RE-INVENT OUR CITIES: Why the digital age means we have to rethink everything about urban economics

Photo by Don Arnold/Getty Images.

Some of the promise about productivity gains in the connected era has involved embracing ideas such as remote working.

The efficiency gains come in a range of forms, from “activity-based working” (aka hot-desking), to companies like Envato allowing staff to work from anywhere, or the offshoring of service centres and third-party outsourcing of back-office functions through platforms like Xero.

Businesses no longer need to locate in major cities to access a labour force and the services that only a decade ago were vital to the infrastructure of any corporate.

Or so the thinking goes.

Ian Harper, one of Australia’s foremost economists – he was chair of the federal government’s Competition Policy Review and this year was appointed to the board of the Reserve Bank – thinks this puts a drag on the other great necessity for business in the digital age: innovation and creativity.

Putting millions of people together in a city used to – used to – create economic benefits together through the brutal creation of sheer economies of scale. And remember the tech community is one of the key advocates for the concept of driving innovation through hubs.

With digitisation, the opportunities in scale are now about creativity and productivity through people working together. So this means a total re-think on the purpose cities serve. This is where clever design – across infrastructure, government support, work space design, hiring policy and business investment direction – comes in.

For anyone interested in disruption and the new economy, this is a ground for fascinating thought on the re-invention of existing infrastructure. Harper will speak on this topic next week at the Design as Strategy Forum at UTS in Sydney.

RBA board member Ian Harper. Source: supplied

He says the economic powerhouses of the future will be cities that both attract people and enable them to unlock their creative and collaborative potential.

“We’ve known that people working together in one place can drive economies of scale, whether it was nomadic tribes coming together and building one wall or one ditch in order to protect themselves from aggression. They were gathering around one field to grow things and then ultimately of course getting them into townships and so forth,” Harper told Business Insider this week.

“That agglomeration drove the growth of markets, the development of things like schools and … reduced the fixed costs of social overhead capital like roads and bridges and electricity, eventually, distribution of energy and providing hospital services and so forth. All of that could be done more efficiently per capita when people were gathered together in closer proximity.”

Cities came with problems, though, not least in the pollution, congestion, and social challenges that come with millions of people living together. But the lessons of economic history still ring true when it comes to putting many people together in the same place.

“Take the industrial revolution for example: we gathered together in cities… [and] we put up with the fact that there was dirt and smoke and danger and poison,” Harper said. “Ultimately our living standards rose and we were able to live with those problems. But in the first instance they were gathered together in spite of the fact that these places were unliveable.”

But in the modern economy, Harper said, “scale has been replaced by economies of agglomeration that in turn rely on the release of creativity, innovation and invention. Now cities have to be places where livability and productivity rise together.”

In some ways, Australia’s technology sector has been trying to lead some of this conversation. Some of the biggest names in Australian tech recently joined together to form Tech Sydney, a member-driven group established with the backing of the likes of Atlassian’s Mike Cannon-Brookes and Scott Farquhar and Canva’s Melanie Perkins, with the aim being to build a critical mass of technology companies in the Australia’s biggest city where skilled workers have a wide pool of employers. CEO Matt Barrie has long bemoaned the flight of skilled tech workers from Sydney and believes Sydney will never be a major technology centre “when every young 20-year-old wants to leave the city”.

“Technology companies are powered by young people. You need to create an environment that attracts young people as a fun place to live, in order to build a technology hub,” Barrie told Business Insider.

“As Paul Graham from YCombinator (arguably the world’s greatest incubator) also said: ‘It seems like a city has to be very socially liberal to be a startup hub, and it’s pretty clear why. A city has to tolerate strangeness to be a home for startups, because startups are so strange. And you can’t choose to allow just the forms of strangeness that will turn into big startups, because they’re all intermingled. You have to tolerate all strangeness’.”

Over the past year, Barrie has been on the warpath about the NSW state government’s nightlife restrictions on Sydney. They have “turned this once emerging international city into a bland, boring and backwards country town” he argues.

“After 9pm, from Bondi to Leichardt, from North Sydney to Darling Harbour, Sydney is completely dead as a door nail. Although, for now Sydney is where most startups are found, Australia’s best shot over the next decade for a technology hub is probably Melbourne.

Matt Barrie.

“The latest progressive City of Sydney policy I heard of was to send inspectors to a decades old 24-hour bakery in Newtown at 11:30pm to make sure it now closes at midnight. You only have to look at the comments on [NSW premier] Mike Baird’s Facebook posts to see what young people think of what has happened over the last few years to this once great town.”

As Barrie warned last year “anyone mildly interesting with a brain is fleeing the city to go overseas”.

The federal government has been trying to respond to the anxieties of startup and technology companies through its policy commitments on innovation and science over the past year. But federal policy is a long way from showing any kind of engagement on city redevelopment in a way that encourages mass business collaboration and contact between sectors.

Prime minister Malcolm Turnbull’s “Smart Cities” program, announced with much fanfare earlier this year, was allocated just $50 million during the election campaign.

Harper said: “In the 21st century, yes, you can still get some of that scale economy but the driver is now innovation, creativity, invention and that requires people to be living together to spark off each other and engage with one another in knowledge economy type activities and in order to do that you need them to stay and to be able to be in contact with each other, but if cities don’t facilitate that type of creative direction, you’ve lost the basis upon which you’ll grow.”

As is typical with Harper, this is not about individual, firm-level thinking. Moving some companies out to the bush or to regional areas, or even mass outsourcing might be a smart strategy to maintain business sustainability in the face of disruption.

But the businesses which figure out the cities that will be more beneficial to them in the long term could create strategies and product lines they never envisioned before, through the simple reality of their people being close to other creatives.

It’s an interesting question for governments everywhere that are trying to position their cities as the key destinations for investment.

Ian Harper will be speaking about this at the Design as Strategy Forum in Sydney next week. Details here.