Ten ways to pay for a Smarter City (part two)

(Photo of the Brixton Pound by Charlie Waterhouse)

As I wrote recently, cities across the world are pursuing Smarter City strategies for common reasons including demographics, economics and the environment; but they start in very different social, financial and organisational positions. So there is a need to consider a variety of mechanisms when looking for the financial means to support those strategies.

Last week I discussed five ways in which cities can finance Smarter initiatives; they included tried-and-tested sources such as research grants, and more exploratory ideas such as sponsorship. In this post I’ll consider five more.

6. Approach ethical investment funds, values-led banks and national lotteries

Whilst the current state of the global economy has focused attention on the monetary aspects of our financial systems, in the context of Smarter Cities it is important to note that amongst the great variety of investment instruments are some which have social and environmental objectives.

I was honoured last week to attend the official opening of Sunderland’s new business support facility for social enterprises, Container City, operated by Sustainable Enterprise Strategies (SES). The centre, fabricated from 37 re-conditioned and adapted shipping containers, provides a new basis from which SES can support the hundreds of social enterprises and traditional businesses that they help to start and operate each year; and who provide services and employment in some of the city’s most disadvantaged areas.

Several of these organisations use emerging technologies in innovative ways to promote social outcomes in the city – such as Play Fitness whose “Race Fitness” product uses gamification to encourage children from deprived communities to engage in fitness and wellbeing; or See Detail who provide employment opportunities in software testing for people on the Autistic spectrum. I’ve argued before that this sort of innovation in communities can be a powerful force for making cities Smarter.

SES are supported by a variety of means, including financial institutions with mutual status, and funding programmes aimed specifically at encouraging social enterprise. The UK’s National Lottery provides one such programme, the “Big Lottery Fund“, which aims to support community groups and projects that improve health, education and the environment.

These sort of schemes operate in many countries, in addition to the ethical investment funds available in international markets. Community Interest Companies are another example of the new forms of organisation that are emerging to take advantage of them. Credit Unions and other forms of mutually owned or locally focussed financial institutions exist across the world; and the Global Alliance for Banking on Values recently issued a report stating that what it calls “sustainable banks” are outperforming their mainstream counterparts.

Such organisations will often demand a financial return in addition to social and environmental outcomes; but well-formed investment proposals for Smarter initiatives should be capable of meeting those objectives.

7. Make procurement Smarter

(Photo of a smart parking meter in San Francisco by Jun Seita)

Cities already spend hundreds of millions to billions of Pounds, Euros and Dollars each year operating city systems; and buying products, materials and services to support them. The scoring criteria in those procurements can be a powerful tool to create smarter cities.

Systems such as utilities, transport and maintenance of the environment are often contracted out to the private sector. If procurement criteria for those contracts are specified using traditional measures for the provision and cost of capability, then suppliers will likely offer traditional solutions and services. However, if procurements specify requirements for outcomes and innovation in line with a Smarter City strategy, then suppliers may offer more creative approaches.

Cities could specifically procure Smarter systems such as smart meters for water and power; or they could specify outcome-based procurement criteria such as lowering congestion or carbon impact in traffic systems; or they could formulate more open criteria to incent innovation and creativity. Jackie Homan of Birmingham Science City recently wrote a great article describing how some of those ideas are being explored in Birmingham and Europe.

8. Use legitimate state aid

A significant component of many Smarter City strategies is to stimulate economic and social growth in the less economically active areas of cities. Such initiatives often run into a “chicken-and-egg” or “bootstrapping” problem: new businesses need infrastructures such as broadband connectivity to start and succeed; but until an area has significant business demand, network providers won’t invest in deploying them.

Birmingham and Sunderland have both addressed this problem recently, winning exemptions from or avoiding conflict with European Union “State Aid” legislation to secure city-wide broadband deployments.

It’s important to make sure that such infrastructures are accessible. In the same way that a new city highway can divide the communities it passes through rather than linking them, it is important that new technology infrastructures are designed in consultation with local businesses and communities in order to provide capabilities they really need, through commercial models that they can afford to use.

Tax increment financing, which allows government bodies to use projected future increases in tax and business rates returns to justify investment in redevelopment, infrastructure, and other community-improvement projects, is another mechanism that can be used in this way. In the UK, the national government is undertaking an important extension of this thinking by agreeing a set of individual “City Deals” with cities such as Leeds and Birmingham, giving them new autonomous powers over local taxation and investment.

