The best things in life are free
You can keep it for the birds & bees
I want Money
That’s what I want
I’ve had some interesting phone and email feedback on an earlier blog. One struck me. It characterised my outlook on smart cities as “naïve”.
Yes! – I like that word! It does seem accurate. I think it’s also true for the smart cities movement, which is still in very early days. But maybe that’s just me trying to spread the blame.
Today I’m having a naïve look at finance. The question is – how are all these things going to be paid for?
The sensors (cheap, individually), the networks (cheap or even free), the parks, cycle lanes (they exist already), the yet more sensors to check how well these parks, cycle lanes, intelligent buildings and transport systems are working, the yet more networks – to accommodate these yet more sensors – they start to add up. So: how is it going to be funded or financed?
First off, some elements in the smart city equation don’t need a lot of time to justify. They pay for themselves. It’s like selling an old, fuel-inefficient family car that costs a lot in maintenance, and buying smaller, newer, fuel-efficient one. It’s going to be cheaper over time. In fact, it makes no financial sense NOT to do it.
Things like LED lighting, optimised public parking, smart bins might come into this category.
“How about if I don’t have the upfront money to pay for the new car?” – well, you go to your friendly bank or financier, and work out the cost over time of getting a loan. If you still save money after these costs are added, then it’s still a financial no-brainer.
Other elements do need more thought. Planning, security, data sharing – how is data going to be shared between cities? Between tiers of government? With citizens? What should be made public and what might constitute a risk? Massive questions.
What standards will it be built to – both technical and ‘best practice’ standards? How’s the data going to be stored for future analysis? Where is it going to be stored?
There are some interesting possible answers: eg why don’t councils, as data becomes available on use of cycle lanes at different seasons/times of day, discuss with the voluntary cycling organisations the possibility of them hosting the data?
There’s a lot that needs to be thought out, done, and paid for.
Here’s a quick and naïve history of public financing. In the middle of the last century there was enthusiasm for governments taking a lead in infrastructure finance. (Roads, bridges, rail, telephone lines. dams and water catchment, power stations). Drivers for this thinking included Keynesian economics and socialism.
Over time, people came to think that governments weren’t necessarily better at business decisions than the people themselves. So finance went on a new tack – public/private partnerships (PPP).
Some of these worked well. Japan is famous for its modern, fast and-on-time rail transport. Something known as a “third-sector railway line” – spun off from Japan National Railways – is a network of lines jointly owned and financed by prefectural governments and private interests.
Some didn’t go well. PPP brought controversy in its wake. A problem was that private investors obtained a better return than they would on government bonds, although some of the income risk was borne by the public sector. Investors themselves often felt the return was too low or risks too high. And, indeed, in some cases they were. Hong Kong’s Cheung Kong group invested in much-needed toll roads in Australia.
Out of the ashes of PPP new models and mutations emerged. (Sounds like something from a Zombies movie). One of these is “Value Capture”. Suppose, as a government organisation, you’re going to build a light rail. Its stations are great places for retail – selling snacks, phone cards, memory sticks, smartphone covers, repairing shoes. So the government has some prime real estate that it can sell or lease in the future. It goes to a finance company and says: “We have this future revenue stream from leasing out retail sites. Give us a loan, secured against this revenue.”
So there’s a rapid and naïve peek into the vault, where we hope the answer – the money – is.
The Best things in life may be free, but building a smart city without figuring how it pays for itself, would not be smart.
Creator Tech is pleased to have been commissioned by Comms Alliance to undertake an Australian IoT study. The 3-month study culminated in a report launched by Federal Minister Paul Fletcher; and can be accessed HERE.