Does a Creative Firm Get a Boost From Being in a City?

Urban areas are thought to be the most hospitable places for designers, writers, software developers, and artists—but that advantage might be imagined.

Finbarr O'Reilly/Reuters

"Cities are the true fonts of creativity. They’ve been so all along," wrote Richard Florida, the author of The Rise of the Creative Class. Urban areas are often seen as hubs for design, publishing, software development, and the arts, so the tendency of fresh grads and young professionals in these so-called creative industries to flock to cities makes sense—that's where the jobs are. It's an idyllic picture: creative young people working hard in urban settings, collaborating and inspiring each other, not letting the high rents get them down.

And companies love creativity too: It's a boon to innovation and the bottom line. A creative reputation is also a way to attract talent. In a survey by the Fairfax County Economic Development Authority, 27 percent of Americans reported that they'd accept a job with a lower salary if it meant they could be more creative at work. Thirty-two percent reported that they'd relocate to be in a more creative community.

It's easy to speculate why companies would want creative workers on their team. Intellectual capital can lead to innovation. The empirical evidence has largely focused on the creative class and regional growth: One study of 500 regions in seven European countries found a positive relationship among creative industries, employment growth, and entrepreneurship.

But just because creative is the namesake of the industries related to artistic pursuits, does that mean they're actually more innovative than other industries? In other words, are creative firms more inventive by nature? Two professors of economic geography aimed to find out using data from the British Small Business survey. Looking at over 1,300 small- and medium-sized firms in the U.K., they tracked the interaction between firms in the creative industries and tried to determine whether being in a creative city made those firms more innovative.

They found that firms in creative cities—those with clusters of creative firms—were not especially more innovative, though they were 4 percent more likely to introduce new products. The researchers write:

Our analysis of the innovative capacity of British firms in the creative industries has cast serious doubts about the often-assumed connection of creativity to innovation and, in particular, on the role of large cities in this process...The key determinants of firm-level innovation remain basic firm characteristics and activities, rather than the environment where this activity takes place. Location is, at best, secondary as a factor for innovation.

From this vantage, creative firms in smaller cities need not worry: There's little stopping them from being just as innovative as their competitors in big cities.