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Sunday, October 12th, 2014

Replay: The Magic of Microclusters

This post originally appeared on October 27, 2013.

If you look at the list of target industries for any given city or state, you usually find several from the same list of five common items: high technology, life sciences (under various names), green tech, advanced manufacturing, logistics. Take a few from this list, and add a legacy industry if there’s one or two where you are already particularly strong, and there you have it.

The problem is that everybody and their brother is now claiming to be a tech or startup “hub”, etc. And there’s probably some fairness in that. Starting companies is much easier than it used to be, and despite the so-called “20 minute rule”, venture capitalists seem very willing to travel to find deals where they can make good money. For example, payments startup Dwolla didn’t have trouble attracting top name backers even though it was in Des Moines.

So in a sense everybody can play right now. At some point though, there will inevitably be another shakeout of sorts. If you want to be a long term survivor, have a claim to fame that will make you stand out from the crowd, generate above average returns, etc., you need to have something that makes you distinct.

One way to do that is to be sub-specialized. “High tech” is an extremely broad category. A city could have a large number of nominally high tech companies that are totally unalike, and which do not form any type of real ecosystem, integrated supply chain, etc. This is a cluster in name only.

One way to stand out is a concept I’ve called “microclusters”. That is, rather than simply saying “We’re high tech”, you have some specialty within the broader tech industry where you can be a real national leader.

A couple of news stories make me revisit this with regards to the internet marketing microcluster in Indianapolis. Like most cities, Indy is targeting, you guessed it, high tech, life sciences, green tech, advanced manufacturing, and logistics. The main promotional organization for high tech is called Techpoint. (I should note this organization does double duty as a statewide group as well).

But somehow, organically, within tech generally Indianapolis had a lot of startups in the internet marketing space. There were something like 70 or so last time I saw someone who had made a list. One of them, Exact Target, was recently acquired by Salesforce.com for $2.5 billion. That’s a legitimate exit by any standards. Also recently, a content marketing cloud provider called Compendium was bought by Oracle for its own marketing cloud suite. (Terms not disclosed but surely much, much smaller).

When two tech bluechip names decide to go fishing in the same pond for companies in the same field, you start to think there’s something to it. (Salesforce and Oracle weren’t the first either. Terradata bought out a company called Aprimo for $525 million a couple years ago). Wanting to build on the momentum, Techpoint just held a big shindig called M-Tech to launch a campaign they are launching in an effort to boost the city’s marketing technology cluster.

What will this turn into? I don’t know. A news report about M-Tech noted potential challenges from competitors. What’s more, if there’s no pipeline of new companies, this sort of thing will fizzle out. But if money and talent continues to develop new solutions and companies in a place where there’s real domain expertise and a bona fide ecosystem, it will potentially give the city a niche where it can be a truly top tier player and not just another me-too startup hub.

On a more mature level, I wrote some years back about the motorsports industry cluster in Indianapolis. Everybody knows the Indianapolis Motor Speedway and the 500-mile Race, but Indianapolis Raceway Park (now Lucas Oil Raceway) in Brownsburg also happens to be home to arguably the top drag racing event in the US. It’s near Brownsburg predominantly where a collection of (as of 2008 when I got the last report) 400 motorsports companies, employing 8,800 people at average wages of around $50,000/year is centered. Thus this cluster is both a sub-industry (a type of advanced manufacturing) microcluster and a geographic one. (I might note it’s certainly not the only global location in this industry as places like London and Charlotte also have such clusters). People have actually moved to Indianapolis from as far away as Australia and England to start companies in this space, a pretty good indicator it’s a real opportunity zone.

Again, both of these grew organically, so I don’t want to suggest that you can conjure one up with an economic development program. But I suspect most cities have a few of these out there or in the process of developing. It just so happens I know Indianapolis well and so can name what’s there. Identifying these and providing institutional or infrastructural support (e.g., specialized community college training programs) is probably a worthwhile endeavor.

Today’s economy doesn’t have one plant employing 10,000 people. But a good microcluster can be as impactful if not more so. Obviously the smaller your metro, the bigger a splash something like this will make. What’s more, specialization and a true integrated ecosystem can produce what Warren Buffett calls a “wide moat” business that can be defended against upstarts. Also recall that Jack Welch at GE famously didn’t want to be in a business if he couldn’t be #1 or #2 at it. It’s not realistic for smaller cities to ever think they’ll be #1 or #2 in tech generally, nor even have the large tech scene of a New York or Chicago. But they can find particular areas where they can punch above their weight. And as the recent Indy acquisitions show, generate legitimate big dollar exits.

Update: Richard Layman posted some additional thoughts on his blog.

Sunday, October 5th, 2014

The Decline of the Midwest, the Rise of the South

The New York Times ran an article last week that’s nominally about football, but really gives insight into the decline of the Midwest and the rise of the South. Called “As Big Ten Declines, Homegrown Talent Flees,” this piece ties in perfectly with my recent essay on the differing social states of the Midwest and South. The NYT’s money quote says it all:

The SEC sold excellence. The Big Ten sold tradition.

Ironically, it is the formerly stigmatized “backwoods” South that has embraced excellence while the former industrial champion of the Midwest has spurned it. I don’t think that Midwesterners understand how much things have changed in the South. I hear the same stereotypical view of the South that might have had a lot of truth decades ago but have changes substantially. For example, those who think it is both a good thing and bad have quipped that Indiana is like an extension of the South into the Midwest. I don’t think so.

For example, Charlotte built a light rail system. Dallas has poured a billion dollars into a downtown arts district. Atlanta has a multi-billion infill strategy around its former Belt Line railroad. Nashville eliminated downtown parking minimums and implemented a form based code. South Carolina has its German style apprenticeship program. North Carolina built Research Triangle Park – in 1959. Southern cities like Atlanta have proudly claimed and built success around their black heritage. And Charlotte’s Chamber of Commerce CEO said, “To understand Charlotte, you have to understand our ambition. We have a serious chip on our shoulder. We don’t want to be No. 2 to anybody.” Outside of Chicago, does anybody in the Midwest talk like that?

Sure, there are bits and pieces here and there in the Midwest that speak to excellence. But they are the anomalies in a region that has retrogressed. Whereas in the South they’ve massively elevated their game in the last 40 years and are working hard to keep getting better. Sure, low costs and taxes play a role in their success. Climate and the universality of air conditioning as well. But they aren’t content to rest on just that. They want to get better. Meanwhile the Midwest is regressing towards what the South used to be such as, for example, by turning paved roads back to gravel because they can’t afford the maintenance.

The NYT piece brings up an interesting factor driving the rise of the SEC vs. the Big Ten, namely the shift in underlying population ratios over time: “An instructive comparison is Michigan and Georgia. In 1960, Michigan had twice Georgia’s population; in 1990, it was nearly one and a half times as big; today, their populations are roughly equivalent.”

