It's a mantra of the age of globalization that place doesn't matter. Technology has leveled the global playing field—the world is flat. "When the world is flat," says New York Times columnist Thomas Friedman, "you can innovate without having to emigrate."
It's a compelling notion—but it's wrong. Today's global economy is spiky. What's more, the tallest spikes, the cities and regions that drive the world economy, are growing ever higher while the valleys, with little economic activity, recede still further.
Population and economic energy are both increasingly concentrated. Of the roughly 170,000 patents granted in 2003 in the United States—which gets applications for nearly all major inventions worldwide—nearly 80% went to Americans, Japanese, and Germans. The next 10 most innovative countries—the usual suspects in Europe, plus Taiwan, South Korea, Israel, and Canada—produced another 15%. The rest of the world accounted for only 5%, with India and China responsible for just 0.4%.
That is not to say that people from India and China are not creative. Patents are hardly the only measure of creativity. For instance, AnnaLee Saxenian of the University of California, Berkeley, has shown that Indian and Chinese entrepreneurs founded or cofounded roughly 30% of all Silicon Valley startups in the late 1990s, generating $20 billion in annual revenue and about 70,000 jobs. These particular ideas blossomed as part of the innovative ecosystem in Silicon Valley.
Geographic concentration encourages innovation because ideas flow more freely, are honed more sharply, and can be put into practice more quickly when innovators, implementers, and financial backers are in constant contact. Creative people cluster not simply because they like to be around one another or prefer cosmopolitan centers with lots of amenities (though both things tend to be true). They cluster because density brings such powerful productivity advantages, economies of scale, and knowledge spillovers.
Four kinds of places make up the landscape of our spiky world: first, the tallest spikes that attract global talent, generate knowledge, and produce the lion's share of global innovation. Second are the emerging peaks that use established ideas, often imported, to produce goods and services. Some of these cities, such as Dublin and Seoul, are transitioning into places that generate innovation, but most, from Guadalajara to Shanghai, function primarily as the manufacturing and service centers of the 21st-century global economy. The two remaining types of places are being left behind: third-world megacities distinguished by large-scale "global slums," with high levels of social and political unrest and little meaningful economic activity; and the huge valleys of the spiky world, rural areas with little concentration of population or economic activity.
The main difference between now and a couple of decades ago is that the economic and social distance between the peaks has gotten smaller. People in spiky places are often more connected to one another, even from half a world away, than they are to people in their own backyards. This peak-to-peak connectivity is accelerated by the highly mobile, global creative class, about 150 million people, who migrate freely among the world's leading cities—places such as London, New York, Paris, Tokyo, Hong Kong, Singapore, Chicago, Los Angeles, and San Francisco.
Meanwhile, second-tier cities from Detroit to Nagoya to Bangalore are locked in potentially devastating competition for jobs, people, and investment. And in the so-called developing world, millions upon millions of people whose culture and traditions are being ripped apart by globalization lack the education, skills, or mobility to connect to the world economy. They are stuck in places that are falling further and further behind.
Spiky globalization is also wreaking havoc on emerging economies. In China, talent is concentrated in a few centers such as Shanghai, Shenzhen, and Beijing, each of which is a virtual world rising above vast, impoverished rural areas. According to detailed polling by the Gallup Organization, average household incomes in urban China are more than triple those in the countryside and have grown more than three times as fast since 1999. Because modern communication makes the world smaller at the same time globalization makes it spikier, those trapped in the valleys are looking directly up at the peaks and seeing the growing disparities in wealth, opportunity, and lifestyle.
Economic progress requires that the peaks grow stronger and taller. But such growth exacerbates disparities that threaten stability. Only by understanding that the world is not flat can we begin to address the greatest political challenge of our time: how to raise the valleys of the spiky world without sacrificing the peaks.
From the book Who's Your City? How the Creative Economy Is Making Where You Live the Most Important Decision of Your Life, by Richard Florida. Copyright ©2008 by Richard Florida, reprinted by arrangement with Basic Books, a member of the Perseus Books Group. All rights reserved.
A version of this article appeared in the March 2008 issue of Fast Company magazine.