Category Archives: Economic Development

“How smart does a Smart City need to be to prosper?”

Figure 1. Thee Horizons (as-is, disruption, will-be)

Synopsis

This article considers change in the context of a Smart City. An understanding of how change can be leveraged is developed through the use of the three horizons model. Upon this theoretical foundation an approach to building Smart Cities, based on the principles of the knowledge economy and an understanding of the digital economy, is introduced. The result of this discussion is fresh perspective on how the development of both local human capital and local digital capabilities can be achieved. A perspective on how we can turn our cities into “Future-proof Smart Cities”.

Connected city
Credits: Shutterstock

Your own city is a city of the future

Although it is stating the obvious, the cities in which we currently live and work will still be around for many decades yet. Things no doubt will be different in the time ahead, but our cities will still be with us. As we have witnessed changes that have affected cities over the last few decades, so we will witness more over the decades to come.

What changes have there been in recent times? Not only have we observed the internet and the services it delivers (social media, cloud computing, online businesses, etc) become increasingly ubiquitous, we can also attest to changing occupations and lifestyles of those who live in our communities. We have also been part of shifts in administration practices at our work places and seen changes in what people in our communities are concerned with.

Let us turn to the coming decades. Consider then the future and the changes that could be ushered in. What does the future behold? Will you see drones flying to and from shopping strips delivering pizza to houses? Could you imagine a time, say within couple of decades, where there are no service stations because all cars are electric? What about a scenario where community centres house community owned commercial-grade 3D printers that produce common household objects? Or perhaps a time in the not too distant future where “RegTech” comes of age and supplants employees providing governance and administrative services.

You see, it’s your idea of what the future holds that shapes your view of what lies ahead. Do you lean toward an optimistic outlook, or do you dread the worst? Is your image of the future based perhaps a utopian image where artificial general intelligence ushers in an unrivalled era of peace and prosperity, where some form of universal income assures that there are no losers? Or is your image of what lies ahead more dystopian. Where humanity is reduced to servility through the twin threads of imperious digital surveillance and the calamitous effects wrought by out of control climate dynamics.

How do those two images of the future, and all the variations between apply to your city? Could you see a golden age of prosperity and peace playing out in your midst. Or, on the other hand, are you willing to countenance the uncomfortable?

King Canute was not successful

“No man can stand in the same river twice” said Heraclitus, the 5th Century BC philosopher. In effect he was saying that change is the constant in life. This accords with what we have seen over the last few decades, and in a similar manner is a surety for the time ahead.

However, there are those who remonstrate in vain against inevitable change like King Canute. They are unwilling to embrace what could be called progress or advancement. They behave in a similar manner to this sovereign who, enthroned at the waters edge, commanded in vain a halt to the rising tide.

Importantly, in order to have a measured and appropriate response to what is happening around us it is necessary for us to understanding how change happens. And whether or not we should choose to resist, ignore or embrace the change that is underway. Our response should be grounded in theory and supported by reality.

Three Horizons v2

Figure 1. Thee Horizons (as-is, disruption, will-be)

The three horizons model, shown in Figure 1, is a good way to communicate how change happens. The first horizon, the red line, is how things currently are. For example, the way we do our shopping, how we do our banking, the type of tasks that our job requires of us.

The green line, the third horizon, describes how things will be. For example, in say a decade how we do our shopping, how we travel to work, and so on. The middle, or second horizon, is the messy middle. It’s where the different ways of doing things compete and where the third horizon can be seen as the winner of that battle. It’s the horizon of disruption. A place where entrepreneurs and innovators live.

To gain an appreciation of how this “three horizons model” works in practice we can use the VHS and Beta wars in the context of “domestic movie consumption” as an example. The first horizon was the movie theatre, it was where we went to consume movies. The third horizon is the home, which became the new place to watch movies. The middle horizon was the period of time where this battle played out, and where VHS became the dominant method to deliver home-based movie entertainment.

But one important characteristic of this graph is that the third horizon is nascent in the first. How things will-be in the time ahead can be seen today. The trees of tomorrow are small saplings today. And the power of this “three horizons model” is this: it is that we can look for the saplings today and then thoughtfully contemplate which of the saplings are likely to become trees tomorrow. Then, based on this understanding, we can respond appropriately. Whether we should resist, ignore or embrace the changes that we see underway.

