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URBAN KNOWLEDGE ECONOMIES AFFECTED BY THE CRISIS?

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How does the economic crisis affect the development of cities towards ‘knowledge cities’? This paper discusses the impact of the crisis on the knowledge economy in general, and the development of new ‘science districts’ in particular. It builds on the experience of cities involved in the REDIS- network1. REDIS focuses on the development of science quarters in cities.
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URBAN KNOWLEDGE ECONOMIES AFFECTED
BY THE CRISIS?

Willem van Winden
Lead Expert REDIS

























How does the economic crisis affect the
development of cities towards ‘knowledge
cities’? This paper discusses the impact of the
2
crisis on the knowledge economy in general,
and the development of new ‘science
districts’ in particular. It builds on the

experience of cities involved in the REDIS-
Source: presentation Kartrinebjerg
network1. REDIS focuses on the development

of science quarters in cities.
Planning for the knowledge economy

Cities throughout Europe deploy a variety of
Recalling the basic drivers of urban
instruments to boost their knowledge
economic growth
economy. They make policies to attract
In turbulent times of crisis and recession, it
talent, to reduce school drop out rates, to
makes sense to recall the basic drivers of
develop knowledge clusters, facilitate
economic growth. It is clear for some
knowledge transfer between universities and
decades now that economic growth does not
companies, and to promote entrepreneurship.
only come from ‘traditional’ production
Several cities have invested in landmark
factors (land, labour and capital). Rather,
architecture and other ‘grand projects’ to
technological progress and innovation are key
underline their ambitions as knowledge city.
drivers of growth. Governments and
The city of Valencia (Spain) for example
companies around the world are aware of
created a futuristic ‘city of arts and sciences’
this, and have invested heavily in research
(designed by Calatrava), a multimillion euro
and development (R&D), knowledge
investment presenting Valencia as a
infrastructure and knowledge management.
knowledge center of the 21th century4.
The annual global budget devoted to R&D

currently exceeds one trillion US dollars2.


Valencia’s City of Art and Science
There are signs that the emerging knowledge
economy has reinforced the role of cities in
the economy. After a long period of urban
decline, the end of the 1980s marked the
beginning of a remarkable revival of urban
areas in Europe and the US, and this

tendency coincides with the emergence of the

knowledge-based economy. The strong
An increasing number of cities invest in urban
knowledge infrastructure of many cities has
‘knowledge quarters’ or ‘creative districts’,
turned into a key economic asset. Moreover,
and develop them as integrated parts of the
the diversity (of people, firms and cultures)
urban fabric. This brings knowledge back to
so typical for urban regions constitutes a
the heart of cities. The trend reflects the
fertile ground for new ideas and innovations.
growing conviction of policy makers that
The diffusion of new knowledge and
innovation and knowledge creation is an
technology is faster in urban areas, thanks to
iterative and interactive process that thrives
the density and physical concentration of
in diverse and mixed environments. There is
large numbers of knowledge workers and
a sharp contrast with the 1970s and 1980s,
knowledge-based firms3.
when knowledge and science parks were

typically created at ‘greenfield’ suburban

locations, outside the core city.
Knowledge economy is people’s business
The shift from the isolated campus model to
integrated approaches has brought
knowledge-based development to the heart
of Europe’s cities. New ideas about the

significance of user (read: citizen)
1 http://urbact.eu/en/projects/innovation-
involvement in innovation reinforce this
creativity/redis/homepage/
2
tendency.
2009 Global E&D funding forecast
3 See Van Winden, W. (2006), Globalisation and Urban

Competitiveness: Challenges for Different Types of

Urban Regions, in OECD (2006), Competitive Cities in
4 http://www.spanish-living.com/regional/Valencia_city-
the Global Economy, OECD Publishing, Paris
of-arts-and-science.php



The city of Dortmund exemplifies this shift
of the economic rescue package. In that
from isolation to integration. Like much of the
sense, the knowledge sector is robust.
Ruhr area, this former industrial powerhouse
Changes are under way, however. The
faced massive economic decline due to
recession is fuelling debates on the nature of
3
deindustrialisation. Since the 1980s,
R&D investment. Many argue not just to
knowledge based development has been the
augment expenditures but to spend resources
cornerstone of local economic policy. Back in
more economically, and develop ‘smart
the 1980s and 1990s, the city developed a
specialisations’, not only on the national but
mono functional technology park, physically
also on the urban level. There are strong
remote from the city. Currently, the city is
voices to focus public R&D spending even
developing a second, ‘new generation’
more on pressing issues such as addressing
knowledge hotspot on the Phoenix site, a
climate change and moving to more
former industrial site near the city centre. In
sustainable forms of energy.
contrast to the first technology park, this one

is being redeveloped as a mixed-use area,
Inevitably, in the not-so-distant future,
including residential functions, leisure, and all
governments will have to raise taxes or cut
sorts of amenities. Moreover, to give it
expenditures to reduce the debts that they
identity, the development is explicitly linked
are now accumulating. This constitutes a
to the industrial past of the area. Parts of the
possible threat to large knowledge based
industrial heritage are preserved and
programmes. There may be a mounting
reconverted. This attempt to preserve or
societal and political pressure to spend tax
create ‘identity’ is typical for post-modern
euro’s on social policy rather than ‘fancy’ or
knowledge locations. More info on
elitist knowledge economy projects.
www.phoenixdortmund.de


