What’s the risk of investing in a Smarter City?

(The two towers of the Bosco Verticale in Milan will be home to more than 10,000 plants that create shade and improve air quality. But to what degree do such characteristics make buildings more attractive to potential tenants than traditional structures, creating the potential to create financial returns to reward more widespread investment in this approach? Photo by Marco Trovo)

(Or “how to buy a Smarter City that won’t go bump in the night”)

There are good reasons why the current condition and future outlook of the world’s cities have been the subject of great debate in recent years. Their population will double from 3 billion to 6 billion by 2050; and while those in the developing world are growing at such a rate that they are challenging our ability to construct resilient, efficient infrastructure, those in developed countries often have significant levels of inequality and areas of persistent poverty and social immobility.

Many people involved in the debate are convinced that new approaches are needed to transport, food supply, economic development, water and energy management, social and healthcare, public safety and all of the other services and infrastructures that support cities.

As a consequence, analysts such as Frost & Sullivan have estimated that the market for “Smart City” solutions that exploit technology to address these issues will be $1.5trillion by 2020.

But anyone who has tried to secure investment in an initiative to apply “smart” technology in a city knows that it is not always easy to turn that theoretical market value into actual investment in projects, technology, infrastructure and expertise.

It’s not difficult to see why this is the case. Most investments are made in order to generate a financial return, but profit is not the objective of “Smart Cities” initiatives: they are intended to create economic, environmental or social outcomes. So some mechanism – an investment vehicle, a government regulation or a business model – is needed to create an incentive to invest in achieving those outcomes.

Institutions, Business, Infrastructure and Investment

Citizens expect national and local governments to use their tax revenues to deliver these objectives, of course. But they are also very concerned that the taxes they pay are spent wisely on programmes with transparent, predictable, deliverable outcomes, as the current controversy over the UK’s proposed “HS2” high speed train network and previous controversies over the effectiveness of public sector IT programmes show.

Nevertheless, the past year has seen a growing trend for cities in Europe and North America to invest in Smart Cities technologies from their own operational budgets, on the basis of their ability to deliver cost savings or improvements in outcomes.

For example, some cities are replacing traditional parking management and enforcement services with “smart parking” schemes that are reducing congestion and pollution whilst paying for themselves through increased enforcement revenues. Others are investing their allocation of central government infrastructure funds in Smart solutions – such as Cambridge, Ontario’s use of the Canadian government’s Gas Tax Fund to invest in a sensor network and analytics infrastructure to manage the city’s physical assets intelligently.

The providers of Smart Cities solutions are investing too, by implementing their services on Cloud computing platforms so that cities can pay incrementally for their use of them, rather than investing up-front in their deployment. Minneapolis, Minnesota and Montpelier, France, recently announced that they are using IBM’s Cloud-based solutions for smarter water, transport and emergency management in this way. And entrepreneurial businesses, backed by Venture Capital investment, are also investing in the development of new solutions.

However, we have not yet tapped the largest potential investment streams: property and large-scale infrastructure. The British Property Federation, for example, estimates that £14 billion is invested in the development of new property in the UK each year. For the main part, these investment streams are not currently investing  in “Smart City” solutions.

To understand why that is the case – and how we might change it – we need to understand the difference in three types of risk involved in investing in smart infrastructures compared with traditional infrastructures: construction risk; the impact of operational failures; and confidence in outcomes.

(A cyclist’s protest in 2012 about the disruption caused in Edinburgh by the overrunning construction of the city’s new tram system. Photo by Andy A)

Construction Risk

At a discussion in March of the financing of future city initiatives held within the Lord Mayor of the City of London’s “Tommorrow’s Cities” programme, Daniel Wong, Head of Infrastructure and Real Estate for Macquarie Capital Europe, said that only a “tiny fraction” – a few percent – of the investable resources of the pension and sovereign wealth funds often referred to as the “wall of money” seeking profitable long-term investment opportunities in infrastructure were available to invest in infrastructure projects that carry “construction risk” – the risk of financial loss or cost overruns during construction.

For conventional infrastructure, construction risk is relatively well understood. At the Tomorrow’s Cities event, Jason Robinson, Bechtel’s General Manager for Urban Development, said that the construction sector was well able to manage that risk on behalf of investors. There are exceptions – such as the delays, cost increases and reduction in scale of Edinburgh’s new tram system – but they are rare.

So are we similarly well placed to manage the additional “construction risk” created when we add new technology to infrastructure projects?

Unfortunately, research carried out in 2013 by the Standish Group on behalf of Computerworld suggests not. Standish Group used data describing 3,555 IT projects between 2003 and 2012 that had labour costs of at least $10 million, and found that only 6.4% were wholly successful. 52% were delivered, but cost more than expected, took longer than expected, or failed to deliver everything that was expected of them. The rest – 41.4% – either failed completely or had to be stopped and re-started from scratch. Anecdotally, we are familiar with the press coverage of high profile examples of IT projects that do not succeed.

We should not be surprised that it is so challenging to deliver IT projects. They are almost always driven by requirements that represent an aspiration to change the way that an organisation or system works: such requirements are inevitably uncertain and often change as projects proceed. In today’s interconnected world, many IT projects involve the integration of several existing IT systems operated by different organisations: most of those systems will not have been designed to support integration. And because technology changes so quickly, many projects use technologies that are new to the teams delivering them. All of these things will usually be true for the technology solutions required for Smart City projects.

By analogy, then, an IT project often feels like an exercise in building an ambitiously new style of building, using new materials whose weight, strength and stiffness isn’t wholly certain, and standing on a mixture of sand, gravel and wetland. It is not surprising that only 6.4% deliver everything they intend to, on time and on budget – though it is also disappointing that as many as 41.4% fail so completely.

However, the real insight is that the characteristics of uncertainty, risk, timescales and governance for IT projects are very different from construction and infrastructure projects. All of these issues can be managed; but they are managed in very different ways. Consequently, it will take time and experience for the cultures of IT and construction to reconcile their approaches to risk and project management, and consequently to present a confident joint approach to investors.

The implementation of Smart Cities IT solutions on Cloud Computing platforms  by their providers mitigates this risk to an extent by “pre-fabricating” these components of smart infrastructure. But there is still risk associated with the integration of these solutions with physical infrastructure and engineering systems. As we gain further experience of carrying out that integration, IT vendors, investors, construction companies and their customers will collectively increase their confidence in managing this risk, unlocking investment at greater scale.

(The unfortunate consequence of a driver who put more trust in their satellite navigation and GPS technology than its designers expected. Photo by Salmon Assessors)

Operational Risk

We are all familiar with IT systems failing.

Our laptops, notebooks and tablets crash, and we lose work as a consequence. Our television set-top boxes reboot themselves midway through recording programmes. Websites become unresponsive or lose data from our shopping carts.

But when failures occur in IT systems that monitor and control physical systems such as cars, trains and traffic lights, the consequences could be severe: damage to property, injury; and death. Organisations that invest in and operate infrastructure are conscious of these risks, and balance them against the potential benefits of new technologies when deciding whether to use them.

The real-world risks of technology failure are already becoming more severe as all of us adopt consumer technologies such as smartphones and social media into every aspect of our lives (as the driver who followed his satellite navigation system off the roads of Paris onto the pavement, and then all the way down the steps into the Paris Metro, discovered).

The noted urbanist Jane Jacobs defined cities by their ability to provide privacy and safety amongst citizens who are usually strangers to each other; and her thinking is still regarded today by many urbanists as the basis of our understanding of cities. As digital technology becomes more pervasive in city systems, it is vital that we evolve the policies that govern digital privacy to ensure that those systems continue to support our lives, communities and businesses successfully.

Google’s careful exploration of self-driving cars in partnership with driver licensing organisations is an example of that process working well; the discovery of a suspected 3D-printing gun factory in Manchester last year is an example of it working poorly.

