Smart Cities and Finance

I’ve been asked to contribute to a book about smart cities and finance. I looked over the long list of tentative chapter titles provided by the publisher and it’s clearly meant to be an optimistic pragmatic problem solver. There’s an expectation that everything that ails our cities and towns can be fixed with the right combination of technology and creative accounting. I’m hashing out my thoughts here to clarify my position. We’ll see if the invitation sticks.

I’ll begin by stating the obvious. Technology has already transformed society in significant ways and will continue to do so at an accelerating pace. But we need to be clear about what tech is and what it isn’t. All our computerized bells and whistles are tertiary layers of organization that are superimposed over the existing underlying primary structures of society. Tech isn’t food. It’s not fuel. Tech isn’t manufacturing per se. It’s not a new means of moving anything from point A to point B. Tech may optimize these things, but all our sophisticated interconnected devices and algorithms are themselves dependent on lower level physical extraction, production, and distribution. And all this complexity has a metabolic cost above and beyond what was previously required.

A Tesla is a slick incremental refinement of a Model T Ford from a century ago. Google is an advertising company with a side hustle as a reference library. Facebook is a low grade tabloid newspaper. “Senator, we run ads.” Amazon is merely the latest version of the mail order Sears Catalog circa 1897. Apple makes whiz bang versions of telegraphs, televisions, cameras, telephones, typewriters, radios, and wrist watches. They’re cool, but not fundamentally different from their less exotic analog forebears. Big Data is a more advanced version of cuneiform tables and their administrators are an updated rendering of palace high priests. Digital information will prove far less durable over time than clay tablets because it’s ephemeral by design. This isn’t a criticism of technology, just a clarification of reality in case anyone has drifted too far away.

The twentieth century concept of money was a collective fiction that pieces of colored paper have durable value. In God We Trust. The new common experience involves invisible digits suspended in the electronic ether. Even little plastic cards are giving way to cell phone transmissions, RFID tags, and contactless transactions of all kinds. Crypto currencies and block chain are all the rage these days. The abstraction of money has itself become further abstracted and endowed with the illusion of worth. Quantitative easing, zero interest rates, negative interest, stimulus… Money is the lubricant of society, but it is not itself real. Cut off the power supply for a week and see how long these things last.

I met a friend in the park last month and he was excited to share his Robinhood account. He “bought the dip” in March of 2020 when the Covid panic temporarily crashed the market. He boasted how much money he made in the following months as the market rallied. Technology has allowed investing to be democratized. Can’t afford an entire share of your favorite stock? Now there’s fractional ownership of a little sliver of a stock. You can buy as little as $1 worth of an expensive stock you can’t really afford. All the small investors are pooled together to create aggregate sales - commission free.

The People are now liberated to profit in a way that only the Big Boys could in the past. Or so the present culture wishes to believe. I’m not convinced this is going to end well. It’s just as likely that democratization is merely another way of getting the last marginal players to chip in at the bottom of the pyramid. Time will tell if this is, in fact, a new paradigm or just another bubble waiting to pop. If so, guess who’s likely to be left holding an empty bag?

I go to the big international tech expos on a regular basis. I like to poke around and drink in the buzz words du jour. The Smart City folks are always out in full force and the collective message is clear. Tag everything with wireless devices that continuously communicate with each other. Install a tiered network of receivers and transmitters that feed up and down a giant chain in real time. Ubiquitous technology enables problems to be identified and managed seamlessly. Traffic reduction, water and energy conservation, crime suppression, disease management… Any challenge you can think of will be neutralized with the application of the right combination of technologies. And it all pays for itself through greater productivity, less waste, and higher levels of human satisfaction.

But there’s a glitch in these systems. During one of the pre-Covid conventions I listened to an earnest woman present an articulate description of how her city’s streetlights were replaced using federal grant money and a public/private partnership with an innovative tech company. The lights were upgraded to high efficiency LEDs and fitted with special sensors that provided a continuous real time information stream about all manner of things relevant to both the town and the corporation. It saved energy, it saved labor, and a municipal infrastructure budget crisis was avoided.

During the Q & A I asked why her otherwise prosperous town needed federal assistance and corporate sponsorship to keep the street lights on. A century ago all towns managed this sort of basic maintenance from local revenue even though they were far poorer. Isn’t that an indication that there’s a larger underlying problem that needs to be addressed first? She had no answer. That’s not the kind of question people are supposed to ask at a tech convention…

Last week I drove down to Silicon Valley with a friend who needed help with a little outdoor maintenance on a rental property. Seven years ago she bought this two bed / two bath 1948 era house for $600,000. It’s part of her diversified retirement plan. It’s currently worth $1,200,000. She expects the value of the property to continue to rise.

My friend’s base salary is in the $250,000 - $300,000 range, but she receives an additional amount in performance bonuses and stock options. This year her company is thriving on the Covid induced shift to online commerce. Her most recent bonus was $100,000 and her distribution of corporate shares will be north of $800,000 as the stock market continues to boom.

Meanwhile, her corporate employer is following the same strategy as most of the big tech companies. They're shedding workers, automating, and offshoring as much as possible. The old formula was to have three categories of employees. One third of all workers would be physically located in high cost areas like San Francisco where premium talent is concentrated. One third in medium cost areas like Nashville, Austin, and Phoenix. And one third in lower cost areas in Asia. This division was all about headcount.

Now the new formula is to divide the workforce into thirds based on cost. One third of the labor cost in expensive locations, one third medium, and one third in lower cost emerging markets. Obviously there will be far fewer heads in the US and many more abroad. Her company is now in its fourth round of mass layoffs this year.

In addition, the old medium cost locations have now been reclassified as high cost. Austin, for example, is currently considered a high cost center because it has become overheated. China is out of fashion for geopolitical reasons and because Chinese labor is more expensive than it used to be. Consequently India, Vietnam, and the Philippines are taking up the slack. Most tech companies are presently engaging in this strategy in part to become lean and competitive, and in part to goose shareholder value.

Technology itself is neutral. It can be used in all sorts of ways to achieve any number of outcomes. Money is a social fiction that we chose to believe in because it serves a useful purpose. What we’re seeing at the moment is the aggressive stratification of society into winners and losers given the way tech and finance are being deployed. History suggests this doesn't end well...