The economic geography of the 21st Century is different from the last. We are at the dawn of an age of unprecedented global connectivity driven by technology. The channels of economic growth and participation this century provide a virtually bypass to the world’s traditional hubs, entrepots and gateways. Bangalore – a sleepy university town 20 years ago – is now India’s booming IT capital. German factories hum in Poznan and in Puebla, and as Bruce Katz highlights, the US is experiencing a metropolitan revolution, as small and medium post-industrial cities capitalise on their rich inheritance.
Globally, “small middleweight” cities – those with 200,000 to 2 million residents – are home to 7% of the world’s population, but McKinsey estimates they will generate 19% of global GDP growth to 2025. The UK, as the seventh largest global economy, must act now to realise the potential of its cities: the ONS defines 32 urban areas in England with populations over 200,000. Despite decades of urban regeneration initiatives from civic and business leaders, only London currently makes a net contribution to the Treasury. In the last 15 years, no cities outside London have grown their proportion of national Gross Value Added.
The neglect in developing a national urban growth strategy by national government must be in part due to the complacency that Westminster feels, comfortably astride the prosperity flowing up the Thames. This wealth doesn’t provide sufficient irrigation for business and industry nationwide. Our river of capital streams into non-productive investment in housing and consumption, led by southerners borrowing to fund both. Will Hutton made this plain in 1995: Britain needs to invest more in its future. Since then the ONS has warned that investment, as a proportion of the economy, has fallen to its lowest level since the 1950s, and 30% lower than the G7 average.
As Mariana Mazzucato has recently highlighted, the wider supporting environment for growth is influenced heavily by government. No entrepreneur is an island. Cities need autonomy in regulating and taxing business, and in supporting a skilled and fluid labour market. This reform is needed at a time when local authorities are hugely challenged. They must redefine public services in an era of constrained spending and increasing demand for health and social care. Public services must be fundamentally transformed to support people to thrive in 21st Century cities, matching contemporary social geography. This isn’t a competing agenda to the challenges of stimulating productive economic activity – it is fundamental, complementary and necessary.
Over 15 million people live in England’s 15 largest metropolitan city-regions outside London. If they are to lead socially productive and fulfilling lives, investment must be attracted and enterprise must flourish, providing jobs that pay sufficiently to raise living standards. Growth needs to deliver for all who propel it, and adapt to the increasingly apparent environmental limits.
The potential for people to work, to learn, to find funders and collaborators, will only be realised at scale in cities. Cities offer critical mass: providing enterprises the breadth of markets – labour markets and consumer markets – to grow. Currently, getting people back to work is not delivering growth because worker productivity is stagnant; we have returned to pre-2008 levels of numbers of people employed and number of hours worked, but not of GDP. If we are to address labour market challenges, this must mindful of the scale at which these markets operate.
A London growth strategy for the UK will not suffice. We must develop a network of cities to serve as centres of productivity, home to businesses which power the UK on the world stage. We face a delicate balance between capitalising on agglomeration effects and concentrating economic power, and providing assistance to people and areas currently less competitive – potentially undermining that power.
Last week, the RSA launched the City Growth Commission – chaired by Jim O’Neill, outgoing chair of Goldman Sachs Asset Management – to develop a comprehensive roadmap to deliver a programme of change. Recently the Heseltine Review, the City Deals, and the London Finance Commission have suggested an array of levers that could alter the relationship between our national government and our cities, and the current RSA Journal brings together several innovating voices on the power of cities. There is a growing consensus that cities represent the best scale at which prioritise investments and redesign the political economy, thus unleashing the potential of the innovators, social entrepreneurs and active citizens to pull the UK through its current challenges.
A century ago, municipal government in the UK was among the most progressive and ambitious in the world, pro-actively investing in the transport infrastructure and human capital to fuel an industrial economy. The next national government of this country must empower urban authorities and urban residents to join the global momentum of city-led growth for economic, social and environmental benefit.
Sharing is popular again. It’s been 25 years since Harry Enfield mocked 1980s greed and individualism as his Loadsamoney character – a cockney plasterer. Now, a quick and exciting route to riches is promised by the sharing economy. Airbnb, its posterchild, is worth $2.5bn (£1.5bn) and Silicon Valley is buzzing again. Does sharing represent a scalable opportunity for a socially productive economy? This blog grounds the sharing economy in some context, and is followed by Part 2, analysing of who profits from sharing.