These issues are already affecting the technologies involved in Smart Cities solutions. An Argentinian researcher recently demonstrated that traffic sensors used around the world could be hacked into and caused to create misleading information. At the time of installation it was assumed that there would never be a motivation to hack into them and so they were configured with insufficient security. We will have to ensure that future deployments are much more secure.

Conversely, we routinely trust automated technology in many aspects of our lives – the automatic pilots that land the planes we fly in, and the anit-lock braking systems that slow and stop our cars far more effectively than we are able to ourselves.

If we are to build the same level of trust and confidence in Smart City solutions, we need to be open and honest about their risks as well as their benefits; and clear how we are addressing them.

(Cars from the car club “car2go” ready to hire in Vancouver. Despite succeeding in many cities around the world, the business recently withdrew from the UK after failing to attract sufficient customers to two pilot deployments in London and Birmingham. The UK’s cultural attraction of private car ownership has proved too strong at present for a shared ownership business model to succeed. Photo by Stephen Rees).

Outcomes Risk

Smart infrastructures such as Stockholm’s road-use charging scheme and London’s congestion charge were constructed in the knowledge that they would be financially sustainable, and with the belief that they would create economic and environmental benefits. Subsequent studies have shown that they did achieve those benefits, but data to predict them confidently in advance did not exist because they were amongst the first of their kind in the world.

The benefits of “Smart” schemes such as road-use charging and smart metering cannot be calculated deterministically in advance because they depend on citizens changing their behaviour – deciding to ride a bus rather than to drive a car; or deciding to use dishwashers and washing machines overnight rather than during the day.

There are many examples of Smart Cities projects that have successfully used technology to encourage behaviour change. In a smart water meter project in Dubuque, for example, households were given information that told them whether their domestic appliances were being used efficiently, and alerted to any leaks in their supply of water. To a certain extent, households acted on this information to improve the efficiency of their water usage. But a control group who were also given a “green points” score telling them how their water conservation compared to that of their near neighbours were found to be twice as likely to take action to improve their efficiency.

However, these techniques are notoriously difficult to apply successfully. A recycling scheme that adopted a similar approach found instead that it lowered recycling rates across the community: households who learned that they were putting more effort into recycling than their neighbours asked themselves “if my neighbours aren’t contributing to this initiative, then why should I?”

The financial vehicles that enable investment in infrastructure and property are either government-backed instruments that reward economic and social outcomes such as reductions in carbon footprint or the creation of jobs ; or market-based instruments  based on the creation of direct financial returns.

So are we able to predict those outcomes confidently enough to enable investment in Smart Cities solutions?

I put that question to the debating panel at the Tomorrow’s Cities meeting. In particular, I asked whether investors would be willing to purchase bonds in smart metering infrastructures with a rate of return dependent on the success of those infrastructures in encouraging consumers to  reduce their use of water and energy.

The response was a clear “no”. The application of those technologies and their effectiveness in reducing the use of water and electricity by families and businesses is too uncertain for such investment vehicles to be used.

Smart Cities solutions are not straightforward engineering solutions such as electric vehicles whose cost, efficiency and environmental impacts can be calculated in a deterministic way. They are complex socio-technical systems whose outcomes are emergent and uncertain.

Our ability to predict their performance and impact will certainly improve as more are deployed and analysed, and as University researchers, politicians, journalists and the public assess them. As that happens, investors will be more willing to fund them; or, with government support, to create new financial vehicles that reward investment in initiatives that use smart technology to create social, environmental and economic improvements – just as the World Bank’s Green Bonds, launched in 2008, support environmental schemes today.

(Recycling bins in Curitiba, Brazil. As Mayor of Curitaba Jaime Lerner started one of the world’s earliest and most effective city recycling programmes by harnessing the enthusiasm of children to influence the behaviour of their parents. Lerner’s many initiatives to transform Curitaba have the characteristic of entrepreneurial leadership. Photo by Ana Elisa Ribeiro)

Evidence and Leadership

The evidence base need to support new investment vehicles is already being created. In Canada, for example, a collaboration between Canadian insurers and cities has developed a set of tools to create a common understanding of the financial risk created by the effects of climate change on the resilience of city infrastructures.

More internationally, the “Little Rock Accord” between the Madrid Club of former national Presidents and Prime Ministers and the P80 group of pension funds agreed to create a task force to increase the degree to which pension and sovereign wealth funds invest in the deployment of technology to address climate change issues, shortages in resources such as energy, water and food, and sustainable, resilient growth. My colleague the economist Mary Keeling has been working for IBM’s Institute for Business Value to more clearly analyse and express the benefits of Smart approaches – in water management and transportation, for example. And Peter Head’s Ecological Sequestration Trust and Robert Bishop’s International Centre for Earth Simulation are both pooling international data and expertise to create models that explore how more sustainable cities and societies might work.

But the Smart City programmes which courageously drive the field forward will not always be those that demand a complete and detailed cost/benefit analysis in advance. Writing in “The Plundered Planet”, the economist Paul Collier asserts that any proposed infrastructure of reasonable novelty and significant scale is effectively so unique – especially when considered in its geographic, political, social and economic context – that an accurate cost/benefit case simply cannot be constructed.

Instead, initiatives such as London’s congestion charge and bicycle hire scheme, Sunderland’s City Cloud and Bogota’s bikeways and parks were created by courageous leaders with a passionate belief that they could make their cities better. As more of those leaders come to trust technology and the people who deliver it, their passion will be another force behind the adoption of technology in city systems and infrastructure.

What’s the risk of not investing in a Smarter City?

For at least the last 50 years, we have been observing that life is speeding up and becoming more complicated. In his 1964 work “Notes on the Synthesis of Form“, the town planner Christopher Alexander wrote:

“At the same time that the problems increase in quantity, complexity and difficulty, they also change faster than ever before. New materials are developed all the time, social patterns alter quickly, the culture itself is changing faster than it has ever changed before … To match the growing complexity of problems, there is a growing body of information and specialist experience … [but] not only is the quantity of information itself beyond the reach of single designers, but the various specialists who retail it are narrow and unfamiliar with the form-makers’ peculiar problems.”

(Alexander’s 1977 work “A Pattern Language: Towns, Buildings, Construction” is one of the most widely read books on urban design; it was also an enormous influence on the development of the computer software industry).

The physicist Geoffrey West has shown that this process is alive and well in cities today. As the world’s cities grow, life in them speeds up, and they create ideas and wealth more rapidly, leading to further growth. West has observed that, in a world with constrained resources, this process will lead to a catastrophic failure when demand for fresh water, food and energy outstrips supply – unless we change that process, and change the way that we consume resources in order to create rewarding lives for ourselves.

There are two sides to that challenge: changing what we value; and changing how we create what we value from the resources around us.

(...)

(“Makers” at the Old Print Works in Balsall Heath, Birmingham, sharing the tools, skills, contacts and ideas that create successful small businesses in local communities)

The Transition movement, started by Rob Hopkins in Totnes in 2006, is tackling both parts of that challenge. “Transition Towns” are communities who have decided to act collectively to transition to a way of life which is less resource-intensive, and to value the characteristics of such lifestyles in their own right – where possible trading regionally, recycling and re-using materials and producing and consuming food locally.

The movement does not advocate isolation from the global industrial economy, but it does advocate that local, alternative products and services in some cases can be more sustainable than mass-produced commodities; that the process of producing them can be its own reward; and that acting at community level is for many people the most effective way to contribute to sustainability. From local currencies, to food-trading networks to community energy schemes, many “Smart” initiatives have emerged from the transition movement.

We will need the ideas and philosophy of Transition to create sustainable cities and communities – and without them we will fail. But those ideas alone will not create a sustainable world. With current technologies, for example, one hectare of highly fertile, intensively farmed land can feed 10 people. Birmingham, my home city, has an area of 60,000 hectares of relatively infertile land, most of which is not available for farming at all; and a population of around 1 million. Those numbers don’t add up to food self-sufficiency. And Birmingham is a very low-density city – between one-half and one-tenth as dense as the growing megacities of Asia and South America.

