Local Indicator Database for Economic Analysis
News broke today about a possible scandal involving the Liberal Government and the MaRS Discovery District, a science and technology incubator located in Toronto. The story (being put forth by the Conservative Party) is that the sitting government is being forced to spend over $300 million on bailing out MaRS due to a lack of demand for the space it has on offer. While it needs to be said that any such story should be taken with a very large grain of salt due to the looming election on June 12, the underlying issue of a lack of willing and able tenants, if true, is of serious concern.
The thinking behind MaRS and similar incubators is that by placing new start-up companies in close physical proximity to one another, plus nearby universities, while providing them with onsite services such as IP lawyers and conference facilities will increase their innovative capacity and ultimately give them an edge on their competitors. Locating in such a facility also comes with a certain cache that can enhance the reputation and visibility of nascent firms. Governments are willing to fund such ventures as they are believed to boost local economic dynamism and make place more competitive against their peers. It all sounds so wonderful. So why the empty offices? It is not because Toronto is struggling. The region has over 2,000 science and tech firms which in total employ more than 100,000 people accounting for over a quarter of all such jobs in the country. Additionally, Meric Gertler, the President of the University of Toronto, reported today in a speech to the Toronto Board of Trade, that his institution churns out more start-up companies than any other university in North America. The DMZ, an incubator at Ryerson University, is similarly buzzing with activity.
While the underlying theory behind MaRS is fundamentally correct, that relationships and interaction between scientists, managers, marketers, lawyers, and yes, even civil servants are crucial for innovation, it may be that such dynamics are not necessarily so regular that they need to be under one roof. Surely, it is advantages, but possibly not enough to justify the costs, which in this case are significant relative to office locations in places like Markham or Mississauga. It may also seem contradictory that an organization such as Artscape, which provides subsidized spaces to members of the creative and cultural community, has had great success tenanting multiple premises in Toronto. The key difference is that the social dynamics of making art and making science are not equivalent. The creative and cultural community is very much a 24/7 environment where people live and work in the same neighbourhoods with little-to-no distinction between social and work relationships. The creative process is more chaotic and unpredictable and requires a constant and direct embedding in environments that offer both inspiration and feedback. In short, there is a much greater social intensity. Science, on the other hand is by nature more methodical. Live-work dynamics and locations are more distinct. Relationships are important but not necessarily constantly so.
This is reflected in the location patterns of creative and cultural firms versus science and technology companies in Canada’s three largest cities. The former are mainly found in central urban neighbourhoods that provide ample opportunities for social interaction to occur outside of homes and workplaces. The latter tend to favour suburban locations that alternately offer few such possibilities. The kicker is that creative and cultural firms have on average lower revenues per employee and yet pay premiums to locate in such places. S&T firms have higher revenues but are seemingly content to settle for lower cost locations. In the end it may be that the problem is not what MaRS has to offer, but that the price isn’t right.
UPDATE: a week after this post appeared the Globe & Mail did a thorough investigation on affordability at MaRS.
For more insight see my research on ‘Knowledge Neighbourhoods’