(Developers at City Camp Brighton explore ways in which collaboration and web technologies can contribute to the city’s future. Photo by Richard Stubbs)

9. Encourage Open Data and Hacktivism

Communities can bring great passion and resources to bear in finding new ways for their cities to work. In the domain of technology, this is exemplified in the phenomenon of “Hacktivism” in which volunteers lend their time and expertise to create new urban applications.

As I’ve discussed before, when this willingness to contribute is combined with the movement to Open Data and the transformation underway to regional shared services in public sector, powerful forces can be unleashed.

Code for America have championed this agenda in the United States, and this year Code4Europe was launched to promote a similar level of engagement in Europe.

There are limits to what can be achieved for free. But in my view great potential exists, particularly if City authorities can work in partnership with these movements to provide secure, scalable, open technology infrastructures that they can exploit.

However unfamiliar the produce, markets still need physical, infromation and governance infrastructure

10. Create new markets

For a long time I’ve considered that we should conceive of the platforms that support Smarter Cities not just as technology infrastructures, but as marketplaces – i.e. systems of transactions that take place on those new infrastructures. Marketplaces create money-flows; and marketplace operators can extract revenues from those flows which in return create the case for investing in the marketplace infrastructure in the first place. Further; by opening up the marketplace infrastructure to innovative local service providers, unforeseen new Smarter systems can be created.

There are many examples of new markets that use technologies such as social media and analytics to identify parties between which new transactions can be performed; and that then provide the infrastructure and governance to carry out those transactions. Craig’s List and E-Bay are well-known general marketplaces; whilst Freecycle specialises in the free distribution of unwanted items for re-use in communities. Zopa and Prosper apply these ideas to peer-to-peer lending and investment.

Similar markets with specific relevance to city systems are emerging. Streetline offer a Smarter Parking solution which could be viewed as a marketplace in parking spaces; and Carbon Voyage‘s system for sharing taxis can be seen as a marketplace for journeys. I’ve explored other examples of local, marketplace-based business models in food and energy in previous articles on this blog; and discussed some of the local currency and trading systems emerging to support them.

What these examples have in common is that they are independent businesses or social enterprises who are winning backing from investors because they have the potential to generate revenue. As I argued in the case of Open Data and Hacktivism above, if cities can find ways to support such innovative businesses, they’ll find another community that is able to help them achieve a Smarter City transformation.

The buck doesn’t stop here

The ideas for funding Smarter Cities that I’ve discussed over the last two weeks are certainly not exhaustive; and as a technologist rather than an economist or financier I certainly don’t consider them definitive.

But hopefully I’ve provided enough examples in support of them to demonstrate that they are realistic approaches with the potential to be re-used. I certainly expect to see them all play a role in financing the transition to the cities of the future.

The amazing heart of a Smarter City: the innovation boundary

(Photo of a mouse by pure9)

Innovation has always been exciting, interesting and valuable; but recently it’s become essential.

The “mouse” that defined computer usage from the 1980s through to the 2000s was an amazing invention in its time. It was the first widely successful innovation in human/computer interaction since the typewriter keyboard and video display which came decades before it; and it made computers accessible to new communities of people for the first time.

But whilst the mouse, like the touchscreen more recently popularised by the iPhone and iPad, was a great innovation that increased the usability and productivity of personal computers, it wasn’t really necessary for a greater and pressing purpose. Its benefits came later as we explored its capabilities.

We now have a greater purpose that demands innovation: the need to make our cities and communities more sustainable, vibrant and equal in the face of the severe economic, environmental and demographic pressures that we face; and that are well described in the Royal Society’s “People and the Planet” report.

We have already seen those pressures create threats to food and energy security; and in recent months I’ve spoken to city leaders who are increasingly concerned with the difference in life expectancy between the most affluent and most deprived areas of their cities – it can be 10 years or more. There are much worse inequalities on a global scale, of course. But this is a striking local difference in the basic opportunity of people to live.

Barnett Council in North London famously predicted recently that within 20 years, unless significant changes in public services are made, they will be unable to afford to provide any services except social care. There will be no money left to collect waste, run parks and leisure facilities, clean streets or operate any of the other services that support and maintain cities and communities. I have spoken informally to other Councils who have come to similar conclusions.

