Tag: economic development

Rebuilding America’s communities

The Atlantic’s James Fallows explores how America’s communities are adapting to a new economy

One of the features of the Twenty-first Century will be how communities take over providing their own services as cash strapped governments find it difficult to provide the services citizens expect.

In many respects the United States is ahead of the rest of the world in this as the decentralised nature of US government sees many functions being the responsibilities of local county and city agencies.

Following the 2008 financial crisis many smaller cities and rural counties found their revenues crunched, for many of them this compounded thirty years of economic decline as local industries folded or fled overseas.

James Fallows in the Atlantic recounts a trip with his wife across the United States where they visited communities rebuilding themselves in the face of economic adversity.

In his long piece detailing how those different communities are rebuilding, Fallows comes to the conclusion a new political consciousness is evolving among the groups working to change their cities. While early, the common objectives of these groups will evolve into a movement.

Fallows marks what will almost certainly be a defining feature of today’s first world nations as their politics evolve around these movements.

Does venture capital really matter?

Venture capital investments are concentrated in a handful of cities, but does it matter?

Around the world governments are trying to replicate the Silicon Valley startup model. But does that model really matter?

On the Citylab website, Richard Florida looks at which cities are the leading centres for startup investment.

Unsurprisingly eight of the top ten cities are in the United States with San Francisco and San Jose leading the pack. While London and Beijing make up the other two, the gap between the regions are striking with the Bay Area being home to over quarter of the world Venture Capital investment while the Chinese and London capitals com in at around two percent.

global-startup-cities

While these proportions are impressive, the numbers are not. The total VC investment identified by Florida in 2012 is $45 billion, according to the Boston Consulting Group there was $74 Trillion of funds under management in 2014.

That makes the tech venture capital sector .06% of the global funds management industry.

In the US alone over 2013 small businesses raised $518 billion in bank loans, more than ten times the global VC industry.

What this scale shows is how small the tech startup sector really is compared to the broader economy and, more importantly, how the Venture Capital model perfected in the suburbs of Silicon Valley is only one of many ways to fund new businesses.

Even in the current centre of the startup world, it’s estimated less than eight percent of San Francisco’s workforce are employed by the tech industry although that goes up to nearly a quarter in San Jose.

None of this is to say the startups are not a good investment – Thomas Edison’s first company raised $300,000 in 1878, $12 million in today’s dollars, from New York investors including JP Morgan. The Edison Electric Light Company, while relatively modest went on to being one of the best investments of the 19th Century.

That twelve million dollar investment looks like a bargain today and it’s highly likely we’ll see some of today’s startups having a similar impact on society to what Edison did 140 years ago.

Edison’s success created jobs and wealth for New Jersey and New York which helped make the region one of the richest parts of the planet during the Twentieth Century and that opportunity today is what focuses governments when looking at encouraging today’s startups.

So it’s understandable governments would want to encourage today’s Thomas Edisons (and Nikola Teslas) to set up in their cities. The trick is to find the funding models that work for tomorrow’s businesses, not what works for one select group today.

While the Silicon Valley venture capital model receives the publicity today, it isn’t the model for funding most businesses. Founders, investors and governments have plenty of other options to explore.

Bringing the Internet to the masses

In India and Myanmar we may be seeing the effects of the internet on developing economies

For the developing world, broadband and mobile communications are helping

In Myanmar, the opening of the economy has meant accessible telecommunications for the nation’s farmers reports The Atlantic.

At the same time, Indian Railway’s Telecommunications arm RailTel is opening its fibre network to the public, starting with Wi-Fi at major stations.

What is notable in both cases is the role of Facebook. In India, Facebook’s project to offer free broadband access across the nation is meeting some resistance and it’s probably no coincidence Indian Railway’s WiFi project is being run as partnership with Google.

In Myanmar on the other hand, Facebook and Snapchat are the go to destination for rural communities, it will be interesting to watch how this plays out as farmers start to use the social media service for price discovery and finding new markets – as Tencent Chairman SY Lau last year claimed was happening with Chinese communities.