The decline in Midwest population and economic heft brings with it a price that has to be paid. It’s showing up in the football world today. But it’s sure to hit the academic prowess of the Midwest’s major state schools as well. How long can these places maintain their relative rankings of excellence without the financial firepower to play in the big leagues? There’s more inertia on the academic side, but don’t think it won’t eventually happen here as well. The same is true in many other aspects of civic life. Even mighty Chicago has nearly bankrupted itself in its efforts to keep up with other global cities.

The Big Ten obviously saw the writing on the wall and decided to expand outside the region. I dislike this for reasons of, naturally, tradition. But it’s a rational response to a declining marketplace. Similarly, the Cleveland Orchestra established a Miami residency in the pursuit of cash to keep its artistic excellence intact. Might some of these institutions at some point become Midwest in name only? Time will tell.

Tuesday, September 23rd, 2014

Midsize Midwest Cities — Where Do They Go Now? by Pete Saunders

[ Here's another piece of analytical insight from Pete Saunders, who originally posted it over at his site Corner Side Yard - Aaron. ]

There are some things I posted in the early days of this blog that probably enjoyed very little attention and received little followup on my part.  This piece on midsize Midwestern cities definitely fits that bill.  Since I started this blog nearly two years ago, the attention given to the Rust Belt seems to have grown exponentially — Detroit’s bankruptcy, Chicago’s crime, and Pittsburgh’s revitalization have occupied center stage at various times.  Unconventional ideas are emerging on how to turn around major Rust Belt cities, but smaller ones seem to escape inclusion.  So rather than repost my original post without further comment, I’ve decided to revisit and do some followup commentary.

First, the research.  Looking at 2010 U.S. Census data, I found there are 74 cities in the Midwest as I’ve described it with a population between 50,000 and 300,000.  I eliminated primary cities that fit the population threshold but were part of metro areas that had more than one million people (i.e., St. Paul, MN; Cincinnati, OH; Buffalo, NY), leaving me with 71 midsize Midwest cities.  The largest is Toledo, OH (287,208 residents) and the smallest is Elkhart, IN (50,949).  In between are cities that have become the icons of American Heartland – see the table below.


Midsize Midwest Cities 2010 City Population 2010 Metro Area Population
Toledo, OH 287,208 651,429
Lincoln, NE 258,379 302,157
Ft. Wayne, IN 253,691 416,257
Madison, WI 233,209 568,593
Des Moines, IA 203,433 569,633
Akron, OH 199,110 703,200
Aurora, IL 197,899 9,461,105
Grand Rapids, MI 188,040 774,160
Sioux Falls, SD 153,888 228,261
Rockford, IL 152,871 349,431
Joliet, IL 147,433 9,461,105
Kansas City, KS 145,786 2,035,334
Dayton, OH 141,527 841,502
Topeka, KS 127,473 233,870
Cedar Rapids, IA 126,326 257,940
Evansville, IN 117,429 358,676
Independence, MO 116,830 2,035,334
Springfield, IL 116,250 210,170
Peoria, IL 115,007 379,186
Lansing, MI 114,297 464,036
Ann Arbor, MI 113,934 344,791
Elgin, IL 108,188 9,461,105
Rochester, MN 160,769 186,011
Fargo, ND 105,549 208,777
Green Bay, WI 104,057 306,241
Flint, MI 102,434 425,790
Erie, PA 101,786 280,566
South Bend, IN 101,168 319,224
Davenport, IA 99,685 379,690
Kenosha, WI 99,218 9,461,105
Waukegan, IL 89,078 9,461,105
Lawrence, KS 87,643 110,826
Duluth, MN 86,265 279,771
Sioux City, IA 82,684 143,577
Champaign, IL 81,055 231,891
Bloomington, IN 80,405 192,714
Gary, IN 80,294 9,461,105
Racine, WI 78,860 195,408
Appleton, WI 78,086 225,666
St. Joseph, MO 76,780 127,379
Bloomington, IL 76,610 169,572
Decatur, IL 76,122 110,768
Kalamazoo, MI 74,262 326,589
Canton, OH 73,007 404,422
Muncie, IN 70,085 117,671
Waterloo, IA 68,426 167,819
Iowa City, IA 67,862 152,586
Lafayette, IN 67,140 201,789
Youngstown, OH 66,982 565,773
Oshkosh, WI 66,083 166,994
Eau Claire, WI 65,883 161,151
St. Cloud, MN 65,842 189,093
Lorain, OH 64,097 2,077,240
Janesville, WI 62,948 160,331
Hamilton, OH 62,477 2,130,151
Council Bluffs, IA 62,230 865,350
Bismarck, ND 61,272 108,779
Terre Haute, IN 60,785 172,425
Springfield, OH 60,608 138,333
Pontiac, MI 59,515 4,296,250
Ames, IA 58,965 89,542
Dubuque, IA 57,637 93,653
Owensboro, KY 57,265 114,752
Anderson, IN 56,129 131,636
Grand Forks, ND 52,838 98,461
Normal, IL 52,497 169,572
LaCrosse, WI 52,485 133,665
Manhattan, KS 52,281 127,081
Battle Creek, MI 52,347 136,146
Saginaw, MI 51,508 200,169
Elkhart, IN 50,949 197,559


I listed them all in a spreadsheet that included their 2010 city population and their 2010 metro area population, and started to make some early observations.  For example, metro area population is likely a better indicator of the relative “imprint” of a city, rather than primary city population.  Saginaw, MI, with a population of 51,000 but a metro area of 200,000, seems bigger than Muncie, IN, with a city population of 70,000 but a metro area population of just 118,000. And of course, cities that were relatively close to large metro areas (having a population greater than one million) seem to share more characteristics with their bigger neighbors than their smaller ones, economically and socially.

That led me to ask a few questions that could shed some light on other city characteristics:

  • Is the city a county seat or a county’s largest city, yet not the primary city of a metro area?
  • Is the city a part of or adjacent to a large metro area (with a population of more than one million)?
  • Is the city less than 60 miles from a large metro area?
  • Is the city a state capital?
  • Is the city a college town?

And that exercise led to some interesting conclusions.  Using those questions I was able to identify seven different categories of midsize Midwest cities, and the categories provide a glimpse into each city’s economic history and strengths:

  1.  Captured Satellite City: A once independent midsize city that has been pulled into the “orbit” of a larger metro area. There are eleven in this category.
  1.  Emerging Satellite City: An independent midsize city that is in the process of or on the verge of being pulled into the orbit of a larger metro area.  There are six in this group.
  1. State Capital and College Town:  A city fortunate enough to be a government center and the home of a major university.  There are just three in this category.
  1. Emerging Satellite City and College Town: A combination of points 2 and 3, they retain some measure of independence from larger metros, and benefit from having large schools.  There are only two in this group.
  1. State Capital: Self-explanatory.  There are four here.
  1. College Town: I’m defining a college town as one with a school with an enrollment greater than about 15,000 students, making the school large enough to have a significant impact on the local economy (in case you’re wondering why Notre Dame and South Bend, for example, aren’t included).  There are ten in this group.
  1.  Independent Midsize City: Ah yes, the largest group, with 35 in this category.  Too far from major metros to bask in their glory, and no state capital or university to build from.

