are begin-
ning to work across their respective jurisdictions to align their policies
more effectively.
The monograph concludes with a summary of the key themes that
emerge from the analysis and their implications for the changing role
of urban regions in Canada’s economic future. It explores the degree
to which the intersection of past trajectories of development and the
strategic choices made by city-regions affects their capacity to respond
to periods of rapid economic change. As noted above, a more strategic
approach to urban economic development requires not just a new cat-
egory of policy, but also a new style of policy development. Not all
cities will be equally successful in making this transition; the adoption
of such an approach is influenced by the legacy of their past pattern of
economic development, as well as their social and political capacity to
forge new ways of working with the senior levels of government and
aligning their initiatives with federal and provincial policies.
Innovation and Creativity
in City-Regions
2
27Chapter 2
INTRODUCTION
As the world economy becomes more globalized, cities and
regions need to create distinct advantages for their local econ-
omies. The introduction of new ideas in knowledge-intensive
production and service activities is the basis for economic perform-
ance and growth in the industrial countries. The interactive nature of
the innovation process means that city-regions are the critical space in
which social learning takes place. The dense concentration of economic
actors in cities offers multiple opportunities for contact, interaction,
and the exchange of ideas among highly skilled people. That makes
cities more, not less, important as sites for innovation and creativity in
knowledge-intensive goods and services. The foundation for economic
success in a globalized world involves not just the capacity for innova-
tion and creativity, but also the broader qualities of urban places that
support that innovation and creativity. The decisions made by individual
cities that strengthen or undermine these qualities are likely to have a
major impact on their future well-being.
Despite the growing recognition of the importance of city-regions as
the loci of knowledge creation and innovation, a number of questions
remain. First, there is considerable debate about how the economic struc-
ture and particular characteristics of urban economies affect innovation
and knowledge circulation within cities. Some analysts maintain that
the most important dynamics are those generated by the advantages that
accrue to firms located in dense clusters of similar and related firms—in
other words, dynamics generated by a greater degree of specialization
within city-regions. Conversely, others emphasize the potential for
innovation that arises when new forms of knowledge circulate among a
wide range of sectors within a city—in other words, from the dynamics
associated with greater diversity in the economic structure of a city-
region. In this latter view, ideas that are commonplace or widely
accepted within one particular sector of the economy may have novel
value in another. The possibility of this cross-fertilization arising from
an economic structure with greater variety enhances the potential for
the generation of new ideas and innovation within the local economy.
28 21st Century Cities in Canada
The question of whether industrial specialization or diversity has the
greater potential for innovation and growth within city-regions has
critical implications for their ability to adapt in a knowledge-based and
globalizing economy.
A second question concerns the relative advantages or disadvantages
associated with city size or urban agglomeration. There is widespread
agreement that the largest city-regions enjoy certain advantages as centres
of innovation and creativity, but they are also subject to greater costs that
result from rising land prices and the congestion associated with larger
size. The advantages derived from large, diversified economies, strong
research institutions, and a deeper talent pool may be offset by negative
consequences of urban agglomeration that weaken the social fabric of
these city-regions. There is an observed correlation between the overall
size of a city and the economic well-being of its inhabitants. In other
words, people in larger cities tend to enjoy higher average incomes,
but only up to a certain point. Statistical analysis undertaken by the
Organisation for Economic Co-operation and Development (OECD)
indicates that the relationship between urban size and income levels
changes once the population of a city-region grows beyond 6 million
people. At this point, the negative effects associated with greater con-
gestion, higher commuting costs, increased logistics costs, higher rents,
environmental degradation, and rising social inequality outweigh the
positive effects associated with urban concentration.1 Bigger does not
necessarily mean better in all cases, and “the growth capacity of metro-
regions should not be over-estimated as metro-regions are not always
synonymous with success.”2 The underlying criterion for success in the
emerging knowledge-based economy is whether city-regions, regardless
of their size, are able to build the local institutions to generate the kind
of activities that nurture innovation in a knowledge-intensive economy.
Which economic activities are sufficiently valuable to offset the effects
of these “diseconomies” of scale in large city-regions? While there
1 Organisation for Economic Co-operation and Development (OECD), Territorial Reviews: Com-
petitive Cities in the Global Economy (Paris: OECD, 2006), p. 51.
2 Ibid., p.15.
29Chapter 2
is only one city-region in Canada approaching this scale, the Greater
Toronto Area, few would deny that some of the negative effects
associated with this increased size have already begun to make an
unwelcome appearance.
At the same time, there is less agreement on the prospects for mid-
sized and small cities. Small and medium-sized cities often operate
from a more specialized industrial base concentrated in a few economic
sectors. That offers some advantages, but the future of these cities is
closely tied to the specific industries in which they are specialized. The
industrial structure of such cities increases the risk that they will be
locked into declining sectors or obsolete technologies that may be sup-
planted by newer ones. One consequence is that the economic fate of
these cities may depend less on their degree of specialization than on the
specific sectors in which they are specialized. At the same time, the speed
or flexibility with which their economies can shift from declining sectors
to emerging ones may have a disproportionate effect on their economic
future. The ability of city-regions to adapt to and absorb rapid changes in
technology, and the competitiveness of their industrial mix, are critical
to their economic future.
Finally, the social changes associated with these economic trends will
also have an important effect on the future state of our cities. Quality of
place is an important factor underlying the social dynamics and economic
performance of city-regions. Urban areas that foster positive attitudes
toward tolerance and social diversity are more likely to succeed in
attracting and retaining highly skilled and creative workers.3 Yet there is
also evidence that while some people in large urban centres benefit from
highly skilled jobs in knowledge-intensive industries, a significant number
remain trapped in low-wage, contingent jobs, leading to increased social
polarization. There is good reason to believe that the growing bifurcation
3 Richard Florida, Charlotta Mellander, and Kevin Stolarick, “Inside the Black Box of Regional
Development—Human Capital, the Creative Class and Tolerance,” Journal of Economic Geography
8, 5 (2008), pp. 615–649.
30 21st Century Cities in Canada
of employment opportunities in urban centres is less than coincidental,
as the low-wage workers are concentrated in the range of services occu-
pations necessary to support a large-scale urban system.
This chapter draws on recent empirical research and conceptual
analysis to explore these issues. It sets out a framework for understanding
the implications of city size, the relative degree of specialization and
diversity in cities, the contribution of a talented and creative workforce,
and the dangers of increasing social polarization for the economic
performance of city-regions. The framework developed in this chapter
is used in Chapter 3 to analyze how these trends are currently playing
out across a range of Canadian cities.
INDUSTRIAL EVOLUTION AND THE LIFE CYCLE OF CITY-REGIONS
One of the defining features of contemporary economies is the central
role of knowledge and learning in creating economic value and deter-
mining competitive success. The literature on this point is abundant and
compelling: Innovation is a socially organized process that depends on
interactive, social learning among individuals and firms.4 The critical
issue is how the socially embedded nature of the innovation process
affects economic growth and development in an urban setting. A number
of theories have been advanced to explain the relative pace of industrial
growth and decline in city-regions. Traditional explanations of the factors
that affect the economic performance of city-regions have been framed
in terms of the origins and growth of urban centres; the relationship
between the concentration of firms in an urban economy and the growth
of local labour markets; the relative degree of specialization or diversity
that characterizes the economic structure of individual cities; and
the relative importance of lifestyle amenities and the quality of place
4 Bengt-Åke Lundvall, “Introduction.” In Bengt-Åke Lundvall, ed., National Systems of Innovation:
Towards a Theory of Innovation and Interactive Learning (London: Pinter Publishers, 1992),
pp. 1–19.
31Chapter 2
in increasing the attractiveness of particular cities.5 Recent research
suggests that these issues need to be considered within the context
of a broader set of changes that influence the economic performance
of city-regions. The additional factors include the relative size of the
individual city, the city’s point of insertion into an evolving global
hierarchy of urban centres, and the evolution of the city’s industrial
structure toward the growth of higher-level business services associated
with a more knowledge-intensive economy. The following discussion
surveys the influence that this range of factors exerts over the economic
performance of city-regions.
There is a close relationship between the locational choices of firms
and those of individuals, particularly people with the higher level of
educational qualifications and occupational skills that are in increasing
demand. Conventional theories of urban economic growth emphasize
the historical decisions made by firms regarding where to locate. These
decisions were often influenced by physical factors, such as the practical
necessity of locating near conventional modes of transportation such as
rivers, coastal harbours, or railway lines, or the advantage of operating
near rich endowments of natural resources. As transportation systems
improved in the post-war period, especially with the introduction of
intercity highway networks in the 1950s and 1960s and the deregulation
of airline travel in the 1970s, the relative weight of these historical factors
in determining urban location was reduced. Some researchers point
to the greater impact that the mobility of highly skilled and educated
workers attracted to locations with high levels of climatic or lifestyle
amenities has on urban growth.6 At the heart of this debate is a question
about how the locational choices of individuals intersect with and
reinforce those made by firms to contribute to the growth and dynamism
of modern cities: Do people choose to locate where they find the greatest
5 David A. Wolfe and Allison Bramwell, “Innovation, Creativity and Governance: Social Dynamics
of Economic Performance in City-Regions.” Innovation: Management, Policy & Practice, 10,
2–3, (October–December 2008), p. 172.
6 Edward L. Glaeser and Joshua D. Gottlieb, “Urban Resurgence and the Consumer City,” Urban
Studies 43, 8 (July 2006), pp. 1275–1299.
32 21st Century Cities in Canada
number of job opportunities, or do businesses locate in city-regions with
the largest potential labour market? The debate has serious implications
for the type of policy levers that governments at all levels may deploy
most effectively to stimulate urban economic growth.
A related issue concerns the advantages that firms derive from col-
locating in cities with firms in similar or different industries, and which
type of structure contributes most to industrial innovation and economic
growth. One perspective emphasizes the benefits for urban economic
growth of specialization in similar or closely related industries, while
the alternative focuses on the advantages that flow from a diverse and
variegated urban environment. The first approach argues that the advan-
tages created by a dense network of suppliers, a deep pool of skilled
labour, and the knowledge spillovers that occur among geographically
concentrated groups of firms in related industries make the most sig-
nificant contribution to growth. These advantages are associated with a
greater degree of specialization in an urban economy. The advantages
are derived from factors that lie outside the boundaries of the individual
firm, but are embedded in the industrial sector found in a particular city.