One of the promises of making the Internet available to the general public was that it would enable the world to become connected, thirty years later we may be seeing the results.

Silicon Valleys of the Twentieth Century

Dayton Ohio is an example of an industrial hub rising and falling, could Silicon Valley follow?

The rise and fall of industrial hubs is a topic that fascinates this blog and the excellent BBC and US National Public Radio series Six Routes to a Richer World discusses how countries as disparate as Germany, Brazil, China and the United States are carving their own paths to prosperity in the 21st Century.

In the US segment, the show looks at one of America’s industrial centres of last century – Dayton, Ohio.

The home of the Wright Brothers, Dayton also saw the invention of the cash register, air conditioner and even the self starting motor. In the early part of the Twentieth Century it held the most patents per capita of any US city and workers flocked to the region for high paying manufacturing job.

Manufacturing, and research, is largely gone from Dayton today and the question posed is could the successful cities of California’s Bay Area follow a similar path this Century.

Whether Silicon Valley and San Francisco fade will be a matter of historical forces that are difficult to see right now, but the likelihood can’t be underestimated.

Uber and the cities of the future

Does Uber hold the key to solving cities’ public transport woes?

“We’re building the cities of the future” claims David Plouffe, Uber’s Senior Vice President for Policy & Strategy.

Plouffe was speaking in Uber’s head office ahead of this year’s Dreamforce conference where the transportation disrupter was announcing the next phases of its Uber Business service.

While western societies still remain car dependent, there’s a shift underway as people prefer to live in the cities rather than the suburbs and the far flung exurbs, particularly for younger people. “For my generation it was a big deal to get a car,” says the 48 year old Plouffe. “Millennials today don’t have that same identification – they don’t want to own a car.”

That shift, which is not just confined to millennials, presents challenges for cities believes Plouffe. “Cities need to support people who are moving in at historic rates,” he says. “Our cities are facing huge challenges.”

“Every city is facing congestion challenges which will only get worse over the next ten to fifteen years as the number of people moving into the world cities at a historic pace.”

“Most cities do not have the will or the money to build new public transportation systems,” Plouffe says. “The only way they are going to deal with this is for people to buy less cars, families to only have one car and to reduce the number of cars on the road.”

Not surprisingly, Plouffe sees this as being where Uber can help in expanding accessible and affordable transport to parts of cities which are unlikely to get public transit and to increase the carrying capacity of existing infrastructure.

This is an interesting point of view and one that has some validity if we accept the view that ‘on-demand’ services like Uber and others are actually aimed at all groups and not just the affluent upper middle classes and the rich.

For cities struggling to meet the demands of growing populations and shrinking budgets, services like Uber and Lyft may be part of the answer. That though will take some reform and a change of attitude from many regulators.

Taiwan enters the startups race

Taiwan looks to diversify its economy through encouraging startups

Battered by a declining Chinese market for its manufacturing goods, Taiwan is having to look elsewhere for its economic growth.

Startups are one idea report Reuters News describing how the Taiwanese National Development Council set up HeadStart a year ago to create an tech entrepreneur ecosystem by relaxing regulations for registering start-ups, matching funds invested into projects and creating tech hubs.

So far HeadStart has attracted around $US 438 million in funds and now Alibaba founder Jack Ma says he wanted to set up a $300 million fund to support Taiwanese entrepreneurs.

While the Reuters piece focuses on the ecosystem built around fading smartphone maker HTC and the major computer chip fabricators, Taiwan’s strength may well lie in its small business roots as much of the island’s industrial strength has been built, like Japan’s, on its army of small family firms supplying the larger companies.

That Taiwan needs to diversify its economy is a warning to other less advanced economies that depending on a narrow band of exports leaves a nation open to external risks. It might be time for others to be looking at how to encourage their entrepreneurs.

