Knowledge-based production and the creative economy

The second trend - the transition to more knowledge-intensive and creative forms of economic activity across many sectors - is arguably more important than the first, and has been well documented both nationally and internationally. The consensus among economic theorists is that the defining feature of capitalism at the start of the new millennium is the central importance of knowledge and learning in the creation of economic value and the determination of competitive success.14 There are several distinct dimensions of this transition.

First, competition between firms is increasingly being waged on the basis of the qualitative characteristics of products (goods or services) and the ability to bring new or improved products to the marketplace quickly. Innovations in the production process are often just as important as innovations in the products themselves, since they enable both the rapid shift to the creation of new products and the attainment of quality standards and performance that consumers now expect. Firms that compete most successfully are no longer simply those that offer their product at the lowest price: rather, their ability to generate new products and process innovations in a timely and effective fashion has become equally, if not more, important.

Second, while major research institutions such as universities, public research centres, and corporate R&D facilities play a pivotal role in the production and dissemination of knowledge, it is now widely acknowledged that for economic actors, social processes of learning have increased in importance.15 In other words, a large and growing proportion of innovation occurs through the interaction between economic actors: between technology users/customers and technology producers, or between partnering technology producers. The actors engaged in these processes include private firms of all sizes, colleges and universities, stand-alone research centres, technology transfer organizations, producers' associations, unions, and other institutions.

This phenomenon of learning-based innovation is equally important to both manufacturing and service activities. There are no better examples of this than Kitchener-Waterloo-Cambridge and Hamilton. In the former, intensive interaction between the University of Waterloo and local firms has spawned and nurtured the development of highly innovative, knowledge-intensive manufacturers such as Research in Motion and software firms such as Open Text and Descartes Systems. In Hamilton, the McMaster University Medical Centre and affiliated teaching hospitals have triggered the emergence of a research-intensive health services cluster.

Third, intangible assets have attained unprecedented levels of importance in determining the competitive success of firms. As C. Leadbeater argues in Living on Thin Air, most of us earn our living by producing intangible rather than physically tangible things.16 This is not to deny the continuing importance of tangible commodities in our lives, but merely to emphasize that competitive success, even for those producing tangible commodities, depends on the extent to which products can be imbued with desirable intangible assets. Accordingly knowledge - that is, ideas, know-how, creativity, and imagination - has become the most important resource for economic prosperity.

If the production of intangible assets and products has become central to regional and national economic vitality, one particular subset of these activities has, according to some well-respected analysts, assumed a position of increasing prominence in contemporary market economies - that is, cultural products. These include activities as diverse as book and magazine publishing, television, film and video production, live and recorded music performance, multimedia, advertising, the design of clothing, footwear, jewellery, and furniture, live theatre, museums, and specialty foods and beverages.

The common attribute shared by all of these products is their high cultural content. In other words, their competitive success depends on their originality and distinctiveness, and the creativity and imagination of their producers. As geographer Allen Scott, planning scholar Sir Peter Hall, social analyst Joel Kotkin, and others have recently argued, cities have long been the pre-eminent centres for the creation of such products. As their production increases in importance, so too do the "cultural economies of cities."17

Recent employment data clearly illustrate the extent to which many of these cultural and creative industries have grown in the Toronto CMA (see Table 6). According to Labour Force Survey data, for example, employment in the information and cultural industries grew at an average annual rate of nearly 5.2% between 1991 and 2001 (compared to 2.4% for all industries). Within this category, activities such as film, recording and television production and distribution grew considerably faster.

Table 6: Average Annual Employment Growth Rates for Selected Cultural and Creative Industries, Toronto CMA 1991-2001


Growth Rate (%)

Information and cultural industries


Motion picture and sound recording


Broadcasting and telecommunications


Arts, entertainment and recreation


Performing arts, spectator sports


Furniture and related products


Specialized design services


Advertising and related services


Source: Toronto Economic Development (2002) based on Statistics Canada's Labour Force Survey.

The revival of the furniture and related products sector provides an especially vivid example of the importance of creativity and cultural content to the economic fortunes of an otherwise mature industry. In the late 1980s, when the Free Trade Agreement between Canada and the United States was first implemented, many economists forecast the disappearance of what was then a mature, labour-intensive industry producing standard products, sheltered by significant tariffs. In the years immediately following the introduction of the FTA, the furniture industry suffered staggering losses of employment and output, and many firms in Toronto and the rest of Ontario went out of business.18 Nevertheless, as the above figures attest, this industry has experienced a reversal of fortune since bottoming out in the early 1990s. There is strong evidence to suggest that a widespread shift to greater design-intensity, creativity, and more specialized products has brought about this transformation.19

Similar transformations have taken place in other mature manufacturing sectors in the GTA, such as food and beverages and clothing production, as the design and cultural content of these products has increased substantially. In the latter case, employment in clothing manufacturing has increased at an average annual rate of nearly 5% since the industry reached its lowest point in 1992.

14. OECD, "The knowledge-based economy," Science, Technology and Industry Outlook, Paris: Organisation for Economic Cooperation and Development, 1996, pp. 229-256; B.-A. Lundvall and B. Johnson, "The learning economy," Journal of Industry Studies 1992, 1, pp. 23-42.
15. B.-A. Lundvall, "Innovation as an interactive process: from user-producer interaction to the national system of innovation," in G. Dosi, C. Freeman, G. Silverberg, and L. Soete, eds., Technical Change and Economic Theory, Frances Pinter, 1988, pp. 349-69; M.S. Gertler and D.A. Wolfe, Innovation and Social Learning, Basingstoke: Palgrave/Macmillan, 2002.
16. C. Leadbeater, Living on Thin Air, Viking, 1999.
17. A. Scott, "The cultural economy of cities," International Journal of Urban and Regional Research 1997, 21(2), pp. 323-39; A. Scott, The Cultural Economy of Cities, Sage, 2000; Peter Hall, Cities in Civilization: Culture, Innovation and the Urban Order, Weidenfield and Nicholson, 1998; Joel Kotkin, The New Geography, Random House, 2000.
18. M.S. Gertler, "Negotiated path or 'business as usual'? Ontario's transition to a continental production regime," Space and Polity 1999, 3(2), pp. 171-97.
19. Institute for Competitiveness and Prosperity, A View of Ontario: Ontario's Clusters of Innovation, p. 45.