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When investing in growth costs nothing

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Investing in smart cities cost nothing dur to the marginal cost of such investment and to their rapid return.

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When investing in growth costs nothing

  1. 1. When investing in growth costs nothing: Financing the transformation of Russian monocities as a lever of paradigm shift of Russian economy Клод Роше Профевор университетa париж сакле Москва 07/02/2016 РOCCИЙСКАЯ АКАДЕМИКИЯ НАУК ИНСТИТУТ НАРОДНОХОВЕННОГО ПРОГНОЗНРОВАНИЯ
  2. 2. Summary A smart city costs nothing! Why Singapore creates wealth and Norilsk is a poor player City as the ideal locus for increasing returns and endogenous growth Discussing a business model for Russian smart cities mercredi 15 février 2017 Claude Rochet - Moscou 2
  3. 3. The macro view: Costs are savings mercredi 15 février 2017 Claude Rochet - Moscou 3
  4. 4. Costs mean savings Wednesday, February 15, 2017 4  Figure 2 : failure to invest in the maintenance causes business costs to rise by $147 billion and household costs by $59 billion. Families are squeezed by another $900 per year as water rates go up and personal income falls. However, an additional $84 billion invested between now and 2020 could help prevent those increased costs to businesses and households, and protect 700,000 jobs, $541 billion in personal income, $460 billion in GDP, and $6 billion in exports.  In terms of electrical transmission, an additional $11 billion per year between now and 2020 could prevent blackouts and brownouts that cost businesses $126 billion and households $71 billion (Figure 3). In addition, 529,000 jobs would be protected, as would $656 billion in personal income and half a trillion dollars in GDP. Claude Rochet - Moscou American Society of Civil Engineers
  5. 5. Reducing costs fosters increasing returns  By 2020 overall transportation costs will increase by $430 billion. Families will have a lower standard of living, earning $700 less per year but spending an additional $360 per year for transportation. Businesses and workers will pay a heavy price with the net loss of 877,000 jobs. America will lose ground in the global economy as the GDP underperforms by almost $1 trillion.  The investment needed for transportation is $94 billion per year between now and 2020. This investment would create millions of new jobs, protect a million existing jobs, save nearly 2 billion hours in traffic time, save families over $1,000 a year, and add $2,600 in GDP for every person in the United States. mercredi 15 février 2017Claude Rochet - Moscou 5 American Society of Civil Engineers
  6. 6. Weak marginal costs, high returns!  Projets pilotes=> briques technologiques  Grands projets urbains => Intégration  La part « smart » ne représente que 10% du cout des projets et est rapidement compensée par des revenus  La smart city ne coûte rien, ou presque. Nous apprenons aux villes à penser différemment pour intégrer le plus habilement possible les technologies. Nous leur disons "Pensez grand mais agissez petit". Dans un premier temps, il faut commencer par des projets pilotes sur un immeuble ou un quartier pour tester l'efficacité. Ensuite, il faut profiter des grands projets de réaménagement urbain pour intégrer les briques technologiques à moindres frais.  "Il faut profiter des grands projets de réaménagement urbain pour intégrer les briques technologiques à moindres frais"  A Washington DC, par exemple, 70 milliards de dollars ont été investis pour rénover 25 kilomètres de métro. 10% de ce budget a été utilisé pour l'équiper de capteurs et pour y déployer le réseau cellulaire. Cela aurait été beaucoup plus contraignant et coûteux de le faire avant ou après. En général nous estimons que les technologies de la smart city représentent entre 10 et 20% des coûts d'un grand projet. Et par la suite les retombées compensent rapidement cet effort. mercredi 15 février 2017Claude Rochet - Moscou 6
  7. 7. Summary A smart city costs nothing! Why Singapore creates wealth and Norilsk is a poor player City as the ideal locus for increasing returns and endogenous growth Discussing a business model for Russian smart cities mercredi 15 février 2017 Claude Rochet - Moscou 7
  8. 8. Singapore vs. Norilsk mercredi 15 février 2017Claude Rochet - Moscou 8 Common features: Unhealthy and hostile climate, no reason for existing except a political will, no natural assets, no industry, no initial social capital… Why this divergence? Depressing monoindustry A city thought from the beginning as a smart nation
  9. 9. What makes the difference?  Economy of rent based on Natural resource  Mono industry  Mono competence  No strategy  Shared strategic vision  Always looking for increasing returns synergies  Virtuous circles Gov’t initiatives, start-up innovation  System integration  The gov’t takes care of the equilibrium of the whole (equality, quality of life…)  Legitimacy and trust in the gov’t. mercredi 15 février 2017Claude Rochet - Moscou 9
  10. 10. Technology enables intelligence but is not intelligence  Rejection of the Rio do Janeiro like command and control system:  A closed cybernetic system can’t deal with all the risks and the variability of data.  Concentrating the data in one central system is a risk in itself.  The Human Way:  Gathering very senior level of each governmental agency at times of large-scale emergencies is observed to be more safe, efficient, and effective way of managing the city.  Data integration is not made by IT devices but by the common understanding of gov’t executives. mercredi 15 février 2017Claude Rochet - Moscou 10
  11. 11. A tale of two cities: quantity x quality  Hong Kong: Strong initial knowledge capital => laisser-faire, strong initial TFP growth  Singapore: Weak Knowledge capital => investing first physical K and strong public intervention with heavy FDI, weak initial TFP growth  In 1992, Young and Krugman’s prediction Singapore growth was not sustainable proved to be false  Singapore used its government led investment led in physical capital as a learning process of knowledge and human capital mercredi 15 février 2017Claude Rochet - Moscou 11
