Technology, Talent and Tolerance

One major challenge affecting all cities and regions is the transition to a knowledge-based society. Knowledge is the key resource of the 21st century and the decisive driver of economic success. US tech giants are an example of the transition to the knowledge economy; their success and innovations being based on comprehensive knowledge and applying information. Apple, Alphabet, Microsoft, Meta, etc. have transformed the traditional economy and now top the global list of most valuable companies.

Transitioning to a knowledge economy involves not only changing economic structures and market shares, but also significantly shapes the development prospects and competitiveness of certain areas, and, ultimately, real estate markets. For the transition to a knowledge economy to succeed and ensure long-term success and prosperity for a city or region, targeted future strategies are needed that create incentives for knowledge-based enterprises.

Richard Florida combines his ideas into an economic growth theory: "Technology, Talent, and Tolerance". These three Ts define the arena in which regions and cities compete for a successful economic future. Technology refers in particular to innovations and future technologies. The second T (for Talent) refers to the existing human capital, while Tolerance refers to the diversity and openness of a city or region.

The decisive factor for Florida's hypothesis is that only the regions where the three Ts occur in a favorable ratio can expect economic growth. Each of the three Ts is important, but a single factor is insufficient on its own. It is the interaction between the three Ts that determines a region's prospects. For example, a tolerant atmosphere makes a city attractive to highly qualified talent. Businesses in future technologies or knowledge-based services sectors settle in areas where many creative talents already reside, attracting additional talent with the jobs they offer. This makes the city even more attractive and diverse. This can lead to a lasting upward spiral.

According to Florida, "territory assets", which encompass local and socio-spatial location characteristics, are crucial for the development of the three Ts. This includes buildings. To attract technology and talent, you need adequate residential, industrial and office buildings. On the other hand, what is known as "placemaking" is also particularly important — i.e. the existence of meeting spaces and locations offering experiences that create a sense of identity.

Looking to the past, it is clear that innovations have often occurred over long periods of time triggering prolonged growth periods, known as economic long waves (Kondratieff 1926). A long wave begins with a series of interrelated technical and economic innovations, i.e. timely inventions in key technology fields with strong interdependencies. These either create entire new branches of industry or fundamentally change existing ones.

Since industrialization began in the 18th century, there have been five long waves which have decisively shaped the global economy. The first long wave (ca. 1785-1845) was driven by the invention of steam power and innovations in the steel industry. The second wave in the middle of the 19th century led to significant progress in the rail, steam and steel sectors. In the third wave, the economic upswing was brought about by the introduction of gasoline and electric engines, and in the fourth wave by the introduction of electronics and petrochemicals in production processes. The fifth wave in the 1990s was shaped by information and communication technologies which ushered in a new era of globalization. And now, we are at the beginning of a new innovation cycle which will likely be dominated by artificial intelligence, the Internet of Things, robotics and biotechnology.

An initial indication of the varying talent pools of cities is first provided by the age structure. The higher the proportion of younger people in the overall population, the greater a region's growth prospects are expected to be. Europe's young population is increasingly concentrated in metropolitan areas. In the almost 1,200 European NUTS 3 regions (equivalent to district level in Germany), on average, 49 percent of the population is under 45 years old. In the top 15 metropolitan areas in the Florida ranking, the proportion is significantly higher at 58 percent. Particularly high proportions are recorded in Copenhagen (with 66 percent), Oslo, and Dublin (with 64 and 63 percent, respectively).

Universities are a major factor in the migration patterns of young people and are often decisive in the global competition among regions and cities. Universities are also drivers of innovation, generating employment and new developments in high-tech and knowledge-intensive sectors. This creates new networks which act as an ecosystem, giving a region a decisive economic advantage. Berlin, for example, with its three excellent universities (FU, TU, and Humboldt) is considered the capital of start-ups. A cluster of biotech, IT, and other high-tech companies has also formed around the Technical University of Munich (TUM). TUM produces more than 70 start-ups every year, which is more than any other German university.

These stimuli from the academic world are increasingly important to the economic success of major cities. This effect is reinforced by the fact that these internationally renowned universities attract people from all over the world – they are talent magnets. International students are an ideal source of additional skilled workers, as they have already lived in the respective country for several years after graduating, know the culture, often speak the local language, and are already integrated.

As the proportion of migrants in the population of German and European cities will continue to grow in the future, they cannot afford to take a destructive long-term approach to integration and cultural diversity. Following Richard Florida's thesis, in particular the theory that regions will only be economically successful in the future if they appreciate international and social diversity, perspectives need to change in the debate on integration. To date, this has tended to have rather negative connotations. In this sense, the focus should lie far more on social and economic opportunities and potential, and these should be promoted in a targeted manner.

Recent studies show that a structural lack of a welcoming culture can significantly hinder the recruitment of skilled workers from abroad (ZEW, InterNations 2024). In particular, (large) companies with an international focus and international structures refrain from investing in regions with a high level of xenophobia. Xenophobia damages the image and attractiveness of an economic hub and therefore its future viability. For example, the current rise of the AFD threatens to make eastern Germany increasingly unattractive as a business location.