Where does innovation happen? It’s global, an international network of information and ideas. But it’s also local, with activity clustered in a few key places.

Why? The chancellor’s favourite idea, endogenous growth theory, tells us that economies grow through innovation and knowledge transfer. Cities are good for this. They offer density, proximity and variety. This encourages firms to cluster together, and helps them share people and ideas. Add a university to the mix, and an innovation system may develop—a triple helix of education, business and public agencies spinning out knowledge, skilled workers and start-ups.

We see this happening in a few well-known places—Oxford, Cambridge, Silicon Valley and Boston’s Route 128 corridor. Can it take hold elsewhere?

Manchester is having a go. The city is reinventing itself as a knowledge-driven “ideopolis.” After decades of decline, it now outperforms most of its northern counterparts. Its new economy is powered by the airport, financial services, culture, retail and the public sector. The city also has a massive higher education base—four universities with over 110,000 students.

At the heart is the University of Manchester—formed in 2004 by the merger of the old Victoria University and UMIST—which employs over 10,000. The new vice-chancellor, Alan Gilbert, has recruited the economist Joseph Stiglitz—the first of five planned Nobel laureate hires—and set up a number of public-private ventures, plugging into the city’s embryonic life-science and hi-tech sectors. He has also established an IP regime to encourage spin-off companies. The approach seems to be working—in 2003-04, the university achieved the third highest spin-off income in Britain.

Manchester’s universities are part of the city-regional “Knowledge Capital” framework, a scheme that aims to remodel the urban economy around the research and science base. Manchester is also one of six “science cities”, a Treasury-DTI initiative to promote knowledge-based urban growth.

In short, Manchester is trying to create its own innovation cluster. What are its chances? We know less than we’d like to about how clusters evolve, and how policy can help. Studies of high-tech hotspots highlight some success factors, however.

First, legacy. History is a big influence on cluster growth: Oxford and Cambridge developed the right sectors at the right time, helped by proximity to London. Manchester lacks the strategic location, but has all the pieces in place.

Second, critical mass. Large companies, like Siemens in Munich, can help drive innovation and foster a network of specialised firms. Manchester lacks the same manufacturing profile—but has strong growth in air transport, telecoms and creative industries, as well as life sciences. Can it use the university base to accelerate future development?

Third, funding. US high-tech clusters are bolstered by a combination of university endowments, private venture capital and public spending. British universities don’t have the same legacy funding, and the bulk of government research money still flows into the southeast. Manchester will need to grow its public-private funding base, and agitate for further injections of Whitehall cash.

Fourth, leadership. In Boston and Silicon Valley, a few entrepreneurial figures drove things forward, connecting researchers, business and city government. Manchester has the right ingredients: strong city leadership, an activist vice-chancellor and an engaged business community.

Can the birthplace of the industrial revolution nurture an innovation revolution? Public and private leadership is probably the key. Above all, it’s the Manchester way of doing things that can help turn the vision into reality.