This perspective draws on a tradition dating back to the late 19th cen-
tury, which suggests that once a region or city establishes itself in a par-
ticular set of production activities, its chances for continued growth tend
to be high. Paul Krugman, building on a tradition that dates from the
work of Alfred Marshall in the early 20th century, suggests that three
types of benefits are created for firms located in the same city-region
that specialize in similar technologies or production techniques. The
first is the deep pool of specialized labour created by the concentration
of firms within similar industries, which makes it easier to hire people
with the specialized skills the firms require and attracts more workers to
the city-region because of the resulting employment opportunities. The
second benefit is the fact that a local concentration of firms in the same
industry can support a larger number of specialized providers of inter-
mediate inputs or services, thus enabling firms to concentrate on their
areas of competence through the specialized division of labour in the
local economy. Finally, knowledge is transferred more easily among
firms located close to each other in a city-region than it is over longer
33Chapter 2
distances. The transfer of knowledge between firms in the same industrial
sector in the same city-region occurs through the mobility of specialized
labour among them, through the tendency of serial entrepreneurs to
establish a succession of firms in the same city, and through the “learning-
by-observing” effects of densely concentrated industries.7 Overall, firms
benefit from the process of industrial clustering, which increases sectoral
specialization in particular regions over time.8
The contrasting perspective, frequently associated with the work of
Jane Jacobs, suggests that new and innovative ideas often come from
different industrial sectors. Therefore, city-regions that are endowed
with a diverse range of different industries, rather than those that are
specialized in a smaller number of industrial sectors, have the conditions
that are most conducive to innovation and growth. Innovative ideas are
derived by applying knowledge that may be considered standard in one
sector to help solve problems or develop new products in another sector
of the local economy. From this perspective, larger city-regions, with a
broader cross-section of diverse industries, have a greater potential for
generating innovative new ideas and, as a result, enjoy faster rates of
growth and higher levels of innovation than do smaller ones. Jacobs also
suggested that competition among alternative sets of ideas embodied
in a diverse set of economic actors is more conducive to generating new
knowledge than the local monopoly over ideas that exists in a more
specialized urban economy.9
These competing views on the sources of urban economic growth
have stimulated a considerable amount of academic research that has
generated support for both sides of the argument, providing additional
fuel for the ongoing debate.10 The results of some initial studies
found greater support for Jane Jacobs’ hypothesis. An early study by
7 Paul Krugman, Geography and Trade (Cambridge, Massachusetts: MIT Press, 1991).
8 Gregory Spencer et al., “Do Clusters Make a Difference? Dening and Assessing Their Economic
Performance,” Regional Studies (forthcoming 2010).
9 Jane Jacobs, The Economy of Cities (New York: Random House, 1969).
10 Catherine Beaudry and Andrea Schiffauerova, “Who’s Right, Marshall or Jacobs? The Localization
Versus Urbanization Debate,” Research Policy 38, 2 (2009), pp. 318–337.
34 21st Century Cities in Canada
Ed Glaeser and his collaborators measured employment growth in a
cross-section of manufacturing industries using data from 170 American
cities between 1956 and 1987. The researchers found that, at the industry
level for individual cities, “specialization hurts, competition helps, and
city diversity helps employment growth.11 Feldman and Audretsch sub-
sequently examined innovation patterns in knowledge-based industries
in the U.S. and found that the presence of complementary industries that
draw upon a common base of scientific knowledge provided a stimulus
for innovation. Furthermore, cities that have a greater degree of com-
petition for new ideas are more supportive of innovative activity than
cities with a greater degree of concentration, which is consistent with
Jacobs’ suggestion. The degree of innovative activity tended to be
lower in cities that were primarily specialized in a particular industry,
whereas a stronger presence of complementary industries that drew
on a common base of scientific knowledge generated a higher level of
innovative activity.12
Conversely, a study by Vernon Henderson demonstrated that single-
plant firms in a city benefited from their collocation with a greater
number of firms in their own industry, but there was limited evidence
to suggest that these firms benefited from the presence of other firms
in a diverse range of local industries other than their own. The study
thus found little evidence that firms benefit from the type of industrial
diversity suggested by Jane Jacobs. Henderson concluded that industrial
specialization in particular cities helps the firms involved realize greater
economies of scale, and benefit from lower rents and congestion costs.
However, the study also revealed an important finding related to urban
size: the economies of many smaller metropolitan areas tended to exhibit
a greater degree of specialization in more standardized manufacturing
activities—such as the production of textiles, food processing, autos,
11 Edward L. Glaeser, Hedi D. Kallal, Jose A. Scheinkman, and Andrei Shleifer, “Growth in Cities,”
Journal of Political Economy 100, 6 (December 1992), p. 1150.
12 Maryann P. Feldman and David B. Audretsch, “Innovation in Cities: Science-Based Diversity,
Specialization and Localized Competition,” European Economic Review 43, 2 (February 1999),
pp. 409–429.
35Chapter 2
steel and wood products—where the economic benefits associated with
specialization can be realized. Conversely, the economies of larger cities
tended to be more specialized in knowledge-intensive services, such as
finance, real estate, insurance, and newer industries, such as electronic
components and instruments.13
The extensive research in the field provides some evidence to sup-
port both perspectives: that the presence of specialized and diversified
urban economies contributes to the overall performance of city-regions,
but the two factors may act in different ways in different-sized
cities. A recent survey of the literature suggests a possible explanation
for the apparently contradictory results. The outcomes reported by
different studies may be the result of the specific industries selected
for examination. Those industries with a base in more traditional,
standardized methods of production tend to demonstrate the benefits
resulting from a greater degree of specialization than do sectors based in
high technology. The results are also affected by the range of indicators
selected as evidence of economic performance. Different indicators,
such as the level of employment growth, the degree of productivity
increase, and the amount of innovation, can have a different effect on
the results of the study. Most significant, however, is the suggestion
that part of the confusion may arise from the omission of time as a factor
in determining whether the economic benefits associated with special-
ization or diversity exert a more important influence on the economic
performance of firms in city-regions. In effect, “. . . the role of externalities
varies according to the maturity of the industry. Jacobs externalities
predominate in the early stages of the industry life cycle, whereas
Marshall externalities enter at a later point, and in the end, specialization
will, in fact, hinder economic growth.”14
This conclusion is consistent with other recent contributions, which
suggest that the introduction of an industry life cycle perspective, as well
as a better appreciation of the relationship between city size and diversity
13 J. Vernon Henderson, “Marshall’s Scale Economies,” Journal of Urban Economics 53, 1
(January 2003), pp. 1–28.
14 Beaudry and Schiffauerova, p. 334.
36 21st Century Cities in Canada
or specialization, may provide a better understanding of the relative
contribution made by industrial specialization and diversification to
urban economic growth. The economic benefits associated with a more
diversified local economy play different roles in the innovation process
at various stages in the maturity of the industry, while differences in
population also affect cities’ ability to create and diffuse new knowledge.
In an attempt to reconcile the contradictory findings described above,
Gilles Duranton and Diego Puga have suggested that firms often
develop new products in the diversified, creative environment found in
larger urban centres, but as the technology and industry mature, there
is a strong incentive for them to relocate to more specialized cities
in the mass production phase of the industry’s life cycle in order to
exploit urban cost advantages. Larger city-regions tend to be more
diversified and knowledge-intensive than medium-sized and small
cities. Where large cities tend to have multiple specializations, medium-
sized cities have significantly fewer.15 Related findings reveal that levels
of innovative activity are also strongly linked to city size, with R&D,
patenting, and major product innovations much more concentrated
in large urban areas.16
This insight is reinforced by an argument that links industrial activity,
economic fortunes, and city size. Large cities with a diversified indus-
trial base are more insulated from the impacts of economic change,
while smaller ones with a narrower industrial base are more subject to a
life cycle of growth and decline.17 While a greater degree of specializa-
tion does stimulate the growth of some medium-sized cities, the outlook
for those cities is linked to the economic prospects of the specific sectors
in which they are specialized. Once the sectors lose their competitive
edge, the cities may lack the knowledge assets or the quality of place
15 Gilles Duranton and Diego Puga, “Diversity and Specialization in Cities: Why, Where and When
Does It Matter?,” Urban Studies 37, 3 (2000), pp. 533–555.
16 David B. Audretsch, “The Innovative Advantage of U.S. Cities,” European Planning Studies
10, 2 (March 2002), p. 170.
17 Elise S. Brezis and Paul Krugman, “Technology and the Life Cycle of Cities,” Journal of Economic
Growth 2, 4 (December 1997), pp. 369–383.
37Chapter 2
to compete or diversify their local economy into newer and expanding
industries. They are often confronted with the challenge of regenerating
their local basis for economic development without the institutional
capacity that can furnish a fresh supply of ideas and new sources of
growth. This suggests that ultimately the source of innovation and
economic growth for a city-region does not rest simply on the degree
of specialization or diversification in its industrial structure, but more
importantly on the resilience of the city-region in mobilizing its eco-
nomic assets in the pursuit of a new basis for growth.
This insight suggests that variations in the ability of cities to create and
diffuse new knowledge appear to be important for the cities’ long-term
growth prospects, as well as their ability to adjust to changing economic
conditions and recover from a decline in the economic fortunes of the
industrial sectors in which they were specialized. Cities with a greater
specialization in the kinds of knowledge-intensive service activities
associated with the growing information economy tend to have stronger
economies than places without any specialization. That is not particu-
larly surprising, given that the globally focused information sector is the
fastest growing part of the U.S. economy and is concentrated in its largest
metropolitan areas.18 The growing significance of the information
sector to the economic performance of individual cities is reinforced
by work on the geography of the Internet economy. The spatial
clustering of the Internet-related production of goods and services
is not distributed on the basis of population patterns, but according
to the geographic concentration of the information economy.19 Large
concentrations of the advanced producer services documented by
Matthew Drennan—finance, media, entertainment, health, technology,
and related industries—constitute the control centres of the information
18 Matthew P. Drennan, The Information Economy and American Cities (Baltimore: The Johns
Hopkins University Press, 2002), p. 6.
19 Matthew A. Zook, The Geography of the Internet Industry: Venture Capital, Dot-Coms, and Local
Knowledge (Malden, Mass.: Blackwell Publishing, 2005).
38 21st Century Cities in Canada
economy. The growing impact of telecommunications and computer
networks reinforce these concentrations of high value-added producer
services in a few large metropolitan centres.20
The growing centrality of knowledge-intensive activity to urban
competitiveness suggests that the growth potential of cities increas-
ingly depends on their ability to utilize their local knowledge assets to
develop greater specialization in growing knowledge-intensive areas of
economic activity. That introduces a distinctly Schumpeterian dimen-
sion into the analysis of urban economics that underlines the impact of
the capacity to innovate. New economy sectors are sustained by the con-
tinuous pace of innovation and learning needed to keep abreast of the
rapidly moving knowledge frontier in their industries. However, this
need for continuous innovation extends well beyond the manufacturing
sector of the economy. Analyses of the modern economy that are con-
strained by conventional 20th century definitions of industrial sectors
are being overtaken by the growing integration of manufacturing and
service activities: firms must be able to integrate their manufacturing
capabilities with more knowledge-intensive activities to maintain their
competitive edge.21 In an innovative economy where the knowledge
frontier is moving rapidly, dynamic cities are those able to draw on their
local knowledge assets and research infrastructure to reinvent them-
selves by moving from one field of specialization to another. In this
transition, existing industries may provide the essential building blocks
for the emergence of a new innovative industry, because the skills
and talents that have accumulated over time in the city may furnish
critical inputs needed by the emerging industry, as has been the case with
20 Manuel Castells, The Internet Galaxy: Reflections on the Internet, Business, and Society (Oxford
and New York: Oxford University Press, 2001), pp. 222–231.
21 James Simmie and Peter Wood, “Innovation and Competitive Cities in the Global Economy,
European Planning Studies 10, 2 (March 2002), pp. 149–151.
39Chapter 2
the digital media industry.22 The successful development of these new
industries and clusters, many of which involve information-intensive
activities, is a path-dependent process, which builds on the distinctive
knowledge and industrial bases of individual cities. As a result, the ability
of individual city-regions to marshal their local knowledge assets and
develop local concentrations of expertise in emerging technology areas
may be a good indicator of their prospects for resurgence and growth. As
two experts put it, “[T]he important question may not be specialization
versus diversity but whether a city has specialized in the right thing at
the right time.”23
The capacity of individual cities to effect this transition to newer
and more information-intensive forms of industrial activity does not
just depend on the functioning of autonomous market-based processes;
it is also affected by the cities’ institutional and political structures. The
emergence of new technologies and industrial sectors is often associated
with a corresponding set of changes in the industrial geography of par-
ticular cities and regions. It is not surprising that the new information
technologies or biotechnologies tend to be associated with names such as
Silicon Valley, San Diego, Austin (Texas), or Research Triangle Park—
places that scarcely registered on the industrial map of the U.S. prior
to 1970. However, the ready association of these industries with upstart
metropolitan areas often resulted from the ability of local business,
and civic and political leaders to take advantage of the opportunities
created by the emergence of new technologies.
