Causality and Hierarchy

By Jan Dolezal

I was thinking whether there are some frameworks for ranking and organizing different initiatives, for example those on the menu of PlaNYC (here).  PlaNYC is not conveyed with costs (or benefits) and it’s only part of the overall approach of the City and State of New York so it’s hard to quantify the components, but here are some qualitative thoughts:

Hierarchy of Needs

One is a pyramid mirroring Maslow’s pyramid (’s_hierarchy_of_needs) with a similar pyramid for cities (e.g. you don’t care about energy efficiency if you don’t have energy. You don’t care about climate change if you don’t have housing…) On the bottom level, there are basic infrastructure needs (housing, transportation, water, energy). If this is not met, nobody will really care about what is higher. Above that initiatives that improve immediate quality of living, such as Air quality or Parks. Only when this is met, people might be thinking more about recreational Waterways and problems that are not troubling them directly such as Solid waste management. At the top of the pyramid is climate change that people will be more willing to address only when their lower needs are met.

This pyramid also demonstrates why cities in developed countries care more about the higher levels than in developing countries where even the lower levels are not met.   We could place the PlaNYC (or KAEC or Tianjin or Dharavi) initiatives in such a pyramid.

Dolezal's Hierarchy

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It’s a matter of speed and accuracy – Decentralized, responsible social enterprise!

By Lefteris Charalambous

In my opinion urbanization will be one of the predominant social forces of our generation, especially in emerging countries and it will create great challenges and tensions, especially since the speed of urbanization seems to be much greater than the speed of developing mechanisms and infrastructure to accommodate the inflow of people. We can leverage the dynamics of this phenomenon by developing a flexible yet accurate way of addressing the main infrastructure issues of these growing urban settings. The enabler to do this could be market driven but socially focused entrepreneurship.

The objectives of addressing these challenges should be clearly articulated: (1) Provide access to basic infrastructure to people, (2) Improve living standards and (3) Create a framework for economic development. The second input in this equation should always be the context. Each emerging country, specific region, city or even part of the city is a unique ecosystem that required effort to decipher and understand. Having all the above in mind, it is very difficult to imagine a concentrated central planning unit making successful decisions for this very diverse and at the same time unmapped group of urban eco-systems.

In my mind, a way to gain the extensive reach and flexibility required to address this is through decentralized entrepreneurship. The local expertise and the ability to implement the product at a small scale can be crucial in successfully addressing issues such as distribution of fresh water (similar to Sarvajal), generation of energy, recycling, basic medical care etc. Continue reading

Slum lords as entrepreneurs

By Alice Heathcote

Annawadi sits beside the road to the Mumbai airport, on “a stretch where new India and old India collided and made new India late”

Behind the Beautiful Forevers, Katherine Boo

After much insistence my mother, I recently started reading ‘Behind the Beautiful Forevers’,a non-fiction work from Pulitzer prize-winning journalist Katherine Boo. The book follows the lives of the inhabitants of Annawadi, a slum settlement in the shadow of luxury hotels near the Mumbai airport. The main character, Abdul Hussain, is a Muslim teenager who turns an increasingly success profit through reselling the recyclable garbage that richer people throw away. He begins to dream of a life outside of Annawadi, and even a wife who ‘does not care that he smells’. His success catches up to him however, when his next-door neighbor attempts suicide and he is falsely accused of her murder.

At this point, the true tragedy begins to unfold. In the legal vacuum of Annawadi, the Indian police are anything but a force for good. Despite the fact there are hundreds of residents to prove his innocence, Abdul is charged. The police know his family has money stored away and they have an angle now for getting a slice. Police officers arrest the accused and demand bribes; when Abdul’s mother refuses to pay most bribes, family members are imprisoned and beaten. The story gives us an inside view of the Indian criminal justice system, in which success will attract resentment, unwanted attention from authorities and a higher price tag to buy yourself out of jail. Continue reading

Smart, Non-Grandiose Entrepreneurship

By Yonatan

In our survey of case studies in the course we encountered several types of entrepreneurial approaches that range from Living PlanIT’s system-level IT solution and Masdar’s top-down support of cutting edge technology to Sarvajal’s business model innovation for clean water delivery to individual rural Indians. These and other examples demonstrate approaches that vary across many dimensions, two of which, I would like to argue, are most important: the degree of technology innovation and the scope of the solution (i.e. room, apartment, building, neighborhood, city; not scope as in size of addressable market). [Maybe “ambition” or “scale” would work on this axis too? – John M]

There are numerous reasons for why these dimensions are particularly important. The degree of technology innovation has vast implications on upfront R&D expenditures, time-to-market, level of customer education and required guarantees on one end and competitive barriers-to-entry, asset intensity and costs of operation on the other. The scope of the solution influences scalability, level of coordination and concentration/fragmentation of the customer base, among other things. Overall, these are chief in determining the go-to-market strategy, profit formula, availability of funding and other elements of the opportunity that impact the probability of success for a new venture[1].