The saplings that are growing

The digital economy is one such growing sapling that we should embrace. It almost goes without saying that the digital economy will be dominant in the time ahead. From a standing start some twenty years ago, various estimates put the current value of the digital economy at about $5 trillion. Considering that the global economy as a whole is worth more than $80 trillion, what we are witnessing is no doubt historically significant.

Referring to Figure 1, if we accept that the current period is the second horizon, we can understand that the digital economy is a disruptive force. We are in between how things were and how things will be. Exhibit A of this “we are in horizon 2” contention could be Facebook and other social media platforms disrupting journalism and advertising. Exhibit B could be Airbnb disrupting the accommodation sector and Uber could be the third exhibit. No doubt other exhibits come to mind.

Global Growth of internet traffic

Figure 2: Global growth of internet traffic by device type

And let us further examine this disruptive force, this revolution if you will, to see whether or not we need to resist, ignore or embrace it. Let us look at the factors that enable the digital economy, at the outcomes wrought by the digital economy and some measures of the significance of these developments.

Firstly, the components of this phenomena. These include, for example, ICT hardware software and services that are currently valued at over $3 trillion (the enablers of this revolution) and electronic games at over $100 Billion (its fruits). And where for some countries, up to 10% of their GDP relies upon the ICT sector (its importance). Not to overlook another recognisable and significant component: the growth of internet traffic (Figure 2).

And then we can turn to how the digital economy is changing the nature of business and society. Where the impact of this phenomena is witnessed in the speed at which companies of scale are built (Harley Davidson took 86 years to get to a billion dollar valuation, Twitter just 3 years), in the ease at which we can find answers to almost any question (40,000 questions are asked of Google every second), and in the explosion of data (90% of the world’s new data is only 2 years old).

Not forgetting the types of work that are being lost, and the ones that are gaining in significance. We’ve seen, for example, the reduction in some types of manufacturing jobs, in toll-road collectors, and at retail checkouts. But on the other hand there is a rising demand for data scientists, social media managers, robot engineers and cloud computing specialists. In a similar fashion those who are skilled in creativity, persuasion and collaboration are being especially sought after

The Smart City of the future

With all this evidence before us, we should not ignore the importance of what this new economy can bring. As we can see, the future prosperity of our cities will rest upon how well we grasp the opportunities afforded by the digital economy.

In reflecting upon the nexus of the digital economy and the Smart City we intuitively know that there are synergies between the two. For if a Smart City can be described as one where there is “increased citizen engagement, hard infrastructure, social capital and digital technologies to make cities more livable, resilient and better able to respond to challenges1 there are two implications. First, if our aim is to just attract investment in digital economy businesses and even nurture a digital centric innovation community, then we are not realising the full power of these synergies. And secondly, if our aim is to only develop a digital nervous system for our cities and leverage its resources and power to improve the quality and performance of service provision, our vision of our city being Smart City would fall short.

Industry GVA

Figure 3: Economic importance of industry sectors

Through the research I am undertaking for my PhD I am finding that we are perhaps overlooking the potential we have in our communities to make our cities Smart Cities. And that potential is our own people.

Consider what is happening in the job market. There are types of jobs that are disappearing and types of jobs that are becoming more prevalent. One MIT economist looked at the demand for different types of tasks and he found that only tasks that have been experiencing consistently increasing demand are those that can be categorised as “non-routine cognitive” tasks. In other words jobs that are reliant upon people skills and/or thinking skills are more than likely to be an increasing percentage of all the jobs that are available.

This is the local potential that we are overlooking. Are we tapping into and releasing the full range of people skills and thinking skills that exist in the households of our suburbs? Are we leveraging these skills to build “social capital and develop digital technologies”?

One way to leverage this latent potential is through applying the principles of the knowledge economy. What I am finding is that as we understand the components of the knowledge economy we can setup structures to reap the benefits.