Cities depend on vast infrastructures and supply-chains, and they create complex networks of transactions supported by transportation and communications. Community initiatives will adapt these infrastructures to create local value in more sustainable, resilient ways, and by doing so will reduce demand. But they will not affect the underlying efficiency of the systems themselves. And I do not personally believe that in a world of 7 billion people in which resources and opportunity are distributed extremely unevenly that community initiatives alone will reduce demand significantly enough to achieve sustainability.

We cannot simply scale these systems up as the world’s population grows to 9 billion by 2050, we need to change the way they work. That means changing the technology they use, or changing the way they use technology. We need to make them smarter.

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Creating successful Smart Cities in 2014 will be an economic, financial and political challenge, not an engineering accomplishment

Why insurers, pension funds and politics will be more important to Smart Cities in 2014 than “Living Labs” or technology.

(The 2nd Futurama exhibition at the 1964 New York World’s Fair. In 50 years’ time, how will we perceive today’s visions of Smart Cities? Photo by James Vaughan)

I hope that 2014 will be the year in which we see widespread and large-scale investments in future city technology infrastructures that enable sustainable, equitably distributed economic and social growth. The truth is that we are still in the very early stages of that process.

In 2012 I spoke with a Director at a financial consultancy who’d performed a survey of European Smart City initiatives. She confirmed something that I suspected at the time: that the great majority of Smart City initiatives up to that point in the mature markets of Europe and North America had been financed by research funding, rather than on a commercial basis.

Four trends characterised the subsequent development of Smart Cities throughout 2013. Firstly, emerging markets continued to invest in supporting the rapid urbanisation they are experiencing; and businesses, Universities and national governments in developed nations recognised the commercial opportunity for them to supply that market with “Smart” solutions.

Secondly, it remains the case that the path to growth for undeveloped nations is still extremely slow and complex; so whilst there is private sector and national government interest in investing in those nations – IBM’s new Research centre in Nairobi being an example – many “smart” initiatives are carried out at small scale by local innovators, the third sector or development agencies.

In Europe and North America, a third trend was the continuing announcement of investments by the European Union and national governments in the applied research and innovation agenda in cities – such as the EU’s Horizon 2020 programme, for example.

Perhaps most importantly, though, the final trend was for cities in Europe and North America to start to make investments in the underlying technology platforms for Smart Cities from their own operational budgets, on the basis of their ability to deliver cost savings or improvements in outcomes. For example, some cities are replacing traditional parking management and enforcement services with “smart parking” schemes that are reducing congestion and pollution whilst paying for themselves through improved revenues. Others are investing their allocation of central government infrastructure funds in Smart solutions – such as Cambridge, Ontario’s use of the Canadian government’s Gas Tax Fund to invest in a sensor network and analytics infrastructure to manage the city’s physical assets intelligently.

This trend to create business cases for investment from normal operating budgets or infrastructure investment programmes is important not only because it shows that these cities are developing the business models to support investment in “Smart” solutions locally, where the finances associated with rapid economic growth and urbanisation are not present; but also because (at the risk of simplifying a challenging and complex issue) some of those business models might serve as a template for self-sustainable adoption in less developed nations.

(Downtown Cambridge, Ontario. Photo by Justin Scott Campbell)

Whilst the idea of a “Smart City” has been capturing the imagination for several years now, the reality is that many cities are still deciding what that idea might mean for them. For example, London’s “Smart London Board” published it’s Smart London plan in December, following Birmingham’s Smart City Commission report earlier in the year. And most cities who are considering such plans now or who have recently published them are still determining how to put the finance in place to carry them out.

Will “Living Labs” be the death of Smart Cities?

A concept that I see in many such plans that is intended to assist in securing finance, but that I think risks being a distraction from addressing it properly, is the “Living Lab”. 

Living labs emerged as a set of best practises for carrying out applied research into consumer or citizen services with a focus on collaborative, user-centred design and co-creation. Many cities are now seeking to win funding for their Smarter Cities initiatives by offering themselves as “Living Labs” in which consortia constructing proposals for applied research funding can carry out their activities.

The issue is not that Living Lab’s aren’t a good idea – on the contrary, they are undoubtably a very good set of prescriptions for carrying out such research and design successfully. The problem is that there are now so many cities intending to follow this approach that it no longer makes them stand out as particularly effective environments in which to perform research.

Research programmes will continue to fund the first deployments of new Smart City ideas and technology; but competition for those funds will be fierce. Cities, universities and companies that bid for them will invest many months – often more than a year – in developing their proposals; and in competitions, most entrants do not win.

The real need in cities is for the development and regeneration of infrastructure. There are certainly research topics concerning infrastructure that will attract funding from national and international government bodies; but those funds will not support the rollout of citywide infrastructure to every city in every country.

(Birmingham's new city-centre tram)

(Birmingham’s new city-centre tram is an infrastructure investment that will contribute to the same objectives as the city’s Smart City vision.)

The big questions for European and American cities in 2014 are then:

Will they continue to invest resources competing for applied research and innovation funding, limiting the speed at which the widespread deployment of new infrastructure will take place?

Or will they focus on developing independently viable business cases for investment in the infrastructure to support their
Smarter City visions?

There’s a real need for clarity about these issues. Whilst the enormous level of innovation funding being made into smart buildings, smart transport and smart cities by the EU Horizon 2020 programme and national equivalents such as the UK’s Technology Strategy Board will stimulate the field and fund important demonstration projects that deliver real value, these bodies will not pay for all of our cities to become Smarter.

The same is true for the research investments made by commercial organisations including technology companies such as IBM. Commercial research investments fund the first attempts to apply technology to solve problems or achieve objectives in new ways; those that succeed are subsequently deployed elsewhere on a commercial basis.

The risk is that in seeking investment from research programmes, we become distracted from addressing the real challenge: how to make the case for private sector investment in new technology infrastructures based on the economic and social improvements they will enable; or on the direct financial returns that they will generateIn the UK, for example, a specialist body in Government, Infrastructure UK, coordinates private sector funding for public infrastructure. And if we can persuade property developers of the value of “Smart” technologies, then cities could benefit from the enormous investments made in property every year that currently don’t result in the deployment of technology – the British Property Federation, for example, estimate that £14 billion is invested in the development of new space in the UK each year.

(This pedestrian roundabout in Lujiazui, China, constructed over a busy road junction, is a large-scale city infrastructure that balances the need to support traffic flows through the city with the importance that Jane Jacobs first described of allowing people to walk freely about the areas where they live and work. Photo by ChrisUK)

This is an opportunity we should treat with urgency. Whilst public sector finances are under immense pressure, the vast wealth held in private investment funds is seeking new opportunities following the poor returns that many traditional forms of investment have yielded over the last few years. There is a lot of work to do between the stakeholders in cities, government and finance before these investment sources can be exploited by Smart Cities – not least in agreeing reasonable expectations for how the risks and returns will be measured and shared. But I personally believe that until we do so, we will not be able to properly finance the development of our next generation of cities.

As Jane Jacobs wrote in her seminal 1961 work “The Death and Life of Great American Cities“:

“Private investment shapes cities, but social ideas (and laws) shape private investment. First comes the image of what we want, then the machinery is adapted to turn out that image. The financial machinery has been adjusted to create anti-city images because, and only because, we as a society thought this would be good for us. If and when we think that lively, diversified city, capable of continual, close-grained improvement and change, is desirable, then we will adjust the financial machinery to get that.”

Overcoming these challenges won’t be easy, and doing so will require each of the various stakeholder organisations facing them to take bold steps this year.

Local Government

Whilst their finances throughout the developed world have been under severe pressure for a long time now, local government bodies are still responsible for procuring a significant volume of goods and services. Smart Cities will only become a reality when local authority visions for the future are reflected in procurement practises and scoring criteria for contracts issued today. It’s only very recently that procurements for contracts to build, update and manage physical infrastructures such as roads and pavements have been based on outcomes such as minimising congestion or increasing the overall quality of performance throughout the lifetime of the asset within the contract value, rather than on securing the maximum volume of concrete (or number of traffic wardens).