At the same time, this transition poses significant economic challenges
for the older, established metropolitan areas in the U.S., Europe, and
Canada that dominated the previous industrial era. These cities were once
the pinnacles of economic growth and prosperity to which other
urban regions aspired: “[T]he Silicon Valleys of the Second Industrial
22 Shauna G. Brail and Meric S. Gertler, “The Digital Regional Economy: Emergence and Evolution
of Toronto’s Multimedia Cluster.” In Hans-Joachim Braczyk, Gerhard Fuchs, and Hans-
Georg Wolf, eds., Multimedia and Regional Economic Restructuring (London and New York:
Routledge, 1999).
23 Michael Storper and Michael Manville, “Behaviour, Preferences and Cities: Urban Theory and
Urban Resurgence,” Urban Studies 43, 8 (July 2006), p. 1250.
40 21st Century Cities in Canada
Revolution had names like Akron, Detroit, Pittsburgh, and Rochester.”24
While some older industrial cities in the U.S. have experienced recent
economic growth and resurgence due to their ability to shift to knowledge-
intensive activities, others have not. Cities and regions that remain
locked into traditional specializations in mature manufacturing and are
unable to capitalize on their existing knowledge assets or mobilize their
local endowments of human capital face greater challenges in effecting
this transition. However, as noted at the outset, this capacity is very
much determined by the structure and the operation of their local civic
and political institutions—a subject that will be examined in greater
depth in Chapter 4.
DIVERSITY AND THE EMERGENCE OF AN INTERNATIONAL
HIERARCHY OF CITIES
The relation between the size of a city-region and its economic pros-
pects is not determined solely by its relative standing within the national
economy, but also depends on its place within an emerging hierarchy
of global or world cities. In the early 1970s, Canadian economist
Stephen Hymer suggested that the growing predominance of multi-
national corporations in the global economy was likely to have a
corresponding effect on the stratification of cities around the world,
creating a new global division of labour between geographic areas
corresponding to the vertical one within the firm. It would result in a
concentration of those occupations with responsibility for corporate
decision making within a few of the world’s major cities—such as New
York, London, Paris, Frankfurt, and Tokyo—supported, in turn, by a lar-
ger number of regional hubs. He maintained that the structure of income
24 Sean Safford, Searching for Silicon Valley in the Rustbelt: The Evolution of Knowledge Net-
works in Akron and Rochester, working paper (Cambridge, Mass.: MIT Industrial Performance
Centre, 2004), p. 16.
41Chapter 2
and consumption in those major cities would match the distribution
of status and authority, with the citizens of these global capitals enjoying
the best jobs and the highest rates of remuneration.25
In the decades since then, this provocative insight has been expanded
upon in the growing literature on the stature and importance of “world
cities” or “global cities.” In a seminal paper, John Friedman formulated
a hypothesis about the emerging character of world cities as the basing
points for global capital in the spatial organization of production activities
and markets. He suggested that the resulting linkages made it possible to
order world cities into a spatial hierarchy.26 According to Saskia Sassen,
the fundamental dynamic at work “is that the more globalized the econ-
omy becomes, the higher the agglomeration of central functions in a
relatively few sites . . . the global cities.”27 The position of these cities
in the global hierarchy is determined not only by the role they play
in coordinating the processes of production and distribution of goods
around the world, but also by their role in providing the increasingly spe-
cialized services that large, complex firms require to manage a spatially
distributed network of offices, factories, and distribution centres.
Increasingly, these global cities have also become the key sites for
innovation in the financial services industry and the development of new
financial instruments, which have been two of the most notable features
of the global economy since the 1980s. Rather than being distributed at
random around the world, as some enthusiastic supporters of the digital
revolution maintained,28 these high-end financial and information
25 Stephen Hymer, “The Multinational Corporation and the Law of Uneven Development.” In Jagdish
N. Bhagwati, ed., Economics and World Order From the 1970s to the 1990s (London: Collier-
Macmillan, 1972).
26 John Friedman, “The World City Hypothesis,” Development and Change 17, 1 (January 1986),
pp. 69–83.
27 Saskia Sassen, The Global City: New York, London, Tokyo (Princeton, N.J.: Princeton University
Press, 2001), p. 5.
28 Frances Cairncross, The Death of Distance: How the Communications Revolution Is Changing
Our Lives (Boston: Harvard Business School Press, 2001).
42 21st Century Cities in Canada
services have in fact become ever more concentrated in the central
business districts of a few leading cities that are specialized in the pro-
duction of producer and financial services.
Below this narrow tier of truly global cities is a wider range of urban
centres with a concentration of diverse knowledge-intensive production
and service activities that act as the economic hubs of their respective
national economies and serve as the principal nodes linking those econ-
omies into the global economy.29 James Simmie argues that knowledge-
intensive innovation is concentrated in a minority of the largest urban
regions for several reasons. While innovative urban regions draw on
their own knowledge assets, the ability to capture both local and global
knowledge flows—“local capacity and international connections”—is
increasingly necessary to reduce the uncertainty inherent in the innovation
process. The ability of innovative firms to capture market share outside
their own region is linked to their capacity to generate new products and
services that draw on external sources of knowledge to a greater extent
than less innovative companies do. The most successful cities are those
that “are able to combine both rich local knowledge spillovers and inter-
national best practice in the design and specifications of innovation.30
International gateway cities—such as Paris, London, Tokyo, New
York, and Los Angeles—located at the peak of the urban hierarchy
achieve a higher level of economic performance because of their access
to large pools of highly specialized and technical workers and the wide
range of innovative firms located in the cities. They play a central role as
knowledge hubs—both for their countries and for the wider world—due
to their ability to attract exceptional talent, and to capitalize on global
and local sources of knowledge, much of which flows through their
local companies.
29 James Simmie, “Innovation and Urban Regions as National and International Nodes for the
Transfer and Sharing of Knowledge,” Regional Studies 37, 6 & 7 (August 2003), pp. 607–620.
30 Ibid., “Knowledge Spillovers and Reasons for the Concentration of Innovative SMEs,” Urban
Studies 39, 5 & 6 (May 2002), pp. 885–886.
43Chapter 2
However, these leading cities are not the only sources of innovation.
Regional hubs, such as Montréal, Toronto, Boston, and Milan, are also
highly competitive and play an important role in the global hierarchy.
So do national and regional hub cities that share certain critical features.
They contain high proportions of elite business and political leaders with
the authority to make local investment decisions, which gives these urban
areas a greater degree of autonomy. With their large populations, these
cities also enjoy the benefits of economic agglomeration due to the con-
centration of a wide range of knowledgeable collaborators from different
disciplines who can contribute to the innovation process.31
Specialized knowledge transfers occur to a disproportionate extent
among the minority of cities at the top of the emerging international
hierarchy. Knowledge transfers between places such as Silicon Valley,
Route 128 in Massachusetts, Berlin, Stockholm, Greater Southeast
London, Baden-Württemberg, and Île de France occur “because they
are often repositories of leading-edge knowledge in the activities in
which they are specialized.”32 Medium-sized cities that are specialized
in a narrower range of industrial activities can serve as hubs for their
regional economies, but they have more limited access to global know-
ledge flows and trade. The most dynamic medium-sized cities, which
make the most effective use of local institutional research supports
(universities) and social networks, are able to specialize successfully in
knowledge-intensive industrial activities.33
31 Simmie, “Knowledge Spillovers and Reasons for the Concentration of Innovative SMEs.”
32 Ibid., “Innovation and Urban Regions as National and International Nodes for the Transfer and
Sharing of Knowledge,” p. 617.
33 Safford.
44 21st Century Cities in Canada
URBAN AGGLOMERATION AND THE CONCENTRATION OF
TALENT AND CREATIVITY
Another view of the underlying determinants of urban dynamism and
economic growth focuses on the crucial role of talent and creativity. The
critical link between innovation, personalized knowledge exchanges,
and economic growth makes the most important locational asset a dense
labour market of highly educated and creative workers—what Cooke
calls “regional talent pools of global significance”—with the potential to
attract and embed globally mobile investment, and generate innovative
growth.34 This view suggests that the local attributes that attract talented
workers are of paramount importance in determining local economic
prosperity. Such talent is attracted to and retained by cities, but not just
any cities; those that offer rich employment opportunities, a high quality
of life, a critical mass of cultural and entertainment activity, and social
diversity are said to exert the strongest pull.35
A different line of argument maintains that the causal link between
concentrations of creative and talented workers and regional economic
growth may in fact be reversed. The preference of firms for locating in
regions with large, diversified economies may be the primary factor in
attracting and retaining large concentrations of creative workers, thus
stimulating urban growth and innovation. “Though person-embodied tal-
ent remains a critical input into innovation, it needs to be considered in
the context of the other factors discussed above, such as city size, industry
specialization, local institutional infrastructure, and knowledge flows.36
Recent theories about the connection between the skill levels of
creative workers and the economic performance of cities, such as
Richard Florida’s idea of the “creative class,” identify the presence of
knowledge-intensive industries in the city by measuring occupational
categories rather than the industrial composition of the local economy.
34 Philip Cooke, “Regional Innovation, Entrepreneurship and Talent Systems,” International Journal
of Entrepreneurship and Innovation Management 7, 2/3/4/5 (2007), pp. 117–139.
35 Glaeser and Gottlieb.
36 Wolfe and Bramwell, p. 177.
45Chapter 2
The creative class—people whose jobs add economic value through
their creativity—includes knowledge workers, symbolic analysts, and
professional and technical workers. The key driver of innovation in the
creative economy is not restricted to scientific and engineering occu-
pations, but includes a wide range of idea-generating and knowledge-
intensive occupations. However, the definition of the “creative class”
suggests that certain occupations are more important for innovation and
regional development than others.
Florida defines the creative core of this new class as including those
whose work involves “producing new forms or designs that are readily
transferable and widely useful—such as designing a product that can
be widely made, sold and used; coming up with a theorem or strategy
that can be applied in many cases; or composing music that can be
performed again and again.”37 Recent research has also found positive
correlations between economic dynamism and agglomerations of artists,
other non-science occupations, and entrepreneurs. There are relatively
high correlations between artistic and entertainment occupations and
regional labour productivity.38 These findings suggest that urban labour
markets that contain a high concentration of artistic and creative occu-
pations have an effect on urban economic growth similar to the effects
that Jane Jacobs ascribed to the presence of a diversified industrial base.
The positive contribution of human capital to urban growth rests on the
concentration of a diverse labour pool rich in the creative occupations
described above.
In addition, the more concentrated the talent, the more innovative the
output. One of the key advantages of cities in a globalized economy is
that they reduce the cost of knowledge transfer, and act as centres of idea
creation and diffusion where talent clusters. There is also a strong correl-
ation between population density in general, and the density of creative
37 Richard Florida, The Rise of the Creative Class: And How It’s Transforming Work, Leisure, Com-
munity and Everyday Life (New York: Basic Books, 2002), p. 69.
38 Timothy R. Wojan, Dayton M. Lambert, and David A. McGranahan, “Emoting With Their Feet:
Bohemian Attraction to Creative Milieu,Journal of Economic Geography 7, 6 (2007), pp. 711–736.
