Smarter cities – building the digital enterprise – Excerpt from my forthcoming book

The classical separation of the types of economic markets to be found in an economy is usually given in three categories: Primary, Secondary and tertiary sectors (1). The primary and secondary sectors are differentiated by the extraction and creation of raw materials such as minerals and farming, compared to the manufacturing and processing of these materials into finished products. The tertiary sector refers to the services industries that are involved in supplying a range of services from medical health services, legal, education, to accounting and entertainment. In a modern economy, the delivery of GDP contribution by enterprises in these sectors can vary from country to county based on the country distribution of natural resources, availability of workforce skills, age, and income generation and competitiveness of these industries in local, regional, and global markets. However, the government public and federal ownership of industries tends to be the largest sector in most global economies, representing typically 15 to 25% of total GDP contribution (2). This means that public sector, as it is typically termed, is often the largest employer in a country economy and a source of domestic and national revenue generation, national spending, infrastructure investment, and employment.

This background adds a wider dimension to the impact of digital technologies in society and the level and use of multiple modes of transport distribution, telecommunications, energy and sustainability, housing and living spaces, industrial development to schools, universities, healthcare, defence, and wellbeing of citizens and services in general. We saw earlier in the case study examples such as Amsterdam city, digital health, emergency recovery to connect car transportation; these sectors all demonstrate how digital technologies can play a real significant role in all aspects of the eCitizen of the future. Many governments around the world have initiatives to build a digital society as they recognize the connected economy. The North American Administration Digital Government initiative (3), the European Union Commission Digital Agenda for Europe (4), the Chinese government adoption of social media and internet services development (5). The UN e-Government survey ranking from 2014 illustrates this phenomena is both worldwide and of major strategic important yet many areas or still early days in terms of progress and investment (6).

When considering the public sector and the impact of digitization there are perhaps three areas that directly affect practitioner policy in the broader sense

• The economic contribution of digital enterprise

• The impact on employment and jobs from digitization

• The cost of cyber security, effective counterterrorism policy and value of a human life

Economics of digital

Ironically, the economists still refer to the digital economy as only representing 3% to 5% of the total GDP (7). Yet the ability of “digital” to pervade almost every aspect of physical services suggests that traditional physical accounting of goods and services is missing a “trick”. Indeed a question has been raised as to whether there is in fact a difference between the physical economy and the digital enterprise. This disconnection between the accounting for physical trading and online trading has presented challenges for governments to introduce taxation for online activity when often the digital enterprise may physically reside in a different country and tax jurisdiction. The OECD report on base erosion and profit shift (BEPS) in January 2014 raised this very question (7).

“ the finding are that there is no such thing as digital companies, Rather than digitization of the economy. There may not be therefore a solution for the digital economy but we will need to draw on features of the digital economy when we revise the system..”

Table 1 Base erosion and Profit shift (BEPS) report January 2014, OECD

The fact is the digital economy is still very real, the features of the digital economy include such things as virtual online marketplace, digital currency payments, and intellectual property that can exist in virtual spaces and have no domicile in the consumer country, yet can be measured in terms of economy transactions and trade movements. The digital enterprise and the digital economy are in fact like the “glue” between the physical resources and activities.

Impact of digitized jobs

For practitioners the digital enterprise is still real and a legal entity in terms of its ownership and trading of physical and virtual goods and services. It is just the business operating models are different. The digital impact on jobs and employment is also very real, often changing the basis of skills, automating parts or al of some existing manual jobs and creating new kind of jobs from web designer, data analysts to online marketing and digital media. The jobs impact is also unclear and in some reports and views has a profound potential impact on society. Eric Schmidt, CEO of google raised this in Davos 2014 warned the jobs “problem” will be the defining one for the next two-three decades (8). By this he was referring to the impending perceived or otherwise real threat of human jobs involving mainly administrative skills and processes that could be computerized with current advances such as statistical processing, automated driving and speech and image recognition services. An Oxford academic study predicted that 47 percent of today’s job skills would be replaced in two decades by computer automation (9).

Cyber security and the dilemma of investing to save a human life

From an economic perspective the value of digitization has been weighed again the increasing prevalence of cyber security threats. We explore this in the security and privacy section of this book but the underlying issue is expressed more significantly in the recent counterterrorism policy report form the CATO institute (10). The report estimates the cost of human life from various events, the probability of these occurring and acceptable risks involved in such judgements. Examples include improvement in car seatbelts and airbags having a cost per life saved of $140,000 to well over several million US Dollars for investing in better industry hazard protection such as asbestos and other poisonous materials. Officials serving the public are tasked at the most fundamental level of spend funds in a manner that most effectively and efficiently keeps people safe. Yet is suggests regulators and administrators tend to be unwilling to spend more than $1 million to save a life, and they are very reluctant to spend more than $10 million preferring instead to expend funds on measures to save lives at a lower cost. The root question this raises is what is the value of a human life?, how much should governments and society spend in the prevention of attacks or malpractice to protect citizens from threats compared to the cost of just responding after the problem has occurred?

Whether these predictions or the complexity of defining the digital economy are true remains a central question in government policy making and service delivery. But the development of public services using digital technologies is moving ahead at a pace. These range from sustainability and energy management; open data initiatives; transport and capacity management for future distribution and travel, research and development with local and central governments and academic and business partnership; health and citizen wellbeing to security and protection of citizen human rights and emergency services. No area is perhaps untouched by the potential to leverage digital information and digital services to create new forms of public amenity, connecting mobile devices, sensors, and data to empower individuals, social groups, and enterprises.

Practitioner perspectives of smart city

Let us explore this further…

References

1. Economic sectors http://en.wikipedia.org/wiki/Economic_sector

2. World Economic Outlook Database analysis, April 2012, IMF http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspx

3. Digital Government, North America http://www.whitehouse.gov/sites/default/files/omb/egov/digital-government/digital-government.html

4. EU Commission Digital Agenda for Europe http://ec.europa.eu/digital-agenda/en/news/gunther-h-oettinger-commissioner-digital-economy-and-society-portfolio

5. China’s government goes digital, Nov 29 2014, The Atlantic http://www.theatlantic.com/international/archive/2012/11/chinas-government-goes-digital/265493/

6. UN e-Government Survey 2014, UNPACS http://unpan3.un.org/egovkb/en-us/Reports/UN-E-Government-Survey-2014

7. Base erosion and profit shift (BEPS) report January 2014, OECD http://www.oecd.org/ctp/comments-received-tax-challenges-digital-economy.pdf

8. Davos 2014: Google’s Schmidt warning on jobs, Emily Young, 23 January 2014 BBC online http://www.bbc.co.uk/news/business-25872006

9. The future of employment: How susceptible are jobs to computerization. Carl Frey, Michael Osborne, September 2013, Oxford Martin Institute, UK http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf

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