Since 2008, our dominant economic and financial structures have come under increased scrutiny, from many directions. Many argue that existing systems have delivered material wealth at great environmental cost, contributing to (or even relying upon) growing inequality at many scales, and that as we get wealthier, wealth is increasingly an ineffective means of delivering well-being. As the public sector started talking about “doing more with less’ and “sweating the assets” politicians and business consistently urged the public back on to the treadmill of buying more stuff a generation of social entrepreneurs said “let’s use what we have better”, and were spurred to develop their own peer-to-peer circuits for production, distribution and consumption. They were driven by objectives which ranged from getting rich themselves to meeting their neighbours to minimising overall consumption, and we now have a carnival of applications which connect individuals to one another to exchange in new ways.
The sharing economy in a tweet: “#whyishare is making MORE, for LESS and with NEW people”.
The sharing economy is how we describe this system which widens access to goods, services, assets and talents, through arrangements of collaborative consumption, a term first applied in 1978 to car-sharing. The sharing economy is a bunch of new ways to connect things that aren’t being used with people who could use them. It often does this through internet-based applications, and therefore does this radically better than previous systems in achieving higher utilisation of the economy’s ‘idling capacity’. According to Professor Clay Shirky, “the world has over a trillion hours a year of free time to commit to shared projects”.
In 2011, the RSA hosted Rachel Botsman and Time magazine said collaborative consumption was one of ten ideas to change the world. Now sharing economy initiatives are squaring up to entrenched businesses, and regulators and tax collectors are becoming interested.
Rachel Botsman defines three types of collaborative consumption: product service systems (like Barclays bikeshare in London and Netflix, where you rent for short periods rather than owning), redistribution markets (like eBay, Freecycle, Gumtree, where you sell or give away unwanted stuff) and collaborative lifestyles (like Landshare, Streetbank, and Couchsurfing), where people swap skills, time and other assets.
Like efforts to build a circular economy the sharing economy often promises environmental efficiency. Reducing waste appeals to our moral sentiment (waste is a feature in two of the seven deadly sins) while sharing means we get access to more, and perhaps put individualistic materialism (the envy and jealousy associated with coveting thy neighbour’s goods) in the back seat. To paraphrase Neal Gorenflo, the idea is that instead of keeping up with the Joneses, we are inspired and enabled to collaborate with the Khan’s, rent our under-used assets to the Cheng’s and get tips from strangers on how to hack, fix and rejuvenate objects at a makerspace with shared tools. We meet new people (online and offline) and make a living in new ways, while using money less, hoping to reverse declining social capital.
Sharing can get really creative: through Waze (which Google just bought for $1bn), drivers share their live data on traffic to help others travel more efficiently. GoGenie shares information about disabled access. Carrotmob organises campaigns for people to vote with their money, giving businesses positive incentives to make sustainable investments. On TaskRabbit, people bid to perform chores and…tasks, while Instacart specialises in matching your shopping list with someone to do your shopping and deliver it to you.
Of course, sharing goes way back. We’ve always been sharing, bartering, lending, gifting, and swapping. Collaboration has been our primary competitive advantage as a species. Before we had money, we had a gift economy – “you owe me one” – rather than a barter economy. Within modern capitalism there have emerged a range of redistributive institutions such as co-operatives (800 million members globally) and credit unions. Good 360 has taken $7bn in corporate donations over the last 30 years and distributed them to charities. We often lose sight of the fact that efficient resource allocation is what the (old) economy is fundamentally driven to do, but often fails. The sharing economy might be best conceived as a system to address market failures in personal consumption; to share market information, lower transaction costs and lower barriers to entry, therefore expanding the market of buyers, sellers, donors and recipients.
In contemporary society, what some have dubbed the core economy – the unpaid care, support and nurturing we provide for one another – structures our lives as much as the monetary economy. Sharing mechanisms have long supported the core economy, through informal networks and more formal institutions: 28,000 people have collectively pooled their skills and support at 300 local Timebanks across the UK, on the basis that an hour of my time is worth an hour of yours, and there is potential for institutions and business to do the same – e.g. Hackney Shares.