Now, there are three parts to the knowledge economy2 (Figure 4): the production of knowledge, the distribution of knowledge and the application of knowledge. The production of knowledge is all about basic and applied research, about the development of patents, of the creation of new knowledge. The distribution of knowledge occurs in networking events, in the classroom, in mentoring sessions and in the publication and consumption of knowledge. Finally, the application of knowledge. This comes through innovation, through using (new) knowledge to create new goods and services.

Knowledge economy

Figure 4: The Knowledge economy and its components

And its those cities, those local government areas, those regional locales that leverage knowledge and technology that continue to be prosperous this is partially reflected in the growth of business services [Figure 3], which are to a greater or lesser extent knowledge intensive services).

And it’s the development of an active local knowledge economy through the involvement of local people in the production, distribution and application of knowledge that will cause your local city to be a smarter city.

One of my findings is this: those locales whose local economy has an emphasis on industry sectors that are technology and/or knowledge intensive do best over the long term. One of the supporting facts is this: for every local high skilled job created in high tech manufacturing (the tradable sector) there are another 4.9 local jobs created in the non-tradable sector3.

The Smart City of the future will be one that has fully leveraged the potential of the knowledge economy. Where the potential that is realised is through the ongoing building of its social capital and the ongoing development of its digital technologies.

For we see examples of this around the world. Consistently ranked in the top 3 of Smart Cities4,5,6, London is also a city that has one of the highest concentrations of quality universities7 and high concentration of businesses in clusters8. The ranking and knowledge economy characteristics are similar for other cities: New York, Singapore, and so on (yes there are other elements that are measured, but our focus here is on the dynamics of the knowledge economy and how this relates to the digital economy and the ongoing development of Smart Cities).

Summary

Change is with us always. In every sector of the economy and in every aspect of society newness, updates, inventions, progress is how things are. And each of these sectors and each of these aspects could be in any of the three horizons. They may be in the midst of the second horizon’s disruption, or the relatively stable first or third horizon.

As we have seen, there are certain characteristics to ensure our cities remain or become prosperous, and in the process become Smart Cities. The best way is to create jobs in the knowledge and technology intensive sectors. Specifically, to grow them locally through a dynamic local knowledge economy. Where new knowledge is created, where there are channels to distribute knowledge, and where there is support for the application of knowledge.

And its through this leveraging of the local knowledge economy that “social capital is built and digital technologies are developed”? The result a Smart City. A Smart city that continues to be smart, continues to prosper, and stays dynamic as the future unfolds.

 

This article first appeared in the journal of “Economic Development Australia” (October 2019)


For more of what I have to offer, visit Dellium Advisory, follow on Twitter, connect using LinkedIn, review my IT Strategy blog, subscribe to my YouTube channel, or buy my ‘Jobs. Future. You.’ workbook.


Profile

Paul Tero is currently a PhD candidate through Swinburne University. His research is focused at the nexus of place-based economic development strategies, the knowledge economy, strategic foresight and peri-urban locales (aka “The Industries of the Future”).

He holds Masters degrees in Business Administration (Technology Management), International Business, and Strategic Foresight. Aside from the EDA he is a member of the Australian Computer Society, the Association of Professional Futurists, and the Professional Speakers Association. In recent times he has held executive roles in local business groups and is well experienced in the education and information technology sectors domestically and internationally.

Paul can be contacted through his LinkedIn profile (https://www.linkedin.com/in/paultero)


References

  1. UK Department for Business Innovation and Skills. Refer to the UK research organisation: “Centre For Cities” (https://www.centreforcities.org)
  2. The Knowledge Economy tripartite. Refer to: “Accessing and expanding the science and technology base” (David & Foray for the OECD, 1996)
  3. Tradable to non-tradable jobs. Refer to: “Is there trickle down from tech? Poverty, employment and the high-tech multiplier in US Cities” (Lee and Rodriguez-Pose, 2016)
  4. Smart City Rankings. “These Are The Smartest Cities In The World For 2019”. Available from: https://www.forbes.com/sites/iese/2019/05/21/these-are-the-smartest-cities-in-the-world-for-2019/#f19688614290
  5. Smart City Ranking. “Celebrating the leading Smart City Governments in the world”. Available from: https://www.smartcitygovt.com/
  6. Smart City Rankings: “IESE Cities in Motion” Available from: https://media.iese.edu/research/pdfs/ST-0471-E.pdf
  7. Best university cities. “The best university cities of 2018”. Available from: https://www.timeshighereducation.com/student/best-universities/best-university-cities
  8. Clustering (density) of business. Refer to: “World Development Report: Reshaping Economic Geography” (World Bank, 2009)

Digital Economy Series: In a fully digital economy will you still be needing the same things you do today?

