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Economic Affairs

Trade orange hard hat for hipster jeans

Can Asian developmental states that picked industrial winners create start-up clusters to rival Silicon Valley?

Entrepreneurial start-ups are the most recent policy fad among city governments in developed nations.

Decades of manufacturing loss have disrupted urban economies, rewarding the adaptable while leaving others in the rust. The now-maturing post-Fordist economy is built on knowledge, creativity and networks.

As emerging service and technology firms seek to attract talent, liveability and connectivity contribute as much to urban competitive advantage as does workforce skill. Copiously studied American examples of creative cluster development include Route 128 and Silicon Valley.

More recently, a wave of in-migration by educated millennials has rejuvenated some American Rust Belt cities, boosting capacity in knowledge industries. Unexpected beneficiaries such as Akron, Ohio, are creatively restructuring their economies. For example, expertise in tyre making, long an industrial staple in Akron, is now being applied to the emerging polymer industry.

Cities such as Buffalo, Pittsburgh, Cleveland and Detroit - exemplars of manufacturing decline - have since 2000 experienced declining populations but enjoy gains in the number of residents holding college degrees; this trend has been termed "brain gain".

These cases provide lessons for Asian cities, and may yet represent the tombstone of the traditional Asian developmental state.

Several factors converge to propel post-industrial economic transformation in America's former industrial cities. One driver is growth in high-skill industries, such as education and health, green technology and professional services. Another is the low cost of living, which lures new graduates to the continental interior and away from costly and congested coastal cities such as Boston, New York, San Francisco and Seattle.


ST ILLUSTRATION : MANNY FRANCISCO

Many Rust Belt cities have urban cores with vacant industrial facilities now stylishly repurposed for office and residential space, providing a whiff of gritty but chic historic authenticity that has replaced the white picket fence as a symbol of community vitality.

These cities also have the legacy of arts and cultural institutions that were established and endowed during the bygone era of industrial might and generous philanthropy. In short, the latent advantages are numerous and ripe for exploitation.

City governments are now increasingly interested in how such advantages generate fertile conditions for innovative start-ups.

Amenities and loft apartments are not enough; facilitation of networking and professional connections is crucial. The new millennium has been defined by the democratisation of information and the advent of interpersonal hyper-connectivity; networking platforms exist for personal and professional purposes, and everything between.

But the ubiquity of information and communications technology (ICT) implies no city claims an advantage over any other in this respect (aside from Internet speed, which is rapidly normalising).

In a global economy where ICT has generated more economic convergence than divergence, how can Asian cities assert their distinctive advantages and competitiveness?

Hard infrastructure is more science than art; with sufficient resources and even modestly good planning, cities can rejuvenate "cool" neighbourhoods, improve transportation and provide attractive amenities.

The next step for economic planning may be the abandonment of economic planning itself. Well known are the limits to top-down sectoral planning, which in the 20th century included direct interventions - such as industrial policy - that anointed sectoral favourites by supplying infrastructure and institutional support.

More recently, the softer dimensions of industrial policy - for example, attracting educated millennials through urban amenities - appear innovative but are arguably nothing more than a well-branded reincarnation of industrial favouritism.

The artistic vibe in New York's SoHo and global innovative leadership in Silicon Valley are largely natural phenomena emerging from a serendipitous convergence of circumstances bearing vague, if any, trace of direct government intervention. This is a powerful lesson for Asian cities wishing to generate conditions for innovative economic growth.

Amid their often painful industrial restructuring, the world's Rust Belt cities are not the story of the past but one of the future; they represent what other cities will eventually face. Tokyo and Osaka are decades into post-industrialisation, while Seoul and Taipei have undertaken the process more recently.

Coastal Chinese cities, on whose backs China's economy has achieved historic growth, are the next candidates for post-industrialisation.

Hong Kong and Singapore, by contrast, enjoy economic advantages derived from higher-skill service and technology industries. Aside from differing developmental starting points, unique governmental legacies partially explain these recent variations in restructuring.

The economically vibrant cities of the Four Asian Tigers are a palimpsest of statist developmentalism. While the influence of industrial planning is deeply embedded in their institutions, globalisation, economic liberalisation and democratic reforms have combined to generate economies resembling those of the post-industrial and innovative West.

The question, then, is whether the East Asian developmental model, in its altered but still integral state, provides a globally competitive platform for innovative and start-up economies. Some might argue that the proof already exists; Singapore's economy is a hub of research and development in a variety of industries, including biotech, green infrastructure and petrochemicals.

The city is also a globally recognised education hub and continues to be an attractive location for the regional offices of multinational corporations.

These points of pride are the product not of any robust start-up ecology but of prudent and systematic long-term planning by the Singapore Government, in conjunction with timely investments in infrastructure and strategic design of institutions.

However, observers should not be fooled by Singapore's competitiveness rankings and modern skyline; this is no start-up hub, at least not in the mould of Silicon Valley. It is the product of a well-executed developmentalist project; one that bears reconsideration to remain competitive in the new economy.

In Singaporean fashion, the Government has moved quickly to address this shortcoming, instituting programmes to cultivate a start-up scene. Spring Singapore is a government agency charged with supporting local enterprises, a one-stop shop for services, from financing to managerial support.

Spring's value chain includes provision for innovation incubators, grassroots outreach, angel investment, product commercialisation and market prospecting. There is little doubt that many Singaporean enterprises have benefited from this broad array of services, and the Government has correctly recognised that economic growth comes not only from productivity improvement in legacy industries but also from creativity in serving markets for new products, technology in particular.

However, is Spring developmentalism redux?

The coming decades will reward flexible and innovative firms, and by extension the cities that host them.

For Asian cities, two scenarios are possible. One is that the developmental state exchanges its orange hard hat for a stylish pair of skinny jeans, rebranding itself as hip and footloose but failing to move beyond traditional economic planning and determinism.

The other scenario is that industries driving the global economy rely not on capital-intensive production, which the developmental state was configured to support, but on the type of innovative flexibility and opportunism embodied by bustling communities of ambitious entrepreneurs. This type of market structure epitomises technology and other creative industries, explaining in large part the meteoric rise of Silicon Valley.

Singapore, Hong Kong and other Asian cities achieve competitiveness in new growth industries by embracing a similar model focusing on facilitative conditions rather than deterministic planning. They, too, can occupy the leading edge of innovative growth in the 21st century, transforming stale statism into an inter-sectoral model of flexibility and adaptiveness.


  • Kris Hartley is a lecturer at Cornell University and a non-resident fellow for global cities at the Chicago Council on Global Affairs. Woo Jun Jie is an assistant professor at the School of Humanities and Social Sciences at Nanyang Technological University and a Rajawali Fellow at the Harvard Kennedy School.
A version of this article appeared in the print edition of The Straits Times on December 07, 2016, with the headline 'Trade orange hard hat for hipster jeans'. Print Edition | Subscribe