We are at a moment of hyperbole, so there is a risk that new tech applications divert our attention from the breadth and heritage of sharing structures in society, and the risks of failure. Many sharing platforms struggle to reaching critical mass in activities which represent a natural monopoly based on a network effect, so efforts are now being made to build infrastructure to consolidate the sharing economy – comparison websites and sector-wide initiatives (…is this meta-sharing?). But the growing consensus is the sharing economy could be as transformative as the industrial revolution; and Natalie Foster says sharing “will be the defining economic story of the 21st century.”
The sharing economy is beginning to look like a panacea: an all-conquering system of innovations which can drive can drive economic growth and social outcomes. It’s more complicated than that, and Part 2 on this blog discusses profiting from a sharing economy.
As the sharing economy is booming (Part 1 – Sharing our way to prosperity), its millions of participants now face a choice. There are ways of swapping and collaborating for free, and there are also ways of commercialising idling capacity.
In reality, many of the most successful sharing economy platforms are simply commercial platforms with a personal touch. eBay works because buyers and sellers leave feedback for one another; enough to grease the wheels on $175bn of transactions in 2012. In an era of self-checkout supermarkets, it’s ironic that it is through internet applications we’ve reawakened to the fact that business can be personable and customised. Airbnb now call themselves a “community marketplace”. Etsy is an online shop for $1bn of products sold direct by artists and craft-workers who make them. Every sharing platform seems to have spawned a commercial sharing platform: eatwithalocal might be devoured by eatwith and Google Hangouts (video chats) looks set to expand to Google Helpouts where people buy and sell services via video link.
Should we commercialise sharing? In working with Benoit Passot investigating the logic of impact investments, I became convinced that we all place values on achieving financial returns and social outcomes, but those values vary. What we need are opportunities to discover what our values are. Technology makes it easier for us to join timebanks, and easier for us to make a living selling our skills. When money is involved, obviously, these values are made explicit. There are platforms which will enshrine free sharing as principle and policy, and there will, simultaneously, be ever more sophisticated commercial platforms – with a social dimension – making up an ever greater proportion of economic activity. In other words there is sharing, and there is the economy. We will vote with our feet and vote with our money.
Commercial sharing platforms can’t be fully inclusive if some potential participants are excluded by a lack of money, but commercialising traditionally non-monetary assets such as spare bedrooms could support someone to pursue other socially productive activities in a volunteering or caring capacity. We know sharing gives us a feeling of solidarity and identification, more than selling and buying, and can (re)build social capital in a way that traditional market transactions can’t.
Does this mean money contaminates exchange relationships? Not always. People form meaningful relationships with their bosses, and the people they manage. Shopkeepers befriend their customers, consultants get chummy with clients. In each case, physical interaction and proximity usually matter. Money-free sharing platforms are probably best realised at the local scale. There is stronger potential for ongoing reciprocity in dense urban areas. Money, as it has always has been, becomes a unit of trust which can reduce the friction of distance. Whether free or commercial, the promise of the sharing economy is about the alignment of self-interest and common good; at distance, the ability we have for realising common good together diminishes, and money is more helpful as a proxy for trust.
However, there is a fundamental challenge to achieving collective and inclusive “common good” if the sharing economy continues to grow: non-monetary activity doesn’t register as GDP.
The more we try to gain economic and environmental efficiency through generating activity outside of – or reclaiming activity from – the market, the more we stifle the monetary economy. While we already know GDP is an insufficient measure of progress – as Rachel Botsman says we need to measure the number of holes drilled not the number of drills sold – our primary system for realising life opportunities is built on it. One of the buzzwords of tech recently has been disruption. In this regard, the sharing economy is highly disruptive.
As a society, we tax consumption, employment, income and profit. More money on the books and circulating in the economy – i.e. rising GDP – generates more tax revenue. Tax then gets spent on government services, further contributing to GDP. Government, therefore, has an implicit incentive to both formalise the informal economy, support recorded and taxable economic activity, and bring online commercial platforms, and their users, into the tax regime. Government in fact represents the ultimate level of sharing: we are practicing collaborative consumption through societal organisation of public services.
As Caron Suchecki says, “paying tax is participating in a sharing economy, dodging it is not.”
Public services in 2020 need to look a lot different – in their structure, relationships, delivery and funding – and they have a long way to go. There is a lot to learn from the sharing economy in unleashing idling capacity. But collaborative consumption doesn’t work in every context: a recent report found that it is difficult to reconcile the need for personalised care and support packages with the economic advantages of collective purchasing power: “service providers and commissioners can’t impose collective approaches or assign people to groups that don’t matter to them”.