Also Ann Markusen and Greg Schrock, “The Artistic Dividend: Urban Artistic Specialisation and
Economic Development Implications,” Urban Studies 43, 10 (September 2006), pp. 1661–1686.
46 21st Century Cities in Canada
workers in particular, and metropolitan patenting activity, suggesting
that the population density of cities is a critical factor for knowledge
spillovers and innovation.39 Consistent with the findings that the largest
cities attract the strongest flows of knowledge, the effect of creative
density on innovation in the U.S. is found to be the greatest in cities
with a population of over 1 million. The relationship appears significant
only at that level, suggesting that the innovative advantages accruing to
large cities arise from the high concentration of technologically intensive
manufacturing sectors, as well as a disproportionate share of the highly
educated population.40 A related finding is that human capital levels
are becoming more unequally distributed across urban centres, giving
cities with greater concentrations of human capital a distinct advantage.
Glaeser and Gottlieb suggest that the resurgence of cities such as
London, New York, Boston, and Chicago in recent decades is partly
attributable to the increase in the importance of knowledge to economic
activity, so that “the biggest, densest cities appear to have a comparative
advantage in facilitating the flow of knowledge,” partly due to rising
consumer preferences for the sophisticated urban amenities, such as
entertainment, found in these cities.41
From the “Creative Class” to the “Creative Economy”:
Cities as “Schumpeterian Hubs”
Critiques of those studies that find a positive correlation between
urban concentrations of talent and human capital in urban centres and
the prospects for economic growth suggest that the high concentrations
of human capital may be the result of other positive externalities found in
these cities. The basis of the criticism is that the skills-led explanations
of economic growth espoused by Glaeser, Florida, and others may confuse
the nature of the relationship between the locational decisions of
39 Gerald A. Carlino, Satyajit Chatterjee, and Robert M. Hunt, “Urban Density and the Rate of Inven-
tion,” Journal of Urban Economics 61, 3 (May 2007), pp. 389–417.
40 Brian Knudsen, Richard Florida, Kevin Stolarick, and Gary Gates, “Density and Creativity in U.S.
Regions,” Annals of the Association of American Geographers 98, 2 (June 2008), p. 472.
41 Glaeser and Gottlieb, p. 1275.
47Chapter 2
individual workers—creative or otherwise—and those of firms. These
critiques argue that the primary determinant of economic growth in cities
is not the locational preferences of highly skilled and creative workers,
but of the concentration of firms that generate a dense labour market in
the first place. Pointing to the fact that economic resurgence has occurred
not just in Sunbelt cities, but also in “old, cold, dense city-regions”
such as Boston, Chicago, and New York, Storper and Manville argue
that recent population growth in cities—both older, northern ones and
new, southern ones—is linked to shifts in regional economic geography
and industrial activity. Workers are drawn to urban centres where
employment opportunities are the greatest, not just to those with lifestyle
amenities such as shopping and entertainment, which are ubiquitous
and readily available in most cities of a certain size:
Jacobs, Florida, and Glaeser are all on to something
in claiming that skills and amenities go together, but
they may have got their causality reversed. It is the fact
that these skilled workers are congregated in certain
places that leads to the presence of amenities and, in
some cases, makes the places tolerant and bohemian
as well.42
The argument that workers are attracted by employment oppor-
tunities more than by consumer, lifestyle, and social amenities sug-
gests that explanations of urban economic growth need to be more
nuanced. While many industrial activities still occur in identifiable
sectors staffed by industry-specific occupations, many of the know-
ledge-intensive activities associated with new and emerging sectors of
the economy are less easily categorized. Changing patterns of urban
development are similarly ambiguous. Allen Scott describes shifts in
the nature of economic activity in terms of an emerging “cognitive-
cultural economy” where leading-edge economic growth and innov-
ation are driven by “technology-intensive manufacturing, diverse
42 Storper and Manville, p. 1254.
48 21st Century Cities in Canada
services, ‘fashion-oriented neo-artisanal production,’ and cultural
products industries.43 The shift to this new form of production is
facilitated by the steady adoption of digital technologies for creat-
ing more customized goods through a less routinized organization of
the production process. In this view, the location choices of the cre-
ative class and related concentrations of human capital result from the
broader economic transformation to a knowledge-based economy that
is underway. The larger forces at work are the outcome of historically
conditioned trajectories of urban economic growth, where the supply
of, and demand for, labour evolve in a mutually reinforcing fashion.
The decline and resurgence of urban centres occur through the mutual
attraction of capital and labour in an interdependent spiral, but labour
is not the primary factor; local economic growth is anchored primarily
by the preferences of firms.
The interaction between the location decisions of firms and those
of highly skilled workers is strongly influenced, though not completely
determined, by city size. The “cognitive-cultural economy” is most evi-
dent in large metropolitan areas or “flagship hubs,” such as New York,
London, Paris, Amsterdam, and Tokyo, where production activities
are densely concentrated in firms with global market reach. However,
smaller cities, such as Nashville and Austin in the U.S., or Halifax in
Canada, have also developed large concentrations of artistic talent and
cultural activity. New information technologies permit the simultaneous
dispersion and concentration of economic activity, allowing producers
in various urban centres to benefit from the local knowledge flows in
a specific location, as well as to access global knowledge flows and
markets. Virtuous cycles of growth result as the number of producers
increases and local growth accelerates, leading to a deepening of localized
returns and the intensification of economic benefits. The emphasis on
growth driven by the virtuous interaction of skilled labour and firm
preferences characterizes large metropolitan cities as environments
where value chains underlying production, and the associated networks
43 Allen J. Scott, “Capitalism and Urbanization in a New Key? The Cognitive-Cultural Dimension,”
Social Forces 85, 4 (June 2007), p. 1466.
49Chapter 2
of economic actors, can adapt rapidly because of their efficiency at
coordinating and managing the processes that are the basis of innovation
and growth. In this sense, cities are acting like giant “Schumpeterian
hubs” of innovative activity, or “switchboards which permit the constant
creation and reshaping of the chains linking producers, consumers,
and different kinds of indirect players of the economy.”44 Signs of this
developmental dynamic are evident in large metropolitan areas, both
in rapidly growing “cognitive-cultural sectors” and in the formation of
“intra-urban industrial districts devoted to specialized facets of cognitive-
cultural production,” such as high-tech and software in the San Francisco
Bay area, movies in Hollywood, business and financial services in New
York and London, and fashion in Paris and Milan.45 These emerging
areas of cognitive-cultural production tend to be located in, or close to,
the central business district and often take advantage of low-cost space
available in abandoned industrial warehouses or factories. The conversion
of existing physical spaces associated with the older industrial economy
to new uses for the emerging cognitive-cultural economy illustrates the
critical way in which the spatial landscape of the inner city is recon-
figured in dynamic urban regions.46
Despite the appeal of a talent-based approach to urban economic
growth and development, the uneven distribution of creative occupations
and highly skilled labour and the resulting increase in social disparities
in some of the most successful city-regions suggests there are inherent
limits to this approach to urban growth strategies. The rise of creative
cities in North America and Europe is a product of their role as places
with the ability to generate a high level of technological innovations and
economically useful knowledge. However, as noted above, this pattern
of urban development has also coincided with a number of negative
44 The Rationale for a Resurgence in the Major Cities of Advanced Economies [opening plenary
address]. Presented by Pierre Veltz at Leverhulme International Symposium 2004 on the Resur-
gent City. London: London School of Economics, April 19–21, 2004.
45 Scott, p. 1470.
46 Thomas A. Hutton, The New Economy of the Inner City: Restructuring, Regeneration and Dis-
location in the Twenty-First-Century Metropolis (London and New York: Routledge, 2008), p. 11.
50 21st Century Cities in Canada
economic and social side effects. “The emerging new economy in major
cities has been associated with a deepening divide between a privileged
upper stratum of professional, managerial, scientific, technical and
other highly qualified workers on the one side, and a mass of low-wage
workers . . . on the other side.47 In fact, cultural and creative occupa-
tions often provide some of the most poorly paid jobs in large cities.
If local and regional governments are to pursue a talent-based strategy
for economic development, they must address the issue of social
disparities to ensure that the resulting strategy draws upon a wide
cross-section of skills and occupations in the labour force. A serious
concern is whether it is possible to pursue a socially inclusive eco-
nomic development strategy at the local level while many of the key
policy levers that influence levels of education, occupational skills,
and the capacity for innovation remain in the hands of the senior levels
of government. A critical challenge for city-regions in Canada is to ensure
that the policy levers with the greatest effect on our urban economies
are aligned across all three levels of government and that there is an
appropriate recognition of the interconnection between urban economic
development and social inclusion.
SPECIALIZATION VERSUS DIVERSITY: SOME FINAL
OBSERVATIONS
This chapter has surveyed the conflicting evidence on the virtues of
economic specialization and diversity for urban economic growth; the
emergence of a global hierarchy of cities around the world with ever
more differentiated economic roles; the relative importance of greater
concentrations of highly skilled and creative workers as attractors for
firms and industries; and the relationship between creative occupations
47 Michael Storper and Allen J. Scott, “Rethinking Human Capital, Creativity and Urban Growth,”
Journal of Economic Geography 9, 2 (March 2009), p. 164.
51Chapter 2
and creative industries as drivers of urban economic growth. While
there is no consensus in the varied and contradictory theories and
empirical studies surveyed above, some interesting patterns do emerge.
First, cities of different sizes play different roles in the broader
urban system of both their own national economy and the broader
global economy, with respect to specialization and diversification.
Larger cities with a more diverse range of industries and more extensive
research infrastructure are frequently, though not exclusively, the loca-
tions where new ideas leading to new products and industries are
developed. As the technologies and their associated production processes
evolve, firms often relocate to medium-sized cities with traditional cost
advantages. The evidence confirms this pattern has been particularly true
in the case of the traditional manufacturing industries that dominated
the urban economy of North America and Europe through the post-war
period of growth. There is less clear evidence to conclude it will neces-
sarily hold true for the newer industries that have emerged over the past
two decades and are still developing.
Second, the spread of a globalized economy has also led to the con-
centration of higher-order financial and business services in larger cities
around the world, but a clear division has emerged between those cities
that operate on a truly global scale and those that act as national and
regional hubs for their hinterland economies. At the same time, there is
growing strength in a wide range of industries related to the design of
fashion and cultural products, many of which involve digital content.
The tendency for these industries to collocate with the existing concen-
trations of financial and business services has led some observers to
describe this development in terms of the emergence of a new cognitive-
cultural economy. While creative and talented workers locate in greater
concentrations in cities with strength in financial and creative industries,
the exact nature of the causal link between the two remains debated.
Third, what is clear is the growing importance of knowledge-based
activities, design, and the cultural industries to future economic growth,
especially in North American cities. While the evidence suggests that
large cities have certain advantages in this respect, the successful
development of new dynamic regions in the U.S. and elsewhere, with
52 21st Century Cities in Canada
respect to both the production of new technologies and cultural activities,
suggests that is not a foregone conclusion. However, this tendency does
pose serious challenges for small and medium-sized cities that have
developed historically as more specialized manufacturing centres.
As we shall see in the next chapter, the Canadian urban system
is characterized by a relatively small number of large cities (none of
which have attained truly global city status) and a much larger number
of medium-sized and small cities. The analysis presented in this chapter
suggests that they will face increasing challenges in coping with the
transition to the emerging knowledge-intensive and innovative economy.