We produce goods and services and we trade in those goods and services because we either want them or need them. There is a market for them. But in the decades ahead, in a market of bits rather than of atoms, will we still be using the same things we do today? From a final consumer perspective, will the digital economy of the future be unrecognizable compared to today’s economy?

crowd of people walking inside store
Photo by Satoshi Hirayama on Pexels.com

Consider the retail sector. Where its all about the creation and trade in products for the home, for our relaxation, for our sustenance. Or the business sector, where that same dynamic of creation and exchange can be used to drive innovation, to improve operational efficiency, or to maintain a market profile. Or even the public and the not-for-profit sectors, where those same market mechanics apply. That is, in order to provide services, products are purchased. And where nascent product creators are supported.

Reflect too on the structure of this global production and trade system. At over $80trillion dollars, the global economy is broadly comprised of agriculture (primary activity) at 3%, industry (secondary) at 30%, and services (tertiary) at 60%. An important factor in all of this are the sources of government taxation. A third of government revenue is from income, profits and capital gains and a third from taxes on goods and services.

Assuming ceteris paribus, in the coming decades you and I will still have need for shelter, for food, for companionship and relaxation. The same argument can be made for business, for government and the third sector comparing the needs of today and tomorrow. Of note, however, is the form through which the need is satisfied.

We no longer desire, for example, to take our family in a horse drawn buggy on a holiday to the sea-side, or to join with family and others to around a wireless set listening to the latest play. Nor do businesses require a typing pool for the efficient production of company memos and customer missives.

But nowadays digital channels of communication are usurping long establishing temporal forms of connections. Nowadays, micro-targeting of marketing messages are more effective at driving trade in goods and services than legacy mass media. Nowadays, there is a greater level of involvement and transparency with those that are served by the public and third sectors compared to times past.

And tomorrow? Through a utopian lens we could see life being further enhanced by digital technology. It could be argued that just like today, where a life stage for an adolescent is marked by receiving a smartphone, that same transition for a teenager in 2050 could be celebrated by receiving their own life-enriching wearable AI tech. A world, for this teenager, where the uncanny valley is no longer a limitation in media and entertainment channels. A world, as teenagers look at the career paths of their parents, that is dominated by the output of firms that have put a high priority on employees with first rate people skills and thinking skills.

Likewise, through a dystopian lens, life for that teenager in 2050 could be one that is further controlled by digital technology. AI implants mark the adolescent life transition. Options for entertainment and other daily choices are slanted toward optimal social outcomes. Beckoning career paths are with firms that are aligned with forms of surveillance capitalism.

The threads that are common to both scenarios are the changes in social structure and the innate desire to make things easier for ourselves. Over time our social institutions change and the people to which we ascribe status. It could be argued that in recent history major sport clubs and/or political parties have supplanted religious groups as our common social institutions. It could be that the realm of the AI and quantum computing scientist and engineer becomes the new sanctum. A new standard of social acceptance that leads to the erasure of the barrier to all forms personalised AI tech.

Regarding the desire for making things easier, the so-called “efficient transaction hypothesis”, witness the smartphone. We embraced it because it made complex or time-consuming tasks (personal transactions) more efficient. It made communication easier, information gathering easier and entertaining easier. A significant factor of human nature that will drive the future acceptance of technologies that we perceive today as pervasive and distasteful.

In a fully digital economy we won’t be needing the same things as today, but we will be needing the same types of things. The world of atoms meets our needs today, the world of bits will meet our needs tomorrow.

 


For more of what I have to offer, visit Dellium Advisory, follow on Twitter, connect using LinkedIn, review my IT Strategy blog, subscribe to my YouTube channel, or buy my ‘Jobs. Future. You.’ workbook.

