Picture used by GABA, the organizors of the conference

On Wednesday and Thursday I went to the “Building Innovation Bridges between Silicon Valley and Europe” Conference. It was very nice to meet all these European people here in the Bay Area. I liked the first day meeting in Google headquarters (these are actually several buildings, it reminded me a little bit the one of Intel). It was very stimulating listening to Alberto Savoia, Director of Engineering at Google and the extreme innovation concept. Among other things, I think it’s a fantastic idea what Google does with their employees and the 20% rule, in which they can work in whatever project they have created on aprox. 1/5 of his time. It’s just a great example to encourage intrapreneurship, and being successful.

On the next day there were several panels. They were very knowledgeable, however I would have to say that I was not very satisfied with the couple of questions I did. I have to say though, that I’m now more interested on policy making than business strategies, so here my bias. The first question was to a one to a panel of 5 experts in Venture Capital and Business Angels, was “How can we improve the ‘ecosystem’ (the always use this word here) the European cities in order to have investors invest in our own young people, such as young engineers who would like to start a business?” They dodged the question, I think basically because they don’t care about European cities. The only thing they basically answered was something like “send your kids here, pay us, and we will teach them how to innovate”. Somewhat egocentric.

My second question was directed to a panel of representatives of of several European organizations, the majority subsidized by the national governments (Denmark, Ireland, Germany, Finland, Italy, and others in the room present, Estonia, France, the Netherlands, UK, Czech Republic, etc.). My question was something like: “The majority of your organizations are specialized in bringing European entrepreneurs to the Silicon Valley… (some nod their head). We talk about bridges, and that bridges are for traffic in both directions. In a previous panel a successful European entrepreneur here said that in 20 years, never a politician or any organization has asked to come back. He said he would really think about it if being asked. China, who has been mentioned here several times about being a strong competitor, has a strong policy of sending people abroad and really building bridges with their people, so they can give/come back. Does any of you, or do you know about any organization who assists entrepreneurs to bring back to Europe?”. They avoid the question, and basically it was “no”. Which I found somewhat disturbing.

Everyone wants to be wanted. I think that this is something we’re missing. There is an amazing knowledge overseas, who could really help back at home, but they’re completely forgotten. To put an example, more than a century ago when they wanted to electrify the country, they did not know how to do it. Then they made efforts to recruit Scandinavians who had worked in the U.S. cities setting up the electric grid. They came back and helped in a crucial sector. (Jensen, Johnson, Lorenz & Lundvall, 2007. “Forms of Knowledge, Modes of Innovation and Innovation Systems”, Research Policy. Vol. 36 ( 5), 680-693.). People felt wanted. I know this also from me personal experience. My father he’s originally from Ecuador. He has always dreamed of going back there since he left in the 1970’s. He would be the most happy man in the world if his home country would ask him to do something. In fact in one occasion they asked them to do something and he really devoted his heart to do it.

I think there is a lot of potential in that strategy. Reinhard Bütikofer, a politician from the EU Parliament, he picked the idea and suggested some stuff in that line. Like inviting some successful expats entrepreneurs in America, to come back to Europe to give some presentations to EU entrepreneurs.

All in all, it was a good conference. GABA is very nice organization and I wish them the best. But we should be careful, as an American guy told me, to do not “drink the kool-aid” that many here in Silicon Valley are trying to sell. We need to take an effort to learn from these amazing firms, but also keep in mind that, innovation is NOT only high-tech.

Now I have to write a lot of people, I got plenty of cards after asking the questions.

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Before I start some qualitative research in the area I have to study the background. I always like to pay special attention to history. In the outstanding libraries here I have found some very interesting material, some of them quite old. I have a pearl to share.

This is from “The prospects of Vallejo; or, Evidences that Vallejo will become a great city. A re-publication of a series of articles first printed in the Vallejo evening chronicle, from March to July 1871.”  It came with a nice map, and when they gave it to me, the librarian told me: “careful, the map is falling apart”.

To put in context, the leaders of Vallejo at the time, were explaining the reasons why Vallejo was going to become a big metropolis, probably among the top 3 cities in California (being at that time the city of San Francisco their main competitor, which even though it had the 25% of the State population and the 50% of its wealth, it seemed to show some weaknesses related to economic geography issues). The articles are actually really good. In such a fashion that I think anyone could be convinced. The main reason they argue was that the train arrived to the city (direct connection from East Coast to West Coast), and that their harbour was starting to take off. During the various articles they mix the best skills of real estate, politicians, academics and marketing fellows.  Their main point was to attract capital for their harbour. Probably these guys had all the investments in their life there.

The interesting thing is the different language. Something that now would not look politically correct. Their thesis all across the articles is: 1) “the intelligent men” look for the most profitable places for their enterprises, 2) They go where they are, and 3) That’s what creates economic development (me paraphrasing).

In the following snippet, (that I think I’m the first to transcribe on the internet) they quote the magnate Horace Greeley, and then they present a rebuttal:

Horace Greeley on San Francisco

At a dinner given in New York on the 13th of October, 1869, to an excursion party of the California Pioneers, Horace Greeley having been called on to respond to the toast of “New York and California,” in the course of his remarks said:

When we speak of the present or the expected greatness of these two remarkable cities, New York and San Francisco, I bet that it will ever be remembered that great cities are the expression of great ideas that they grow out of genius men. Alexander gave his name to the city he formed, and that city bears his name and is memorable to this day. Rome is mighty because of the Senate and people that made her high and proud position – made her the Eternal City; eternal because the genius that created her still lingers over her hills, still is reflected in the sunshine that gleams on her palaces; and thus the shadows of ancient greatness recall to our minds memories and associations that make us nobler that we otherwise would be [Applause.]   If these two cities are to be great, they will be great because of the men who have still the genius to preserve and extend the advantages they have won. Had there been no De Witt Clinton, and had there been no Erie Canal, in vain would have been the central position and commercial advantages of this city. She was not the first city of America until her great men gave artificial extension and development to those advantages, and thereby fixed on her, I think, for centuries, certainly for the present age, the honored advantages of being the emporium of the Western World. If she is to maintain this position, she will do it because she will do it because she will have great men continually able to keep her in advance. As she has seized the canal, telegraph and railroad, and pressed them into her service, so she must be ready, as new inventions are presented, to seize them and turn them to her advantage. As it is with New York so will it be with San Francisco. Les us not believe that because this city has quadrupled in population in the last half century that it is in the order of things and must continue. She will maintain her position, for her great men have the power to plan new enterprises, and her great financiers shall second those efforts, and continue to keep her at the head of the commercial world. So with San Francisco. The great railroad recently achieved would never have been if there had not been men in that city who saw capacities and perceived opportunities and possibilities which the multitude did not see.

Mr. Greeley is wrong in supposing that the construction of the railroad is due to San Francisco; he is wrong in supposing that the danger to which that city is exposed (he refers to it, evidently, though he does not mention it,) could be averted by the genius of the business men; and he is wrong again in assuming that genius makes cities. It is the good site that attracts and rewards genius, and stimulates enterprise.

Last week I went to a presentation of a book. This was done by my academic supervisor, Birgitte Gregersen, who is one of the authors. The book is JUST published. It’s only in Danish and the original title is: ”Ny energi og innovation i Danmark”. Honestly I have not much idea about energy issues, well, at least compared with many of my close friends who are doing their PhD’s in Energy (in engineering, planning and economics).

I will post some of the policy proposals they suggest for the case of Denmark. The reason why I’m doing it is because I always find very interesting the policy proposals, no matter in what field. It’s always nice to discuss it. And honestly I admire the reports, articles and books, that dare to give policy proposals. I find more interesting these ones, that the ones who are purely descriptive. One of the teachers I had in a Phd class, Andrea Fernandez Ribas, said that the ones who don’t give policy proposals do not really contribute for the society (or something like that).

Here are the policy proposals about how to improve the energy industry in Denmark. Something that probably any country can learn from. Again, I insist, I do not know too much about energy. So here I’m trying to repeat things, like a parrot. This is from the notes I took at the presentation.

1)    Strength Danish framework: collaboration among Danish firms and institutions (I guess this follows the ideas of the theories on National Systems of Innovation)
2)    Policy should be different for each technology (solar, wind, fuel cell, etc.)
3)    Continue strength Public-Private Partnerships
4)    On public money: More transparency (for example clearly show in websites the budgets, etc.). Avoid stop-go policy, that is ensure long term plans, to avoid momentum because of different policy makers in power. Also merge similar support schemes. If there are going to be changes, early warning, avoid surprises.
5)    Stimulate demand for renewable energies. R&D is not enough. (This can be done not only with subsidies, but taxing the use of other energies)
6)    More public innovation procurement as a direct policy. For example for new buildings and renovation of them.
7)    Better coordination of the energy and innovation policy
8)    Strength systematic experiences and learning process. For example, teaching energy efficiency in technical schools.