Innovation, Talent, and
Creativity in Canadian Cities
3
55Chapter 3
INTRODUCTION
Over the course of the past century, Canada has become an
increasingly urban society. As part of this transition, cities have
become the primary site for innovation within the Canadian
economy. However, in a country as diverse as Canada, not every city is the
same, nor do they play similar roles in the Canadian urban system. One
of the key challenges we face is to overcome the particularly Canadian
inclination to treat all parts of the country the same and, instead, recog-
nize the substantial variation in the roles played by different cities across
the diverse regions of the country.
In a series of case studies of large, medium-sized, and small cities
across Canada, researchers from the Innovation Systems Research
Network (ISRN) have examined the considerable variation in the indus-
trial structures of their economies, the different paths they have fol-
lowed in their evolution toward a more knowledge-based economy,
and the way in which the dynamics of the urban economy are shaped
by the structure of the region in which a city is located.1 This variation
has important implications for the innovative capabilities of Canadian
cities and their potential to evolve into more knowledge-intensive
centres of production—described as “Schumpeterian hubs” in the
emerging cognitive-cultural economy. Even more significantly, it has
profound implications for the way in which policy should be formu-
lated if we are to adopt the more strategic approach to urban economic
development discussed in the next chapter.
Most industrialized economies face the challenge of adapting to
more knowledge-based forms of production over the coming years—a
challenge that has been intensified by the impact of the current global
recession. Canada faces a particular hurdle in this respect. On the
one hand, the industrial sector must innovate to remain competitive,
just as its counterparts in other OECD countries must. On the other
hand, traditional manufacturing accounts for a decreasing portion of
1 Full details of the ISRN’s research program, as well as papers and presentations from the annual
meetings of the research network, can be found online at www.utoronto.ca/isrn.
56 21st Century Cities in Canada
Canadian economic output, and two recent reports suggest Canada is
falling behind in terms of its innovative capabilities. Our continuing
dependence on resource-based sectors of the economy, along with a
lack of private investment in research and development in some of the
core manufacturing sectors, are part of the reason why Canada’s per-
formance has consistently lagged on most measures of innovation.2
The impact of the current recession on many of our traditional manu-
facturing industries, as well as the virtual disappearance of some of our
major technology leaders in the more knowledge-intensive sectors of
the economy, underline the urgency of this economic issue.
The challenge of simultaneously recovering from the recession and
competing in a more knowledge-based economy accentuates the need
to understand how the innovation process operates across our diverse
regional and urban economies. Attempts to develop appropriate policies to
support the innovation capabilities of firms and industries at the national
level in Canada have foundered frequently on this problem of diversity.
While broad statistical analyses can identify some of the common features
of the innovation process across a range of industries, a more detailed
examination of the dynamics of the innovation process within individual
city-regions is essential for this understanding.
As we saw in Chapter 2, the prospects for urban economic growth
are closely tied to the issue of the relative degree of specialization and
diversity in the industrial structure of Canadian cities, and how it con-
tributes to or constrains their capacity for innovation. Underlying this
issue is the debate that has preoccupied urban scholars: whether it is
economically more effective to be specialized in a few things within
a regional or urban economy, or to be highly diversified. Jane Jacobs
maintained that a diversity of industrial sectors, especially in larger
cities, creates the opportunity for spillovers and cross-fertilization of
2 Council of Canadian Academies, Innovation and Business Strategy: Why Canada Falls Short,
Report of the Expert Panel on Business Innovation in Canada [online]. (Ottawa: Council of
Canadian Academies, 2009). www.scienceadvice.ca/innovation.html; Science Technology and
Innovation Council, State of the Nation 2008: Canada’s Science, Technology and Innovation
System [online]. (Ottawa: Science, Technology and Innovation Council, 2009). www.stic-csti.ca/
eic/site/stic-csti.nsf/eng/h_00011.html.
57Chapter 3
ideas, which in turn stimulates the generation of innovations that feed
the growth of new economic sectors, and contributes to the growth of
cities and higher standards of living.
The ISRN case studies have examined the nature of the innovation pro-
cess across a range of Canadian cities. In particular, they have investigated
the pattern of knowledge flows that generate the new ideas that sustain
the process. The results suggest that in most established industrial sectors,
especially those found within small and medium-sized cities, knowledge
flows occur largely within the contours of the existing industrial sector or
cluster, or along the supply chain that provides key inputs to a particular
firm or industry. Key ideas can come from local research institutions, such
as post-secondary institutions, public and private research laboratories,
and research consortia. More often than not, hiring students from local
post-secondary institutions or drawing employees from a common labour
market is the most effective way to circulate ideas among a group of firms
within a city-region. At the same time, the globalization of the economy
means that relatively few industrial sectors or clusters are self-sufficient
in terms of their sources of ideas. However, the local circulation of know-
ledge that does occur tends to happen within a particular sector or cluster.
This pattern differs significantly from that found in larger cities,
especially the three largest Canadian ones, where a concentration of
creative and cultural industries co-exists alongside more knowledge-
based and research-intensive ones, in a manner similar to that sug-
gested by Jacobs. These cities provide some evidence of the emerging
cognitive-cultural economy, but serious questions remain about whether
the policy supports in place are adequate to ensure continued success
and vibrancy, as other cities around the globe undergo a similar eco-
nomic transition.
CITIES IN THE CANADIAN URBAN SYSTEM
Cities do not exist in isolation but as part of the regional economy
in which they are located, as well as in relation to other cities in the
national economy. The economic standing of an individual city and its
58 21st Century Cities in Canada
long-term prospects are influenced by its relative position within the
urban system, which is defined by its spatial relationship with other
cities. The factors affecting the prospects for a particular city are not
confined to its local, or even regional, context but include a broad set
of factors within the context of the urban system as a whole. The urban
system is the organizational dynamic that underlies the economic and
human geography of the country. Different-sized cities play different
roles in Canada’s urban system. A clear understanding of those dif-
ferences is necessary to formulate effective economic development
policies targeted at the level of cities. Each city in the urban system
“represents a unique combination of population size, demographic
structure, economic specialization and rate of growth that together
define the opportunities open to each resident.”3
Canada’s urban system is distinguished by its relatively large number
of small cities, and only a few large ones, and by the substantial differ-
ences between those larger cities. Large cities within the urban system
are clearly differentiated from the medium-sized and small ones by
their more diversified economic base. The 10 largest cities—Halifax,
Montréal, Ottawa–Gatineau, Toronto, Winnipeg, Regina, Saskatoon,
Calgary, Edmonton, and Vancouver—generate a disproportionate share
of the national wealth and dominate the regional hinterlands in their
respective parts of the country. In 2005, these cities accounted for 51 per
cent of gross domestic product (GDP) and 51 per cent of employment in
Canada. Between 1995 and 2005, 65 per cent of the 3.1 million net new
jobs created in Canada were located in these cities.4
Although the 10 cities vary considerably in size, each (with the
exception of Ottawa–Gatineau) is deemed to be a hub city that acts
as the primary economic driver of its respective provincial or regional
economy. The share of provincial output accounted for by these hub
cities has been increasing over time, and they currently account for
3 Larry S. Bourne and Jim Simmons, “New Fault Lines? Recent Trends in the Canadian Urban
System and Their Implications for Planning and Public Policy,” Canadian Journal of Urban
Research 12, 1 (June 2003), p. 24.
4 Brender, Cappe, and Golden, p. 5.
59Chapter 3
at least 45 per cent of their respective provincial economies. (When
there is more than one hub city in a province, the two cities combined
account for at least 45 per cent).5 The Conference Board of Canada
argues that these hub cities face major challenges—while they are
expected to drive economic growth, they lack the investment and polit-
ical autono my to fully develop this capacity.
Using a slightly different yardstick, a recent report, Large Cities
Under Stress, included two additional cities, which have populations
between 700,000 and a million, as large cities—Québec City and
Hamilton. The report argues that these cities are clearly differentiated
from smaller ones by several critical factors: “They are powerful magnets
for the young and highly educated, . . . they are the dominant gateways
for new immigrants, the command and information centres for the econ-
omy, and the focal points of global connections.6 Despite the privileged
status of these cities within the Canadian urban system, none is substan-
tial enough to have attained a significant position in the global urban
hierarchy, with only one city—Toronto—in the 10-member “beta” group
of world cities (no Canadian city is ranked in the topmost “alpha” group)
and the 12-member “well-rounded global cities” category.7
The increasing role of the largest cities in the Canadian urban sys-
tem, and the challenges it poses for the country as a whole, is high-
lighted in a recent analysis of trends in the urban system over the past
four decades. Pierre Filion notes that the traditional distinction between
the core industrial cities and the more distant cities, referred to as the
“heartland-hinterland” distinction, is on the wane. Over this period,
it has been displaced by a growing differentiation between Canada’s
largest cities and its medium-sized and small ones. As this disparity
5 Mario Lefebvre and Natalie Brender, Canada’s Hub Cities: A Driving Force of the National Econ-
omy, The Canada Project (Ottawa: The Conference Board of Canada, 2006), p. 4.
6 Enid Slack, Larry Bourne, and Heath Priston, Large Cities Under Stress: Challenges and Oppor-
tunities, report prepared for the External Advisory Committee on Cities and Communities
(Toronto: Authors, March 3, 2006), p. 1.
7 Brender, Cappe, and Golden.
60 21st Century Cities in Canada
continues to grow, he postulates, the urban system will become more
bifurcated, with a growing concentration of population and economic
opportunities in the largest cities at the expense of the rest:
The Canadian urban system of tomorrow will be
polarized, confronted at once with steep urban growth
and decline. . . . [t]he future will advantage Toronto,
Montréal, Vancouver, Ottawa–Gatineau, Calgary and
Edmonton. Urban areas within the orbit of these regions
will also enjoy rapid growth.8
These cities will also benefit from their attractiveness as centres for
the continuing flows of immigration that will be the primary source of
population growth in the future. Their increasing size and economic
influence will afford them greater weight in our political system as
well, to the disadvantage of small and medium-sized cities. The smaller
and medium-sized cities that are more dependent on relatively few
areas of industrial concentration may be more vulnerable to external
economic shocks, which can adversely affect their economic status.
This suggests that a major policy challenge for the urban system as a
whole will be to ensure a balanced distribution of economic growth and
economic opportunities across the country.
A defining feature of the urban system is the extent to which the
urban corridor stretching from Windsor to Québec City, and containing
Canada’s two largest urban areas, dominates the country as a whole. It
contains a significant share of the manufacturing economy, as well as
over 60 per cent of the total urban population.9 The relative concentra-
tion of manufacturing industries within this narrow corridor cuts two
ways—witness the impact of the current recession on the automotive
8 Pierre Filion, “Growth and Decline in the Canadian Urban System: The Impact of Emerging Eco-
nomic, Policy and Demographic Trends,” GeoJournal [online]. (March 4, 2009). www.springer.com/
geography/human+geography/journal/10708.
9 Larry D. McCann and Jim Simmons, “The Core-Periphery Structure of Canada’s Urban System.”
In Trudi Bunting and Pierre Filion, eds., Canadian Cities in Transition: Local Through Global
Perspectives (Don Mills, Ont., and New York: Oxford University Press, 2006), pp. 76–96.