“Preparing for the change that is on the horizon”

Abstract

Although we see change all around us, we aren’t yet fully aware of the coming impact that increasing computerisation and automation will have on the workforce. This paper looks at the research from leading academics and institutions and posits several implications for local businesses and economic development activities. Using a strategic foresight framework it outlines several courses of action that address the implications.

Current Research

Much discussion has been had with respect to the “40% of jobs will be lost between now and 2030” headline in recent times. But where has it come from, and what are the implications of this change.

Frey and Osborne, two researchers from the University of Oxford, released a paper in the latter part of 2013 entitled “The Future of Employment: How susceptible are jobs to computerisation”. They analysed the tasks of all of the standardised list of jobs (there are just over 700 different jobs – sales manager, hairdresser, CEO, etc). This analysis looked at the likelihood of computerisation of any of the tasks of any of the jobs.

Jobs and the probability of computerisation

 

Figure 1: The distribution of occupations and the probability of computerisation, along with the share in low, medium and high probability categories.

 

 

 

 

What they found was this. Firstly, that high-wage and high-skill jobs are the least susceptible. Secondly, that the more routine tasks that a job has the more susceptible that that job is to computerisation and automation.

Another of their findings was that employment in services, sales and construction is likely to be affected. Although this seems counter-intuitive, reflect upon recent technological advances. For example, robots are making their way into services, entry level sales jobs are being replaced by technology, and prefabrication, 3D printing and drone-based construction are forging paths into the construction sector.

Another major piece of research that you may not have heard about was that produced by David Autor and colleagues of the Massachusetts Institute of Technology (2013).

This research was focused on the types of tasks that a job is comprised of. Reflect upon the job that you do, even those of your colleagues or friends outside of work. Your jobs are made of manual tasks and cognitive tasks. Autor went one step further and divided these into routine manual, non-routine manual, routine cognitive and non-routine cognitive tasks.

Jobs and the demand for skill types

 

 

Figure 2: Trends in task input in the US Economy

 

 

 

As you can see from the graph (although it is of the USA job market, the trends nevertheless apply to Australia), the movement in skill demand is only good for non-routine cognitive tasks. That is, those that require non-routine interpersonal skills (social intelligence) or those that require non-routine cognitive skills (creative intelligence).

These historical findings make sense. For example, we have seen the replacement of a lot of manual manufacturing jobs with increasingly sophisticated machines over the years. Likewise with say routine cognitive tasks like account/book keeping where shoeboxes full of receipts have been replaced with automatically updated entries on some cloud-based software.

A third line of research related to employment is aimed at finding out how productive we are (Productivity Commission, 2016). That is, the better a firm is at turning its inputs into outputs the more productive it is. What flows from increased productivity is increasing profitability, higher wages, business growth, and so on.

Now, over the years, it used to be that the smartest and most productive firms (the frontier firms) were always a fixed percentage better than most. However, in recent times, these most smartest and most productive firms have been getting much more smarter and much more productive than the rest. The “fixed percentage better” is no longer fixed, the gap is increasing. So much so, that the majority of the economy seems to be stagnating.

Markey sector labour productivity

 

Figure 3: Productivity of the Australian economy

 

 

 

 

What this chart (fig 3) tells us is that the majority of Australian businesses either aren’t looking at making better use of their labour, or they are making sub-optimal investments in their business.

The final piece of research to mention is with respect to employment multipliers.

We know that one the tenets of economic development is that for every local job created, additional jobs are also created. This employment multiplier is dependent upon the industry and whether or not the job is in the tradable or nontradable sector. Moretti (2010) finds that for every local manufacturing job created, another 1.6 jobs are created in the local nontradable sector. Lee and Rodriguez-Pose (2016) report on research that found 4.9 additional jobs in the nontradable sector for every 1 job created in high-technology industries.

According to Kaplanis (2010a, 2010b) there are three factors that drive the formation of these additional jobs: increasing the density of high income workers drives an increase in the demand in the local nontradable sector, rising production complementarities as the density of local skilled workforce rises, and improvements in one firm’s productivity benefit other firms.

Implications

Based on this research, there are several implications for both businesses and economic development activities in your local area.

