when investing in growth costs nothing

When investing in growth costs nothing: Financing the transformation of Russian monocities as a lever of paradigm shift of Russian economy

Клод РошеПрофевор университетa париж сакле

Москва 07/02/2016

РOCCИЙСКАЯ АКАДЕМИКИЯ НАУКИНСТИТУТ НАРОДНОХОВЕННОГО ПРОГНОЗНРОВАНИЯ

lundi 1 mai 2023Claude Rochet - Moscou

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


3

The macro view: Costs are savings

Costs mean savings

Monday, May 1, 2023

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. American Society of Civil Engineers


6Weak 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.


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


8

Singapore vs. NorilskCommon 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 monoindustryA 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.


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.HET !


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

lundi 1 mai 2023

12

Strategy of Singapore growth

Low wagesLow cost

Low returns

High increasing returns

High wagesHigh valueTFP

Industrial base=> 1980s

Digital infostruture1980s =>

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 Gov2) Mobilization of Human K3) Continuous infrastructure

improvement

Claude Rochet - Moscou


13

Singapore growth modelAgile public administration: no silos!Leadearship

Shared long term vision !

Rapid interaction business Dynamics and public leadership

lundi 1 mai 2023

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



Innovation evolutionary dynamics

lundi 1 mai 2023

15

Connaissances scientifiques

Capacités organisationnelles

Economie

Innovation = 3 processus qui se recouvrent

Invention

Génère des possibilités

Structure les possibles en artefacts

Stimule la transformation de

l’innovation en offre solvable

Inno

vatio

n

Mar

ché

Co-évolution

UtilisateurEssais et erreurs

Source: Keith Pavitt


16

A (really) smart city: innovation at each level maximizes the multiplier

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 »


17What 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?


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)


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


« Technology is knowledge »20

Mokyr evolutionary model of knowledge growth

Knowledge « what » New knowledge

Knowledge « how »

Empiric improvement

Feed-ba

ck

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)


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


22Smart 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)


23Would be smart cities in Russia


24Is 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

25Smart cities and paradigm shift in Russia towards iconomy


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&DActions Realizations Strategic assets

Autopoeisis

Epistemic knowledge

Empirical knowledge


26

Business model transition

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: PPPFor

discussionCreating 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 investorPPP Russian funds

Benefits

lundi 1 mai 2023 Claude Rochet - Moscou 28

Merci!

28

Thank you!

Спасибо