Stadtluft macht frei, goes the old German saying: city air is liberating. But can city air also generate economic growth in the era of the shoebox corporate headquarters, the industrial park and the wilfully suburban Jeep Cherokee?

Yes indeed, says Richard Florida, a professor at Carnegie-Mellon University and author of The Rise of the Creative Class. Successful cities offer an ecosystem that is particularly friendly to the sort of growth that lasts best in the long run: innovative growth.

But not every city is successful in innovation. Pittsburgh, for example, where Mr Florida's Carnegie-Mellon is based, has failed singularly to create a powerhouse growth environment, notwithstanding its history of corporate leadership (Alcoa, US Steel). Sure, there are plenty of business people in Pittsburgh - but these people are more often "maintainers of wealth": corporate executives rather than creators. By contrast, San Francisco and Austin, Texas, have played host to the rise of new industries, as has Dublin in Ireland.

Mr Florida's thesis is a simple one. To grow innovatively, cities need three T's. The first is technology. That is obvious enough, when we think of the growth around Route 128. Harvard and the Massachusetts Institute of Technology generated enough ideas and clever people to help spawn a computer revolution. The same holds for Austin, Texas, where the state university played a vital role. Austin and Silicon Valley interact and innovate so intensely that the flight that carries executives back and forth from Austin to Silicon Valley's San Jose has been nicknamed "the Nerd Bird".

The second T is talent. Sometimes that talent is generated by the universities or innovative companies (Fairchild Semiconductor, for example, which generated influential offspring firms, the "Fairchildren" - Intel and the venture capital firm Kleiner Perkins). And sometimes it also comes from new faces, migrants from Dullsville or foreign shores.

The third T is the least obvious: tolerance. Mr Florida says cities that celebrate ethnic and lifestyle diversity tend to grow faster than those that are suspicious of variety. Seeing people who look different from the natives is a good sign. So is the presence of bohemian types. What is more, a significant homosexual population, Mr Florida argues, is often an indicator of strong economic prospects for a city.

To demonstrate the power of the gay factor, he started with the research of Gary Gates of the Urban Institute, which sought to measure the concentrations of homosexual populations in America's cities. Then he compared Mr Gates's data with data rating cities on the strength of their high-technology industries. The correlation, he found, was a strong one: San Francisco, the number one city on the gay index, was also number one on the high-tech index. Boston, Seattle and Los Angeles showed a similar relationship. By contrast Detroit, that old car stronghold, rated poorly on both the high-tech measure and the gay index. Gays are, in Mr Gates's words, "the canaries of the creative age".

The point is not that homosexuals are necessarily the main innovators; it is that their presence indicates a tolerance for living and thinking differently that is attractive to nerds, libertarians and other creative brains.

To be sure, as Mr Florida pointed out in an e-mail, open and diverse cities are not always tech or growth centres - Miami and New Orleans being prime examples. This, though, as he notes, just underlines the importance of the presence of all three T's. Technology is too lacking in those two cities for them to grow fast.

Mr Florida sees some lessons here for Europe. The first is that the strengthening trend against immigration is wrong-headed: Europe is not too "full" of immigrants, as the late Pim Fortuyn said of the Netherlands. It is simply failing to use its immigrants properly: as workers rather than social welfare beneficiaries. The second is that government policy towards cities matters: he believes that the millions of pounds that the European Union spent to revive Dublin's Temple Bar neighbourhood were worth it because they helped to make the city such a desirable destination.

But what about that fourth T: taxes? Surely the fact that Texas has no income tax, or that Ireland has reduced rates drastically over the years, has helped growth there? Yes, said Mr Florida in an interview, taxes are important - but not crucial. Big cities punish with high taxes but that disadvantage matters less than the great advantages in cultural and professional life that some of those cities offer. "People are willing to pay a lot because they get a lot, by which I don't mean municipal services," says Mr Florida.

Techies and other innovators will gladly migrate to the highest-cost cities - London, New York - and live in garrets like characters out of Puccini just for the opportunity to be with their own kind. "The bottom line," he sums up in the book, "is that cities need a people climate even more than they need a business climate."

So much for the glorification of the anonymous suburban cubicle.

© Copyright 2002 Financial Times