Here’s how the cities stack up in a table:


Midsize Midwest City Categories Cities By Category
Captured Satellite City Aurora, IL; Joliet, IL; Kansas City, KS; Independence, MO; Elgin, IL; Kenosha, WI; Waukegan, IL; Gary, IN; Lorain, OH; Hamilton, OH; Pontiac, MI
Emerging Satellite City Akron, OH; Dayton, OH; Flint, MI; Racine, WI; Springfield, OH; Anderson, IN
State Capital AND College Town Lincoln, NE, Madison, WI; Lansing, MI
Emerging Satellite City AND College Town Ann Arbor, MI; Bloomington, IN
State Capital Des Moines, IA; Topeka, KS; Springfield, IL; Bismarck, ND
College Town Lawrence, KS; Champaign, IL; Bloomington, IL; Kalamazoo, MI; Muncie, IN; Iowa City, IA; Lafayette, IN; Ames, IA, Normal, IL; Manhattan, KS
Independent Midsize City Toledo, OH; Ft. Wayne, IN; Grand Rapids, MI; Sioux Falls, SD; Rockford, IL; Cedar Rapids, IA; Evansville, IN; Peoria, IL; Rochester, MN; Fargo, ND; Green Bay, WI; Erie, PA; South Bend, IN; Davenport, IA; Duluth, MN; Sioux City, IA; Appleton, WI; St. Joseph, MO; Decatur, IL; Canton, OH; Waterloo, IA; Youngstown, OH; Oshkosh, WI; Eau Claire, WI; St. Cloud, MN; Janesville, WI; Council Bluffs, IA; Terre Haute, IN; Dubuque, IA; Owensboro, KY; Grand Forks, ND; La Crosse, WI; Battle Creek, MI; Saginaw, MI; Elkhart, IN


So what do the categories suggest about each midsize city’s present and future economic prospects?

Captured Satellite City: These cities have economic fortunes that are closely tied to the economic fortunes of the much larger metro area surrounding it.  Some cities seem to recognize this and have planned accordingly; others still have memories of their earlier independence and have struggled in the face of industrial restructuring.  Perhaps their future is better served by becoming low-cost urban options in otherwise suburban areas.

Emerging Satellite City: These are cities that sit on the periphery of major metro areas, and have yet to fully benefit from being “pulled” into the larger orbit.  They, too, have memories of earlier independence, and may struggle with adjusting to a more dependent future.

State Capital and College Town: With only three in this category, Madison leads the way in terms of economic strength, with Lincoln not far behind.  Lansing, despite having the capital and college attributes, has historically relied on its industrial legacy as well, possibly diluting the government and education benefits.  If it can tap those strengths maybe it can duplicate the others’ success.

Emerging Satellite City and College Town: Ann Arbor and Bloomington are truly unique in that they are the flagship universities in their respective states and are in close proximity to each state’s largest city.  Ann Arbor seems to figure more prominently in metro Detroit’s future; Bloomington remains relatively disconnected from metro Indy.  My guess is that when these cities are fully brought into the larger metro’s orbit, they — and the entire metro — will greatly benefit.

State Capital: As long as the four cities here remain state capitals, they have a reason d’etre and economic catalyst that will support them.  They will continue to have strengths that will elude other similarly-sized cities.

College Town: In many respects the college towns are similar to the state capitals, with an existing reason d’etre and economic catalyst.  The difficulty, perhaps, lies in strengthening and reinforcing the college’s links to the rest of the city and metro.

Independent Midsize City: Here, I believe, are the midsize Midwest cities whose future is most tenuous.  When people wonder about the future of smaller post-industrial cities, these are generally the ones we think of.  What can Youngstown, OH do to forestall its decline?  What strengths does Decatur, IL have that can serve as a foundation for revitalization?  What lies ahead for Terre Haute, IN?  Wtih respect to the other midsize Midwest cities, which have more clear futures (whether or not they choose to accept them), I’ll start exploring what might happen with the independent, midsize, post-industrial Midwest city.

This post originally appeared in Corner Side Yard on November 9, 2013.

Wednesday, September 17th, 2014

The World City

Last week’s episode of the Monocle 24 show the Urbanist was an interesting look at the “world city” or “global city.” They take a bit of a skeptical look, showing how, for example, many residents of Istanbul are at odds with the construction boom designed to turn the city into what one critic dubbed a low-grade Dubai. And also how smaller cities like Lisbon and Wellington, New Zealand are following their own path without trying to aspire to compete as peers with the big boys. They also take on Vancouver, though fail to note its extremely high housing prices (it’s not livable if you can’t live there), and also its gang wars and other issues that belie the kumbaya vision the mayor is pitching. And there’s a conversation with an analyst from the Economist Intelligence Unit who talks about that organization’s ratings. It’s a bit eyebrow raising that Monocle, a publication that has done a lot to promote the whole global city idea and transnational norms, values and amenities to which all cities are called on to aspire to (in addition to publishing its own league table), would be critiquing the global city, but it’s a good listen regardless.

If the audio embed doesn’t display for you, click over to listen on Soundcloud.

Sunday, September 14th, 2014

The New Donut

Former Indianapolis Mayor Bill Hudnut used to like to say that “you can’t be a suburb of nowhere.” This is the oft-repeated notion has been a rallying cry for investments to revitalize downtowns in America for three decades or so now. The idea being that you can’t have a smoking hole in your region where your downtown is supposed to be. This created a mental based on a donut. You can’t let downtown become an empty hole. For reason that will become apparent soon, I call this model “the old donut”:

Filling in the hole became every city’s mission. Pretty much any city or metro region of any size has pumped literally billions of dollars into its downtown in an attempt to revitalize them. This took many forms ranging from stadiums to convention centers to hotels to parking garages to streetcars to museums and more. It’s popular today to subsidize mixed use development with a heavy residential component.

These efforts have paid off to a certain degree. Most big city downtowns have done very well as entertainment and visitor districts, eds and meds centers, etc. More recently we’ve seen an influx of residents, even in places where the overall city or even region has struggled or declined. Cleveland added about 4,000 net new downtown residents in the 2000s. St. Louis added 3,000. With most cities in some stage of an apartment building spree consisting of a few thousand units, these numbers should only improve.