All the evidence, including the scientific analysis of the behaviour and sustainability of city systems by the Physicist Geoffrey West, points to the need to create innovations that change the way that cities work.

But where will this innovation come from?

I think innovation of this sort takes place at an “innovation boundary”: the boundary between capability and need.

When a potentially transformative infrastructure such as a Smarter City technology platform is designed and deployed well, then the services it provides precisely embody that boundary.

This idea is fundamental to the concept of Smarter Cities, where we are concerned with the capability of technology to transform cities. Technology vendors – including, but not limited to, my employer IBM – are sometimes expected to use the Smarter City movement as a channel through which to sell generic technology platforms. As vendors, we do deliver technology platforms for cities, and they are part of the capability required to transform them. But they are not the only part – far from it. And they must not be generic.

(A smartphone alert sent to a commuter in a San Francisco pilot project by IBM Research and Caltrans that provides personalised daily predictions of commuting journey times – and suggestions for alternative routes.)

As I hope regular readers of this blog will know, I often explore the role of people and communities in transforming how cities work. A city is the combined effect of the behaviour of all of the people in it – whether they are buying food in a supermarket, traveling to work, relaxing in a park, planning an urban development or teaching in a school. No infrastructure – whether it is a road, a building, a broadband network or an intelligent energy grid – will have a transformative effect on a city unless it engages with individuals in a way that results in a change of behaviour. Work by my colleagues in IBM on transportation in California (pictured, left) and on water and energy usage in Dubuque, Iowa provide examples of what can be achieved when technology solutions are designed in the context of individual and community behaviour.

The innovations that discover how technology can change behaviour are sometimes very localised. They can be specific to the nature, challenges and opportunities of local communities; and are often therefore created by individuals, entrepreneurs, businesses and social enterprises within them. The “civic hacking” and “open data” movements are great examples of this sort of creativity.

But this is not the only sort of innovation that is required to enable Smarter City transformations. The infrastructures that support cities literally provide life-support to hundreds of thousands or millions of individuals. They must be highly resilient, performant and secure – particularly as they become increasingly optimised to support larger and larger city populations sustainably.

The invention, design, deployment and operation of Smarter City infrastructures require the resources of large organisations such as technology vendors, infrastructure providers, local governments and Universities who are able to make significant investments in them.

The secret to successfully transforming cities lies at the boundary between local innovations and properly engineered platforms. “Smarter City” transformations are effective when new and resilient information infrastructures are designed and deployed to meet the specific needs of city communities. One size does not fit all.

A technology infrastructure is no different in this regard to a physical infrastructure such as a new urban highway. In each case, there are some requirements that are obvious and generic – getting traffic in and out of a city centre more efficiently; or  making superfast broadband connectivity universally accessible. But other crucially important requirements are more complex, subtle and varied. How can a new road be integrated into the existing environment of a city so that local communities benefit from it, and so that it does not divide them? What access points, support and funding assistance are needed so that communities can use superfast broadband networks; and what services and information can be delivered to them using those networks that will make a difference?

If we understand those requirements, we can design infrastructures that properly support the innovation boundary. Doing so demands that we address three challenges:

Firstly, we must identify the specific information and technology services that can be provided to individuals, communities, entrepreneurs, businesses and social enterprises to help them succeed and grow. I’ve referred many times to the Knight Foundation’s excellent work in this area; it has inspired my own work with entrepreneurs and social enterprises in Sunderland and elsewhere.

(Meeting with social entrepreneurs in Sunderland to understand how new technology can help them)

Secondly, we need to understand and then supply the heavily engineered capabilities that are beyond the means of local communities to deliver for themselves; but that which enable them to create innovations with real significance.

At the 3rd EU Summit on Future Internet, Juanjo Hierro, Chief Architect for the FI-WARE “future internet platform” project, addressed this topic and identified the specific challenges that local innovators need help to overcome, and that could by provided by city information infrastructures. His challenges included: real-time access to information from physical city infrastructures; tools for analysing “big data“; and access to technologies to ensure privacy and trust. As we continue to engage with communities of innovators in cities, we will discover other requirements of this sort.

Finally, the boundary needs to be defined by standards. Many cities will deploy many information infrastructures, and many different vendors will be involved in supplying them. In order that successful local innovations can spread and interact with each other, Smarter City infrastructures should support Open Standards and interoperability with Open Source technologies.