61Chapter 3
clusters concentrated in the key cities from Oshawa to Windsor in
Southern Ontario. The Metropolitan Outlook, recently released by The
Conference Board of Canada, shows that some of Canada’s small and
medium-sized cities with the heaviest concentration in manufacturing
and automotive production are being punished the most by the current
economic recession. Oshawa’s economy, which is heavily dependent on
auto production, is forecast to decline by 2.5 per cent in 2009. Kitchener–
Waterloo, with a more diversified economy, is forecast to decline by
2.6 per cent. St. Catharines–Niagara is expected to suffer a decline of
2.7 per cent due to a fall in both manufacturing output and tourist activ-
ity. London is facing a decline of 2.8 per cent, unprecedented in its recent
history. Given the expectation that Canada’s automotive industry will
be radically reshaped by the current restructuring, the pressure on these
manufacturing-dependent urban centres to shift their local economy to
more knowledge-intensive forms of production will be all the greater.10
Competition Between Toronto and Montréal for Dominance of the
Urban System
If we examine the relative position of individual cities within the
urban system more closely, we observe significant differences in their
trajectory of economic development, as well as their relationship to
their regional hinterland. The early development of Canada’s urban
system can be traced to the commercial conflict between two compet-
ing metropolitan centres—Montréal and Toronto—for control over the
trade of the St. Lawrence River waterway and its continental hinter-
land. Throughout this period, both cities competed for access to the
hinterland and sought to attract a larger share of new immigrants and
inward investment. Until the end of the Second World War, Montréal
was the dominant urban economy in Canada, reflecting its initial loca-
tional advantages as the chief eastern port at a key juncture of the
St. Lawrence–Great Lakes waterway, its growth as a railroad hub from
the mid-19th century onwards, its proximity to leading American urban
10 Alan Arcand et al., Metropolitan Outlook 2: Economic Insights Into 27 Canadian Metropolitan
Economies (Ottawa: The Conference Board of Canada, 2009).
62 21st Century Cities in Canada
centres (especially Boston and New York), and its control over the
national capital markets. Prior to the 1960s, Montréal was the primary
transportation and communications centre of the country and home to
the largest companies in these sectors.
Toronto emerged to challenge Montréal’s dominant position within
the urban system after the Second World War, aided by the post-war
economic boom that saw Canada’s trading patterns shift from an east–
west to a north–south basis. In the early post-war period, Toronto’s
growth was stimulated by the transition from a wartime to peacetime
footing and the influx of foreign branch plants into Southern Ontario,
many of which located their Canadian head offices in the Toronto
region. Additional growth came from the emergence of aerospace,
auto, and telecommunications industries. This trend was reinforced by
the signing of the Canada–U.S. Auto Pact in 1965, which stimulated
the growth of the automobile assembly and parts industry in Southern
Ontario over the next three decades. Economic geographer Michael
Ray argues that the growing predominance of American subsidiaries
in Southern Ontario in the post-war period can be explained by the
“economic shadow” concept, which is based on the relative distance
between the U.S. city in which the corporate head office is situated and
the Canadian location of its subsidiary. Using data from the 1960s, he
demonstrated that Toronto provided the optimal market location for
American subsidiaries and that only 8 of 210 metropolitan areas in the
U.S., with head offices controlling Canadian subsidiaries, had more
subsidiaries in Montréal than in Toronto.11
Toronto’s lead over Montréal as the dominant city within the urban
system was secured in the 1970s, when the conflict over Quebec’s
place in the Canadian federation accelerated the exodus of many lead-
ing financial institutions from the province. According to Polèse and
Shearmur, the loss of financial and other higher-order business services
to Toronto accentuated the relative importance to the Montréal econ-
omy of industrial manufacturing, as well as more research-intensive
11 D. Michael Ray, “The Location of United States Manufacturing Subsidiaries in Canada,”
Economic Geography 47, 3 (July 1971), pp. 389–400.
63Chapter 3
sectors such as pharmaceuticals and aerospace that benefited from
high levels of research spending and supportive government policies.
Toronto, in contrast, has increasingly become the Canadian city-region
most specialized in financial and other sources of management infor-
mation. It serves as the leading node integrating Canada into national
and international networks.12
While Montréal and Toronto are the two largest cities in Canada’s
urban system, they are not the only important ones. Other hub cities
within the urban system play key roles as providers of high-order or
specialized services within their region; as the locations of regional
or even national head offices for key companies; as centres for the
financial services, cultural-creative, or media industries; or as critical
nodes in the regional transportation network. Nowhere is that more
evident than in Vancouver, Canada’s third major city. Vancouver dif-
fers significantly from the other two—and, indeed, from most other
industrial cities in North America—due to its economic origins as the
regional metropole within the staples economy of British Columbia,
based on the extraction and processing of fishing, forestry, and mining
resources. Within this regional economy, Vancouver served as a centre
for the control and distribution of the staple goods produced by these
industries. The influx of major U.S. multinational corporations into
the B.C. economy further consolidated Vancouver’s role as the con-
trol centre for the provincial resource economy. From the mid-1970s
onwards, as the leading staples industries in B.C. experienced strong
declines, Vancouver’s economy became decoupled from its resource
hinterland and the city began evolving into a modern centre of the
cognitive-cultural economy that bears a stronger affinity to other West
Coast cities in North America than to the more traditional manufactur-
ing centres in the Québec City–Windsor corridor.13
12 Mario Polèse and Richard Shearmur, “Culture, Language, and the Location of High-Order
Service Functions: The Case of Montréal and Toronto,” Economic Geography 80, 4 (October
2004), pp. 329–350.
13 Trevor Barnes and Tom Hutton, “Situating the New Economy: Contingencies of Regeneration
and Dislocation in Vancouver’s Inner City,” Urban Studies 46, 5&6 (May 2009), pp. 1252–1255.
64 21st Century Cities in Canada
As the cases of Montréal and Toronto demonstrate, a city’s relative
position within the urban system can shift over time due to changes in
the underlying importance of its regional hinterland, the advent of new
industries based on technological change, or shifts in transportation
economics resulting from new modes of transportation.14 Despite its rela-
tively smaller size and the loss of key financial activities to cities in Central
Canada, Halifax retains a key position within the urban system due to its
historic, and current, role as the leading commercial centre of Atlantic
Canada. Conversely, although Winnipeg served as the major gateway
into Western Canada from the late 19th until well into the 20th century,
its position was gradually usurped by Calgary and Vancouver over the
latter half of the century, due to the rise of the energy industry and the
revolution in air transportation that linked Vancouver more easily into
the national economy. Hamilton is roughly the same size as Winnipeg,
but it has never occupied the same place in the urban system due to its
location within the penumbra of the Greater Toronto Area and its com-
petition from other manufacturing centres in Southern Ontario, such as
Kitchener–Waterloo.
INNOVATION AND GROWTH IN CANADIAN CITIES:
SPECIALIZATION, DIVERSITY, AND RELATIVE SIZE
Analyses of the sources of urban growth and productivity in Canada
over the past decade lend support to the broad findings of the previous
chapter. Canadian cities are differentiated by their relative standing
within the urban system, as well as by the industrial structure on which
the local economy is based. Studies by Statistics Canada show that
industrial diversity varies significantly in different-sized cities across
the country, with larger cities enjoying a more diverse economic base.
Conversely, cities with the smallest populations tend to have more
specialized economies. However, the relationship between population
14 Slack, Bourne, and Priston, p. 14.
65Chapter 3
size and industrial diversity is not a simple linear one. As smaller
cities grow, their economies diversify rapidly, beginning to level off as
the population reaches a half million people. There are two reasons for
this trend: first, the growth of a city may be driven by the emergence
of new industries within the local economy, which partly accounts for
the city’s more diverse economic base; and, second, the local market
of an urban economy increases as the population grows, which creates
demand for the products of a more diverse range of local industries.
However, it should be noted that some cities, such as Kitchener–
Waterloo, are highly diversified despite their relatively small size.15
The relationship between the size of a city and the diversity of its local
economy can be clearly seen in Chart 1.
Canada’s larger cities are also more likely to be home to the more
creative and innovative industries. Recent research found that creative
industries, as well as those that depend on scientific research, are con-
centrated more heavily in larger cities across the country. There is a
high correlation between the presence of a diverse local economy and
a concentration of creative industries.16 The implication of this finding
is that the kind of knowledge needed for creative activities—know-
ledge based on a high degree of subjectivity, interpretation, and human
experience—is more likely to be generated in an urban environment
that is culturally rich and economically diverse. A large, diverse urban
economy is more suited to stimulating and supporting those industries
associated with the emerging cognitive-cultural economy. This finding
has important implications for the development of policy aimed at sup-
porting the development of urban economies.
An alternative way of looking at the relative degree of specializa-
tion in Canadian cities is through the examination of industrial clusters.
Researchers from the ISRN have identified 255 individual clusters spread
15 Desmond Beckstead and Mark Brown, From Labrador City to Toronto: The Industrial Diversity of
Canadian Cities, 1992–2002, analytical paper, Cat. No. 11-624-MIE, No. 003 (Ottawa: Statistics
Canada, 2003).
16 Gregory Spencer, The Creative Advantage of Diverse City-Regions: Local Context and Social
Networks, Ph.D. thesis (Toronto: University of Toronto, 2009).
66 21st Century Cities in Canada
across 19 different cluster types in 140 cities and city-regions defined
as urban areas by the Census of Canada.17 These clusters exhibit a dis-
tinct regional pattern reflecting the industrial geography of Canada.
(See Table 1.) As expected, the majority of manufacturing clusters are
located along the urban corridor stretching from Windsor to Québec
City. (See Exhibit 1.)
A significant proportion of the resource-based clusters are found
in Alberta (oil and gas), Quebec (forestry), and British Columbia (for-
estry). We see consistent patterns in the distribution of clusters across the
Canadian urban system. Toronto, Montréal, and Vancouver have the largest
17 The methodology used to identify these clusters and more detailed analysis of their economic
impact can be found in Greg Spencer, Tara Vinodrai, Meric S. Gertler, and David A. Wolfe, “Do
Clusters Make a Difference? Dening and Assessing Their Economic Performance,” Regional
Studies (forthcoming 2010).
Chart 1
Industrial Diversity
Source: ISRN Indicators Database.
0
20
40
60
80
100
120
140
160
0123456
Kitchener
Hamilton
Edmonton
Calgary
Ottawa
Vancouver Toronto
Montréal
Industrial Diversity (Entropy Measure)
Population 2006 (millions)
67Chapter 3
Table 1
Clusters, by Cities
(cont’d on next page)
Agriculture
Maritime
Forestry
Mining
Oil & Gas
Construction
Logistics
Textiles
Food
Steel
Automotive
Plastics & Rubber
Biomedical
ICT Manufacturing
ICT Services
Finance
Business Services
Creative & Cultural
Higher Education
TOTAL
St. John's • • • 5
Halifax • • • 6
Moncton • • 2
Saint John 0
Québec City 3
Trois-Rivières 0
Montréal ••• ••••••• 10
Ottawa–Gatineau • • • 4
Kingston 1
68 21st Century Cities in Canada
Table 1 (cont’d)
Clusters, by Cities
Source: ISRN Indicators Database.
Agriculture
Maritime
Forestry
Mining
Oil & Gas
Construction
Logistics
Textiles
Food
Steel
Automotive
Plastics & Rubber
Biomedical
ICT Manufacturing
ICT Services
Finance
Business Services
Creative & Cultural
Higher Education
Total
Toronto ••• •••••••••12
Hamilton • • • 6
Kitchener–Waterloo •• ••••• 7
London • • • 4
Winnipeg • • 2
Saskatoon 3
Calgary ••• •••• 7
Edmonton • • • 4
Vancouver • •• • •••••••11
69Chapter 3
Exhibit 1
Cluster Map
Source: ISRN Cluster Database, 2006.
70 21st Century Cities in Canada
number of clusters. Resource-based clusters are predominantly located in
smaller cities, whereas manufacturing clusters are present in city-regions
of every size. With the exception of higher education, which is relatively
evenly distributed, service-based clusters are situated overwhelmingly in
large urban centres. The results suggest that although clusters exist in a
variety of urban settings, those that are research or knowledge intensive
(such as biomedical; creative, cultural, and new media; finance; and infor-
mation and communications technology [ICT] services) tend to develop in
large urban settings consistent with the findings on diversity.
