Innovation Economy in Budapest, Hungary: Feature from index.Hu


Innovation in Budapest: Full text of 2thinknow interview with Urban Watch, Hungary.

Index Hu, Budapest

The questions below are by Zsuzsa Kravalik, freelance journalist.

Below are English answers. The Hungarian final version (edited/translated) article appeared on the popular Hungarian site Index.hu, as well as Hungarian urban planning sites > more here.

Why do you focus on Innovation and not other aspects of life? Why is “innovation” so distinct a character that you specialise on it?

Innovation matters because it a universal process across different business, social services and industries. To create the change needed in cities like Budapest, they must embrace the change process. This is distinct from ‘academic theory’ on innovation or change, but a practical process of change, in the 2thinknow view.

As to our definition, innovation is “structured change to benefit stakeholders” (from 2thinknow definition, version 2.4.). In short, innovation means people can change their communities, businesses can change their business models, and hopefully, government can improve its capacity to deliver services to people.  By examining innovation as a change process 2thinknow can independently measure the success (or failure) of innovation across sectors and industries.

For cities like Budapest, or Pecs, and East European capitals from Bucharest to Warsaw from 2thinknow’s view this means change to benefit citizens and grow local business opportunities for community enterprises. Right now, in the current economic climate, it is communities that create innovation, often not centralised decision making.

In your Innovation cities index you measured, compared and categorized 289 cities. You analysed 31 industry-community segments. Which are the strong and weak points (industries/community segments) of Budapest?

In 2010, Budapest achieved the above benchmark or top of the band scores in some elements of Architecture, Arts such as film, emerging crafts sectors, public art galleries and museums, mobility on all modes (excellent metro by global standards), energy, water supply, viticulture (although potentially impacted now), education, some logistics, and with some improvement needed, commerce.

Budapest scored competitively but less well than competing cities on business, further improvement on commerce, and some aspects of government. This does not mean attracting ‘big business’ and multi-nationals, but longer term wealth creation from mid-size companies within an innovation framework. Some learning from overseas companies may be required, but this, in our view, is not the only way. And in our analysis, environmental concerns must hold sway against excessive dirty industries in Budapest and broader East Europe.

Is there a sector on what Budapest should focus? For a Budapest-size city does it make sense to choose a few sectors and concentrate on them or is it more beneficial to try to invest and higher across the whole field of urban life?

There are many sectors which Budapest could improve on.  First a warning about ‘fads’. The transient nature of trends means last year’s ‘hot area’ is no longer tomorrow’s. Financial services were the hot topic of the last few years, but they don’t create lasting wealth for cities like Budapest. ‘Carbon markets’ are a proposed solution to global warming, but misapplied they can entrench disadvantage and poverty, as well as destroy farming land (which will have a higher value in future). In general, today’s newspaper articles are tomorrow’s fish wrapper. So it’s important not to follow fads. Fads are not innovation.

2thinknow view innovation as structured change, lasting change, to benefit citizens, communities, and businesses those citizens rely on.

So, our view is that cities like Budapest should identify key strengths, and improve those areas. But also look for really low benchmark areas and make those competitive. Some of those low benchmark areas are listed below in questions.

We have a recommended approach to change planning. It is based on 2thinknow City Benchmarking Data which measures a single city data-set of a city on 162 city indicators. City Benchmarking Data identifies and classifies the areas of strongest and weakest performance against all other cities, including a variety of data. Leaders and organizations within cities can use this information to create a change plan, or work with 2thinknow to do so.

Budapest already has the basis of a fully-formed economy, suitable to larger cities, which is superior to one key specialisation. Innovation segments that Budapest has been stronger than competing cities, in include film (historic strength), the arts, industry, software (although this is constantly changing), conferences and tourism. For us to comment more, the  mix of sectors requires detailed analysis and inside knowledge of existing strategy and internal data.

In our view, Budapest could start with enabling a more business-oriented approach of dynamic start-ups targeted at agriculture, viticulture and other indicators within the food segment.

You publish your Index yearly. From 2009 to 2010 Budapest moved down from 36th to 61th while Prague moved up from 74th to 29th. How could you explain this change? What has changed in these two cities during one year?

The Innovation Cities Index, globally listing 289 cities. This is published yearly around from Aug-October (depending on global events). The accompanying Innovation Cities Analysis Report is published annually, with an additional 6 month update.

Different to other indexes, Innovation Cities Index is trend-weighted. Whilst underlying benchmark scores of cities may not change each year, the relative importance (or weighting) does.  So cities can move around within the top 100. Both Prague and Budapest are nexus and hub cities respectively.

In 2010, the Index is based on our assessment of cities potential for innovation in the current economic climate. However, the Global Financial Crisis changed weightings substantially. The GFC was impacting Budapest more strongly in some segments, than Prague. We also adjusted other factors in 2010, such as the time frame in years, and there is an ongoing calibration year on year as better data comes to hand.

Budapest is a hub city, which means it is a critical juncture for innovation in multiple sectors of the economy. The city’s closest competitor is Prague, which in 2010 was a nexus. Some of this is due to geography, but as nexus cities like Melbourne, Sydney or Singapore show geography can be overcome by a co-ordinated approach.

It seems Vienna is really high on your scoreboard. Last year it was 2nd globally and this year it is only behind Boston, Paris and Amsterdam. How could you explain its innovation strength?

We are measuring a broad suite of 31 segments, these include one-third Cultural Assets, as well as Human Infrastructure, and Networked Markets as the other thirds. On our Index, Vienna scores well among the same top 5 cities that also includes New York. These cities have the basis for creating innovation, and inside the European Union, Austria has a great potential to create innovation.