Key weaknesses remain in private sector employment (declining in most places) and retail (not enough high income residents yet). And other than the tier one types of cities like Chicago, few places seem to have reached a sustainable market rate development level yet – pretty much everything is getting public assistance. Yet its pretty evident that most larger downtowns have made huge strides and are experiencing overall reasonable health.

In short, the donut hole has been filled in. Where does that leave us? I’d argue with a paradigm I call “the new donut”:

In this model, the old donut is inverted. What used to be the ring of health – the outer areas of the city and the inner suburban regions – are now struggling. Whereas the downtown is in pretty good shape, and the newer suburban areas are booming. (You might add in a fourth outer ring with troubles – these were the exurbs where very low-end housing proliferated because development standards were very low).

You see this in the population figures. Wendell Cox cranked the numbers and found that major metro areas gained 206,000 residents in the two mile radius from the center, but lost 272,000 residents from the 2-5 mile ring. Growth picked up strongly beyond that arc. This is the new donut area, though the start and end of it vary by metro and some have thicker rings of challenge than others.

We’ve got three decades of experience in downtown revitalization, but much less in dealing with this newer challenge zone. I’ve said that suburban revitalization may prove to be the big 21st century “urban” challenge. This is where it is happening in many cases. These areas have an inferior housing stock (often small post-war worker cottages or ranches), sometimes poor basic infrastructure, and are sometimes independent municipalities that, like Ferguson, MO, are often overlooked unless something really bad happens. Unlike the major downtown, they are often “out of sight, out of mind” for most regional movers and shakers.

What’s more, while downtown provides a concentrated location for massive public investment, this more spread out area is too big to fix by throwing money at it. And how many stadiums and convention centers does a region need in any event?

This is where we need to be doing a lot of thinking about how to bring these places back, look at what’s being done, etc. And also, given the inequality in the country, to try to think about ideas that don’t involve gentrification. One project that appears to be in this kind of zone, for example, is Atlanta’s Beltline project, though there’s a gentrifying aspect to this one. Regions that figure this one out will be at a big advantage going forward.

Friday, September 12th, 2014

If Cities Want to Succeed, They Need to Focus on What Makes Them Distinct

My latest column is out in the September 2014 edition of Governing Magazine. It’s called “If Cities Want to Succeed, They Need to Focus on What Makes Them Distinct” and long time readers will find the themes consistent with what I’ve long argued. Here’s an excerpt:

Bike lanes are great. But bike lanes are the civic equivalent of what might be called “best practices” in the corporate world. They are things every well-functioning city is now expected to have. They don’t, however, generate differential value or make a city any more competitive in the market. Just as you can’t build a successful company on simply a collection of best practices, it’s hard to build a successful city just on these things. You need them, but they aren’t enough. They are the new urban ante — just table stakes.

If we think of the places that have the greatest resonance in the public mind, it’s generally those places that are unique. People visit New Orleans or Las Vegas because no other place is like New Orleans or Las Vegas. There’s no place on earth like New York or San Francisco. If there’s nothing unique about your town, then your town is just a commodity. And we know that commodities compete on one factor: price. Being a commodity player leads to weak marketplace leverage. That’s why firms are always trying to differentiate themselves in a marketplace.

Tuesday, September 9th, 2014

Brooklyn Is Getting Poorer by Daniel Hertz

[ Analyst Daniel Hertz found some interesting maps of Brooklyn back in May that tell a different tale about Brooklyn than the one you've probably heard - Aaron. ]

I’m trying to make more of an effort, whenever I write or talk about gentrification, to point out that the real issue is larger: that gentrification is only one aspect of income segregation – specifically, the part where the borders between rich and poor neighborhoods shift – and that the real problem is that we have such sharply defined rich and poor neighborhoods to begin with.

I might also throw in that income segregation used to be much less severe.

Anyway, one problem with our obsession with gentrification as the end-all of urban equity issues is that it discourages us from talking about other important things happening in our cities. In some instances, gentrification has become such a dominating narrative that it has completely erased broader trends that we really ought to be concerned about.

Case in point: Brooklyn is getting poorer.

Does that shock you? Were you under the impression that all of Brooklyn was in the process of becoming one giant pickle boutique? That would be forgivable, given that nearly every article filed from Brooklyn for a decade or so has been about gentrification. But no.

I recently ran across a post from data-crunching blog extraordinaire Xenocrypt, which noted that from 1999 to 2011, median household income in Brooklyn fell from $42,852 to $42,752. That’s not a huge drop, obviously. The national median income fell from $56,000 to $50,000, so Brooklyn is actually catching up, sort of, to the country as a whole. But it still got poorer in absolute terms.

Moreover, if you map (as Xenocrypt did) the borough’s neighborhoods by change in median income, you get a really striking picture:


Credit: Xenocrypt.blogspot.com

…which is that, indeed, a good three-fifths or so of Brooklyn is actually getting poorer. Have you read any articles about that? No, I will wager that you have not. Neither have I. I strongly suspect that is because they don’t exist – at least not in any outlet that might be considered mainstream.

And what about housing prices?

Brooklyn Gentrification Map: Increase, Decrease in Home Values 2004 vs. 2012
Credit: http://www.citylimits.org/

So in large parts of Brooklyn, real estate prices are falling.

I have nothing particularly intelligent to say about this – these maps were news to me – except that it’s maybe the most dramatic example I’ve seen yet of just how limiting our fixation on gentrification is. I mean that both in a sort of journalistic sense, in that we’re being deprived of an accurate sense of what is actually going on in our cities, as well as from an advocate’s perspective: how can we claim to be working for fairer, more equitable, etc., cities, if we’re ignorant of their most basic economic and demographic changes?

This post originally appeared in City Notes on May 3, 2014.

Friday, August 29th, 2014

Cutting To Invest In Kokomo, Indiana

fairy-tale
A whimsical fairy tale convenience store in Kokomo, Indiana

Bruce Katz at the Brookings Institution likes to talk about a paradigm called “cut to invest.” The idea is to cut spending on operations and lower priority items in order finance investments in higher priority infrastructure or other projects. Nice theory, but who is actually doing it?

One example is Kokomo, Indiana. It’s not the mythical tropical island paradise you may have heard about from the Beach Boys. Instead it’s a small industrial city of around 57,000 people about 45 miles north of Indianapolis. After I posted a piece from Eric McAfee about Kokomo’s intelligent rail trail design, someone from the city reached out and invited me to come for a visit. So that’s what I did this week.

What I discovered is that Kokomo has done a lot more than just build a trail. They’ve deconverted every one way street downtown back to two way, removed every stop light and parking meter in the core of downtown, are building a mixed use downtown parking garage with a new YMCA across the street, inaugurated transit service with a free bus circulator, have a pretty extensive program of pedestrian friendly street treatments like bumpouts, as well as landscaping and beautification, a new baseball stadium under construction, a few apartment developments in the works, and even a more urban feel to its public housing. Like Eric, however, I wasn’t just struck by the projects themselves, but they obvious attention to detail that went into their design. And especially by the fact that they’ve done it almost all by paying cash – no debt – in a city that went through an economic wringer during the recession.

