Smart ideas for everyday cities
December 13, 2012 5 Comments
The outcomes that matter to cities and to the people who live and work in them, such as wellbeing, job creation, economic growth, and social mobility, are complex, compound results of the behaviour of a combination of city systems such as education, public safety, transport and the economy.
Because those systems are operated by separate organisations – if they are even “operated” as systems at all – many “Smarter City” discussions are concerned with “breaking down silos” in order to integrate them.
As Fast Company’s 2010 survey of the “Top 20 Smartest Cities on the Planet“, illustrates, many of the earliest and highest profile examples of cities pursuing “Smart” agendas were governed by hierarchical, integrated systems of authority which helped them to address this challenge – often because they were new or expanding cities in rapidly growing economies.
Elsewhere, governance is more complex. Particularly in the UK, services such as utilities and transport are operated by private sector providers contracted to deliver performance and financial measures that cannot easily be changed. It is hard enough to agree common objectives across a city; it can be even harder to agree how to make investments to achieve them by transforming city systems that are subcontracted in this way.
But that is what cities must somehow do. And in recent weeks I have valued some open and frank discussions between city leaders, financiers and developers, policy makers, academics, architects, planners – and even some technologists – that have revealed some simple ideas that are common to those cities that have demonstrated how it can be done.
Start new partnerships
Most initiatives that contribute to city-wide outcomes require either co-ordinated action across city systems; or an investment in one system to achieve an outcome that is not a simple financial return within that system. For example, the ultimate objective of many changes to transportation systems is to improve economic growth and productivity, or to reduce environmental impact.
A programme of initiatives with these characteristics therefore involves the resources and interests of great many organisations within a city; and may lead to the creation of entirely new organisations. Special purpose vehicles such as the “Eco-Island” Community Interest Company on the Isle of Wight and the Birmingham District Energy Company are two such examples.
New partnerships between these organisations are needed to agree city-wide objectives, and to co-ordinate their activities and investments to achieve them. Depending on local challenges, opportunities, and relationships those partnerships might include:
- Local Authorities and other public sector agencies co-operating to operate shared services;
- Central government bodies involved in negotiations of policy, responsibility and financing such as “City Deals“;
- Leaders from cities’ business, entrepreneurial and SME communities;
- Local Universities who may have domain expertise in city systems; and who provide skills into the local economy;
- Neighbourhood, faith and community associations;
- Representatives of the third sector – charities, voluntary associations, social enterprises and co-operatives;
- Industry sector and cultural organisations;
- Service and technology providers who form partnerships with cities; for example, Amey have a 25-year PFI partnership with Birmingham; IBM operate joint research programmes with cities such as Dublin and Moscow; and Cisco have partnerships with cities such as Songdo in South Korea;
- Financiers, for example local venture capitalists such as MidVen in the West Midlands, or banks and financial services companies with a strong local presence;
- … and there are many other possibilities.
To attract the various forms of investment that are required to support a programme of “Smart” initiatives, these partnerships need to be decision-making entities, such as Manchester’s “New Economy” Commission, not discussion groups. They need to take investment decisions together in the interest of their shared objectives; and they need a mature understanding and agreement of how risk is shared and managed across those investments.
Such partnerships do not start by adopting the approach of any single member; they start with a genuine discussion to build understanding and consensus.
For example, public and private sector organisations both tend to assume that the other is better placed to accept risk. Private sector organisations make profits and invest them in new products and markets, so surely they can take on risk? Public sector organisations are funded to predictable levels through taxation, so surely they can take on risk?
In reality, the private sector has lost jobs, faced falling profits, and seen many businesses fail in recent years. Meanwhile, public sector is burdened with unprecedented budget cuts and in many cases significant deficits that are threatening their ability to deliver frontline services. Both are therefore risk averse.
A working partnership will only form if such issues are discussed openly so that an equitable consensus is achieved.
(A video describing the partnership between IBM and Dubuque, Iowa, which aims to develop a model for sustainable communities of less than 200,000 people)
Size matters; but not absolutely
Manchester’s New Economy Commission have taken a particular approach that is commensurate to the size of the Greater Manchester area and economy, coordinated by the Association of Greater Manchester Authorities (AGMA). But their approach is not the only one.
Elsewhere, Southampton City Council are creating a “Virtual Local Authority”, together with other authorities around the country, as a vehicle to approach the bond market for a £100 million investment. They believe such a vehicle can create an investment opportunity of similar size to Birmingham’s “Energy Savers” scheme.