In terms of being balanced city, Vienna ranks well on Cultural Assets such as arts, museum, events, city information, language aspects. Human infrastructure sees good transport and mobility options, favourable entry point to East Europe, logistics, business, start-ups, commerce, education, medicine, economics. And in terms of Networked Markets indicators Vienna is globally well-connected. Once again some of this is geography, that changes only over time.

Of course, Vienna has the pre-conditions of innovation it is up to Vienna to use them.

We Hungarians like scoreboards and like to compare ourselves to others. Does it makes sense to compare ourselves to others or would it be better to check the individual factors and work on them?

All cities do! The use of rankings and scorecards is worthwhile. Our Index is trend-weighted, independent, and also from outside the leading economies of USA, E.U., China, Japan and even Canada. We also accept no funding from government. We make our revenue from the sale of Innovation Cities Analysis Report, City Benchmarking Data, the Innovation Course, Local Innovation Forum events and other services to cities, business and government.

This means 2thinknow can see European cities, and East European capitals, with a cool eye from outside. Our Innovation Cities Index is the largest and broadest index. Our Index goal is always measuring potential for economic and social development of cities, through innovation potential.

The City Benchmarking Data is an economic and social analysis based on global comparatives and independently produced. So this is separate to a ranking, and thus provides more enlightenment. It balances academic theory with practical considerations.

For other worthwhile indexes, include liveability surveys from Mercer and EIU measure how desirable a city is for western expats (so are designed to determine hardship postings). But these indexes are not ‘how good’ a city is. Many people do not want to live in the extreme cold climate cities that often win these rankings.

Forbes, FT and Fortune produce some of the best news/magazine indexes, along with Conde Nast for tourism. Magazine rankings such as Monocle and many others are less useful for economic purposes unless in partnership with someone like 2thinknow, EIU or Mercer. Many national indexes or smaller attempts do not include enough cities to be worthwhile. Nor do they include enough indicators. Many magazine rankings have many design faults.

Budapest is often compared to Vienna and Prague, but maybe there any other cities in Central Europe to what Budapest can be better compared, to which cities Budapest is more similar, such as Venice or Berlin? Are there any such cities?

Budapest is far ahead of many of it’s competitors in East Europe across multiple segments. However, other cities such as Warsaw and Tirana (despite low scores) have a business approach that may in some indicators, be superior. It’s this Western thinking (without the worst aspects of Western business) that will determine future success in this area of the world.

Personally, I prefer to live in Budapest among all East European cities I have visited, and it is a beautiful city. It also had the best coffee and some of the best food quality of any city in Europe. I enjoyed the markets. Many Western (especially North American) cities do not have this, and food quality will be a big issue, along with organic food in the West. Preventing the industrialisation of farming and allowing for the maintenance of food nutrient quality will be a big issue in the future.

Reducing industrial pollution, whilst investing in new cleaner manufacturing may be areas of interest to Budapest.

For interesting comparisons not normally considered — to Singapore, or Dresden, Gdansk, Copenhagen, Minneapolis, Lyon, Reykjavik (not as a better city, but based on recent experience), Hamburg, Melbourne, Fukuoka, Pittsburgh, and others may be enlightening. Each city can learn for good and bad from others.

The Innovation Cities Index compiles data into 3 factors: Cultural Assets, Human Infrastructure and Networked Markets. How is Budapest’s performance on these 3 factors compared to European standards?

We reduce the detailed internal scores to a 3 factor score, each factor out of 10 for the Index. Budapest scored a 9 in Cultural Assets, alongside cities such as Barcelona, Rome, Amsterdam and London. This is exceptional.

In terms of Human Infrastructure, Budapest scored a 7 with Rome, Nuremberg, Reims and Nice. This is more than competitive, however in 2010 Prague beat Budapest by one point. Of course we have more detail on each of the 77 City Indicators, trend weighting and analysis that support this. A key driver was the impact of the GFC on the periphery of the E.U. In a connected world, all connections affect each other. Human Infrastructure includes the infrastructure of creating social and economic innovation.

The Networked Markets was 7, which again is above competitive. This means Budapest is a truly global city.

Usually innovation is thought to be the attribute of the private sector. Can cities, city governments and national governments do anything to boost innovation in cities? How important is innovation in the public sector?

Government can do a variety of things. In many ways this is the core of our work in East Europe.

It requires a full participation and engagement with the government to answer this question fully. In general, in Budapest generational change coupled with the correct techniques (not necessarily those academic thoughts taught purely in universities) can create a better climate for the right types of business, and a higher quality of life for citizens.

One thing Western cities in North America do well is keep government from interfering with some aspects of private sector. However, each culture is different and regulation of quality is necessary and something the E.U. does better. All modern cities have problems with corruption, but also conversely, cynicism.

The dream of a smart, globally connected Budapest, home to dynamic businesses is important. But government must have citizen oversight to reduce corruption and lobbyists – a cancer on innovation and business in all capital cities. Innovation must reward business merit, as outlined by Adam Smith in the 18th century – despite the older generation of anti-Smith rhetoric!

What would you recommend for Budapest to do in the future to improve its innovation capacity?

In a direct sense, the city should purchase 2thinknow City Benchmarking Data as it is the most complete benchmark of the city available, using this to create a City Change Plan. And someone locally should hold a Local innovation Forum event. And use this event to engage young leaders in Budapest to enact change. We have put together all the elements to start in one place, at a lower cost than ‘going it alone’.

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