A lot, though not all, of this has been pushed by Kokomo Mayor Greg Goodnight, who’s gone from factory worker to politician during his career. He also appears to be an urban planning geek, as the stack of books behind his desk shows.

books

I sat down with the mayor and chatted about how the city pulled off this program of investment. After the jump I’ll visually walk you through a number of the projects. If the audio player doesn’t display for you, click over to Soundcloud.

Now let’s take a look at what’s going on. I mentioned the pedestrian bumpouts. Here’s an example of one:

Pretty much every downtown intersection has a treatment like this, including landscaping. Taking a page from other cities’ playbook, Kokomo has invested in beautification, including not only landscaping of pedestrian bumpouts, but also hanging flower planters we’ll see later. These were actually put into place by Goodnight’s predecessor and were a huge source of controversy at the time, though seem to be well-accepted by now.

Here’s another example on a street heading out of downtown.

bumpouts2

I’m actually of two minds about bumpouts. They do facilitate pedestrian crossings, but also can force bicyclists out of the curb lane into traffic. I’ve generally found them obnoxious when bicycling. The street widths through the bumpouts look ok here, but I didn’t put it to the test. A number of streets have painted bicycle lanes, where this is definitely not a problem.

Eric’s blog post was about the Industrial Heritage Trail. Here’s a shot of that through downtown:

I think this is really attractive. It reminds me of a red brick version of the Indy Cultural Trail. This section actually has a separate sidewalk from the biking trail, but that’s not the norm. Kokomo has really made a point to include some ped-bike protection wherever possible. So the landscape buffer is narrow, but effective and attractive. (It doesn’t use bioswale type green stormwater detention like the Indy Cultural Trail, though). There’s also ample street lighting and street furnishings.

As one nice touch, note the back side of the stop sign. It’s black to match the color of the other items, not just plain galvanized steel. This treatment is done throughout downtown and adds a bit of refinement.

Here’s another shot of a segment a bit south. Note the bespoke bike rack.

There aren’t people in these photos, you might have noticed. I was doing this walking tour on a Tuesday morning, and it wasn’t super-crowded but I did see multiple people out biking and walking on these trails.

On the south side of downtown, the IHT crosses and east-west path called the “Walk of Excellence.” I love the name because reminding Hoosiers that a focus on excellence is an absolute must to survive the brutal global competition. Here’s a shot:

woe3

Again, very attractive. And again, a narrow but nice buffer between the trail and the street, even though the roadway is little more than an alley or driveway. This is very consistently done, in another place even where the trail just passes through a parking lot. That’s what I mean by attention to detail. There’s a stream running to the left of the trail which adds to the pleasant effect of walking along it.

Here’s a street crossing:

woe-intersection

The trail has its own traffic control signs, as well as a street sign near bicycling eye level to tell users what street they are at. In my experience, that’s too rare in trail design. You can also see bumpouts here along with large concrete planters that add beauty and make the crosswalk and street narrowing very visible to drivers.

Here’s another crossing example, showing the different crosswalk shading as well:

woe-intersection3

Here’s a bike route sign, with the city seal on it. That’s another nice touch and one that shows a certain pride of place versus a generic sign.

bike-route-sign

Moving on, here’s a median treatment on a major street. This goes on quite a distance:

median3

Not only is this very nice, including more flowers, decorative street lights, etc, but the metal railings are especially unique. The railings were actually custom fabricated by the high school’s shop class. Not only was this great real world practice for the students, but the city paid for the railings and the students are all ending up with $1,000 scholarships to college out of it. I’m told this was the superintendent’s idea. (Kokomo’s superintendent grew up in Corydon in my county and his wife actually still works part time in Laconia, the tiny town where I grew up!)

Eric mentioned the school district’s International Baccalaureate program. But I don’t believe he mentioned that they also run an exchange student program. IIRC, students from 15 countries attend high school in Kokomo, and a number of them are actually housed in dormitories in downtown Kokomo. This injects life into downtown and creates a more international flavor in the city. I didn’t take pictures, but the school district is also renovating a 1914 vintage auditorium back to its original design that will be very cool (and also paid for without recourse to debt).

Trails and bumpouts have a fairly limited cost, but the city is also doing some bigger ticket items including two recently-constructed fire stations, a million dollar renovation of city hall, a parking garage, and a baseball stadium. Pictures of those in a moment but it’s worth ask how the city was able to pay for them without debt.

The first is that there was no legacy debt. I’m not anti-debt in all cases, but if a mature city like Kokomo is saddled with heavy debt repayments, that’s not good. By not having any legacy debt, the city’s tax base isn’t encumbered by repayments. A good part of our federal deficit these days is simply interest on our gargantuan debt load. That’s a dynamic Kokomo avoided. (The city does have some utility debt, but it’s revenue bond type stuff).

Secondly, the mayor says that he was able to reduce the city’s workforce by close to 20%, going from 521 employees just before he took office to only 415 today. That’s a significant reduction, especially given the fact that during that time the city annexed seven square miles and added 11,000 new residents (though some of them were already receiving some city services). Some of this was achieved through efficiencies. For example, the city went to single side garbage pickup, where all garbage is collected on one side of the street, eliminating the need for trucks to traverse each street twice. The mayor, council members, and department heads have also had a pay freeze during that time, with at least some time in there in which all city employees had their pay frozen during the recession. Keep in mind, the city experienced a severe revenue crunch during the auto bankruptcies, and Chrysler, the town’s largest employer, failed to pay its tax bill. This created an urgent need for cuts.

It’s possible the cuts and freezes have gone too far. I don’t know the full history of what has happened to services. But I speculate that having something like this can potentially act like a forest fire. It allows for longer term, healthier growth, whereas continuous growth in employees and compensation over time leads to serious fiscal problems.

In any case, these reductions freed up cash flow as the city recovered, letting Kokomo allocate a decent chunk of its revenues to capital investment. This is running at about 5% of the overall budget, plus an additional sizable sum (for a city of that size) from an economic development tax. This is an example of the cut to invest strategy in action. Without the cuts and tight budget management, there would be no money to invest. Indeed, some other Indiana community have found themselves asking questions like “what fire station should we close?” as they feel the sting of decline and tax caps.

Here are a few more photos, then some additional observations. Here’s that parking garage I mentioned. (This was originally debt financed, but the city paid off the bonds early when it decided to borrow for the baseball stadium).

parking-garage

This supposedly has some all day free parking, designed to attract downtown employees. There’s also going to be apartments on the top floor. It looks like there’s no ground floor retail, however, which will create a bit of a dead zone.