  12. 12. Strategy of Singapore growth Low wages Low cost Low returns High increasing returns High wages High value TFP Industrial base => 1980s Digital infostruture 1980s => Knowledge accumulation 1990s => FDI inflows « A mobilization of resources that have done Stalin proud » Paul Krugman Knowledge investments: • Technoparks • Universities • Transfer through firms • = x3 FDI ! 1) Strategic role of the Gov 2) Mobilization of Human K 3) Continuous infrastructure improvement Wednesday, February 15, 2017Claude Rochet - Moscou 12
  13. 13. Singapore growth model mercredi 15 février 2017 Claude Rochet - Moscou 13 Agile public administration: no silos! Leadearship Shared long term vision ! Rapid interaction business Dynamics and public leadership
  14. 14. Summary A smart city costs nothing! Why Singapore creates wealth and Norilsk is a poor player City as the ideal locus for increasing returns and endogenous growth Discussing a business model for Russian smart cities Wednesday, February 15, 2017 Claude Rochet - Moscou 14
  15. 15. Innovation evolutionary dynamics mercredi 15 février 2017 15 Connaissances scientifiques Capacités organisationnelles Economie Innovation = 3 processus qui se recouvrent Invention Structure les possibles en artefacts Innovation Marché Co-évolution Utilisateur Essais et erreurs Source: Keith Pavitt Claude Rochet - Moscou
  16. 16. A (really) smart city: innovation at each level maximizes the multiplier mercredi 15 février 2017 16 Why building a city & what are the strategic goals? Who are the stakeholders? What are the generic functions to be performed by a smart city? With which organs? Technical devices, software… With which smart people? Conception, metamodel framework, steering Subsystems and processes People and tools Why designing this ecosystem? Who will live in the city? What are its activities? How the city will be fed? Where the city is located ? (context) What are the functions to be performed to reach the goals and how do they interact? With which organs and ressources? How people will interact with the artifacts? How civic life will organize? People as end-users People as citizens Nicholas Khaldor: « Increasing returns propagate through manufacturing value chains like a ‘chain reaction’, where each addition of an increasing return (multiplier) is based on earlier such multipliers » Claude Rochet - Moscou
  17. 17. What creates wealth in iconomics? A correlation between IT and productivity, but… Source: enquête sur les USA, Erik Brinjlofson …For a same level of IT investments, a large divergence bewteen firms. Why? mercredi 15 février 2017Claude Rochet - Moscou 17
  18. 18. Real value is in intangible assets! Pour l’année 1998 aux Etats-Unis: •Investissement matériel = 1,1% •Investissement logiciel = 1,4% •Création d’intangibles = 7,5% Yang et Brynjolfsson (2001) mercredi 15 février 2017Claude Rochet - Moscou 18
  19. 19. Why? Technology is knowledge, not technique! Techno logie La techné: ce qui est inanimé et taciturne Le logos: la connaissance définit les usages de la techné Applications Apprentissage mercredi 15 février 2017Claude Rochet - Moscou 19
  20. 20. « Technology is knowledge » 20 Mokyr evolutionary model of knowledge growth Knowledge « what » New knowledge Knowledge « how » Empiric improvement LBD Epistemic knowledge Empirical knowledge Pre-existing knowledge + imported knowledge from outside Applying knowledge and learning from within Absorptive capacity That’s the meaning ot the Chinese moto « Opening » (exogenous import new technology) and « reforming » (endogenous creation of techology) mercredi 15 février 2017Claude Rochet - Moscou
  21. 21. Summary A smart city costs nothing! Why Singapore creates wealth and Norilsk is a poor player City as the ideal locus for increasing returns and endogenous growth Discussing a business model for Russian smart cities mercredi 15 février 2017 Claude Rochet - Moscou 21
  22. 22. Smart city readiness in Russia  The technology is reduced to technique  Looks too costly and out of reach  No link between technological opportunities and the possibility of strategic vision to transform Russian cities  No learningprocess Making the smart cities objective a political issue Results of HSE survey (2015) mercredi 15 février 2017 Claude Rochet - Moscou 22
  23. 23. Would be smart cities in Russia mercredi 15 février 2017 Claude Rochet - Moscou 23
  24. 24. Is Kazan really to be a smart city? - What is the strategic intent? - What are the benefits expected? - Where is the learning process? - Where are the spill over and increasing returns - What is the place and role of inhabitants? - What about the metrics? Temptative of integrated smart city: Kazan mercredi 15 février 2017Claude Rochet - Moscou 24
  25. 25. Smart cities and paradigm shift in Russia towards iconomy mercredi 15 février 2017Claude Rochet - Moscou 25 Training of actors, Knowledge transfer to SME Smart Cities Pilot Projects Social capabilities improvement System modeling and integration capacities Investments and reference realizations Territories development Technology transfer Absorptive capacities Organic development R&D Actions Realizations Strategic assets Autopoeisis Epistemic knowledge Empirical knowledge
  26. 26. Business model transition mercredi 15 février 2017Claude Rochet - Moscou 26 Present Russia Fed Gov’t 520 Mion USD Social cost of monocities Transition scenario Smartization of monocities Investments Foreign Investments + Increasing returns of smart cities Virtuous circle reinforcement
  27. 27. Financing investment in Russian SC: PPP Creating a common framework Academy &Reseach SC executives Foreign Cies Russian CiesFed Gov Epistemic knowledge Pilot projectPilot project Pilot project Pilot project Empirical knowledge Big projects PPP : foreing investor PPP Russian funds Benefits mercredi 15 février 2017Claude Rochet - Moscou 27
  28. 28. Merci! mercredi 15 février 2017 28 28 Thank you! Спасибо Claude Rochet - Moscou

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