We therefore face competing quandaries. On the one hand, the more we rely on each other in non-monetary ways through systems of mutual aid and support, turbo-charged by new innovations, the more we withdraw from the circulating flow of money which ultimately funds public services: our democratically-controlled, societal support network. (The prevalence of the informal and undeclared peer-to-peer economy may already be undermining public institution-building in the developing world.)
On the other hand our GDP treadmill is increasingly frustrating: its failing to improve well-being in rich countries. The cost of our basic requirements – for example housing, food and childcare – are increasing faster than wages for most people. Many work all day to make enough money to pay someone else to work all day looking after children, elderly parents, or others needing care, and the primary destination for our tax money is to subsidise low wages and provide health, education and social care.
In conclusion, the expansion of economic activity in its current form is eroding our time, quality of life and environment. The sharing economy has some promise to challenge this by making better use of existing assets – through monetary and non-monetary sharing. But unless GDP is uncoupled from the funding and delivery of the public services, and environmental resrouces are valued properly, simultaneous efforts to personalise public services, stimulate economic growth and expand the non-monetary sharing economy risk undermining one another and stifling the realisation of our collective aspirations.
Moby famously sang that we are all made of stars. And yesterday evening at the Institution of Engineering and Technology (IET), Professor John Wormersley, Chief Executive of the Science and Technology Facilities Council, echoed Moby’s mantra (okay, maybe that’s a bit of stretch). Professor Wormersley spoke about how the search for black holes and the higgs boson impacts society and the economy.
Professor Wormersley’s talk was engrossing for a number of reasons, not the least of which was the fact that he emphasised the link between ‘big science’ (think of the discovery of the Higgs boson at CERN last year) and the implications for our daily lives, society and the economy.
While for many people (me included), our knowledge of theoretical physics may come mostly from reruns of The Big Bang Theory on E4, Professor Wormersley noted that we rely on the numerous outcomes and chain reaction results from ‘big science’ in our daily lives: the internet (originally Tim Berners-Lee’s method for information management for scientists at CERN), wifi (which was enabled through Hawking radiation), and MRI scanning (which comes from knowledge of superconductors). In short, we need theoretical physics to help develop and improve our economy, our health, and the environment.
Yet ‘big science’ is often viewed as a risk because it is in an investment in the unknown, the unexpected and can often fail. But, as Professor Wormersley pointed out, we must be willing to take that risk.
So, Professor Wormersley’s thesis got me thinking about design. Just as Wormersley emphasised the need for and the link between theoretical and applied science, I think we need both theoretical and applied design.
But how can we teach and understand and then reap the benefits of theoretical design?
We can interrogate the design brief. Instead of just applying our knowledge of design and the design process (observing, analysing, prototyping, etc. ), we should use design to question our motives and why things are the way they are, without necessarily expecting a certain outcome.
This is where projects like The Great Recovery come in. The RSA’s Great Recovery project is about how we can promote and foster a circular economy and for now, we’re focusing on making connections between science, design, manufacturing and policy. But, we don’t necessarily know what the end result will be – though there actually is some ‘small, medium and big science’ going on in our workshops related to the project) as we don’t know necessarily what the end result will be.
You might even call it ‘big design.’
Morning all, and welcome to your first ever networks round-up.
Hot networks news this week includes this rather attractive networks visualisation from the New York Times, which breaks down various elements of the ‘Euro crisis’.*
A first slide shows how everything is connected: in this case the way that debt straddles country borders.
The graphs the goes on to show the debts that borrowers from one country have with banks in other countries. It then charts the possible ways a crisis could spread.
The immediate risk is, of course, posed by Greece. Greece has massive debts in 9 other economies, including the ‘shaky’ Portugal, Italy, Ireland and Spain.
This could possible lead to a scenario of ‘debt contagion’ where, given the single currency, we might have a run on the banks scenario as people shift their money from more risky to less risky countries.
A collapse in Greece would then lead to less confidence in the four shakier counties, possibly leading to an increased debt burden if interest rates are raised. If a country such as Italy were not able to cope, this could massively impact France whose banks own $366 billion of Italian debt.
Crises impacting in France and Italy could then massively impact the USA, which has a very large exposure in both these countries. When it’s all connected, crises can go global.
Wondering how the banks and global corporations all link up beyond country borders? If you haven’t read up on ‘the network of corporate countrol’, you really should now.