Here’s the YMCA construction site across the street. You can see the old Y in the background:

ymca

A painted railroad viaduct on Sycamore St. heading into downtown:

viaduct

An alley treatment:

alley

The baseball stadium under construction:

baseball-stadium

Here’s a picture of an older style public housing building. There’s nothing wrong with it, but it’s done in a traditional duplex style reminiscent of early suburbia.

public-housing-old

Here’s a new development in a more urban form next door:

public-housing-new

I think the fenestration is poor which gives the design a public housing look. Nevertheless, I appreciate that the city is even thinking about the design of public housing downtown as part of its strategy. After all, why shouldn’t public housing residents get to take advantage of high quality urbanism downtown like everyone else?

Overall, I think they’ve done a number of good things, and I especially appreciate the attention to detail that went into them. You clearly get the feel of them walking downtown streets. I would say the commercial and residential development lags the infrastructure, however. That’s to be expected. They do have an Irish Pub, a coffee shop, a few restaurants, and other assorted downtown type of businesses. This will be an area to watch as some of these investments mature.

When I talked to the mayor about this he took the long view, saying that Columbus, Indiana has been at its architecture program for decades, that Indy’s sports strategy is 40 years old, etc. Substantive change takes time. For example, Mayor Goodnight says it isn’t realistic to think that older workers who commute in to Kokomo will uproot themselves out of their established lives in other communities and relocate. But he’s more hopeful that as workers retire and are replaced, he’ll capture the “next generation” labor force.

That’s obviously a more realistic ambition. But will an impatient public buy it? We’ll see. Clearly Goodnight has his critics. More than one of them has dubbed him the “King of Kokomo.” A newspaper article fretted about gentrification (level of realistic concern about that: zero). I didn’t do a deep dive into the other side, so keep that in mind reading this. But the baseball stadium would appear to be the most controversial item as near as I detect.

Regardless of any controversy, when you look at the downward trajectory of most small Indiana industrial cities, the status quo is not viable option. Kokomo deserves a lot credit for trying something different. And regardless of any development payoffs, things like trails and safer and more welcoming streets are already paying a quality of life dividend to the people who live there right now. It’s an improvement anyone can experience today just by walking around.

Historic buildings on Kokomo’s courthouse square. The tenants testify to the industrial heritage of the community.
union-storefronts

Sunday, August 17th, 2014

The City As a Decline Machine, or How the Loss of Hometown Banks Paved the Way For Corruption

Today I’m kicking off what’s probably a three part mini-series on corruption. In my view, whatever the structural problems resulting from suburbanization or globalization or whatnot, an overwhelming and under-examined barrier to success in our cities, and especially to reviving the fortunes of the urban cores of post-industrial cities, is corruption.

When we think of corruption we tend to think of a shady character passing an envelope full of cash under the table to a crooked politician in exchange for a a zoning variance or something. But that’s just one form of corruption, and arguably one of the least important. Much more important is systemic corruption, including many practices that are actually legal.

The book Corrupt Cities, which I’ll look at in depth in a future installment, defines corruption this way:

Corruption means the misuse of office for personal gain…Corruption means charging an illicit price for a service or using the power of office to further illicit aims. Corruption can entail acts of omission or commission. It can involve legal activities or illegal ones. It can be internal to the organization (for example, embezzlement) or external to it (for example, extortion). The effects of various kinds of corruption vary widely. Although corrupt acts may sometimes result in net social benefit, corruption usually leads to inefficiency, injustice, and inequity.

And regarding systemic corruption, the authors say:

Systematic corruption generates economic costs by distorting incentives, political costs by undermining institutions, and social costs by redistributing wealth and power towards the undeserving. When corruption undermines property rights, the rule of law, and incentives to invest, economic and political development are crippled. Corruption exists in all countries. But corruption tends to be more damaging to poor countries.

And, one might add, poor or struggling cities.

America has been experiencing problems with corruption at all levels of government. I want to focus on the local level, however.

Cities have long been known as hotbeds of corruption and political machines. They were certainly much more corrupt in the past than they are now. However, because the scope and control of government was so much less in those days – for example, there was no zoning in Gilded Age America – the impact was arguably less than now where the impact of government is pervasive. The Progressive Era brought reforms that cleaned up government to a certain extent, but we’ve seen in the contemporary era an uptick in government corruption. This is not necessarily in the form of petty corruption, but rather the corruption of the instrumentality and aims of government itself.

Even in my own lifetime I’ve seen a tremendous increase in corrupt activities. Sure, cities were always “growth machines” and had “urban regimes”. Some level of corruption may even be necessary for political life to function. It’s generally necessary to build coalitions to get things done, and the types of horsetrading that enables this is often distasteful. I don’t want to pretend that we can ever have squeaky clean politics. And of course cronies of the party in power have long benefited from patronage.

But there’s a big difference between logrolling, or even some crony getting his beak wet through a somewhat inflated price tag for something that more or less needed to be done anyway, and the types of things we see today, in which the levers of powers are used in ways that are often obviously manifestly contrary to the public interest.

I won’t fully support it in this post, but my belief is that increasingly the urban power structures have exchanged traditional growth machine policies for a system of extraction in which crooks, cronies, and criminals are enriched under the guise of the “revitalization” of a community in decline. The principal vehicles for this are a) publicly subsidized real estate boondoggles, b) corrupt privatization and professional services contracts, and c) public employee union featherbedding.*

This looting of our cities in the name of revitalization has been made possible by a severing of the historic link between the economic fortunes of a community’s elite and broader community prosperity. I’m going to show today how that link got severed, and why that has led to subsidized real estate boondoggles as the preferred form of civic “revitalization”, by revisiting and updating a post I originally ran in 2009.

Ed Morrison once wrote that “Cleveland’s leadership has no apparent theory of change. Overwhelmingly, the strategy is now driven by individual projects. These projects, pushed by the real estate interests that dominate the board of the Greater Cleveland Partnership, confuse real estate development with economic development. This leads to the ‘Big Thing Theory’ of economic development: Prosperity results from building one more big thing.”

Morrison could have been describing any number of other cities here. Why is it that so many cities have turned to large subsidized real estate projects to attempt to restart growth, , turning away from strategies that previously made them successful?

The answer lies in structural economic changes resulting from the nationalization and globalization of industry. Up until the 1990’s, many businesses, such as retailing, utilities, some manufacturing, and especially banking operated on a regional or local basis. The meant that the civic leadership of a community was heavily dominated by businessmen, again, especially bankers, whose success was dependent on the overall macroeconomic health of the particular city or region they were located in.

For example, up until the 1980s or so, most states severely restricted banking such that every city pretty much had its three major locally owned banks whose CEOs were the major power players in town.

Because these banks were limited to their own region, often only their home county, they could only increase their profits by seeing their hometown grow with more people and businesses, and thus more depositors and borrowers. If the CEOs of those banks decided to loot the city at the expense of overall civic prosperity – or let anyone else get away with so looting it – it would undermine their own businesses. Hence they had an alignment between corporate (and thus personal interest) and the civic interest. They could only prosper to the extent that the community prospered.