Outcomes-based procurements are challenging to be sure, both for the purchaser and the provider; especially so when they are for such new solutions. But service and infrastructure providers will only be motivated to propose and deliver innovative, smart solutions when they’re rewarded for doing so.

Local authorities can also exploit indirect mechanisms such as planning and development frameworks. I worked last year with one authority which asked how its planning framework should evolve in order to promote the development of a “Smart City”, and published a set of 23 “Design principles for a Smarter City” as a result. They require that investments in property also deliver technology infrastructures such as wi-fi, broadband, open-data, and multi-channel self-service access.

(An analysis based on GPS data from mobile phones of end-to-end journeys undertaken by users of Abidjan’s bus services. By comparing existing bus routes to end-to-end journey requirements, the analysis identified four new bus routes and led to changes in many others. As a result, 22 routes now show increased ridership, and city-wide journey times have decreased by 10%. The techniques and technologies behind the project build on those developed for projects in Dubuque, Istanbul and Dublin.)

Private Sector

The technology companies associated with Smart Cities have sometimes been criticised for focussing too much on the technology that can be applied to city infrastructures, and not enough on the improvements to people’s work and lives that technology can enable, or on the business cases for investing in it.

To make the business case clearer, my colleague the economist Mary Keeling has been working for IBM’s Institute for Business Value to more clearly analyse and express the benefits of Smart approaches – in water management and transportation, for example. And I’ll be contributing along with representatives from many of the other companies that provide technology and infrastructure for Smart Cities to the TSB’s Future Cities Catapult’s finance initiative.

But we also need to respect the principles of Living Labs and the experience of urban designers – not least the writing of Jane Jacobs – which reflect that our starting point for thinking about Smart Cities should be the everyday lives and experiences of individual citizens in their family lives; at work; and moving through cities. In one sense, this is business as usual in the technology industry – “user-centered design“, “use cases” and “user stories” have been at the heart of software development since the 1980s. So one of our challenges is simply to communicate that approach more clearly within our descriptions of Smart Cities. This is a topic I’ve written about in many articles on this blog that you can find described in “7 Steps to a Smarter City“; and that I tried to address in IBM’s new Smarter Cities video.

The other challenge is for technology companies to become more familiar and expert in the disciplines associated with good quality urban design – town planning, architecture, social science and the psychology of human behaviour, for example. This is one of the reasons why IBM started the “Smarter Cities Challenge” programme through which we have donated our technology expertise to 100 cities worldwide to help them address the opportunities and challenges they face; and in so doing become more familiar with their very varied cultures, economies, issues and capabilities. It’s also why I joined the Academy of Urbanism, along with representatives of several other technology companies.

We also need to embrace the “Smart Urbanism” thinking exemplified by Kelvin Campbell. Kelvin’s “Massive / Small” approach is intended to design large-scale urban infrastructures that encourage and support “massive” amounts of “small-scale” innovation. I think that’s an extremely powerful idea that we should embrace in Smarter Cities; and that translates directly to the practise of providing open-standard, public interfaces to city technology infrastructures – open data feeds and APIs (“Application Programming Interfaces”), for example – that not only reduce the risk that city systems become “locked-in” to any proprietary provider; but that also open up the power of large scale technology systems and “big data” sources so that local businesses, innovators and communities are able to adapt public infrastructures to their own needs. I think of these interfaces as creating an “innovation boundary” between a city’s infrastructure and its stakeholders.

(George Ferguson, Mayor of Bristol, one of the few cities in the UK with an elected Mayor with significant authority and responsibility. His salary is paid in the city’s local currency, the Bristol Pound, rather than in the national currency. His red trousers are famous. Photo by PaulNUK)

Central Government

In most countries in the developed world – i.e. those which are not being driven by rapid urbanisation today because they urbanised during the Industrial Revolution – the majority of Smart City initiatives that have momentum are driven by Mayors convening city stakeholders and institutions to co-create, finance and deliver those initiatives. Correspondingly, in countries without strong mayoral systems – such as the UK – progress can be slower. Worryingly, Centre for Cities’ recent Outlook 2014 report pointed out that only 17% of funding for UK cities comes from locally administered taxation, as opposed to the OECD average of 55%.

To risk stating the obvious, every city is different, and different in very many important ways, from its geographical situation to its linkage to national and international transport infrastructure; from its economic and business capabilities to the skills and wealth of its population; from its social challenges and degree of social mobility to its culture and heritage. Successful Smart City initiatives are specific, not generic; and the greater degree of autonomy that cities are allowed in setting strategy and securing financing, the greater their capability to pursue those initiatives. Programmes such as “City Deals” and the recent reforms resulting from Lord Heseltine’s “No Stone Unturned” report are examples of progress towards greater autonomy for the UK’s cities, but they are not enough.

Central government will always have a significant role in funding the infrastructures that cities rely on, of course; whether that’s national infrastructures that connect cities (such as the planned “HS2” high-speed train network in the UK, or Australia’s national deployment of broadband internet connectivity), or specific infrastructures within cities, such as Birmingham’s new city-centre tram. And so just as local governments should consider how they can use procurement practises and planning frameworks to encourage investments in property and infrastructure that deliver “Smart” solutions, so central government should consider how the funding programmes that it administers can contribute to cities’ “Smart” objectives.

Financial Services

If the challenge is to unlock investment in new assets and outcomes, then we should turn to banks, insurers and investors to help us shape the new financial vehicles that we will require to do so. In Canada, for example, a collaboration between Canadian insurers and cities has developed a set of tools to create a common understanding of the financial risk created by the effects of climate change on the resilience of city infrastructures. These tools are the first step towards creating investment and insurance models for city infrastructures that will be exposed to new levels of risk; that will need to exhibit new levels of resilience; and that in turn may require Smart solutions to achieve them.

(Luciana Berger, Shadow Minister for Energy and Climate Change pictured talking to Northfield, Birmingham resident Abraham Weekes and James McKay, Birmingham City Council’s Cabinet Member for a Green, Safe and Smart city. Abraham lives in the house pictured, which has been fitted with exterior house covering, solar panels and energy efficient windows through the Birmingham Energy Savers scheme. Photo by Birmingham City Council)

More internationally, the “Little Rock Accord” between the Madrid Club of former national Presidents and Prime Ministers and the P80 group of pension funds agreed to create a task force to increase the degree to which pension and sovereign wealth funds invest in the deployment of technology to address climate change issues, shortages in resources such as energy, water and food, and sustainable, resilient growth. And more locally, I’m proud to note that my home city of Birmingham is a pioneer in this area through the Birmingham Energy Savers project, financed through a mixture of prudential borrowing and private sector investment.

It has taken us too long to get to this point, but I’m encouraged that several initiatives are now convening discussions between the traditionally understood stakeholders in Smart Cities – local authorities, technology companies, universities and built-environment companies – and the financial sector. For example, in addition to the Future Cities Catapult’s financing programme, on March 13th, I’ll be speaking at an event organised by the Lord Mayor of the City of London to encourage the City’s financial institutions and UK city authorities to undertake a similar collaboration to develop new financing models for future city infrastructures.

Are Smarter Cities a “middle out” economic intervention?

In his 2011 Presidential Campaign speech Barack Obama promised an economic strategy based on “middle-out” economics – the philosophy that equitable, sustainable growth is driven by the spending power of middle class consumers, as an alternative to “trickle-down” economics – the philosophy that growth is best created when very rich “wealth-creators” are free to become as successful as possible.

As this analysis in “The Atlantic” shows, job creation does depend on the investments of the wealthiest; but also on the spending power of the masses; and on a lot of very hard work making sure that a reasonable portion of the profits created by both of those activities are used to invest in making skills, education and opportunity available to all. The Economist magazine made the same point in a recent article by reminding us of the enormous investments made into public institutions in the past in order to distribute the benefits of the Industrial Revolution to society at large rather than concentrate them on behalf of business owners and the professional classes; though with only partial success.