Image of Taiwanese bronze buddha by Shirley B through freeimages.com

India goes digital

The Indian government looks to creating a digital startup culture

“If Indians can work in Google. Why can’t Google be made in India?” Indian Prime Minister Narendra Modi asked last week when he launched the Digital India program.

Digital India is an ambitious project based on three areas of vision; getting infrastructure to all billion Indians, digitally empowering those citizens and improving government through the use of technology.

Certainly the project has caught the imagination of the business community with Indian tech companies pledging $US 72 billion to the initiative with the promise of over a million jobs being created.

In the past, India has been notable for its slow, bureaucratic business ways but Prime Minister Modi is promising to change all of that under the Digital India initiative.

“The world is changing, quicker than ever before and we cannot remain oblivious to that. If we don’t innovate, if we don’t come up with cutting edge products there will be stagnation”

While India’s government is talking the talk, actually changing the nation’s business community is going to be a huge but not impossible task although the Digital India project has had a difficult history.

That task though is necessary as South Asia has for decades lagged the growth of the countries to their East however now countries like India, Pakistan and Bangladesh have the benefit of younger workforces while powerhouses such as China, Japan and South Korea age.

Should we see an Indian Google in the near future it won’t look like today’s Silicon Valley giants given the cultural differences between America’s Bay Area and India’s business communities.

However if we do see an ‘Indian Google’ it will be huge given the size of the nation’s domestic market. Like China’s Alibaba, a successful local enterprise can become a global player just based on its user numbers.

There’s many barriers to an Indian Google happening but those who scoff at the idea should remember how fifty years ago the thought of Japan being a high tech manufacturer were laughed at and the idea of China being the world’s factory was unthinkable.

Internet adoption and wealth

US internet adoption rates tell us much about affluence between different groups

With 85 percent of Americans now online it’s safe to say the internet has reached saturation point in North America.

However not all groups have been as quick to get online and the Pew Internet Survey has a detailed analysis of adoption rates across different demographic segments.

The results aren’t particularly surprising with lower adoption rates reflecting class, race and education differences although older age groups are the fastest growing segment.

Ultimately adoption comes down to affluence with the key chart being the connection rates across income groups.

What the Pew report does illustrate is how critical the internet is to income levels and why it’s important for the disadvantaged to be connected for them to participate in the new economy.

For countries following affluent nations in internet adoption, getting disadvantaged communities connected might be one of the easiest ways they can improve national income, education and well being.

A generation free of poverty and labor

Technology promises to free the next generation of poverty and labor but a new social compact will be needed.

How will the future workforce look? A report by Australia’s Committee for Economic Development seeks to give a picture of how employment might look at the end of next decade.

Australia’s Future Workforce is a weighty tome covering the current structure of the nation’s economy, its trends and the factors affecting employment over the next two decades.

The report makes it clear the economy will be very different observing 40 per cent of Australia’s workforce, more than five million people, is likely be replaced by automation over the next twenty years.

In the opening chapter, Reshaping Work for the Future, Professor Lynda Gratton of the London Business School describes the share of the future workforce where roles are more specialised and automation increasingly takes over less complex jobs.

An important aspect Professor Gratton also flags is the aging population which in a rapidly changing economy will require frequent retraining.

From a technology perspective Professor Hugh Bradlow, the Chief Scientist of Telstra, suggests the workforce will be more mobile and employed in fields less amenable to computerisation involving skills like social intelligence, creative talents and social intelligence.

Those without those skills are deeply at risk with Bradlow being the first in the report to cite the likelihood that two fifths of the workforce are at risk of losing their jobs.

Bradlow concludes his analysis with the observation that if we work to satisfy our basic needs then machines looking after these requirements free up the workforce to address higher intellectual pursuits.

Rethinking management

Belinda Tee and Jessica Xu, both of IBM, agree with Bradlow that technologies like IBM Watson will help skilled workers like doctors and teachers deliver their services more efficiently.

Xu and Tee suggest change in the workforce will need to start at the top with managers needing to enhance collaboration within the organisations and build diverse teams working on open data.