“Size” in these terms can mean geographic area; population; economic value or market potential. It is interpreted differently by international investment funds; or by local interests such as property and business owners. And it is balanced against complexity: one reason that some more modestly sized cities such as Sunderland and Peterborough have made so much early progress is their relative political and economic simplicity.
Vision, Transparency and Consistency
Whatever specific form a local partnership takes, it needs to demonstrate certain behaviours and characteristics in order that its initiatives and proposals are attractive to investors. They are straightforward in themselves; but take time to establish amongst a new group of stakeholders:
- A clear, agreed and consistent set of goals;
- A mutual understanding of risk; how it is shared; and how it is managed;
- An ability to express investment opportunities, including the risks associated with them, to potential investors;
- A track record of taking transparent, consistent decisions to coordinate projects and investments against their objectives.
This is the model that in many cases will deliver Smarter City projects and programmes in everyday cities: a model of several organisations coordinating multiple investments, rather than individual organisations managing their own budgets.
Match risks to the right investors
There are many sources of funding for Smart City initiatives; each has different requirements and capabilities, and is attracted by specific risks and rewards. And with traditional markets such as property stagnant in developed economies, new opportunities for investment are being sought.
However, with a high degree of uncertainty in the prospects for future economic growth, it is harder than ever to assess the likely returns from investment opportunities. And when those opportunities are presented as new forms of partnership, special purpose vehicles or social enterprises, or by public sector authorities adopting revenue-generating models to compensate for dramatic cuts in their traditional funding, that assessment becomes even harder.
There is no simple answer to this challenge; but once again progress to resolving it will begin with conversations that build understanding. Ultimately, investors will be attracted to proposals with well defined and managed risks from organisations exhibiting good governance; and that can demonstrate a track record of making clear decisions to achieve their goals.
Of course, some Smart City projects are highly innovative, and may be too risky for investors accustomed to supporting infrastructure projects such as transportation and property development. This is particularly the case for schemes that require a change in consumer behaviour – for example, switching from private car ownership to the use of “car clubs” or car-sharing schemes.
These sorts of project may be more suited to technology or service providers who might invest in pilot schemes in order to develop or prove new offerings which, if successful, can generate follow-on sales elsewhere. The “First of a Kind” programme in IBM’s Research division is one example or a formal programme that is operated for this purpose.
Similarly, Venture Capital will make investments in new businesses with higher risk profiles – demanding, of course, a commensurately higher level of return. And government backed innovation funds such as the European Union FP7 programme or the UK’s Technology Strategy Board are also available.
All of these organisations, of course, are looking to invest in projects which are initially small scale; but that will eventual develop into a widespread market opportunity. They will therefore be drawn to projects that take place in a stable, supported context from which that opportunity can be developed – in other words, the same level of partnership working, governance, transparency and consistency.
Exploit success to build momentum
Most cities need to stimulate economic growth, and to revitalise economically and socially deprived neighbourhoods.
It may be more effective to achieve those goals through a series of related steps, than through a single initiative, however:
1. Invest to reinforce growth that is already taking place – it may be more straightforward in the first place to use mechanisms such as tax increment financing or private investment to accelerate growth that is already taking place; such as last week’s announcement by David Cameron of additional government and corporate investment in London’s “Tech City” cluster.
2. Retain the financial benefits resulting from growth - Manchester’s New Economy Commission is able to retain the benefits of the growth the stimulate in the form of increased tax returns, in order to reinvest in subsequent initiatives. Their early successes built confidence amongst investors in the viability of their ongoing programme.
3. Recycle funds to stimulate new growth – having built an initial level of confidence, returns from early projects can be reinvested in areas with more significant challenges; where new infrastructures such as broadband connectivity or support services are required to attract new business activity.
Everywhere is different
Whilst the ideas I’ve described in this article do seem to be emerging as common characteristics of successful Smarter City programmes; we are still at a relatively early stage.
In particular, not enough examples exist for us to reliably separate generally viable elements of these approaches from those aspects that are strongly tied to specific local contexts.
Every city of course is different; and in this context has different access to transport systems, and to national and international supply chains and markets; has different demographics and social character; and different economic capacity. Even within a country, the governance of cities and regions varies – in the UK, for example, the relationships between Central, County, District, City and Borough Councils are subtly different everywhere. So each city still needs to find its own path.
But the first step is simple. There is nothing stopping cities from having the conversations that will get them started. And those that have done so are proving that it works.
I’d like to thank the delegates and attendees at many workshops and meetings I’ve attended in recent weeks; the discussions I’ve been lucky enough to participate in as a result have contributed significantly to the views expressed in this article. They include: