Date Published: February 28, 2018
Publisher: Public Library of Science
Author(s): Timothy R. Wojan, Bonnie Nichols, Mark A. Runco.
Creative class theory explains the positive relationship between the arts and commercial innovation as the mutual attraction of artists and other creative workers by an unobserved creative milieu. This study explores alternative theories for rural settings, by analyzing establishment-level survey data combined with data on the local arts scene. The study identifies the local contextual factors associated with a strong design orientation, and estimates the impact that a strong design orientation has on the local economy.
Data on innovation and design come from a nationally representative sample of establishments in tradable industries. Latent class analysis allows identifying unobserved subpopulations comprised of establishments with different design and innovation orientations. Logistic regression allows estimating the association between an establishment’s design orientation and local contextual factors. A quantile instrumental variable regression allows assessing the robustness of the logistic regression results with respect to endogeneity. An estimate of design orientation at the local level derived from the survey is used to examine variation in economic performance during the period of recovery from the Great Recession (2010–2014).
Three distinct innovation (substantive, nominal, and non-innovators) and design orientations (design-integrated, “design last finish,” and no systematic approach to design) are identified. Innovation- and design-intensive establishments were identified in both rural and urban areas. Rural design-integrated establishments tended to locate in counties with more highly educated workforces and containing at least one performing arts organization. A quantile instrumental variable regression confirmed that the logistic regression result is robust to endogeneity concerns. Finally, rural areas characterized by design-integrated establishments experienced faster growth in wages relative to rural areas characterized by establishments using no systematic approach to design.
“Bohemia and Economic Geography,” published by Richard Florida in 2002 , identified a surprising association between the share of artists in the local labor force and indicators of economic dynamism such as high-tech employment and new firm formation. Numerous follow-on studies have reinforced the original findings by addressing potential problems of omitted variable bias  and by testing for an ostensible arts-innovation nexus in various countries [3, 4] and settlement types . One rational explanation for the co-location of artists or arts organizations and more dynamic businesses is an unobserved “creative milieu” attractive to both. In this way, the arts can be thought of as a reliable indicator of creative milieu that attracts workers in creative, non-artistic occupations that the creative class thesis identifies as the true source of economic dynamism. The arts as a direct input to the innovative process is neither necessary nor particularly appealing for framing a sober argument about the contribution of a vibrant arts scene to economic development: the arts help advertise places as tolerant and free-thinking, which are believed to be critical place attributes for where non-artistic talent choose to live.
Arriving at a common understanding of terms for this exercise is essential, given their susceptibility to value-laden definitions shaped by personal tastes and preferences. If art is associated simply with endeavors such as opera, ballet, and the symphony; if innovation is defined narrowly as emerging from science and engineering-based R&D; and if design is believed to be the province of mononymous fashion mavens, then not only are the possible interactions constrained, but the probability of identifying rural occurrences are significantly reduced.
The role of design in innovation has been vigorously examined by the design community [19, 21], has received some notice in the literature on business strategy , but has been largely disregarded in the economics of innovation literature [23, 24]. Similar variation surrounds the role of design in national innovation policy, with some countries (Denmark, Finland, and the United Kingdom) making design central to their national innovation strategy, and others (Sweden, Italy and France) having explicit policies for service or industrial design. Meanwhile, most countries, including the U.S. and Germany, lack an explicit design component in innovation policy .
The OECD study of the Danish innovation survey provides a useful framework for examining the association between design and innovation in U.S establishments. The empirical challenge is deriving reliable measures of both the design and innovation orientation in self-reported surveys. The development of the 2014 ERS Rural Establishment Innovation Survey (REIS), which forms the basis of this analysis, was motivated by the need for reliable comparisons of rural and urban innovation rates. Latent class analysis (LCA) used to identify unobserved subpopulations of non-innovators, nominal innovators, and substantive innovators is adapted to identify unobserved subpopulations on the rungs of the design ladder. Technical details regarding the innovation and design LCAs along with validation tests are provided in S1 Supporting Information. In the interest of brevity only a conceptual summary and main findings from the LCA exercises are provided below.
The identification of a small share of design-integrated rural establishments—and the more common use of design as last finish in rural areas—opens up the question of whether these businesses are randomly distributed or tend to locate in rural places with particular attributes. Because design-integrated establishments are also most likely to be substantive innovators the literature on the assumed nonrandom location of innovative businesses provides a natural starting point for examining how context might be related to design.
Within individual establishments, the REIS data on self-reported performance indicators (e.g., entered export markets, share of sales made up of new or significantly improved products, etc.) reinforces the argument that a commitment to design may increase the competitiveness of business firms as reported in Table E in S1 Supporting Information. And at the county level, the REIS data confirm that establishments with a high commitment to design tend to locate in those areas, thus supporting a richer creative milieu. Eventually it will be possible to link design orientation to objective performance data of establishments in REIS by linking with administrative data, providing a more definitive answer on the association between design, performance, and local context.
The strong association between local arts and economic dynamism in rural areas, as identified in earlier literature, has prompted considerable debate. Since correlation does not necessarily indicate causation, the findings support alternative interpretations that the arts and dynamic establishments are being attracted by the same—though unobserved—factor, termed here as creative milieu, or that the arts are a cultural complement to human capital that facilitates innovative thinking.