Luc Soete, innovation professor at Maastricht
The city of Newcastle, UK (REDIS-partner)
University, identifies a gap between EU
is another fine example. Over the last years,
countries in this respect. On one side, there
the city has already successfully transformed
are countries with high R&D investments
its industrial image, through heavy
(examples are Finland, Sweden, and
investments in culture and flagship
Germany). Their governments generally
architecture. The cities’ next ambition is to
consider the financial crisis as an opportunity
become a significant ‘city of knowledge’ in
for reforms that strengthen R&D and
the UK. Among other things, the city is
innovation, and the development and use of
developing a large ‘science quarter’ at a
“green” technologies and eco-innovation. On
former brewery site, in the city centre. To
the other side, there are countries with low
realise this ambition, the City Council works
R&D investments. In their response to the
together with the University of Newcastle and
crisis, they appear to only marginally refer to
ONE Northeast, the regional development
research and innovation stimulation
company for the Northeast of England. The
measures. In the longer run, these different
partners have the intention to transform the
policy responses may forge a growing divide
brewery site into a new mixed-used city
between EU countries, with technologically
centre quarter, focused on attracting and
leading countries taking a further lead, and a
developing world-class knowledge and
group of falling behind countries adjusting
business in science and technology. See
their specialisation towards less
www.newcastlesciencecity.com/
technologically advanced goods and services.


Impact of the crisis: observations and
The impact of the crisis varies among
expectations
European countries, but also within countries,
How will the current economic crisis affect the
not every city is equally affected by the
transition process of cities towards a
economic crisis. There are signs that
knowledge economy?
industrial regions (including those specialised

in high-tech industry) are particularly hard
There are some good reasons for optimism.
hit, due to their strong export orientation and
Public spending on science, research and
the collapse of world trade. A recent UK
higher education knowledge will probably not
report shows that workforce skills largely
decrease on the short run. Some countries,
determine how well cities are performing in
including France and Germany, even
the recession and that most of the worst
announced to increase R&D spending as part
hotspots are repeat casualties from previous



recessions. “High skills cities, places with
faced with higher capital costs while expected
highly qualified populations such as
revenues are on the decline. Developers are
Cambridge, York and Oxford, have fared
inclined to opt for cheaper solutions (higher
better compared to areas with a high
density building, less luxury, ‘downsized’ ???
4
proportion of residents with no or low
plans for public space and infrastructures).
qualifications, such as Stoke or Rochdale
One of the key questions is whether
which have been much harder hit”
sustainability issues (investing in green
(http://blog.taragana.com/pr/repeat-
technology, energy saving buildings, new
casualty-cities-hit-hardest-by-latest-
ways of energy supply) will suffer from the
recession-and-risk-long-term-cycle-of-
crisis. In the REDIS-network, we see that
decline-3817/).
some large-scale knowledge projects are
In The Netherlands, similar tendencies can be
delayed; also, the envisioned participation of
observed. Industrial regions in the Southeast
the private sector is abandoned or
of the Netherlands suffer more than
downscaled. In Newcastle, initially the
knowledge and service based cities like
partners were looking to procure a private
Amsterdam. This early evidence suggests
sector developer to take forward the
that diversified knowledge cities will emerge
development of Science Central knowledge
stronger out of the crisis than industrial
quarter. Due to the economic crisis, the
regions, but this conclusion could be too
delivery of the site has changed. The city
early. Industrial regions are hit harder
development company (1NG) is now
because of their export orientation, and a
managing the site on behalf of the land
rebounding world economy may boost their
owners. A phased approach to the
exports and bring them back with a
development of the site is to be implemented
vengeance.
now. There is also more focus on using

public sector funding in the short term to
There are some positive aspects of this
invest in the infrastructure for the site to
recession, too. First, the recession may give a
provide the right conditions to attract private
boost to R&D co-operation between the public
sector developers.
and the private sector. There are no strong

signs yet of private sector cuts in innovation
In many cities, the development of new
efforts and expenditure, but that might
knowledge quarters does not depend much
change when the recession lasts. In any case,
on the private sector but rather on
private firms are keen to save costs and may
investments from universities, public
be interested in co-operation with public
authorities or EU funds. Here, we see little if
science. This could have positive long-term
any impact of the crisis. In Bialystok, one of
effects, and contribute to regional types of
REDIS partner cities, the impact of the crisis
‘smart specialisation’. Moreover, the crisis is
is not severely felt. In general, Poland is less
a catalyst for entrepreneurship. Many
affected by the crisis, thanks to strong
employees start their own business.
consumer demand, stable EU funding and a

devaluation of the currency. 45% of
Effects on the development of urban
entrepreneurs in the region claim that
‘knowledge quarters’
economic slowdown does not influence their

