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

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. 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. The macro view: Costs are savings
mercredi 15 février 2017
Claude Rochet - Moscou
3

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. « 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. 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. 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. Would be smart cities in Russia
mercredi 15 février 2017
Claude Rochet - Moscou
23

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. 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. 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. 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. Merci!
mercredi 15 février 2017 28
28
Thank you!
Спасибо
Claude Rochet - Moscou