It will take work to achieve that, of course. It is very easy to underestimate the complexity of the standards required to achieve interoperability. For example, in order to make it possible to safely change something as simple as a lightbulb, standards for voltage, power, physical dimensions, brightness, socket shape and fastening type, fragility and heat output are required. Some standards for Smarter City infrastructures are already in place – for example, Web services and the Common Alerting Protocol – but many others will need to be invented and encouraged to spread. Fortunately, the process is already underway. As an example, IBM recently donated MQTT, a protocol for connecting information between small devices such as sensors and actuators in Smarter City systems to the Open Source community.

(The first “Local Gov Camp” unconference in 2009, attended by community innovators with an interest in transforming local services, held in Fazeley Studios in Birmingham. Photo by s_p_a_c_e_m_a_n)

In the meantime, the innovation boundary is an amazing place to work. It puts me in contact with the leading edge of technology development – with IBM Research, and with new products such as the Intelligent Operations Centre for Smarter Cities. And it offers me the chance to collaborate with the academic institutions and thought-leaders who are defining the innovation boundary through initiatives such as “disruptive business platforms” (see this work from Imperial college, or these thoughts from my colleague Pete Cripps).

But more importantly, my work puts me in touch with innovators who are creating exciting and inspiring new ways for cities to work; often in the communities that need the most help, such as Margaret Elliott in Sunderland; Mark Heskett-Saddington of Sustainable Enterprise Strategies; and the team at Droplet in Birmingham.

I count myself terrifically honoured and lucky to have the privilege of working with them.

Five roads to a Smarter City

(Photo of Daikoku junction by Ykanazawa1999

Recently, I discussed the ways in which cities are formulating  “Smarter City” visions and the programmes to deliver them. Such cross-city approaches are clearly what’s required in order to have a transformative effect across an entire city.

However, whilst some cities have undergone dramatic changes in this way – or have been built as “Smarter” cities in the first place as in the case of the famous Masdar project in Abu Dhabi – most cities are making progress one step at a time.

Four patterns have emerged in how they are doing so. Each pattern is potentially replicable by other cities; and each represents a proven approach that can be used as part of a wider cross-city plan.

I’ll start at the beginning, though, and describe why cross-city transformations can be hard to envision and deliver. Understanding why that can be the case will give us insight into which simpler, smaller-scale approaches can succeed more easily.

What’s so hard about a Smarter City?

Cities are complex ecosystems of people and organisations which need to work together to create and deliver Smarter City visions. Bringing them together to act in that way is difficult and time-consuming.

(Photo of Beijing by Trey Ratcliff)

Even where a city community has the time and willingness to do that, the fragmented nature of city systems makes it hard to agree a joint approach. Particularly in Europe and the UK, budgets and responsibilities are split between agenices; and services such as utilities and transport are contracted out and subject to performance measures that cannot easily be changed. Agreeing the objectives and priorities for a Smarter City vision in this context is hard enough; agreeing the financing mechanisms to fund programmes to deliver them is even more difficult.

Some of the cities that have made the most progress so far in Smarter City transformations have done so in part because they do not face these challenges – either because they are new-build cities like Masdar, or because they have more hierarchical systems of governance, such as Guangzhou in China. In other cases, critical challenges or unusual opportunities provide the impetus to act – for example in Rio, where an incredible cross-city operations centre has been implemented in preparation for the 2014 World cup and 2016 Olympics.

Elsewhere, cities must spend time and effort building a consensus. San Francisco, Dublin and Sunderland are amongst those who began that process some time ago; and many others are on the way.

But city-wide transformations are not the only approach to changing the way that cities work – they are just one of the five roads to a Smarter City. Four other approaches have been shown to work; and in many cases they are more straightforward as they are contained within individual domains of a city; or exploit changes that are taking place anyway.

Smarter infrastructure

Many cities in the UK and Europe are supported by transport and utility systems whose physical infrastructure is decades old. As urban populations rise and the pace of living increases, these systems are under increasing pressure. “Smarter” concepts and technologies can improve their efficiency and resilience whilst minimising the need to upgrade and expand them physically.

(Photo of a leaking tap by Vinoth Chandar. A project in Dubuque, Iowa showed that a community scheme involving smart meters and shared finances had a significant effect improving the repair of water leaks.)