businesses at all. The rest of them say the
The REDIS network5 (under the URBACT II
situation is unfavorable. The most visible
programme) unites eight European cities with
results of crisis are growing unemployment
advanced plans to develop ‘knowledge
rate (from 7,9% to 10,4% in the first half of
quarters’: special areas or quarters in the city
2009) and a growing city budget deficit (data
where knowledge economy is central. What is
received from City of Bialystok).
the impact of the current crisis on these
The city of Bialystok is developing a science
developments? What trends do we observe?
park, but it is mainly financed with EU

funding. The city even experiences “benefits”
In some cities, declining land prices and real
from the crisis: companies offering services
estate values have a deep impact on the
propose lower prices in public tenders. The
value proposition of newly planned
city allocated almost PLN 3 mln
knowledge quarters. Private investors are
(~750,000EUR) for architectural design and
site development for the science park. As

many as 23 bidders stood for the tender. In
5 http://urbact.eu/en/projects/innovation-
similar tenders organized before there were
creativity/redis/homepage/



regularly only a handful. And the final price
focus even more on the additional, more
the city paid for the project is about PLN 1
science park specific facilities and services”.
mln (~250,000EUR). The same situation

holds for other public investments like roads,
Summing up
5
public transport, etc.
The economic transition of cities towards

knowledge-based economies will continue
In Magdeburg, the situation is also rather
during and after the crisis. Some effects of
stable; the public investments in the cities’
the crisis can be observed. First, the impact
‘science port’ will continue as planned, and
is different on different types of cities. There
there are no signs of declining interest from
are some indications that diversified cities
the private sector. On the longer run, there is
with a strong knowledge base are
a threat of budget cuts for universities. The
outperforming industrial cities, but the effect
Land Sachsen-Anhalt is discussing the budget
could be temporary. It is simply too early to
for 2010-2011; expenditures have to be cut
tell what the structural effects of the crisis
by about € 3 billion, and universities will have
will be. Second, it is clear that national policy
to take their share. This may affect
responses matter for cities, and here we see
Magdeburg University as well, with negative
major differences between EU member
impacts on the cities’ ambition for the science
states. Overall, investments in public R&D will
port.
not decline, but there is a divide in the EU

between countries that explicitly boost
Magdeburg’s Science Port
knowledge investments (those are the
countries that already spend much on R&D)
and those that do not. The effects will be
strongly manifest on the urban level, because
it is in cities where the lion’s share of R&D
takes place.
On the positive side, the crisis may bring
public research and private enterprise closer
to each other. Firms facing economic
difficulties have an interest to turn to
universities (or other public research
institutes) to keep their innovation train
running. This may have lasting effects, and

local governments are wise to lend a helping

hand.
The city of Aarhus is developing the “IT city
The REDIS project unites cities that are
of Katrinebjerg”. The area is home of
making urban plans for knowledge-based
companies, research institutes and an
development. Here we see a division. On the
incubator for innovative firms, all active in
one hand, there are public sector dominated
ICT. The effects of the crisis are modest so
(and financed) plans for science parks and
far, with some firms facing a decline in
knowledge quarters. These developments are
turnover and profitability. Niels Chr. Sidenius,
hardly affected by the crisis so far, as they
Managing Director of INCUBA Science Park
mainly rely on public funding (national,
comments on an emerging lack of funding
regional and EU) that was secured and
and risk capital, due to the credit crunch:
earmarked before the crisis broke out. On
“Firms experience more difficulty to find
the other hand, some cities have
funding, in particular bio-tech and life-science
development projects in which the private
companies. One of the reasons is that a
sector is heavily involved as co-investor.
number of business angels have lost a lot of
Here, we see significant downsizing and delay
money on property assets”. There is some
effects: investors face lower land and real
delay in the implementation of projects, but
estate values, higher capital costs or limited
this is not a general trend. Importantly, the
access to capital, and lower expected
market for office space is under pressure,
revenues. The value proposition of these
which undermines the area-based concept to
projects has radically changed for the worse,
some extent: “It is easy for many of our
in a very short period. There is a tendency of
companies (and potential tenants) to find
the public sector taking over the role of the
alternative locations we therefore have to
private sector as driver of the developments.




In the coming year, the members of the
REDIS network will continue to reflect and act
on the development of knowledge quarters.
For those interested in the network’s
6
activities, we refer to the website:
www.urbact.eu/redis


Willem van Winden
Lead Expert REDIS
w.van.winden@urbaniq.nl
tel +31 6 41427013


















URBACT is a European exchange and learning
programme
promoting
sustainable
urban
development.
It enables cities to work together to develop
solutions to major urban challenges, reaffirming
the key role they play in facing increasingly
complex societal challenges. It helps them to
develop pragmatic solutions that are new and
sustainable, and that integrate economic, social
and environmental dimensions. It enables cities
to share good practices and lessons learned with
all
professionals
involved
in
urban
policy
throughout Europe. URBACT is 181 cities, 29
countries, and 5,000 active participants


www.urbact.eu










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