1st Year Presentation

June 4, 2009

At Aalborg University PhD students are required to give a 1 Year progress report. A professor (different from the supervisor/s) acts as opponent. A discussion about the project usually follows with other professors and students. In my case there were 15 people and I obtained critical feedback for my project, from professors and students. For these I’m very grateful.

Here it is my presentation, not all slides were presented as I didn’t want to surpass the 25 minutes. I had some technical problems, but of course with presentations, we always have to count on Murphy’s Law.

Anyways, I welcome any other idea.

It’s always nice to stop by Creative Class by the Richard Florida squad. Following links I hit the “How the Crash Will Reshape America” published in the Atlantic in the March 2009 issue.

As I have said sometimes, I like Florida. It seems to be kind of funny that all academics related to the discipline of economic geography say “Florida’s ideas are good, BUT…” It seems that they have to say that in order to show their academic credentials.
So, I of course have to say the same. However, for this last document I admit I have very little objection or none.
He clearly explains the change of economic paradigms and how the American cities have to evolve. He quotes Schumpeter, Jacobs, Romer, Glaeser, Lucas, Krugman among some of the key fellows. His final proposals to change the housing market towards a more renting instead of owning are bold. Which is exactly what the U.S., and great part of the world needs now. Not so much Denmark, but this will be especially fit for my home country Spain.

The solution begins with the removal of homeownership from its long-privileged place at the center of the U.S. economy. Substantial incentives for homeownership (from tax breaks to artificially low mortgage-interest rates) distort demand, encouraging people to buy bigger houses than they otherwise would. That means less spending on medical technology, or software, or alternative energy—the sectors and products that could drive U.S. growth and exports in the coming years. Artificial demand for bigger houses also skews residential patterns, leading to excessive low-density suburban growth. The measures that prop up this demand should be eliminated.

If anything, our government policies should encourage renting, not buying. Homeownership occupies a central place in the American Dream primarily because decades of policy have put it there. A recent study by Grace Wong, an economist at the Wharton School of Business, shows that, controlling for income and demographics, homeowners are no happier than renters, nor do they report lower levels of stress or higher levels of self-esteem.

Once again I have to say, thank you Richard!

This week I went to the library of the Danish language center. I went to return some books (for learners) and had a little conversation with the librarian in Danish. Then we switched to English, as many Danes do when they see you’re struggling. Then he asked me: “So, you study economy, when do you think the crisis is going to finish?” I thought a second and said: “5 years to really recover”. He replied back: “5 years!, that’s long time, uh?!. Is that what you really think?”. I said something like. “Some say now is the lowest point of the economy. Others say in three months things will start recovering. Other 2 years and others… more. So let’s say 2014 to really see the improvement.

While I was saying it that a mix of articles at nyt, financialtimes, intereconomia, the coming of Obama, commercials or American realtors, the economic crisis/consumer confidence graph, and few other things, quickly run over my head.

I followed, “You know, the economy comes in cycles, so things will improve. When? Nobody knows. But perhaps we will not see in a very long time the kind of live many people had before”. Then I remembered the Cities of Jane Jacobs, and her worst economic dream: “Having all the main cities stagnate at the same time, and little by little all loosing their skills”.

A few months ago in the birthday party of Bram, many recent graduates (economists, mastered in businesses, etc.) and young academics were talking about the upcoming of the financial crisis, and how the cousins from Iceland just got quite screwed. Some pointed out the housing market, but I showed my skepticism towards the importance of the housing, after all if you add the price of all foreclosure and related in the US, that was only around 200 billion. Which is peanuts compared with the amounts of trillions that were being lost.

I have always been more inclined to suspect about the artificial low interest rate in the U.S., the debt, the high military expenses (the 3 are strongly connected). In the party, I even said that this could be the death of the theories of the National Innovation System, something that made all the IKE guys around quite shocked. Not that I don’t love those theories, but I doubted of the extreme relevance of the “National System” term, when the Global seemed to be the dominant. To ease the feelings and the high probabilities for me to be wrong, I said I was exaggerating.

But going back where I wanted to go, now I think that I underestimated the role of the housing. Of course this is connected with the ability of money by the artificial low interest rate. But here it came my moment of light.