First. Jobs that involve thinking and/or people skills are the future-proof jobs. Think about the different industry sectors (ie, agriculture, construction, education, manufacturing, etc) and their impact upon your local economy both now and into the future.

Can you see a range of employment options developing that are rich in these two types of skills?

Second. Jobs happen in the context of a business. And with more and more jobs being computerised and automated, are the businesses in your local economy looking to improve how they operate their business and how they produce their goods and services.

Take, for example, a telemarketing business. Say there is such a local business (call is “Biz-A”) and it employs about 200 people. The staff are paid to call people and move them along the sales pipeline. Now, lets imagine a competitor. And this competitor (call it “Biz-B”) uses computerised voice services. There is significant potential for the Biz-B to compete profitably against Biz-A.

Have you heard of Amazon’s “Alexa”, Apple’s “Siri” or Microsoft’s “Cortana”. It is not beyond the bounds of possibility that Biz-B could simply be a computer with the right software and an internet connection to be just as effective as Biz-A. The potential is for those 200 staff to lose their jobs, and for Biz-A to close down.

So, for businesses to thrive, they must always be looking to both improve the efficiency of their operations (a total cost of ownership calculation) and to improve the effectiveness of how they generate profit (a return on investment calculation).

Is there a bias toward improvement and innovation across your local business sector?

Third. For businesses to succeed in the period ahead they need to be able to attract people that can think and that are good with others. That means that the owners of the business and the organisational culture must be biased toward new ideas and working with those outside the firm.

Is there a continual flow of good ideas and forward looking people into your local economy?

Fourth. There is a definite linkage between businesses that export product out of your area and growth of local lower-paid jobs. Although developing the manufacturing base will do it, greater local employment gains will be achieved with a focus on high-technology industries.

What steps can you take to develop local high-tech industry?

Actions through the lens of Strategic Foresight

Strategic foresight precedes strategic planning. Planning strategies is about decisions. It’s about asking two questions: “what will we do” and “when will we do it”. Whereas strategic foresight is about understanding the future and clarifying emerging situations. It answers the questions: “what seems to be happening” and “what might we need to do”.

One model that helps us understand the future is Dator’s matrix. This model holds that the future for any organisation, person, business, community group, family, etc will follow one of four paths:

  1. Business as usual
  2. Something transformational will happen
  3. Decay and degradation set in
  4. Restrictions and discipline are enforced

With so much change on the horizon, particularly in the world of work and business we can probably discount the “business as usual” future.

We can probably also make the case that the transformational path won’t happen (ie, hope is not a strategy) and that an increasing “nanny state” future is also not likely.

So that potentially leaves a retreat from the prosperity we currently enjoy.

Therefore, because we can see this change fast approaching and to forestall, mitigate and overcome this retreat, the recommendation is for local action.

Where the action includes a focus on either attracting, or developing, high wage high tech industries.

Where the action includes ensuring local businesses have a bias toward innovation.

Where the action includes community development that is attractive to the thinkers.

Where the action includes events and programs to facilitate business to business interaction.

References

Frey, C. Osborne, M (2013). “The future of employment: How susceptible are jobs to computerisation”, Oxford Martin School, Sep 2013

Autor, D. Price, B (2013). “The changing task composition of the US labor market: An update of Autor, Levy, and Murnane (2003)”. MIT Economics, June 2013

Kaplanis, J (2010a). “Local human capital and its impact on local employment chances in Britain”, SERC, London School of Economics, Jan 2010

Kaplanis, J (2010b). “Wage effects from changes in local human capital in Britain”, SERC, London School of Economics, Jan 2010

Moretti, E (2010). “Local Multipliers”, American Economic Review: Papers and proceedings 100, May 2010, pp373-377

Productivity Commission (2016). “Increasing Australia’s future prosperity: Productivity Commission working paper”, Nov 2016


 

This article was first published in the journal of Economic Development Australia, Autumn, 2017


For more of what I have to offer, visit Dellium Advisory, follow on Twitter, connect using LinkedIn, review my IT Strategy blog, subscribe to my YouTube channel, or buy my ‘Jobs. Future. You.’ workbook.