(The discussion group at the #SmartHack event in Birmingham)

(The discussion group at the #SmartHack event in Birmingham, described in “Tea, trust and hacking – how Birmingham is getting Smarter“, photographed by Sebastian Lenton)

 Those ideas are reflected in what it takes to craft an investment in a technology-enabled Smart City initiative that successfully creates social and economic improvements in a city.

Whilst a huge number of effective “Smart” ideas will be created “bottom-up” by innovators and social entrepreneurs intimately familiar with specific local communities and context, those ideas will not succeed as well or rapidly as we need them to without significant investment in new infrastructures – such as wi-fi, broadband and realtime open data – that are deployed everywhere, not just in the most economically active areas of cities that reward commercial investment most quickly. Accessibility to these infrastructures creates the “innovation boundary” between city institutions and infrastructures, and local innovators and communities.

This is not an abstract concept; it is an idea that some cities are making very real today. For example, the “Dublinked” information-sharing partnership between Dublin County Council, three surrounding County Councils and the National University of Ireland now makes available 3,000 city datasets as “open data” – including a realtime feed showing the location of buses in the city. That’s a resource that local innovators can use to create their own new applications and services. Similarly, in Birmingham the “West Midlands Open Data Forum” has emerged as a community in which city local businesses and innovators can negotiate access to data held by city institutions and service providers.

(David Willets, MP, Minister for Universities and Science, launches the UK Government’s Smart Cities Forum)

At launch of the UK Government’s “Smart Cities Forum” last year, I remarked that we were not inviting key stakeholders to the Smarter Cities debate – specifically, banks, investors, insurers and entrepreneurs. Some of the initiatives I’ve described in this article are starting to address that omission; and to recognise that the most significant challenges are to do with finance, politics, social issues and economics, not engineering and technology.

And those are challenges that all of us should focus on. No-one is going to pay for our cities to become Smarter, more successful, more sustainable and fairer: we will have to figure out how to pay for  those things ourselves.

Gain and responsibility: five business models for sustainable cities

(Photo by Mark Vauxhall of public Peugeot Ions on Rue des Ponchettes, Nice, France)

It’s strange how you can find inspiration in the most surprising places; and the first time I came across the philosophy of sustainability at the heart of big business was certainly unexpected.

Five years ago I was creating a business model in a UK city for a car-sharing scheme using social media (which at the time was a new technology); the scheme was being put together by a collaboration of technology entrepreneurs, University researchers and local employers who wanted to offer the scheme to their employees as a benefit in kind. What we lacked was a business partner with expertise in offering transport services to consumers.

A colleague suggested we speak to an international car rental company for whom they’d recently run an innovation workshop. Initially, we were sceptical: why would a car rental company encourage people to share cars – in other words, to need to hire less of them?

Nevertheless, we called the global Vice President of Sales of the company concerned. This person was responsible for the sales performance of a company in an extremely competitive, commoditised market, so we were expecting the social and environmental philosophy behind our proposal to be given little consideration compared to its revenue-earning potential.

Instead, I remember feeling as if I was being blown away down the telephone line by  his enthusiasm for sustainable business. The reason he had spent his career making a car rental company as successful as possible was his belief that it was the most viable business model for sustainable transport of its time: hire cars are much more effective than public transport for some journeys; and because they are heavily used throughout their lives, the environmental cost of manufacturing and decommissioning them is much less per mile travelled than for privately owned vehicles.

The proposition that technology offers to the sustainability debate – whether in Smarter Cities, intelligent transport or supply-chain optimisation – is to enable business models that create better social and environmental outcomes. In some cases, those outcomes are the objectives of a business; but more often they are the side effects of business operations whose objectives are to create financial returns. So in order to justify investments in technologies or practises that promote sustainability, we need to do just what the car rental company’s Vice President had done early in his career: think creatively about how to balance social and environmental outcomes with the financial imperatives of our existing economic systems.

We’ll need to find that balance in order to develop realistic business models for Smarter Cities. It will not always be an easy balance to find; and finding it will sometimes be a controversial process. But five approaches can already be seen that show how it can be achieved in different ways.

1. Cross-city Collaborations

Many 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.

Such initiatives are often shaped and carried out by a group of collaborating stakeholders in a city – perhaps including the City Council, nearby Universities, local businesses and community groups, and private sector partners.

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, not discussion groups. Investors will look for a history of collective action to achieve clear, shared objectives; and for a mature approach to the mutual management of risk in delivering projects.

Such partnerships take time to form, and it is notable that in last year’s Technology Strategy Board Future Cities Demonstrator competition, most of the shortlisted entries had been prepared by collaborations in cities such as Glasgow and Peterborough that had existed for some time before the competition began. Other examples include the Dublinked information-sharing partnership in Dublin, Ireland, and the Sustainable Dubuque partnership in Dubuque, Iowa. I wrote about these examples and discussed how they form and operate successfully, in “Smart ideas for everyday cities” last December.

2. Scaling-up Social Enterprise

Social enterprise is a broad category of private businesses which in some way commit themselves to social and/or environmental objectives against which they audit themselves alongside their financial performance – a practise known as triple bottom-line accounting.

Given the similarities between triple-bottom-line accounting and the objectives of “Smarter” initiatives, it’s not surprising that social enterprises are carrying out a great deal of “Smart City” activity. They often use innovative, technology-enabled business models that combine elements of sectors such as food, energy and transport. A good example is “Casserole Club“, which uses social media as the basis of a peer-to-peer model which connects people who are unable to cook for themselves with people who are willing to cook for, and visit, others.

(Photo by Mermaid of the People’s Supermarket in Lamb’s Conduit Street, London, a social enterprise that aims to promote social cohesion by supporting local, independent food producers)

Social enterprises have a powerful potential to contribute to Smarter City objectives. They tend to create employment opportunities where they are most needed, for example – 39% of all social enterprises are working in the most deprived communities in the UK, in comparison to 13% of SMEs. And they are a significant contribution to the overall economy – in the UK,  a recent government report found that the sector employs more than 2 million people, is estimated to have total annual incomes of £163 billion and to contribute £55 billion Gross Value Added – about 14% of the national total. Social enterprise is 13% of Sweden’s GDP and 21% of Finland’s GDP; and 4 in 10 residents of the USA– the world’s flagship private enterprise economy – are members of a co-operative of some sort. Worldwide, social enterprises employ over 100 million people with a turnover of £1.1 trillion. That’s big business.

Many social enterprises are entirely independent ventures. There is great potential for cities to recognise the alignment between their philosophy and Smarter City objectives; and to support their role in achieving them. When the resources and assets of large, formal organisations are made available to local, social innovation, the results can be tremendously powerful.

In Resilience, Andrew Zolli gives the example of the Kilimo Salama scheme in Kenya which provides affordable insurance for subsistence farmers by using remote weather monitoring to trigger payouts via mobile phones, rather than undertaking expensive site visits to assess claims. This is a good example of large-scale infrastructures operated by formal institutions – mobile payments systems and remote weather monitoring technology – that have been adapated to the needs of a community which previously didn’t benefit from them – the farmers – by a creative, socially-minded organisation.

Awareness is growing of the importance of this sector; the alignment of its values with the objectives of Smarter Cities (as described by Knight Foundation Vice President Carol Coletta recently); and of the great potential of information economy technologies, especially social media, to empower it (see this article by ex-IBM Vice President Irving Wladawsky-Berger). It will be a major part of the economy and society of the sustainable cities of the future.

3. Creativity in finance

We don’t consider banks, insurers and other financial institutions enough in the world of Smarter Cities. Public sector and research grants will not finance the wholescale transformation of our cities; we will have to look to the broader financial markets for that support.

New forms of financial service are emerging from the online, collaborative economy such as crowdfunding and peer-to-peer lending. In the UK, the Trillion Fund, for example, offer a range of investment schemes in renewable energy to the retail investment market; and a variety of local and electronic currencies are emerging.

