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Smarter Cities of the future will be built on talent-based economy and technological innovation January 7, 2011

Posted by Kristina O'Regan in Uncategorized.

Global recovery: challenges and opportunities

Global recovery is poised to present a new set of challenges and opportunities for many emerging and advanced economies that relate to the changing nature of global economic growth and competition.

Last July, at Dublin-based IBM’s Global Centre for Economic Development that forms a part of the Institute for Business Value (IBV), we published a study titled Smarter Cities for Smarter Growth: How cities can optimise their systems for the talent-based economy. According to our research, worldwide, since the early 2000s, there is an ongoing re-orientation of the core sources for future growth away from the traditional ‘bricks-and-mortar’ economy based on physical capital (e.g. buildings and equipment) and financial capital, and toward human capital or talent-intensive growth.

The core insight from the study is that creativity, knowledge and skills, together with technological innovation are becoming the key drivers of economic growth and activity – in other words, there is a ‘brain-and-creativity’ economic growth paradigm at play globally.

For example, the share of overall economic value added attributable to creativity, knowledge and skills-intensive sectors of the economy (e.g. internationally traded and other higher value-added services, design and innovation-centred manufacturing, etc) is expected to increase by over 8 percentage points over the current decade.

Relationship between technological innovation and talent contribution

Our forecasts indicate that there is a rapid change in the relationship between technological innovation and talent contribution to productivity that is emerging across all industries. Instead of technological innovation serving as a strong substitute for labour, it is becoming a supportive enabler for people and their skills. This relationship is forecast to strengthen by over 70% by the end of this decade in modern sectors and is set to become positive for the first time in over 40 years in traditional sectors as well.

Cities, and greater urban areas, are at the forefront of global competition in higher value-added creativity and knowledge-intensive sectors. Between 1999 and 2007, skills and knowledge intensities of some 350 urban economies comprising OECD member states have increased dramatically.

In 1999 average urban area in the OECD had 25% of its population holding third level degrees or higher. By 2007 this number increased to 29%. Over the same time, the degree of skills and knowledge utilization in urban economies also increased. Modern services – a sector that is at the forefront of the new economic paradigm – saw its share of overall employment rise from 34% to 38% in 8 years to 2007. With these changes, income per capita rose from the average USD27,400 to USD36,050, expressed in constant dollar terms.

Forecasts show that demand for talent, creativity and skills is expected to accelerate dramatically over the next 10-20 years. In the EU27 alone, growth in demand for higher skilled workers is expected to double from 10.1 million in 2007 to 20.1 million in 2020, according to the European Commission. At the same time, demand for low skilled workers is expected to contract by 28.3 million by 2020 having fallen by 8.5 million in 2007.

While pressures of rising demand for skills will be acute, the supply side – driven represented by demographics and higher education capacity – is going to be strained to deliver sufficient inflow of new skilled knowledge and creativity-enabled workers. Assuming current demographic trends, demand for international students in the OECD will be expected to rise from 6% of total third level student population in the mid-1990s to 30% by 2020, based on our forecasts.

New model of development and growth will be needed for cities’ transformation

For cities this transformation means new model of development and growth – focused primarily on the need to build a diversified, highly skilled and creative workforce capable of developing and absorbing technological, managerial and creative innovation.

Cities are increasingly competing for internationally mobile and highly diversified workers of the future. For example, between the 1990s and 2020 net international migration flows of highly skilled workers will more than triple from 29.5 million to 98.6 million, according to our forecasts. Majority of these flows will continue to be attracted to Western European and North American economies. However, in a departure from the previous decade, next ten years will see acceleration in the net demand for highly skilled international migrants from the emerging economies of Asia Pacific, India and Latin America. These developments imply that previously taken for granted inflows of talent to the advanced economies are now wide open to competition.

The entire notion of competitiveness will be reshaped by the new growth paradigm. Thus, in the near future cities will have to focus their attention on attracting, retaining, creating and enabling people with diversified and high quality skills and knowledge, capable of generating and absorbing creative and technological innovation.

Four core services areas that are priorities for Smarter Cities

Our research has identified four core services areas that will need to be prioritized for investment with the greatest expected impact on highly skilled, knowledge, creativity and innovation-enabled workers. These are Government Services and Education, Public Safety, Health and Transport.

All of these core services directly impact both the productivity of the workforce and the quality of life attainable in a given city. In other words, these services both directly and indirectly influence cities’ ability to serve as the internationally competitive attractors and enablers of entrepreneurship, talent and skills.

For example, consider transportation services (in a subsequent post, I will also provide some in-depth discussion of education as the core service allowing cities to attract, retain, create and enable human capital). Cities like Singapore, Tokyo, Amsterdam, London and Stockholm have been able to successfully leverage real-world data generated by their public transport providers. This allowed not only to optimize their existent city services, but to simultaneously increase both capacity and demand for public transport. Several cities worldwide are currently building new modes of public transport that attempt to integrate the concept of mass public transit across various modes of transport while delivering extensive customization of routes and modes.

In Singapore, creation of a seamless, smarter national transport fare system has resulted in $40 million annual savings from reduced congestion on expressways alone, as well as gains in workforce productivity equivalent to more than 5 million man-hours. Singapore’s Land Transport Authority can now optimize routes, schedules and fares based on the insights from the 20 million trip-related transactions generated each day. As the result, usage of mass public transport increased by 14.4% between 1996 and 2007.

Congestion negatively impacts on the quality of life in a city by decreasing personal and business productivity. It also imposes negative externalities on the overall quality of life. The cost of congestion ranges between 1.8% of GDP in Kuala Lumpar to a massive 4.1% in Dublin.

Smarter transport systems can integrate traffic, weather, business and traveller information to provide real time services to users to create more efficient and user-friendly services.

Given the constraints on fiscal spending, faced by many Governments around the world, such investments will have to deliver optimal gains in quality of life while demanding minimal public outlays. Based on our analysis of the best practices around the world, this can be achieved by deploying advanced technologies to understand, predict and intelligently respond to services systems behaviour and demand.

Guest post made by:

Dr Constantin Gurdgiev, Head of Macroeconomics, Global Centre for Economic Development
IBM Institute for Business Value, IBM Global Business Services



1. David O'Connor - January 10, 2011

Great post on smarter cities and how smart use of data can make urban areas better places to work and do business. Very steeped in Richard Florida ideals of Technology, Tolerance and Talent (i.e. his Creative Class concept).

Biggest opportunity for making Dublin a more competitive city: use the oceans of transit data which exists to improve services. The NTA could do a lot worse than to set about doing this, which it is enabled to under recent legislation.


2. SOMK - January 10, 2011

“The core insight from the study is that creativity, knowledge and skills, together with technological innovation are becoming the key drivers of economic growth and activity – in other words, there is a ‘brain-and-creativity’ economic growth paradigm at play globally.”

Quite, and yet it seems very few people are debating in the the fact that money is a supremely poor motivator, especially when creative thought is involved, it is in fact a demotivator as countless studies have shown. If we are to build a true knowledge economy here I think this is something we need to acknowledge as a reality, and perhaps instead of using the monetary-based rhetoric of investment, perhaps a more philosophical one of values is also required?

3. pollicia - January 10, 2011

Great and very comprehensive post, many thanks Constantin for sharing your views on our blog. I hope you get to visit the Exhibition over the next few days and meet some of the exhibitor students who will help make our cities smarter in the future!

4. Vladimir Popov - January 10, 2011

Very good article.
Re transport, unfortunately, it is difficult to envisage any smart one in Dublin, or progress in this direction.

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