The research examined how the presence of clusters in an urban
economy affected the economic performance of the region. An analysis
of 43 cities and city-regions in Canada revealed a strong positive rela-
tionship between the proportion of total employment in clusters and the
average employment income in the city. (See charts 2 and 3.)
Chart 2
The Relation Between Average Income and Clustering in Canadian Cities
Source: ISRN Indicators Database.
Montréal
R2 = 0.4468
Chatham–Kent
Cape Breton
Oshawa
Ottawa–Hull Windsor
15
20
25
30
35
40
45
0 10
Local employment in clusters as a percentage
of total local employment, 2001 (per cent)
Local average annual income (total; C$ 000s)
20 30 40 50
71Chapter 3
This finding reinforces the argument that relatively few of Canada’s
cities have achieved the size and scale to derive the full benefits that
flow from a diversified urban economy. Yet a broader cross-section of
cities is sufficiently specialized in a few key industrial clusters to reap
the benefits that clustering bestows on an urban economy.
Further confirmation of the economic benefits that flow from the
clustering of manufacturing activities is provided by a Statistics Canada
study that examined the effects of specialization on plant productivity
and urban economic growth. Using a variety of measures, it explored
Chart 3
Cluster Concentration by City
Source: ISRN Indicators Database.
30
35
40
45
50
55
-10 0 10 20 30 40 50 60
Median annual full-time employment income, 2005 (C$ 000s)
Percentage employment in clusters, 2006 (per cent)
Calgary
Edmonton
Kingston
Ottawa–Gatineau
Hamilton
Kitchener
Bubble size = population
Number = # of clusters
Saskatoon
Québec City
Winnipeg
2
2
3
3
3
6
5
4
4
1
4
67
10
11
12
7
0
Saint John
Trois-
Rivières (0)
London
St. John’s
Halifax
Montréal
Vancouver
Toronto
Moncton
72 21st Century Cities in Canada
the degree to which collocating with firms in the same industry contrib-
uted to higher levels of productivity for firms in that industry. The study
found that the productivity of manufacturing plants was higher in cities
with a strong supply of the specialized upstream sectors that provided
critical inputs for the firms in the industry. Productivity was also higher
in plants located in cities that contained a deep pool of labour that the
firms in the industry could draw on. Finally, plant productivity benefited
strongly from the knowledge spillovers within a local cluster, to the
extent that locating within a 10-kilometre radius of establishments in the
same industry had a positive effect on overall performance.18
The way in which different-sized cities contribute to innovation and
growth across a range of industry sectors can also be seen in a related
set of studies using data from the Canadian Survey of Innovation in
Manufacturing. Researchers focused on the degree of uncertainty in
the firms’ competitive environment as a strong influence on where they
choose to locate. Firms faced with a higher degree of uncertainty in
terms of their competitive environment tend to locate in a larger city
where the presence of a diverse array of supporting industries can help
to counteract or offset that instability. Conversely, firms primarily inter-
ested in offsetting their need for highly specialized labour skills bene-
fit from locating in an urban environment with a strong complement
of firms in similar and related industries. Establishments confronted
with a greater degree of uncertainty in their competitive environment,
as well as those that consider innovation an essential part of their com-
petitive strategy, are more likely to locate in larger cities. In contrast,
establishments preoccupied with ensuring they have adequate access to
a strong base of necessary skills in the local labour market are likely
to locate in specialized urban environments, but not necessarily in the
largest cities.19
18 John R. Baldwin, Desmond Beckstead, Mark Brown, and David L. Rigby, Urban Economics
and Productivity, Economic Analysis Research Paper Series, Cat. No. 11-F0027-MIE, No. 045
(Ottawa: Statistics Canada, 2007), p. 28.
19 William Strange, Walid Hejazi, and Jianmin Tang, “The Uncertain City: Competitive Instability,
Skills, Innovation and the Strategy of Agglomeration,” Journal of Urban Economics 59, 3 (May
2006), pp. 331–351.
73Chapter 3
These findings are consistent with Pierre Therrien’s conclusion that
the concentration of research and knowledge capabilities in larger urban
centres supports the conditions that contribute to radical innovations
(major technological breakthroughs or the introduction of radically
different products to the market), whereas smaller centres provide an
environment that supports incremental or process innovations, the kind
more likely to occur in already established industries.20 This evidence
from Statistics Canada’s Survey of Innovation confirms the view that
larger cities, which are home to a diverse economic base as well as
a strong research infrastructure, provide the best environment for
developing the new ideas that form the basis of new products and emer-
ging industries. In contrast, small and medium-sized cities are more
likely to support the growth of firms and industries that draw on an
established knowledge base and depend on the supply of external inputs
likely to be provided in a cluster of similar and interrelated firms.
The Role of Large Cities in the Innovation Economy
While the general expectation is that the largest cities in Canada
should display similar evidence of more diversified economies, the
industrial structures of Vancouver, Toronto, and Montréal are actually
quite different, and they seem to be moving along different pathways
toward the development of a cognitive-cultural economy. Montréal
and Toronto remain similar in terms of the underlying structure of
their respective economies, with the exception of the higher-end finan-
cial and producer services. Data from the 2006 Census show that the
two largest cities are evenly balanced in terms of the proportion of
their local economies based in manufacturing, which accounts for
13.5 per cent of the labour force in both cities. Vancouver has a con-
siderably smaller proportion of its labour force employed in manufac-
turing (8.5 per cent). Furthermore, the location quotient (a measure
of employment concentration) for manufacturing in Vancouver is
only 0.71, well below the quotient of 1.13 for Toronto and 1.14 for
20 Pierre Therrien, “City and Innovation: Different Size, Different Strategy,” European Planning
Studies 13, 6 (September 2005), p. 863.
74 21st Century Cities in Canada
Montréal.21 Toronto has a significant lead over both Montréal and
Vancouver in higher-order services, with 7 per cent of the labour force
employed in the finance and insurance sector (and a location quotient
of 1.72), compared with 4.8 per cent of the labour force in Vancouver
and 4.6 per cent in Montréal. Calgary and Ottawa, the two other
cities with a population of over 1 million, are much more specialized
than the three leading ones, with 6.5 per cent of Calgary’s labour force
employed in mining and oil and gas extraction (a location quotient of
4.6) and 21.2 per cent of Ottawa’s labour force employed in public
administration (a location quotient of 3.7).
Vancouver’s urban economy began to transition out of its traditional
role as the regional metropole for the British Columbia resource econ-
omy in the 1970s. A major consequence of this decoupling was the
decline in the amount of resource processing within the city, as well
as a reduction in the number of corporate head offices. Vancouver’s
decline as a regional metropole was compounded by the migration to
Calgary of the local venture exchange, which had traditionally special-
ized in the financing of speculative mining companies. Conversely,
there was a dramatic increase during the 1980s in Vancouver’s role as a
destination for overseas investment and the migration of entrepreneurs
from Taiwan and Hong Kong, which accelerated the city’s integration
into the broader economy of the Pacific Rim. The redevelopment of
Vancouver’s central business district as an area strong in new digital
media and related cultural industries has been reinforced by a number
of emerging areas of strength in the broader metropolitan economy in
fuel cells, biomedical research, and wireless technologies. Despite the
different development trajectory it has followed, Vancouver’s econ-
omy reflects certain trends also observed in Toronto and Montréal. As
Barnes and Hutton have noted, “Within the Canadian urban system,
21 The location quotient is a measure used to determine the size of a particular industry in a given
city or region. It is calculated by comparing the local share (most often of employment) of a
particular industry against the national share of the same industry. The simplest way to interpret
it is that a location quotient of 2.0 means that the industry is twice as predominant locally as it
is nationally. Conversely, a location quotient of 0.5 means it is half as predominant locally as it
is nationally.
75Chapter 3
there are significant commonalities in terms of inner-city development
both with Toronto and Montréal, with regard to the larger processes of
industrial innovation, creative firm formation and the social reconstruc-
tion of the inner city.22
The Toronto urban economy has experienced four major eras of
growth over the course of the post-war period. The first, from the
end of the Second World War to the mid-1960s, was characterized by
the rapid influx of foreign subsidiaries into Southern Ontario and the
expansion of the aerospace, auto, and telecommunication sectors, as
well as by substantial government spending on educational, physical,
and social infrastructure. The second era, from the signing of the Auto
Pact in 1965 to the Free Trade Agreement with the U.S. in 1988, was
marked by an extension and deepening of those sectors that had taken
hold in the earlier period, augmented by the flight of financial and
business services from Montréal to Toronto. The third era witnessed
a dramatic restructuring of the branch plant economy in Southern
Ontario generally, and the Toronto region more specifically, follow-
ing the introduction of both the Canada–U.S. and North American
free trade agreements. The impact of this restructuring compounded
the effects of the technological changes that occurred from the mid-
1980s onward, leading to a dramatic loss of traditional manufactur-
ing and clerical jobs, and increasing income polarization in the city.
The most striking indicator of the extent of the change is the decline
in the percentage of employment in manufacturing in the Toronto
region, from 24 per cent in the 1981 Census to just 13.5 per cent in
the 2006 Census. While some sectors, such as autos, aerospace, and
telecommunications, continued to expand in the late 1990s and early
2000s, the third era of post-war growth also saw the rapid expansion
22 Barnes and Hutton. Also Living on the Edge: Globalization of Emerging Technology Clusters in
Vancouver [paper]. Presented by J. Adam Holbrook and Brian Wixted at 6th Asialics International
Conference on Linkages in Innovation Systems: Global and Local Perspectives. Hong Kong: July
6–7, 2009. Also John N.H. Britton, Diane-Gabrielle Tremblay, and Richard Smith, “Contrasts in
Clustering: The Example of Canadian New Media,” European Planning Studies 17, 2 (February
2009), pp. 211–234.
76 21st Century Cities in Canada
of the creative and cultural industries, including film, television, live
theatre, music, fashion, design, and publishing, along with the con-
tinued expansion of financial services.23
The period since the late 1990s has been labelled the Fourth Era in
Toronto’s post-war economic growth.24 Demarcated by the amalgama-
tion of the municipal government into a unified structure in 1998 and
the growing integration of the urban core within the broader regional
economy, it marks the emergence of Toronto as a leading cognitive-
cultural economy. The GDP of the Toronto census metropolitan area
(CMA) was $262 billion in 2005, accounting for over 20 per cent of the
total Canadian economy. Between the 2001 and 2006 Census, Toronto’s
total population grew by more than 9 per cent; between 1996 and 2006,
employment increased by 27 per cent and average employment income
increased by almost 6 per cent. In regard to financial and higher-order
business services, Toronto has a significant lead over other Canadian
cities, with 28.2 per cent of its labour force in this sector, compared with
22.6 per cent in Montréal. Other dynamic sectors include information
and communications technology (including new media), biomedical
and biotechnology, fashion and design, aerospace and automotive, tour-
ism, and the cultural-creative industries. Particularly noteworthy is the
dense concentration of both ICT and financial services in the regional
economy. Toronto clearly benefits from the presence of a highly diversi-
fied regional economy that is contributing to its development as a
“Schumpeterian hub” of innovation and creativity. While the current
recession will slow the overall pace of its growth, the decline of key
manufacturing industries is accelerating the transition to higher-order
business and financial services and the creative and design industries.
