Decision Rules: New city vs. Retrofit/Expansion

By Bryan Mezue

An important debate in our class has centered on the relative benefits of building new cities up from the ground up versus retrofitting old cities for growth. It is clear that we have no choice but to do one of the above to accommodate for the great urbanization trend, especially in the developing world. I do not think one model is always right. Instead, this blog post seeks to propose a theory of decision-making to support a choice between the models. I believe the choice should come down to an assessment of three key factors.

Pre-fab saves the day

By Jonathan

Our discussion on BSB’s audacious efforts to revolutionize the high-rise industry initially struck me as odd. The world’s tallest skyscrapers were some of the most glamorous buildings on the planet, housing luxury hotels, high-end housing, and sophisticated businesses. Why would those tenants settle for a drab, boring, low-end pre-fab building? But our case highlighted that there were many advantages to pre-fabricated construction, and I came to the realization that I was deeply and unfairly biased against pre-fab construction methods. Every other industry does some sort of pre-fabrication. My car, my clothes, my electronics – all are prefabricated, reducing the price, increasing the quality, and increasing my satisfaction as a user. Why should the construction industry be any different?

Collaborative Consumption: Un-settling the situation

By Brett

I recently attended an excellent presentation by Robin Chase, the founder of ZipCar[1], in which she described the early obstacles to implementing ZipCar in the US.[2] In this post I will focus on Professor Macomber’s Framework #3 and argue that the innovation of collaborative consumption is that it blurs or ‘moves’ situations within the matrix framed. Zipcar used a new business model specifically to unsettle the transit situation in the US, thus creating an investment opportunity.

Chase explained how the settled systems of hard and soft infrastructure—including zoning, parking, and wireless technology—stood in the way of effective collaborative consumption of rental cars. For example, ‘normal’ (non-ZipCar) renters are charged a small tax (~$10) by the state for every rental.[3] An additional $10 fee for every single Zipcar use would have been a serious blow to Chase’s business plan. Instead (with the help of a good lawyer) Zipcar builds one $10 fee into the annual membership for Massachusetts users and every subsequent use is part of the same initial rental. As this example shows, entrenched interests had settled the system in favor of their own designs and ZipCar had to disrupt the infrastructure to create a viable market for its product.

Smart Cities: Repeatable Experiments or Research Labs?

By Lauren Burrows.

We recently read a case about a company called Living PlanIT that has proposed to build a greenfield “Smart City” in which it will attempt to reduce waste and increase the use of renewable materials in building, deploy renewable sources of energy, and manage energy, waste and water more efficiently. While this sounds very appealing, as we discussed the case and reviewed the drawings of the concept, I could not help but be reminded of the book, “The Death and Life of Great American Cities,” by Jane Jacobs. Jacobs published this book in 1961 in response to the “urban renewal” movement of the mid-twentieth century, which was a program of land redevelopment in dense urban areas that sought to bulldoze slums in order to create open (and, Jacobs argued, sterile) city spaces. In recent years, the concept of a “smart” city has attracted a great deal of attention and several new cities have been proposed based on this model, including Masdar in Abu Dhabi and New Songdo City in Korea. However, it remains to be seen how we will measure the success of these developments. Will companies choose to locate in these cities? Will people choose to live there? Will we choose to replicate them elsewhere or will they simply prove to be sterile research laboratories?

If these developments do prove to be nothing more than research laboratories, as I suspect they may, how can we predict which “smart” technologies will prove successful in being implemented elsewhere? First, the technology must create clear, measurable and repeatable value that can be captured by a single entity. A technology that creates value for the greater public good or that cannot be easily quantified will have trouble gaining traction. Second, there must be a clear decision maker for the sales process. Technologies that require a number of parties to collaborate will also experience difficulty. One example of a technology that meets these requirements comes from a company called Big Belly Solar, which develops solar-powered, networked trash compactors that save time, fuel and money for municipal governments and other institutions that manage waste removal from public spaces. Big Belly Solar trash compactors add five times the capacity as existing trash cans, reducing the frequency with which entities have to send personnel and/or trucks to collect trash. Furthermore, these trash compactors are solar powered so they do not require grid connection and are networked so that an entity can track which garbage cans are full and only send personnel and/or trucks to garbage cans that are full, further reducing fuel use and time. The savings that this technology generates can be easily measured and tracked and there is a clear entity that derives the benefits and the company can identify who the appropriate decision maker is within that entity. Regardless of whether these experimental “smart cities” lead to a proliferation of other greenfield “smart cities,” I expect that they will generate a number of viable technologies like the Big Belly Solar trash compactor that will be developed and applied elsewhere.

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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.

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[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.