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

More traditional financial institutions are also exploring the new products that they can create to support this market; and we are sure to need the depth of resources they can make available. Smarter city services create assets and offer services which people and businesses pay to use. With the appropriate banking, insurance and investment skills, those assets and services and the incomes they generate can be packaged as investable financial products. Citibank, IBM and Streetline partnered last year to offer a financing scheme for “Smart Parking” solutions, for example.

Citigroup were also amongst those who supported the recent “Innovation and the City” report by the Centre for an Urban Future and the Robert F. Wagner Graduate School of Public Service which recommended 15 policies for consideration by the next Mayor of New York, many of which are financial innovations intended to support Smarter City outcomes.

In recent years, the banking industry has not always been associated with social outcomes. But some financial institutions are very clearly social organisations – such as the credit unions to which 87 million US citizens belong; and many banks have social elements in their original charters – as Hancock Bank demonstrated when responding to Hurricane Katrina in 2005. They have the means, method and opportunity to contribute enormously to the development of Smarter, sustainable cities and we should encourage them to do so.

4. Making traditional business sustainable

A very many of our lives depend for our basic needs – not to mention our entertainment and leisure – on global supply chains operated on astounding scales by private sector businesses. Staples such as food, cosmetics and cleaning products consume a vast proportion of the world’s fresh water and agricultural capacity; and a surprisingly small number of organisations are responsible for a surprisingly large proportion of that consumption as they produce the products and services that many of us use.

The social and environmental impact of those supply chains is immense, and, of course, highly controversial. A notable recent development, though, is the number of statements made by the leaders of companies involved in them asserting the importance of evolving their businesses to adopt more sustainable practises. The CEOs of  Unilever and Tesco have made statements of intent along these lines recently, and IBM and Hilton Hotels have described the progress they have already made.

Any analysis of the motivations for such statements and the outlook for their impact also enters areas of great controversy, of course. But need there be any fundamental contradiction between profitable enterprise and sustainability?

Richard Powers’ 1998 novel “Gain” tells the story of “incorporation”, the creation of companies as entities with a legal and financial existence separate from that of the people who start, manage and work for them. It contrasts the story of three Irish brothers arriving in 19th Century New York who make a living manufacturing soap, and the subsequent growth of their business into a vast 20th Century multinational corporation; with that of a woman dying from a cancer likely to have been caused by exposure to the waste products of the industrial operations of that corporation. Its complex, nuanced story explores both the facility of private enterprise to create wealth for anybody; and its potential for ambivalence towards the fair distribution of that wealth, and towards its impact.

(An example from Indonesia of the deforestation that can be the result of palm oil production. Photo by the Rainforest Action Network)

Gain’s narrative makes clear that the model of private enterprise does not lead inevitably to any specific outcome. The success, sustainability and equitability of any enterprise, social or private, are ultimately the result of the actions and decisions of those involved in it – whether they run it; work for it; supply it or buy from it.

All of us can assert influence on the sustainability of business, through our buying decisions as consumers and by campaigning. Jared Diamond explored in depth how we can do so effectively in his book “Collapse“. But the role of the investment markets is also crucial.

In one sense, the markets are already playing a role: in a recent report, 53% of fund managers collectively responsible for $14 trillion of assets indicated that they had divested stocks, or chosen not to invest in stocks, due to concerns over the impact of climate change on the businesses concerned.

However, that is a negative, not a positive action. It is driven by the impact of climate change on business, not by the impact of business on climate change. To grossly generalise, whilst the CEOs of Tesco and Unilever, for example, are following Jared Diamond’s argument that sustainability is simply good, long-term business sense; by and large investors are largely ambivalent to this argument. They choose which companies to invest in based first and foremost on the prospect of their short-term financial returns.

So whatever motivations influence the CEOs of companies that manage the vast supply chains that play such a major role on our planet to adopt sustainability as a business objective, it is not to win short-term investment. It may be to appeal to consumer opinion; or it may be to attract investors who take a longer-view.

One thing is certain, though. Our world as a whole, and the cities in which life is concentrated, will not become socially and environmentally equitable and sustainable unless private businesses adopt sustainable strategies. So it is in all of our interests to encourage them to do so, whilst putting in place the governance to ensure that those strategies are carried out effectively.

5. Encouraging entrepreneurs everywhere

Smarter city services are innovations that change the relationships between the creation of social and financial value and the consumption of resources: they involve new ways of doing things; and they often depend on consumers choosing to buy different products or use different services than those that they are accustomed to.

Investing in a new product or service on the basis that consumers will change their behaviour in order to buy or use it is a risky business. Too risky, in many cases, for traditional institutions.

In the developed world, public sector finances are under extreme pressure. Economic growth is slow, so tax returns are stagnant. Populations are, on the whole, growing older, and requiring increased levels of healthcare. So public sector has little ability to make risky investments.

But the private sector is also under pressure. The same slow economic growth, coupled with competition from rapidly growing countries in emerging markets, means that money is short and the future is uncertain. Risky investments are unlikely here, too.

(The QR code that enabled Will Grant of Droplet to buy me a coffee at Innovation Birmingham using Droplet’s local smartphone payment solution, an example of a Smarter City service created by an entrepreneurial company.)

But some investors are seeking new investment opportunities, even risky ones – especially as the rate of return offered by many traditional forms of investment is so poor. One consequence is that many Smarter Cities services are delivered by entrepreneurial companies backed by venture capital. Examples include “Droplet“, a smartphone payment system operating in Birmingham and London; and Shutl, who provide a marketplace for home delivery services through a community of independent couriers in London.

However, many cities face a challenge in exploiting the ability of entrepreneurial businesses to deliver Smarter services.

Such businesses may be inherently risky; but those that succeed still do so by minimising risk wherever possible. One way to minimise the risk involved in any new business is to operate that business as closely as possible to its largest possible market. So entrepreneurial businesses that offer services to city ecosystems (as opposed to national or international customers) tend to start in and provide services to capital cities.

If cities that are not capitals wish to encourage this sort of entrepreneurial business, they will need to make themselves attractive in some other way: by offering tailored programmes of support (as IBM and Sunderland Software City are doing); by making available unique assets created by geography, culture or existing business clusters (such as the cluster of wireless technology companies in Cambridge); or by exploiting the strength of local teaching and research (as Birmingham are doing through institutions such as Birmingham Ormiston Academy and the Aston Engineering Academy; or as “Science Vale” has long done in Oxfordshire).

Entrepreneurial businesses can and will make a huge contribution to Smarter Cities; and those that succeed will eventually scale their businesses to cities across the world. But in order to benefit from their creativity early, cities that are not capitals will need to take action to attract and support them.

Evolution and revolution

As I remarked in my last article on this blog, “business as usual” will not deliver Smarter, sustainable cities. We would not be so collectively concerned with this subject otherwise. But while we will need new approaches, sometimes revolutionary ones; we are not entering wholly uncharted territory.

We will need new cross-city collaborations; but the idea of such collaborations is not new. The collaboration that submitted Peterborough’s short-listed proposal for the Technology Strategy Board’s Future Cities Demonstrator has its origins in the Greater Peterborough Partnership which was formed in 1994, for example.

Social enterprises and sustainable business models are hardly new, either – co-operative businesses have existing for centuries, and IBM, Sony and Cadbury are just three examples of private businesses started 50 to 100 years ago by Quakers with a strong sense of civic and community duty.

So whilst change is required, we are not entering the unknown. Our challenge is rather to realise that there is no single approach that can be adopted in all circumstances. All of the approaches I’ve described in this article – and doubtless others too – will be needed. But not all of them will be popular all of the time.