I was talking with my wise grandma in Christmas. She’s 75 and she’s very intelligent, however because of the poor situation in Spain when she grew up, she did not even finish primary education. I asked her: Why do we have this crisis?. She replied without any doubt: “Because everyone wanted to get a bigger house, or a second or a third one. Have you seen how many houses they have built? And the prices kept increasing to a ridiculous level! If people would have stayed where they lived, the economy would have been ok. Look at your cousin*, she sold her old apartment, for 30 million (of pesetas) when she bought it for 12. She bought her new house for 40 and wanted to sell it for 75. Cash the money and get another house for 50. Her neighbor was lucky and sold a similar house for 75, but that was just crazy! But in the first place, why did she need a bigger house? You sleep in one room, you cook in another, you don’t need anything else! She should have stated in the first apartment and everything would have been just fine. Because they already have good salaries, and they would have been happy, now they are just worried. This is her case, because I know it, but thousands are like that.”

I replied. “Grandma, I have been thinking about it a lot, and I think you are right”.

Then I saw it was confirmed the death of the experience economy. Ok, I’m exaggerating.

* the identity of my family member has been changed.

Since Richard Florida keeps quoting Jane Jacobs (1916-2006), and he even said several people thought she should have received the Nobel Prize in Economics, and on the local-regional development literature, she’s known for the Jacobian externalities. I habe been quite interested in her writings. Christmas seemed the perfect time to read one of her books. I wanted to read, her most famous book The Economy of Cities (1969), but there were not available copies in the library so I chose the next one, as authors usually repeat their ideas.

It was a pleasant reading. I’m used to read the most recent publications, so it’s really interesting read a whole book from 1984, with the fashion ideas of that time (such as the nuclear threat, the “French” European Economic Community, the stagnation of UK and USA or the amazing growth of Japan). Reading her planning and economic theories, one can better see in what perspective people in 25 years will be reading what we are writing now. Interesting enough, she takes her time to explain about the economic crisis and lack of development, which makes a perfect reading for early 2009.

 

Jacobs draws on an impressive amount of economic theories, not only the typical Anglo-Saxon; Adam Smith, Marx-Engels, Keynes, Fisher, Phillips, Marshall, but other such as the Arab, Ibn Khaldun (1332-1406), the French Cantillon (1730), Soviet B. N. Khomelyanski or Swedish Myrdal, among many others. Again, she does not only puts examples about American cities, but Egypt, Mexico, Tokyo, China, Uruguay, Taiwan and many European. It obviously called my attention the Danish and Spanish examples.

 

For her, the entrepreneurs, individuals by themselves, or any national system are in a second position. First are cities (City-Region Innovation System, anyone?). She does an outstanding job explaining the importance of the cities for the society and economy. More or less I had this notion clear, but it’s compelling reading her research on that. I have to say, it still surprises me so many educated people who give such a heavy importance only to the nation (specially when they’re not small, but fragmented), or many disdain the crucial role of the cities (I found this among many American).

 

There are 6 concepts and theories I would like to share, without order of relevance are.

  1. How the Marshall Plan worked for Europe, but can’t work for other places. (I have recently browsed a 2007 book praising the Marshall Plan and how it should be used again… it never gets old?). 
  2. The “backward” city-nation concept. When would we stop saying “developing country”? They’re not developing!! 
  3. The pros of having a currency for every city, something that today looks even more weird, but how it would enable (and disable many things) a feedback for the economy of every city. I believe in the Euro, but I don’t think the German cities are that benefited to share the same currency with Southern Spain. But of course is better than Latin American cities using the US dollar 
  4. The importance of the military subsidies, she puts historic and world some examples, but in rural USA (I think some Presidential candidates referred to them to the “real America”) this is blatant, funny thing is that they don’t even appreciate these subsidies come from the cities. (page. 106 about NYC historic tax yield). 
  5. This is very connected to the finding of a Princeton think tank who researched on the reason to empires to fall. First heavy military expenses dependence (many agree that was the reason why in 1989 the U.R.S.S. finally collapsed), and second for increase political participation of the regions with linguistic or ethnic awareness. 
  6. The necessity is not the mother of invention, she draws beautiful examples from “Aesthetic curiosity- The root of invention” by M.I.T. professor, C.S. Smith (1975).

 

Well, there are dozens of very interesting stuff, she would say I forgot the import-replacing theory. I highly recommend her reading. Sometimes her theories are fuzzy, and sometimes of course she had it wrong, but in many cases for so little. For example she talks about the importance of trade barriers to harm an economy. She identifies some problems that would make Japan stagnate, but does not talk about the trade barriers. In the late 80’s that happened with Japan, and was because of the trade barriers the U.S. put. (some say after Japan broke the unwritten contract and stop buying U.S. debt). Too bad we don’t have Jane Jacobs among us today, the Nobel Prize comitee, should have to wonder.