The research,based on 2007 data , shows an unstable global structure. The the network is scale-free, meaning that a few companies have the vast of majority of all connections, suggesting that if one company goes down, it will have (as 2008 showed) massive repercussions on rest of the system.
*What follows is a description of other people’s research. Here I am just the networks messenger.
The fascinating thing about today’s growth data is what it tells us about the rather painful birth of a new type of UK economy. Before the Crash of 2008, growth in the UK was largely driven by public spending, construction and business and financial services. New Labour Governments lived with this quite happily by skimming off the tax revenues from the buoyant economic activity in these sectors and directing it into public services and tax credits.
While in opposition, George Osborne made a great deal of how this economic approach was now defunct and it was time to create a new “British Economic Model” based on a wider base of high growth sectors, an active but more constrained finance sector and much less public spending.
While the Treasury is making much of how buoyant manufacturing is and suggesting that this shows the UK is beginning to rebalance in the way Osborne wants, the data suggests something far more complex and less certain is happening.
The story of the first quarter of 2011 is, in fact, one of a reasonable contribution to growth from manufacturing (0.1%) but a much more significant contribution from public spending (0.2%) and business and financial services (0.2%). Over the last year, public spending and business and finance have contributed 0.3% each, while manufacturing has contributed 0.4%.
The other big driver of the New Labour era was construction. This is still the case currently with the building sector contributing 0.4% to growth in 2010. But what is striking is the extraordinary volatility in this sector. Construction has gone from boom in the second and third quarters of 2010 to recession with major shrinkage in the fourth quarter of last year and the first quarter of this.
So we cannot yet say that there is any sign of a really significant break from the New Labour approach yet. What growth there is in the UK economy is still coming from business and finance, public spending and construction. What is new is that manufacturing is making more of a contribution than it has historically but will probably need to do much more to suggest a real shift to Osborne’s vision. And construction is highly volatile and, as such, deeply unpredictable.
The truth is the economic jigsaw pieces were jumbled up massively by 2008. The data suggests we may have to wait quite a lot longer to see how they fall but for the moment signs of a completely new picture emerging are limited.
So the IMF now agrees with practically everybody else that growth in the UK is going to look much more sluggish this year than expected. Cue a round of political ping-pong between the parties and yet more debate about whether the cuts are good or bad for the economy.
Leaving aside the confusing irony that everyone is arguing about forecasts as though they are facts when those forecasts are merely revisions of previous forecasts that turned out to be wrong (maybe), there could be a deeper problem here.
It’s a problem highlighted by the law firm DLA Piper that has just published the first of three reports on how “traditional business models” are being challenged by the online world. The report shows straightforwardly how the internet is making factors such as business size less relevant and product authenticity more so.
Admittedly, this is only the first offering but I hope the next two reports are able to communicate more clearly quite how significant the changes are. For as Matthew Lockwood and I explored in a recent pamphlet, the rise of Web 2.0 does not merely demand new business strategies but will ultimately demand a totally new way of doing business. And the core of that shift is to recognise that the once firm dividing line between producer and consumer has broken down. Consumers increasingly expect and have the resources and skills to design, shape, manipulate and even sell the products and services they purchase.
This matters enormously to the future growth of the UK economy. The major technological transformations that capitalism has experienced since the mid-eighteenth century – such as the growth of railways and canals, the use of electricity, the rise of mass production – have tended to focus on manufacturing. Web 2.0 is the first general purpose technological transformation that is revolutionising the service sector and this is of course where the great bulk of the UK’s GDP growth comes from.
Unfortunately, our record on dealing with previous technological transformations is not strong: the UK never became a very good mass producer in the first half of the 20th century, nor did it do very well in adopting flexible production techniques in the second half – perhaps the major reason why we became so dependent on the service sector. If we miss this boat, however, there really isn’t another sector to turn to.
Which brings us back to the current rather short-term debate about growth. Of course, it is vital that we have the right policies to boost our growth rate over the next year or two but it will in the end be for nothing if we haven’t identified the right public policy framework and business practices to sustain growth in the next decade or two. With the development of our new strand of work on enterprise and innovation , I hope the RSA can do its bit to identify and promote these new policies and practices. In the meantime, a debate from our political leaders that looks beyond the next twelve months whenever these forecasts hit the headlines might be a start.