23 Boston Consulting Group, The Fourth Era: The Economic Challenges Facing the GTA, study
prepared for the GTA Task Force (Toronto: Queen’s Printer for Ontario, 1995). Also Meric S.
Gertler, A Region in Transition: The Changing Structure of Toronto’s Regional Economy, Portrait
of a Region Series (Toronto: Neptis Foundation, 2000).
24 Ibid.
77Chapter 3
Montréal’s economy remains more heavily weighted toward the
manufacturing sector, relative to business and financial services, than
either Vancouver or Toronto’s economies. During the late 1980s and
early 1990s, Montréal underwent a major restructuring of its trad-
itional manufacturing industries and those industries related to its role
as a rail transportation hub, which pushed the unemployment rate up to
6 percentage points above the Canadian average by the mid-1990s. The
economic restructuring of this period laid the basis for a subsequent
expansion after 1997, when the region emerged as a major centre for
knowledge-intensive industries, such as aerospace, biopharmaceuticals,
and ICT, which are among its primary exports.25
The economic development strategy adopted by the Communauté
métropolitaine de Montréal (CMM) emphasizes the strategic import-
ance of the manufacturing and knowledge-intensive sectors and clus-
ters in which the region has demonstrated a strong export capability,
as well as several associated with the creative-cultural industries. The
strategy focuses on four groups of clusters within the regional econ-
omy; three of these fall primarily within the manufacturing sector,
while the remaining group includes a range of activities more often
associated with the creative sector of the economy, including film,
culture, tourism, and services. Overall, the patterns of innovation and
knowledge flows supported by the strategy tend to follow existing
linkages and relations within existing sectors and clusters, rather than
promoting cross-sectoral and cross-cluster lines of convergence that
are frequently associated with the benefits of a large and diversified
urban economy. Despite the strengths of Montréal’s economy, a con-
cern has been raised that the strong sectoral orientation of the strategy
is focused on reinforcing existing strengths and patterns of knowledge
25 Communauté métropolitaine de Montréal (CMM), Charting Our International Future: A Competi-
tive Montréal Region, economic development plan (Montréal: CMM, 2005).
78 21st Century Cities in Canada
flows, rather than promoting the cross-sectoral knowledge flows that
are generally recognized as one of the benefits of a large and diversi-
fied urban economy.26
Of the other large cities in Canada, Calgary and Ottawa are distin-
guished by their higher degree of specialization in a smaller number of
industrial sectors—Calgary in oil and gas and Ottawa in telecommuni-
cations and software, as well as public administration. Calgary is one
of the most distinctive cities in the country. Since the discovery of oil at
Leduc in 1947, followed by the construction of the Interprovincial and
Trans-Canada pipelines in the 1950s to bring the oil and gas to Central
Canada, Calgary has emerged as the centre of the oil and gas industry
and one of the most dynamic and fastest-growing city-regions in the
country. It is home to 87 per cent of Canada’s oil and gas producers.
Despite the fact there is no actual oil and gas production within the
boundaries of the city, mining and oil and gas extraction account for
6.5 per cent of the labour force of the Calgary CMA, with a location
quotient of 4.6, which is substantially greater than the location quotient
for any other industrial sector in the city. In the words of one inter-
viewee in the ISRN case study, “. . . in Calgary, you can’t do anything
if it’s not linked to oil and gas.”27
Closely tied to oil and gas is a set of related industries whose
prospects depend on those of oil and gas, particularly the construc-
tion industry, and business, financial, and ICT services. Knowledge is
embodied in the people working in the sector, and innovation within
Calgary’s leading sectors is primarily based on local knowledge
sources. Knowledge flows occur through the movement of person-
nel within specific sectors, but they also occur through the networks
of firms assembled to meet the needs of individual clients, as well as
through the broader social networks within the city. In spite of the high
26 Innovation and Clustering in Montréal: Between a Product-Oriented and a Competence-Oriented
Approach [paper]. Presented by Diane-Gabrielle Tremblay and Juan-Luis Klein at 11th Annual
Conference of the Innovation Systems Research Network. Halifax, N.S.: April 29–May 1, 2009.
27 Firms and Their Problems: Systemic Innovation in Calgary [paper]. Presented by Cooper
H. Langford, Ben Li, and Cami Ryan at 11th Annual Conference of the Innovation Systems
Research Network. Halifax, N.S.: April 29–May 1, 2009.
79Chapter 3
degree of specialization in Calgary, innovative ideas developed in one
sector of the local economy, such as imaging technology developed in
geophysical services, can be adopted and applied in other sectors, such
as medical devices.
Economic sectors that have grown up in close proximity to the
dominant oil and gas industry, and that have developed specialized
knowledge and technological capabilities in that role, can apply their
knowledge to other opportunities in new markets in different industries,
such as software, global information systems, and wireless communica-
tions. New knowledge platforms that have emerged out of the primary
resource-based economy are being applied in a cross-sectoral fashion to
new commercial products and economic opportunities in a manner that
suggests the possibility of moving beyond the confines of the specializa-
tion versus diversity model of innovation in urban city-regions.28
Despite their different economies and relative location in different
parts of the country, there are striking similarities between the regional
economies of Ottawa–Gatineau and Calgary. Due to Ottawa’s role as
the national capital, public administration accounts for over 21 per
cent of the city’s labour force with a location quotient of 3.7. The
city also has a large ICT sector, and nearly 10 per cent of its labour
force is employed in professional, scientific, and technical services,
also referred to as knowledge-intensive business services (KIBS). The
KIBS sector has grown in response to the federal government’s demand
for these higher-order services.
The origins of the high-tech sector—which is concentrated in the
software, telecommunications, microelectronics, and photonics sub-
sectors—lie in the original decision by Northern Electric (later Nortel)
to establish a research facility in Ottawa, after a judicial decision in the
U.S. in the mid-1950s cut off its access to patents from the Western
Electric Co. Its purchase of a tract of land on the outskirts of Ottawa
as the home of Bell-Northern Research (BNR), largely because of
the concentration of the federal government’s telecommunications
28 Ibid.
80 21st Century Cities in Canada
laboratories in the nation’s capital, resulted in thousands of industrial
engineers, researchers, and managers moving into the region. Many
of the leading entrepreneurs in the Ottawa telecommunications and
photonics cluster began their careers as researchers for BNR. Both
technical and entrepreneurial talent left Nortel over the years to form
new firms in the region.29
An analysis of the innovation process in both the high-tech and
KIBS sectors in Ottawa reveals that most innovative firms draw on
cooperative relations with other partners for their knowledge sources,
but the pattern of these relations varies across the two sectors. For firms
in high-tech manufacturing, the most important interactions are with
other firms along the value chain, principally customers and suppliers.
In contrast, KIBS firms rely more on their customers, their competi-
tors, and public research institutions for their knowledge base and
new ideas. They tend to focus on nearby clients more than high-tech
manufacturing firms do. Given the diverse economic sectors served by
KIBS firms, this suggests that knowledge flows across a diverse range
of industries tend to be more important for service firms than for trad-
itional manufacturing ones, even in the ICT industry.30 This finding is
consistent with the broader view of the different patterns of innovation
that prevail in these sectors of the economy.
Innovation Patterns in Canada’s Medium-Sized and Small Cities
Canada’s medium-sized cities share some characteristics with
Calgary and Ottawa–Gatineau, although they have a greater degree of
concentration in a smaller number of sectors. Innovation processes tend
to draw on knowledge flows that occur largely within the confines of
existing industrial sectors. However, many of the traditional manufac-
turing industries are increasingly organized into global supply chains
29 Matthew Lucas, Anita Sands, and David A. Wolfe, “Regional Clusters in a Global Industry: ICT
Clusters in Canada,” European Planning Studies 17, 2 (February 2009), pp. 189–209.
30 David Doloreux and Henrik Mattson, “To What Extent Do Sectors ‘Socialize’ Innovation Differ-
ently? Mapping Cooperative Linkages in Knowledge-Intensive Industries in the Ottawa Region,”
Industry & Innovation 15, 4 (August 2008), pp. 351–370.
81Chapter 3
that tap into larger knowledge networks around the world. Pressures
on firms to innovate and sustain their competitive advantage in global
markets are shifting the structure of advanced manufacturing industries
toward a pattern typical of nimbler high-technology clusters. Industries
that have historically been organized through vertical supply chains
between lead firms and a limited number of suppliers, and that have
relied on internal R&D activities to support innovation, are adopting a
clustered pattern of industrial organization, characterized by regional
concentrations of networked suppliers, inter-firm learning, and a decen-
tralized and flattened production chain.31 The challenge for small and
medium-sized cities hoping to retain their attractiveness as locations
for firms in these industries is to strengthen the local research infra-
structure and skill profile that will embed their local firms into global
supply chains. The restructuring of the steel industry in Hamilton and
the biotechnology industry in Saskatoon provide instructive lessons in
how this process is playing out in specific Canadian cities.
Saskatoon stands out as one of the more successful mid-sized
cities in Canada, due to the large concentration of federal and prov-
incial research facilities and the critical role of Innovation Place, the
research and industrial park. The presence of the National Research
Council’s (NRC) Plant Biotechnology Institute has served as a mag-
net for a critical mass of multinational and local companies that form
the nucleus of a dynamic cluster around the production of canola. The
central role of the NRC Institute has inserted Saskatoon into the global
networks of knowledge flows that are crucial to the innovation process
in this industry. Many firms indicate that the dense labour market in
the local economy provides them with a ready supply of high-quality
talent. A large proportion of the collaboration that occurs in the city
appears to be done on an informal basis through personal contacts and
brief consultations. Given the relatively high degree of specialization
in the local economy in biotechnology, mining, and software, there
31 Peter Warrian and Celine Mulhern, “From Metal Bashing to Materials Science and Services:
Advanced Manufacturing and Mining Clusters in Transition,” European Planning Studies 17, 2
(February 2009), pp. 281–301.
82 21st Century Cities in Canada
is little evidence of cross-sectoral knowledge flows among innovat-
ing firms. Careers tend to progress along pathways within the same
sector, rather than cutting across different sectors within the city.
Overall, it appears that the creative spark that drives innovation locally
occurs within the specialized solitudes of existing industrial sectors, in
a manner characteristic of medium-sized cities with a limited degree
of specialization. The ability of local firms to capitalize on the unique
characteristics of Saskatoon’s dynamic research infrastructure provides
the basis for tapping into the broader global knowledge flows that
characterize its specialized industries.32
Hamilton offers some similarities but also notable contrasts to the
Saskatoon case. Although it is one of Canada’s 10 largest cities, with
a population greater than 700,000, it is not considered to be a hub city
because of its proximity to the Greater Toronto Area. Hamilton’s cur-
rent economic situation is compounded by the ongoing restructuring
of the Canadian steel industry, which has long been the mainstay of
the local economy. Innovation in the steel industry has historically
been a sectoral phenomenon, largely occurring within communities of
practice constituted by professional engineering organizations, such
as the National Open Hearth Conference, and the technical commit-
tees of the American Iron and Steel Institute and the International Iron
and Steel Institute. The takeover of Canada’s leading steel companies
by major multinationals has resulted in their integration into global
supply chains and knowledge networks. Hamilton’s leading steel com-
pany, Arcelor Mittal Hamilton (formerly Dofasco), is currently valued
for its contribution to the knowledge base and technological capabilities
of the parent company. Innovation strategies are focused on deepening the
research connections with McMaster University and the newly developed
McMaster University Innovation Park (which will soon be home to the
32 Innovation and Knowledge Flows in the Saskatoon City Region [paper]. Presented by Peter
W.B. Phillips and Michael Kunz at 11th Annual Conference of the Innovation Systems Rese