Death, life and place in great digital cities

("Lives on the Line" by James Cheshire at UCL's Centre for Advanced Spatial Analysis, showing the variation in life expectancy and correlation to child poverty in London. From Cheshire, J. 2012. Lives on the Line: Mapping Life Expectancy Along the London Tube Network. Environment and Planning A. 44 (7). Doi: 10.1068/a45341)

(“Lives on the Line” by James Cheshire at UCL’s Centre for Advanced Spatial Analysis, showing the variation in life expectancy and correlation to child poverty in London. From Cheshire, J. 2012. Lives on the Line: Mapping Life Expectancy Along the London Tube Network. Environment and Planning A. 44 (7). Doi: 10.1068/a45341)

At the recent Base Birmingham Conference, Scott Cain of the UK Technology Strategy Board (TSB) explained some of the reasons why Glasgow was awarded the TSB’s £24m Future Cities Demonstrator project this year.

Among them all, including the arrival of the Commonwealth Games in 2014 and the strength of the proposed delivery partnership, one stood out for me: the challenge of addressing the difference in life expectancy of 28 years between the wealthiest and poorest areas of the city.

That’s a deeply serious problem, and it’s inarguably worth supporting the city’s attempts to tackle it. Glasgow’s demonstrator project includes a variety of proposals to tackle life expectancy and other issues correlated with it – such as fuel poverty, public safety and health – using technology- and information-enabled approaches.

But whilst Glasgow has the widest variation in life expectancy in the UK, it is far from alone in having a significant one. The variation in life expectancy in London is about 20 years, and has been mapped against its tube network. Life expectancy in Birmingham ranges from 75 to 84 and has similarly been mapped against the local rail network; and in Plymouth it varies by 12.6 years across the city. Life expectancy in many cities varies by as much as 10 years, and is widely viewed as an unacceptable inequality between the opportunities for life offered to children born in different places.

Glasgow, Plymouth, London and Birmingham are just a few examples of cities with active strategies to address this inequality; but all of them are crafting and executing those strategies in an incredibly tough environment.

Many nations in the developed world are facing times of budget cuts and austerity as they tackle high levels of public, commercial and domestic debt built up in the decades leading to the 2008 financial crisis. At the same time, growth in the population, economies and middle classes of the emerging world are creating new wealth, and new demand for resources, across the world. So the cities of the developed world are seeking to rebalance inequalities in their own communities at a time when the resources available to them to do so are shrinking as a consequence of a rebalancing of inequalities that is, to an extent, taking place on a global scale (and quite rightly).

(Photo of Geoffery West describing the scaling laws that determine animal characteristics by Steve Jurvetson. Note that whilst the chart focusses on mammals, the scaling laws are more broadly applicable.)

The physicist Geoffrey West has analysed in detail the performance of city systems, and one interpretation of his work is that it demonstrates that this challenge is inevitable. He showed that larger cities create more wealth, more efficiently, than smaller cities. In doing so, they attract residents, grow bigger still, and accelerate wealth creation further. This self-reinforcing process results in an ever-increasing demand for resources. It powered the growth of cities in the developed world through the Industrial Revolution; and it is powering the growth of cities in emerging markets today.

In an interview with the New York Times, West described two possible ends to this process: a catastrophe caused by a failure in the supply of resources; or an intervention to alter the relationship between value creation and resource consumption.

Many would argue that we are already experiencing failures in supply – for example, the frightening effects of recent grain shortages caused by droughts that are probably attributable to climate change; or predictions that the UK will face regular blackouts by about 2015 due to a shortfall in power generation.

At the heart of the Smarter Cities movement is the belief that the use of engineering and IT technologies, including social media and information marketplaces, can create more efficient and resilient city systems. Might that idea offer a way to address the challenges of supporting wealth creation in cities at a sustainable rate of resource usage; and of providing city services to enable wellbeing, social mobility and economic growth at a reduced level of cost?

Many examples demonstrate that – in principle – Smarter Cities concepts can do that. Analytics technologies have been used to speed up convergence and innovation across sectors in city economies; individuals, communities and utility providers have engaged in the collective, sustainable use of energy and water resources, as has happened in Dubuque; local trading and currency systems are being used to encourage the growth of economic activity with local social and environmental benefits; information technology enables more efficient transportation systems such as California’s Smarter Traveller scheme or the local transport marketplaces created by Shutl and Carbon Voyage; and business-to-business and business-to-consumer marketplaces such as Big Barn and Sustaination are supporting local food initiatives.

But there are two problems with broadly applying these approaches to improve cities everywhere.

(The Dubuque water and energy portal, showing an individual household insight into it's conservation performance; but also a ranking comparing their performance to their near neighbours)

(The Dubuque water and energy portal, showing an individual household insight into it’s conservation performance; but also a ranking comparing their performance to their near neighbours)

Firstly, they do not always translate in a straightforward way from one place and system to another. For example, a neighbourhood in Dubuque achieved an overall reduction in water and energy usage when each household was given information comparing their own resource consumption to an anonymised average for those around them. Households with higher-than-average resource use were motivated to become better neighbours.

But a recycling scheme in London that adopted a similar approach found instead that it lowered recycling rates across the community: households who learned that they were putting more effort into recycling than their neighbours asked themselves “if my neighbours aren’t contributing to this initiative, then why should I?”

These are good examples of “Smarter City” initiatives that are enabled by technology; but that are more importantly dependent on changes in the behaviour of individuals and communities. The reasons that those changes take place cannot always be copied from one context to another. They are a crucial part of a design process that should be carried out within individual communities in order to co-create useful solutions for them.

Secondly, there is a truth about social media, information marketplaces and related “Smarter City” technologies that is far too rarely explored, but that has serious implications. It is that:

Rather than removing the need to travel and transport things, these technologies can dramatically increase our requirements to do so.

For example, since I began writing this blog about 18 months ago, I have added several hundred connections to my social media network. That’s hundreds of new people who I now know it’s worth my while to travel to meet in person. And sure enough, as my network has grown in social media, so have the demands of my traveling schedule.

Similarly, e-Bay CEO John Donahoe recently described the environmental benefits created by the online second-hand marketplace extending the life of over $100 billion of goods since it began, representing a significant reduction in the impact of manufacturing and disposing of goods. But such benefits of online marketplaces are offset by the carbon impact of the need to transport goods between the buyers and sellers who use them; and by the social and economic impact in cities that are too often dominated by road traffic rather than human life.

Increasing the demand for transport in cities could be very damaging. Some urbanists such as the architect and town planner Tim Stonor and Enrique Peñalosa, former mayor of Bogotá, assert that the single biggest cause of poorly functioning city environments today is the technology around which most of them have been built for the last century: the automobile. And whilst recent trends have started to address those challenges – “human scale” approaches to town planning and architecture; the cycling and walkability movements; and, in some cases, improvements in public transport – most cities still have congested transport systems that make cities more dangerous and unpleasant than we would like.

(Photo of pedestrian barriers in Hackney, London by mpromber, showing how they impede the movement of people engaging in local transactions at the expense of road traffic passing through the area)

We are opening Pandora’s box. These tremendously powerful technologies could indeed create more efficient, resilient city systems. But unless they are applied with real care, they could exacerbate our challenges. If they act simply to speed up transactions and the consumption of resources in city systems, then they will add to the damage that has already been done to urban environments, and that is one of the causes of the social inequality and differences in life expectancy that cities are seeking to address.

And as serious as these issues are today, they will be even more important in the future:

At this week’s Academy of Urbanism Congress in Bradford, economist Michael Ward, Chair of the Centre for Local Economic Strategies, expressed most succinctly a point that many speakers touched on:

“The key task facing civic leaders in the 21st Century is this: how, in a period of profound and continuing economic changes, will our citizens earn a living and prosper?”

For cities to provide jobs, they need successful businesses; and technology will have a dramatic effect on what it means to be a successful business in the 21st Century.

Over the last two decades, the internet, mobile phone and social media have redefined the boundaries of the communications, technology, media, publishing and technology industries. The companies that thrived through those changes were those who best understood how to use technology to merge capabilities from across those industries into new business models. In the coming decade as digitisation extends to industries such as manufacturing through technologies such as 3D printing and smart materials, more and more industry sectors will be redefined by similar levels of disruption and convergence.