It was the same in many industries. The Public Utility Holding Company Act more or less led to every major city having its own electric utility. That utility could only make more money to the extent that more people and businesses moved to town and thus generated new demand for power. The interests of the company and its CEO were aligned with that of the city as a whole. If the city sickened, the company’s business would sicken with it. Many if not most cities also had their own department stores, drugstores and other retail establishments.

This created what Harvey Molotch called a “land based elite” and underpinned a model he called “The City As a Growth Machine.” He saw the “land” in question as physical land and thus also talked to the primacy of real restate development, but I see “land” as much more representing the constrained operating geography of a wide variety of industries that are not necessarily related to land per se. While growth as a strategy has its problems, you can certainly be stuck with worse.

With banking and utility deregulation, we saw large numbers of hometown banks merged out of existence. Industry after industry has been subjected to national or international level roll-ups as changes in the economy and regulatory environment gave increasing returns to scale. So today we have a handful of major national banks like JP Morgan Chase, major utility conglomerates like Duke Energy, and dominant national retailers like Macy’s, Walgreens, Wal-Mart, and Home Depot, often part of a “two towers” type rollup.

Why is it that “real estate interests” dominate in a local economy like Cleveland? Because, to a great extent, they are among the only ones left. Consider the local industries that have not been as subject to roll-ups. Principal among these are real estate development, construction, and law (though we are starting to see rollups in these industries too).

This means the local leadership of a community is now made up of executives in those industries, and they bring a very different world view versus the previous generation. There are two major differences between these types of firms and the previous types of firms that generated community leaders: the nature of the businesses themselves, and the fact that their profits are not dependent on the success of the community.

Consider the difference between a banker and a lawyer. Banks make money on the spread between what they pay for deposits or wholesale funding, and what they charge for loans. This means the CEO of a bank is making money while he plays golf at 3. He’s got a cash register back at the office that never stops ringing.

By contrast, lawyers get paid by the hour for work on specific matters and transactions. The law partner is only making money on the golf course if he is closing a deal. It’s similar between many other “operational” businesses that were previously prominent in communities, and the “transactional” businesses that are now often dominant.

Not only has the drying up of local and regional operating businesses led to a business leadership community unbalanced in favor of transactionally oriented firms, the loss of those local and regional operating businesses robbed many of the transactional companies such as law and architecture firms of their principal local client base. Large national businesses employ national firms for advertising, law, architecture, etc. If they use local firms, it is in a subsidiary role. (Or, if a smaller firm is fortunate enough to land a contract, it is servicing a client on a national, not local basis).

Richard Florida described this in his Atlantic Monthly article on the financial crash:

As the manufacturing industry has shrunk, the local high-end services—finance, law, consulting—that it once supported have diminished as well, absorbed by bigger regional hubs and globally connected cities. In Chicago, for instance, the country’s 50 biggest law firms grew by 2,130 lawyers from 1984 to 2006, according to William Henderson and Arthur Alderson of Indiana University. Throughout the rest of the Midwest, these firms added a total of just 169 attorneys. Jones Day, founded in 1893 and today one of the country’s largest law firms, no longer considers its Cleveland office ‘headquarters’—that’s in Washington, D.C.—but rather its ‘founding office.’

Where then is the source of transactions these firms can turn to in order to sustain their business? The public sector, of course.

I would hypothesize that many local transactionally oriented services companies have seen the public sector take on a greater share of billings than in the past. With the old school bankers and industrialists mostly out of the picture, the leadership in our communities consists increasingly of the political class and a business community dominated by transactional interests.

When you look at the composition of this group, it should come as no surprise that the publicly subsidized real estate development is the preferred civic strategy. Politicians get to cut ribbons. Cranes always look good on the skyline. Local architects, engineers, developers, and construction companies love it. And there is plenty of legal work to go around.

This is not to say these people are necessarily acting nefariously. And nor were old school bankers and industrialists always acting purely altruistically. But there’s a very different world view between people steeped in operational businesses and those in transactionally oriented one.

On the other hand, that’s not to say that they aren’t acting nefariously, either. Which brings us to the second difference. These newly dominant firms and their leaders no longer have fortunes tied to the overall health of the community. Unlike an old-school banker or utility executive, these transactional companies like law firms can exist on a narrow client base. Thus they can continue to thrive if the community is struggling or even impoverished. If the driving force of the business is government, which can extract significant tax revenues during both good times and bad, this can go on indefinitely, so we see that even in bankrupt Detroit the state stepped in to pump $400 million in subsidies into a new hockey arena for a development backed by a local billionaire.

In fact, what we see is that these firms and their hangers on can even profit from community decline. Why is this? Well, when the community is struggling, that means Something Must Be Done. And it just so happens that this group of people has Something in mind – namely shoving taxpayer cash into their pockets so that they can “invest” in “saving” the city. Somewhat perversely, to the extent that a community is thriving and doing well, the justifications for all those subsidies become harder to make. Thus The Powers That Be actually have a stake in civic failure.

Call this the “City As a Decline Machine” model, as our once-proud urban cores have been strip-mined for subsidies by cronies as population and job levels have collapsed in the greater urban core.

This helps explain why, despite the endless talk about “talent, talent, talent” not many places actually do much that suggests they are serious about attracting it. Why might that be? Because, as I’ve noted before, outsiders are the natural constituency for the new and an inherently disruptive force. That’s the last thing cronies want. Instead what they actually want is to use the pretense of talent as a Christmas tree ornament to decorate arguments in favor of their latest subsidized boondoggle.

But regardless of intent, the personal interest and long term community health of the community elite are no longer strongly linked. Which is why where once local business/civic leaders put money into the community – such as when Melvin and Herb Simon bought the failing and money-losing Indiana Pacers back in the 1983 – today they are more likely to be taking it out via these types of projects.

You might object that some cities kept their banks or have other large companies that are still present. Perhaps. But even where the hometown bank or company did not get bought out, it likely escaped that fate by getting big itself and making large numbers of acquisitions or otherwise expanding. This means those institutions are less dependent on the health of the particular local market they happen to be headquartered in than they are overall macroeconomic conditions. While no doubt they want the headquarters town to be successful, they can afford to take a portfolio view of local markets.

It’s similar for many other companies, such as the tech startups every city seems to be focusing on. These are attractive to a great extent because they can thrive in downtowns of cities where the majority of the urban fabric is struggling because they don’t consume much in the way of services, have a live and let live ethos that has historically been disconnected from and indifferent to government (and so won’t upset the cronies’ apple cart), and sell to a national or global marketplace in most cases.