A two speed economy

How the effects are distributed across the workforce is probably one of the most important aspects of this report with a team from the soon to be abolished National ICT Australia mapping the regions that will be most affected by automation.

The news for many of the country’s regions is not good with the survey finding workers in most areas have more than a fifty percent chance of losing their jobs to automation.

NICTA’s bad news for the regions ties into a recent PwC report that found Australia’s economic power has been increasingly concentrated in the nation’s capital cities.

A mixed future

In many respects the CEDA report is disappointing, while it flags many of the issues facing today’s workforce and the forces shaping it, the survey doesn’t identify the industries and occupations likely to benefit.

Despite not stating the growth sectors, the report’s overall view of the future workplace is optimistic as Telstra’s Hugh Bradlow says: “The change could result in a new generation free of poverty and the burden of labor, thereby unleashing the next wave of human innovation and creativity in directions we can never imagine.”

This may be the case but the to achieve that will require, as the report later suggests, a new social compact.

It’s building that new social compact which could be the greatest task ahead of us.

Rewriting the Silicon Valley playbook

Each region needs its own playbook to create an industrial hub warns veteran entrepreneur Steve Blank

Silicon Valley’s lean startup model may not be relevant to most regions warns writer and entrepreneur Steve Blank.

The lean startup model is based on getting the minimum viable product into the marketplace and should users be enthusiastic seeking investor funding to develop the business further.

Guy Kawasaki described this in an interview last year where he described the minimum viable valuable product idea of getting the most basic service to market at the lowest cost and then getting users and investors on board.

However it might be that model only works where “startup entrepreneurs have full access to eager and intelligent business customers, hosts of industry angels and venture capitalists with money to burn,” reports Canada’s Financial Post.

Blank came to that conclusion on a trip to Australia where he met with sports tech startups: “Meeting with a coalition of entrepreneurs in the tech and sports space, he realized the lean startup framework didn’t account for the vagaries of local economies. Australia sports-tech entrepreneurs trying to scale their businesses would find that their major customers are in the U.S., halfway around the world. And unlike most Valley startups, the Aussies would need to source manufacturing expertise — which means budgeting for several trips to China.

The problems facing Australia’s entrepreneurs probably extend further as the nation’s investors are notorious risk averse and the high cost of doing living means the burn rates for startups are much harder.

Blank’s recommendation is any region looking at establishing a startup community should identify its own strengths and advantages then build its own playbook.

That it’s difficult for other regions to copy Silicon Valley shouldn’t be surprising, since the start of civilisation each industrial or trade hub has risen and fallen on its own strengths and weaknesses.

We can be sure the next Silicon Valley – be it in the US, China, Europe or anywhere else in the world – will have different strengths than the Bay Area today.

Barcelona fears becoming Venice

Barcelona’s new mayor fears the city risks becoming like Venice. Is she right?

“We don’t want to become like Venice,” is the cry from Barcelona’s new government.

Comparing Venice to Barcelona is problematic given the Spanish city has a population of 1.6 million compared to the Italian tourist centre’s 60,000. The tourist industry has long overwhelmed Venice.

A more relevant discussion is how does a city like Barcelona avoid a decline like Venice, in my interview with the deputy mayor Antoni Vives in 2013 he described his aim to see the city develop new industries and build on its existing strengths.

The new mayor’s concerns about soaring property costs displacing residents are valid –and shared with every major city in the world.

For Barcelona though the real challenge is to stay relevant in a changing global economy. For the moment the Spanish city has a long way to go, and five hundred years, before its leaders can worry about becoming the new Venice.

Singapore’s Prime Minister declares the state a smart nation

Singapore’s Prime Minister stakes out the country’s place in the new economy.

This blog has written a lot about Singapore in the past, this speech by the country’s Prime Minister sums it up.

For other nations, particularly Australia, it’s time to stay paying attention to how the global economy is changing.

Singapore may not have all the answers and its government’s authoritarian tendencies may work against its ambitions to be a global tech and creative centre, but at least the government is staking a position in the new economy.