SOPHISTICATED FINANCE

Four Major Trends in the Current Fourth Industrial Revolution

 

This is my recent article on Medium about trends in the Fourth Industrial Revolution.

 

Outsourcing City Services

 

Read Write Web has an interesting article on the challenges of city management, "Smart cities need banks’ data muscle more than governments". The article states that cities are not likely to be able to manage all the data required to provide modern services in an age of IOT. To solve the data management problem perhaps the banking industry with its expertise in large volume, real time data management is a solution for cities. Given that I think most banks will not survive the coming disruption from distributed networks and related technology, maybe banks should move into data management for cities.

Of course you may have realized that cities and banks share one common characteristic. They are both subject to significant government regulation. Just like healthcare and education, they are also leading industries to be disrupted. Effectively, the artificial boundary of government regulation is now being pierced by new technology. 

The point on data got me thinking about whether we should not consider outsourcing more city services than just data management. If we consider cities a stack of software services or perhaps a stack of networks, we realize that every part of the stack is a candidate for outsourcing. In the end, the only service that may remain with the city government is the right to set policy, which is, of course, a basic requirement of a democracy. This notion of the outsourced city government perhaps becomes more interesting when we recognize that power is going to shift away from the national level and back to the cities. Networks and communities are naturally gaining power through the new technology, which will lead to local initiatives that will manifest themselves in the cities and their governance. The networks and the communities are gaining power because comparatively more information is now flowing to the local level through the new technology. Effectively, the individual captures information better than the government, as evidenced by the article that began this post.

The role of information in the shift of power is explained in this Powerpoint, "The Great Convergence". Download .

This is the link to my previous writings on cities and urbanization.

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MIT Research on Innovation and Productivity

Smithsonian.com has an interesting article about research at MIT on innovation, "Why Living in a City Makes You More Innovative". The MIT researchers concluded:

"that productivity and innovation in urban areas grow at roughly the same rate as population, largely because the greater density of people living in a city increases the opportunities for personal interactions and exposure to different ideas"

The researchers used a method called "social-tie density" to make their analysis. Social-tie density is "the average number of people each resident will interact with personally" whether it be through cell phones, buses, disease exposures, etc.

When the researchers tested the theory it held up well in densely populated cities except in certain cities in Asia and Africa. Where the Asian or African cities were more densely populated than other cities there was not the "forecasted" increase in productivity and innovation. The researcher's attribute the breakdown in the model to the lack of public transportation in the Asian and African cities, which reduces personal interactions. If you have ever ridden on public transportation in Africa or Asia one notices that the density of people on public transportation typically is so high that it is not very conducive to communicating with another passenger. I am therefore suspect of their conclusion to explain the failure of the model.

The reasons for lower productivity and innovation in certain cities in Africa or Asia is more likely attributable to:

1. Lower penetration of smart phones; or
2. Fewer high quality universities; or
3. Lower levels of available investment capital

All three reasons would be consistent with prior research on innovation and entrepreneurship.

I have to track down the original MIT paper to see if the researchers considered any of these factors. I also need to see if the researchers specialize in information economics or another area. My next topic to understand better is information economics, given the relationship between information and entrepreneurship, as made clear by Schumpeter, Hayak and Kirzner. (I do like my Austrian School economists.)

The Smithsonian article also references other articles on creativity and innovation which are interesting.

 Image credit: Worldquest.org

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