With this in mind, I believe that the middle-ground of these two dimensions are the “sweet spot” for entrepreneurship in the fields we have been discussing, especially for applications in existing cities. The following diagram illustrates my rough evaluation of some of the examples we discussed in class and others [2]:

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The Quest of Costa Rican Buses

By Jannis Koehn

Last spring, I visited Costa Rica for the first time after more than ten years. What I found most astounding was that the buses that took me through San José and across the country seemed to be the same old models I had seen back in 2000. Haven’t oil prices soared from $10-20 then to $90-110 today? Haven’t manufacturers developed modern fuel-efficient engines since? So why did operators not invest in more fuel-efficient buses? Costa Rica is proud of its 90% renewable power sector and successfully developed an image as a heaven for eco-tourism. Yet, the country’s public transport system lags these ambitions. Today, Costa Rica imports 15-20 million barrels of petroleum products annually, spending around $2-3 billion, and the air in San José is full of diesel soot. The paradox of old buses is a widespread phenomenon in the developing world – and, one could argue, even in some developed countries.

Koehn typical city bus  Koehn long distance bus

Pictures: Typical city bus (left) and relatively modern long-distance bus in Costa Rica

As an ordinary citizen, I cannot change government policy. But there may be scope for entrepreneurship, social or for-profit. On a lengthy bus trip to the country’s North, I started wondering what the economic rationale for bus operators was that prevented them from investing in new models, and I did some basic calculations. Factoring in basic variables such as annual mileage, fuel economy, diesel prices, bus prices and capital costs, I concluded that investing in more efficient buses would for many operators be economically favorable, at least for long distances. Given that most buses around were still old and inefficient, and unless diesel subsidies or import duties on buses distorted the market, operators may simply not have access to sufficient capital to buy new buses – that is where a startup, a bank or an international institution may help out.

For this article, I researched government policies and refined my assumptions, but the results did not change. Import duties on buses are negligible (<5%[1]), and I did not find evidence for diesel subsidies despite prices of USD 5.00 per gallon. So, long distances more than for city routes, and with used rather than new buses, replacing old buses seems to make sense. Here are the results for different capital costs in one graph.

Koehn savings estimate

The underlying back-of-the-envelope calculations look as follows:

Koehn savings calculation

So, what can businesses and entrepreneurs do to enable Costa Rican bus operators to make investments that are economically and socially beneficial? As a bus manufacturer, one could provide leasing arrangement to alleviate upfront capital constraints. Volvo or Daimler might also partner with the World Bank or other development institutions to create a fund that bridges capital needs. As an entrepreneur, one may set up a small investment fund, or tap crowd-funding as a source of capital, and lease out the buses. As a Harvard student, one may engage HU’s Shuttle Service and encourage a renewal of buses on campus, recycling the current ones cheaply to Costa Rica. That would also solve another problem: Noisy buses that inhibit quality of sleep here in Cambridge.


Public Private Partnerships as a Tool for Social Policy

By Brett

When entering a Public Private Partnership (PPP), local governments have opportunity to seek out terms that achieve a broad range of social and economic development goals. A government hoping to create jobs for locals in new city projects might impose a quota of local employees or contractors,[1]  provide incentives to boost the candidacy of local workers,[2] or remain neutral, relying on local expertise and proximity to lead to jobs for locals. The first option in particular may be unappealing to private corporations, but could be feasible for the right project.

However, opportunities to contract social benefits go beyond direct job creation. In the TransMilenio case, the government of Bogotá required new BRT operators to buy out and scrap buses from the old system. Reducing the old buses while simultaneously implementing BRT eased traffic congestion, reduced emissions from the older buses, and boosted demand for the BRT. Early on, new BRT operators had little trouble with this requirement, as there was a ready market of drivers willing to accept cash for their old buses. As the project progressed however, the supply of old buses decreased and BRT planned expansion to more lucrative lines. OId bus drivers increased their demands, raising costs and complications. The government and private operators remained aligned in goals, but the increased burden of buying out set number of old buses fell largely on the private side.

It is instructive to contrast social policies through contract to traditional regulations. Major health, safety, or environmental concerns will likely remain regulated areas, as they can be imposed upon all industries or residents within a city at once. However, passing these regulations can meet with political hurdles and delays. Moreover, in some communities, including Bogotá and the Dharavi Slum, so much of the local economy is in the informal sphere that these regulations are unenforceable anyway. In TransMilenio, we saw an effective example of leveraging a PPP to bring many private bus drivers under formal contracts, thus ensuring their involvement in social security and workplace safety requirements.

Acting through contract also offers opportunity for experimentation. Employment quotas may be unnecessary or ineffective. Contract also allows more precision. The local pool of candidates for jobs in banking may be vastly different than those in engineering—one quota may not fit all. Eliminating ineffective social policy clauses in contracts could permit governments to demand higher concessions from the private operator.

[1] For further discussion of the opportunities and perils of a quota system, see e.g. Williams, Jane “Emiratisation: The way forward” INSEAD 25 July 2011.

[2] For example, the Portuguese government offered to pay the first two years of salary for any Portuguese PhD graduates hired to work in PlanIT Valley.  In doing so, the government is building the capacity and experience of its population and creating a ready benefit to be touted in future elections.