In South Bend, Indiana, for example, an analytic system helps to predict and prevent wastewater overflows by more intelligently managing the existing infrastructure. The city estimates that they have avoided the need to invest in hundreds of millions of dollars of upgrades to the physical capacity of the infrastructure as a result. In Stockholm, a road-use charging system has significantly reduced congestion and improved environmental quality. In both cases, the systems have direct financial benefits that can be used to justify their cost.

These are just two examples of initiatives that offer a simplified approach to Smarter Cities; they deliver city-wide benefits but their implementation is within the sphere of a single organisation’s responsibility and finances.

Smarter micro-cities 

Environments such as sports stadiums, University campuses, business parks, ports and airports, shopping malls or retirement communities are cities in microcosm. Within them, operational authority and budgetary control across systems such as safety, transportation and communication usually reside with a single organisation. This can make it more straightforward to invest in a technology platform to provide insight into how those systems are operating together – as the Miami Dolphins have done in their Sun Life Stadium.

Other examples of such Smarter “micro-Cities” include the iPark industrial estate in Wuxi, China where a Cloud computing platform provides shared support services to small businesses; and the Louvre museum in Paris where “Intelligent Building” technology controls the performance of the environmental systems that protect the museum’s visitors and exhibits.

(Photo of the Louvre exhibition “‘The Golden Antiquity. Innovations and resistance in the 18th century” from the IBM press release for the Louvre project)

Improving the operation of such “micro-cities” can have a significant impact on the  cities and regions in which they are located – they are often major contributors to the economy and environment.

Shared Public Services

Across the world demographic and financial pressures are causing transformative change in public sector. City and regional leaders have said that their organisations are facing unprecedented challenges. In the UK it is estimated that nearly 900,000 public sector jobs will be lost over 5 years – approximately 3% of national employment.

In order to reduce costs whilst minimising impact to frontline services, many public sector agencies are making arrangements to share the delivery of common administrative services with each other, such as human resources, procurement, finance and customer relationship management.

Often these arrangements are being made locally between organisations that know and trust each other because they have a long history of working together. Sharing services means sharing business applications, IT platforms, and data; as town and village councils did in the Municipal Shared Services Cloud project.

As a result shared IT platforms with co-located information and applications are now deployed in many cities and regions. Smarter City systems depend on access to such information. Sunderland City Council are very aware of this; their CEO and CIO have both spoken about the opportunity for the City Cloud they are deploying to provide information to support public and private-sector innovation. Such platforms are an important enabler for the last trend I’d like to discuss: open data.

Open Data

(A visualisation created by Daniel X O Neil of data from Chicago’s open data portal showing the activities of paid political lobbyists and their customers in the city)

The open data movement lobbies for information from public systems to be made openly available and transparent, in order that citizens and entrepreneurial businesses can find new ways to use it.

In cities such as Chicago (pictured on the left) and Dublin, open data platforms have resulted in the creation of “Apps” that provide useful information and services to citizens; and in the formation of startup companies with new, data-based business models.

There are many challenges and costs involved in providing good quality, usable open data to city communities; but the shared service platforms I’ve described can help to overcome them, and provide the infrastructure for the market-based innovations in city systems that can lead to sustainable economic growth.

Let’s build Smarter Cities … together

All of these approaches can succeed as independent Smarter City initiatives, or as contributions to an overall city-wide plan. The last two in particular seem to be widely applicable. Demographics and economics are driving an inevitable transformation to shared services in public sector; and the open data movement and the phenomenon of “civic hacking” demonstrate the willingness and capability of communities to use technology to create innovations in city systems.

As a result, technology vendors, local authorities and city communities have an exciting opportunity to collaborate. The former have the ability to deliver the robust, scalable, secure infrastructures required to provide and protect information about cities and individual citizens; the latter have the ability to use those platforms to create local innovations in business and service delivery.

At the 3rd EU Summit on Future Internet in Helsinki earlier this year, Juanjo Hierro, Chief Architect for the FI-WARE “future internet platform” project and Chief Technologist for Telefonica,  addressed this topic and identified the specific challenges that civic hackers face that could be addressed by such city information infrastructures; he included real-time access to information from physical city infrastructures; tools for analysing “big data“; and access to technologies to ensure privacy and trust.

Cities such as Sunderland, Birmingham, Dublin, Chicago and San Francisco are amongst those investing in such platforms, and in programmes to engage with communities to stimulate innovation in city systems. Working together, they are taking impressive steps towards making cities smarter.

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