Interestingly, one place where it seems like the structure of local real estate helps the city is New York City. My understanding is that there are still quite a few local power players whose personal fortunes are deeply tied to the value of Manhattan real estate. Certainly local developers sometimes receive eminent domain assists and such, but the volume of activity necessary to support the real estate industry that is still very key to the city’s viability can only come from genuine market demand. When you combine this with the fact that there aren’t good substitutes for New York, this suggests at least a significant segment of its elite will be highly motivated to see it navigate the formidable fiscal and other challenges it faces.

Most other places aren’t so lucky. Once this type of system gets established it is difficult to uproot, and it acts like kryptonite to outside investors who know they will be operating at a severe disadvantage versus the cronies. That’s why out of town bidders have been taking a pass on bidding on the I-195 land in Providence, for example.

Commercial real-estate developer Richard Miller, of The Pegasus Group, visited Rhode Island in 2011 and again this spring; he liked what he saw enough to pick a potential parcel on the western side of the river near Chestnut Street. But in the end, his team chose not to submit a proposal to the Route 195 Redevelopment District Commission, which controls about 40 acres in the heart of the city, 20 of which are available for development … “I don’t want to get snookered in here where all of a sudden they start hitting you up with fees and you put a bid in and you start meeting with politicians, and the more you invest in the town, the more you’re in the game, and I didn’t get the sense that they want you to make a fair return in the town.” … In other cities, such as New York, he says that there “is a very clear policy about new development. And it’s not subject to a political process in order for you to make a project work. Either you abide by the rules and make a buck or you don’t.”

I’m sure you could tell a similar tale in many cities. As someone once told me, “Political risk is the only risk in real estate development, if you know what you are doing.” Many cities today are nothing but political risk for anybody but cronies, which is one why there’s so little market interest in developing there. But don’t worry. Your friendly local campaign donors and insiders will be there to help “prime the pump” – with a little assist from the taxpayer of course.

Pete Saunders once recounted his family’s prescient observation about Detroit that it “would not rebound until all value was extracted out of it.” This is the process we sadly see unfolding in many post-industrial cities.

* If you require evidence just ask how many urban core real estate projects in your city have been done without subsidies to political donors.

Sunday, July 27th, 2014

The Citizen Perspective on Smart Cities

One of the more highly touted concepts in the urbanism world is the idea of “smart cities.” Wikipedia says of the smart city: “A city can be defined as ‘smart’ when investments in human and social capital and traditional (transport) and modern (ICT) communication infrastructure fuel sustainable economic development and a high quality of life, with a wise management of natural resources, through participatory action and engagement.” The basic idea is “better urban living through technology”.

That smart cities has captured a huge amount of media and mindshare is unsurprising, given our technophilic society and the sums of money being spent by major corporations to promote it. But the smart city has proven to be elusive in practice and slow to materialize. What is it a city is actually supposed to do to become smart? And why haven’t we seen more of it?

As I said, smart city tech vendors have been making a major marketing push and so they are a fixture sponsors of conferences. Last month at New Cities, I saw several tech firms present their ideas on the topic, and it helped me understand more about why smart cities has proven elusive.

It’s already been observed that the citizen perspective is all too often missing in the smart city discussion. But listening to the providers in the space, it became clearer why. Namely because all of them are B2B companies who sell to the corporate C-suite and its public sector equivalent. They do not have a consumer heritage and thus they don’t have a lot of experience or heritage in end user applications, hence by default don’t see the city from the citizen perspective.

Think about a company like Cisco. Cisco sells most of the gear that makes the internet run. The people who buy their stuff expect it to work, all the time. They have to have carrier grade five 9’s reliability. These systems have to have the so-called traits of reliability, availability, and serviceability. They also have to be efficient and predictable in their operations. The idea is sort of like the Maytag repairman mentality. It just has to work.

This produces an operating model that would be, from the standpoint of a person, stifling or even dehumanizing. So it shouldn’t be any surprise the public and politicians by and large haven’t jumped in with both feet.

I want to stress that there’s actually huge value potential in this B2B, carrier grade type model. Not just Cisco’s business customers but all of us absolutely expect our phone to work and our internet to be up. All. The. Time. Comedians like Louis CK have skits mocking our entitled, unrealistic expectations about our technology (“I hate Verzion!”) The minute our home internet goes down, what do we do? Pick up our phones and start Tweeting about how much we hate AT&T/Comcast/Cox/etc. One reason we are so annoyed by them is that outages are so rare. Thank folks like Cisco for that.

Similarly, a Bombardier rep was talking at New Cities about his firm’s desire to sell managed services, not just trains, into the public transit market. If they were able to make trains run as reliably as phones work, there would be huge public benefit there.

So I don’t want to downplay the importance of that kind of stuff. In everything from water to 911 emergency dispatch, we need a whole lot of stuff in our cities to just work and work reliably. This necessitates the type of approach to gear and its implementation and management that comes from the B2B, sell to the CIO or operations manager mentality. It’s mission critical to public safety and quality of life.

On the other hand, that’s not the only type of application there is. Unfortunately, the smart city dialog has been dominated by it, with the exception of the open data movement, which I don’t generally see labeled as falling under the smart cities domain.

One thing I might suggest that these major vendors explore in trying to better capture the public imagination and drive uptake is to create a connection to the citizen by getting into some consumer businesses. Now this would be problematic strategically I know. Investors would probably hate it. But at least something small scale might be interesting. There’s probably a lot that could be learned.

Google is a B2B and B2C company, but one predominantly focused on software. They’ve been diversifying into hardware however, both by creating their own products like Google Glasses, and buying smart thermostat maker Nest. The latter I find particularly intriguing as these are in a sense a type of smart city application, but focused on the person in the city instead of back end infrastructure. Google is trying to learn the hardware space to be sure they don’t end up outflanked in the “internet of things.” (They are also getting into the infrastructure business as well though things like Google Fiber).

Potentially something like buying a Nest type vendor could be something these major smart city companies could do to put their toes in the water of the consumer space. Obviously any deal has to make sense from an investor perspective, but the idea here is that this is almost an R&D operation to create a pipeline of knowledge about the citizens of the city and what they value and how they live and create their lives. That then informs the smart city vision beyond efficiency and RAS, notably the “participatory action and engagement,” which is something you definitely don’t want on your router configuration.

This raises an interesting competitive question: will the majority of the profits in say the application of smart city ideas to energy efficiency go to someone like the smart meter vendor or to someone like Google/Nest? If I were the vendors in the space conventionally labeled smart cities, I’d be working hard to make sure the answer to that question was “me”. In the meantime, building relationships to citizens/consumers can help to shape the smart city idea into something with more marketplace uptake and public resonance.

For further perspectives on smart cities, see my previous post with my thoughts after I moderated a technology panel at Barcelona’s Smart City World Expo in 2012. Also, Adam Greenfield took a very negative view of the idea in his eBook that gives a different perspective on the issue.

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