In order to answer this article’s question we need to appreciate how our perspectives have developed. For it is important to note that not only do we all have our own biases but our world views aren’t always in synch on any one of a number of issues.
This development process starts with our beliefs. These are shaped by factors such as our culture, our education and our experiences. What we hold dear, our values, not only grows out of our set of developed beliefs but are also shaped by our family’s values and our successes in life. What builds on these two, in turn, is first our attitudes and finally our behaviours.
This is where our perspectives of the future digital economy come into play. Because the future can not be studied, as it does not yet exist, only our images and conceptions of the future can be. These ideas are built upon our beliefs, values, attitudes and behaviours. The vision that we each have of what a fully digital economy will look like depends upon our biases and world views.
Consider the question: “what do you think the future will be like?” From a temperament perspective, are you a hopeful person and by default you look for win-win outcomes? Or are you one who has been bitten by identity fraud and based on your experiences your answer is laced with skepticism. The implication here is that an argument for a fully digitised economy that is utopian in nature could be just as well received as well as one that is dystopian.
The question that follows from this first consideration is this: “what future are you afraid of?”. If you fear being manipulated by omnipresent artificial general intelligence, then you may well rail against “the machine” as it currently stands. Perhaps even exhibiting Luddite-like qualities in your attitude toward technological developments.
In discussing how the future of the economy could unfold, specifically the degree to which it could be digitised, we have seen that there is not one preferred scenario. Several possibilities could eventuate. What underpins any of these paths is the growing preponderance of the digital bit in creating economic value. For it used to be that the economy was solely based on what we could do with the atom – build things, sell things and establish bases of power through the material world. But now it is the world of the bit that is increasingly ubiquitous.
There are then several issues that flow from this increasing digitisation: the skills that we trade for value in the workplace, questions concerning the knowledge and wisdom that can be derived from a super-abundance of data, social responses to the changing structure of the economy, and the shape of governance structures surrounding corporates and other institutions. Finally, what may arise from this trend toward increasing digitisation is the emergence of an “intelligence economy”. One that supersedes the digital economy. An economy where real value is no longer held in varying compositions of bits, but in prized abstractions of knowledge stored in quantum computing machines.
In looking forward from the vantage point of today, what is your preferred future? How would you like this increasingly digital economy develop? Are you hoping for one that is based on solely the taxation of capital, thus freeing humanity through the mechanism of a universal basic income? Or are you hoping that life continues as it is, albeit with some form of control mechanism that reduces any digital encumbrances arising from social toxicity?
Whether we gladly accept this trend or hold deep reservations, the future is progressively digital. This phenomena will impact how value is created, how we lead our lives, and how the state conducts its governance. The nexus of all aspects of the future economy will rest on streams of ones and zeros. For just like the harnessing of physical streams by the waterwheel led to all manner of outcomes, so to will the technology that harnesses digital streams.
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”.
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.
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.
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.
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.
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).
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)
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.