Tough times are “a necessary part of economic cycles,” according to Richard Florida, author of The Great Reset: How New Ways of Living and Working Drive Post-Crash Prosperity. The recently released book highlights ways in which our nation’s economic crisis presents opportunities for reinvention.

Florida defines a Reset as a critical period in which an economy is remade in ways that allow it to recover and begin growing again. “Times of crisis reveal what is and isn’t working,” he says in the first chapter of the book. “A true Reset transforms not simply the way we innovate and produce but also ushers in a while new economic landscape.”

Clearly, the recession has hit some cities harder than others. In the interview that follows, Richard Florida shares his views on how U.S. cities can plan for future growth and prosperity.

MuniNet: In your view, will the nation’s Great Reset result from the cumulative renovation of its cities?

Florida: Cities and regions are likely to rise and fall, possibly dramatically. Places with diversified economies and high concentrations of highly educated people and those that work in the “creative class” have done much better in weathering the current economic storm. Even as financial industries are shedding jobs, historic financial capitals are better positioned for the future because of the large, diverse, open economies populated by innovative and entrepreneurial talent. Cities and regions that are based on older industries, or where growth was fueled by housing and sprawl, will have a tougher time.

The new spatial fix will be bigger than the industrial city and mass suburbanization combined. The history of capitalism is a history of the more intensive and expansive use of land and space. It’s no longer city versus suburb but the rise of a new and larger form of economic landscape – the mega-region. Mega-regions are gigantic complexes of cities and suburbs like the greater Boston-NY-Washington corridor and others across the U.S. and the globe.

The world’s 40-largest mega-regions produce two-thirds of all economic output and nine in 10 new innovations while housing only 18 percent of the world’s population. Mega-regions are to our time what suburbanization was to post-war growth.

MuniNet: What is a “talent reset” – and how will it affect our cities’ economies?

Florida: One of the most powerful, though least understood, effects of economic crises is their ability to alter global talent flows. Economic history shows that major economic crises like the current, can and frequently do produce considerable alterations in global flows of talent – particularly high-skill, highly inventive, and highly entrepreneurial immigrants. The U.S., which had previously been sending its own talent abroad for scientific and technical training, gained immeasurably from a massive inflow of high-skill immigrants during the crisis of the late 19th century and perhaps even more so in the flood of scientific, artistic, and entrepreneurial talent during the Great Depression.

The current crisis holds out the potential to again reset the flow of global talent. If so, this could have even bigger consequences than in previous times – and for an obvious reason. Economists agree that economic growth and technological innovation today revolve around human capital.

We also know that innovative and entrepreneurial talent is highly mobile, highly skewed, and highly clustered geographically. Foreign-born talent composes an estimated third to half of all recent Silicon Valley high-tech start-ups, according to recent studies; and foreign-born engineers make up a huge percentage of their technical staff. The countries and regions that nurture, attract, and retain global talent gain enormous economic advantage.

We may be in the early phases of such a talent reset today. More potential immigrants appear to be choosing to stay home, as Hattel and Williamson note, partly because conditions in several of the most important emerging economies like India and China have improved, relatively speaking. And a number of countries like Canada and Australia, and some in Scandinavia and Northern Europe, have upped their own efforts to attract high-skill immigrants. The U.S. with rising anti-immigrant sentiment, homeland security restrictions, and declining economic opportunities may be seeing its talent advantage wane.

Global talent flows can shift quickly. And, the global competition for talent is a game that is played at the margins. As I outlined in The Flight of the Creative Class: The New Global Competition for Talent, while no single one country has to replace America as the predominant destination for global talent, many countries appear to be improving their relative position. Say 10 or 20 percent more of China and India’s top talent decided to stay put, while countries like Canada, Australia, and others up their draw by five or 10 or 20 percent. Those numbers add up quickly.

Human capital, talent, and knowledge are our most important resources now. Every city has hidden seeds of opportunity waiting to be nurtured.

Anti-immigration stances and other measures that impede talent flows may offer some political gains, but they will only undermine long-run innovation and prosperity. Those nations and regions that maintain and expand their ability to attract global talent will emerge as global winners when economic growth rebounds.

MuniNet: In The Great Reset, you describe the contrast between two cities that came of age in the industrial era: Detroit and Pittsburgh. What strategies have allowed Pittsburgh to reinvent itself, and therefore begin its road to recovery?

Florida: For the beginnings of a success story, one needn’t look any further than Pittsburgh. Taking full advantage of Carnegie Mellon and the University of Pittsburgh, it has retooled its economic strategy to focus on its competitive advantages in education, technology, and health care. As a result, it has weathered the economic downturn better than almost anywhere else in the country. The best way for Detroit to revitalize itself, for example, is to invest in its universities and colleges, to nurture its burgeoning music and design scenes -all of which it has already begun to do.

MuniNet: Could those same strategies work in other industrial cities, like Detroit, or even in smaller cities, like Akron, Ohio?

Florida: We have to acknowledge that we can’t look to manufacturing or natural resources to drive growth like we have in the past. Human capital, talent, and knowledge are our most important resources now. Every city has hidden seeds of opportunity waiting to be nurtured. Places like Detroit and Akron have great universities, clusters of innovation across a range of industries, and pools of innovative and creative talent to build on.

They need to stop their penchant for mega-projects like new stadiums, convention centers, or casinos, and stop depending on federal bailouts. They need to understand that rebuilding takes a generation or two – it will not happen overnight – and that it has to come from building upon local strengths and capabilities organically.

MuniNet: While some Sunbelt cities are facing significant economic challenges, others are not only surviving, but thriving? Why?

Florida: The growth in the Sunbelt was in some ways like a giant Ponzi scheme. The boom in housing and the influx of population generated a thriving retail and service economy, but there were no economic drivers underpinning it all. There was nothing to generate new capital, only the capital that people were bringing with them.

When that bubble burst, there was nothing to fill the gap. The potential solutions in the Sunbelt aren’t much different from those in the Rust-Belt:  Build on real underlying economic strengths and tap into the creative core in the existing population and its valuable human capital. Remember that three cities in Texas that are holding their own today – Dallas, Houston and Austin – were all in the top 10 on my own Creativity Index in 2002, showing the importance of  human capital in driving a city’s economy.

MuniNet: What lessons can U.S. cities learn from our Canadian counterparts?

Florida: Places like Toronto and Vancouver are setting the tone for social inclusion and acceptance. The government has helped to create a climate that is opening and welcoming and because of this, the region is reaping the economic benefits.

The U.S. government must set a better climate for tolerance. Creative talent defies classification based on race, ethnicity, gender, appearance, or sexual preference. If a community is viewed as a place less open to gays and lesbians, immigrants, or young people, it will fall considerably behind other creative global giants. Governments can do this with its policies as well as the tone it sets in its messages. Places like the U.S. are falling more and more behind with this. Remember, America’s willingness to welcome those who the rest of world rejected during the 1920s, 1930s, and 1940s is what made the country so great. During that time, the U.S. embraced some of the best and brightest scientists – Enrico Fermi to Albert Einstein. U.S. cities need to convey messages of tolerance and acceptance in order to draw the creative talent that will drive their success.

About the Expert:

Richard Florida is the Director of the Martin Prosperity Institute and Professor of Business and Creativity at the Rotman School of Management at the University of Toronto. He is also the founder of The Creative Class Group, an advisory services firm charting new global trends in business and regions.

Mr. Florida is the author of The Rise of the Creative Class, Who’s Your City, and his newest release, The Great Reset.

Editor’s NoteThe opinions expressed within this article are those of the author, and may not necessarily reflect the views of RICIC, LLC or MuniNetGuide.