Too often the answer is “not much”. When smart cities support wealth creation, they become a powerful economic force. Wealth is the engine that powers community prosperity.
Economically healthy communities are created when residents produce net wealth. Without excess wealth, the tax base, local money supply and velocity drop. This causes the community economy to contract.
Numerous smart city initiatives around the globe have a stated purpose to support economic development, but when they omit local innovators and the business community, I wonder if the plan leaders and supporters really understand how wealth is created. So let’s do a quick review.
Wealth is created when an enterprise produces excess capital from a new product or process. Distilled into its most basic parts, there are two ingredients for wealth creation: financial and intellectual capital. When combined correctly, they should produce excess capital—which is wealth.
Let’s exclude mineral wealth from the discussion. That’s a story focused on mineral rights and control. Though financial and intellectual capital is required to extract it, the wealth could be accessed by many players. The intellectual property (extraction knowledge) can be purchased from extraction companies (so it’s a commodity—though some service providers are probably more clever than others).
In theory, the formula for wealth creation is simple. An innovator thinks and applies a new approach to an old problem or product (or creates a new product category that addresses an unmet need). Once finished, the innovator can extract a price premium for the effort. The formula is (Financial Capital (+ interest)) + (old process/product + enhancements + innovators wages) = Market Price. When the market price exceeds input costs, wealth is created. The wealth can be reinvested in the business or spent by the innovator. Wealth expands the local community’s tax base.
Turning back to global smart city plans, why don’t more plans involve the community’s wealth creators? Regardless of the reason, success of plans that lack participation from this group is a coincidence. If economic development is really a goal, it makes sense to include and cater to the needs of the wealth creators.
I challenge readers to ensure that smart community development efforts address the needs of local wealth creators. Moreover, don’t equate “knowledge work” with “innovation”. Many written plans associate knowledge work with sustainable business. They are not the same. Some knowledge work is innovative, but many knowledge workers provide a commodity service as individual contributors. They don’t need expensive office space in which to work. If you’re not sure whether a business service is innovative and can provide sustainable competitive advantage, look it up on www.crowdsource.com . Knowledge work is global. On the other hand, many individual contributor knowledge workers could benefit from face to face serendipitous encounters with other knowledge workers—this is a case for shared office space. Think before you build.
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