So how are the economies of our cities placed to be successful in that world of change?

My home city Birmingham has many of the economic capabilities required to exploit those imminent changes successfully. It has a manufacturing base that includes advanced digital capability; it has a growing technology industry and a strong creative sector. Professional services companies offer financial and legal support, and local Universities have world-class research capability in disciplines such as healthcare and medical technology.

But as in many cities, those capabilities are concentrated in separate areas of the city. The collage of photographs below depicts some of Birmingham’s value-creating districts, placed in relation to some of the spatial characteristics of the city that divide them.

(A collage of photographs of some of Birmingham's value-creating districts, placed in relation to some of the spatial characteristics of the city that divide them).

(A collage of photographs of some of Birmingham’s value-creating districts, placed in relation to some of the spatial characteristics of the city that divide them. See the end of this article for attributions).

In the top left of the collage, the Jewellery Quarter, a centre of advanced manufacturing to the North of the City Centre, is separated from the digital technology incubation capability of Innovation Birmingham on the Aston University Campus, and from financial and legal expertise in the Colmore Row business district, by the four-lane Great Charles Street Queensway, part of the city-centre ringroad.

The Aston Campus is separated from the Eastside learning quarter, home to Millennium Point and Birmingham City University, by the Jennens Road dual carriageway. Eastside itself is separated from the creative media cluster around the Custard Factory and Fazeley Studios in Digbeth in the South East by the East Coast mainline from Birmingham to London; and by the semi-dereliction of some parts of the Digbeth manufacturing district.

To the South West, the enormous medical research capability around the University Hospital of Birmingham and University of Birmingham and it’s Research Park are three miles from the City Centre. And whilst the retail core of the city was dramatically transformed by the Bullring redevelopment over a decade ago, it lacks the independent shops, cafe and culture that might naturally attract those who work in the surrounding creative districts to congregate together.

The city’s Big City Plan and independent initiatives such as Coffee Birmingham are doing much to address these issues – and in particular, the city centre now boasts a number of fine cafes and delicatessens such as the Urban Coffee Company and York’s Bakery Cafe. But nevertheless these examples illustrate challenges many cities face in adapting their spatial structure to the needs of the new economy to bring their collective capabilities together to create new ideas and innovations.

(Visitors to Birmingham's new Eastside city park which connects the city centre and train stations to the Eastside learning district)

(Visitors to Birmingham’s new Eastside city park which connects the city centre and train stations to the Eastside learning district)

I took my family to Birmingham’s new Eastside City Park recently; the park is intended to address some of the challenges I have just described by better connecting the learning quarter to the city centre and train stations by providing a walking and cycling route between them, as well as an open space with value in its own right.

By coincidence, I had just read the chapter in Jane Jacobs’ seminal “Death and Life of Great American Cities” which addresses the factors which determine whether city parks and spaces work or fail; and describes how difficult it can be to make them successful. I was therefore delighted to see the Eastside park full of people – families with children playing; couples relaxing in the sun; students and workers stopping for food and coffee. This vibrancy, created by the proximity of mixed business, learning and leisure facilities, did not happen by accident. It is a product both of the careful design of the park; and of the context of the park’s creation within a multi-decade strategy for regenerating the surrounding district, which incorporates the expansion and re-location of two colleges and two universities in the area.

Birmingham’s Eastside park – like Bradford’s new City Park, winner of the Academy of Urbanism’s “Great Place 2013″ award – is a great example of reclaiming for people an important area that had previously been shaped by the requirements of cars, trucks and lorries.

But as a new generation of technology, digital technology, starts to shape our cities, how can we direct the deployment of that technology to be sympathetic to the needs of people and communities, rather than hostile to them, as too much of our urban transport infrastructure has been?

This is an urgent and vital issue. For example, privacy and security are perhaps the greatest current challenges of the digital age – as epitomised by the challenge issued to Google this week by United States politicians concerning the privacy implications of their latest innovation, “Google Glass”. But these concerns are not limited to the online world. Jane Jacobs based her understanding of city systems on privacy and safety. Google Glass epitomises the way that innovations in consumer technology are changing the relationship between physical and digital environments; with the consequence that a failure in privacy or security digital systems could affect community vitality or public safety in cities.

A particularly stark example is the 3D-printed gun, which I first mentioned last August. A reliable process for producing these is now being disseminated by the pro-firearms movement in the United States. As half a century of widespread sharing of music demonstrates, we cannot rely on Digital Rights Management technology for gun control. Other developments that I think need a similar level of consideration are the ability to create artificial meat in laboratories, which has been suggested as one way to feed a growing world population; and the increasing ability of information systems to interact directly with our own minds and bodies. To my mind these technologies challenge our fundamental assumptions about what it means to be human, and our relationship with nature.

(Google’s wearable computer, Google Glass. Photograph by Apostolos)

So how are we to resolve the dilemma that emerging technologies offer both the best chance to address our challenges and great potential to exacerbate them?

The first step is for us to collectively recognise what is at stake: the safety and resilience of our communities; and the nature of our relationship with the environment. Digital technology is not just supporting our world, it is beginning to transform it.

The second step is for the designers of cities and city services – architects, town planners, transport officers, community groups and social innovators –  to take control of the technology agenda in their cities and communities, rather than allow technologists to define it by default.

My role as a technologist is to create visions for what is possible; and to communicate those visions clearly to stakeholders in cities. In doing so it is important to communicate the whole story – the risks and uncertainties inherent in it, not just the great gadgets that make it possible. If I do that, I’m enabling the potential consumers of technology to make informed choices – for example, choosing whether or not to use certain online services or digital devices based on an understanding of their approaches to the use of personal information.

The truth, though, is that we are in the very earliest stages of considering these technologies in that way in the overall design, planning and governance of cities. A huge number of the initiatives that are currently exploring their use are individual projects focussed on their own goals; they are not city-wide strategic initiatives. And whilst some are led by city authorities, many more are community initiatives, such as the Social Media Surgeries which began in Birmingham but which now run internationally; or are led by business – technology corporations like IBM and Google, the developers of buildings such as the Greenhouse in Leeds, or small start-ups like Shutl.

In contrast, it is the role of policy-makers, town planners, and architects to understand how technology can help cities achieve their overall objectives such as economic growth, improvements in social mobility and reductions in the disparity in life expectancy. It is also their role to put in place any necessary constraints and governance to manage the impact of those technologies – for example, policies that oblige the developers of new buildings to make data from those buildings openly available as part of an overall “open data” strategy for a city.

As well as technologists, three crucial groups of advisers to that process are social scientists, design thinkers and placemakers. They have the creativity and insight to understand how digital technologies can meet the needs of people and communities in a way that contributes to the creation of great places, and great cities – places like the Eastside city park that are full of life.

Tina Saaby, Copenhagen’s City Architect, expressed a beautiful principle of placemaking in her address to the Academy of Urbanism Congress:

“Consider urban life before urban space; consider urban space before buildings”

In my view, we should apply a similar principle to technology:

 “Consider urban life before urban place; consider urban place before technology

(Tina Saaby, Copenhagen's City Architect, addressing the Academy of Urbanism Congress in Bradford)

(Tina Saaby, Copenhagen’s City Architect, addressing the Academy of Urbanism Congress in Bradford)

Without this perspective, I don’t personally believe that we’ll create the great digital places that we need.

That’s why I spent last week exploring this topic with placemakers, town planners and policy-makers in a “digital urbanism” workshop at the Academy of Urbanism Congress; and it’s why I’ll be exploring it in June with social scientists and researchers of city systems at the University of Durham. I’ll be writing again soon on this blog about what I’m learning from those meetings.

Not everything promised by technology will transpire or succeed, and it is often right to be sceptical of individual ideas until they’re proven. But there should be no question of the magnitude and impact of the changes that technology will create in the near future. And it’s down to us to take charge of those changes for our benefit as individuals and communities.

(The photographic collage of Birmingham involves some of my own photographs, but also the following images:

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