Rhineland economic model is closest to smart city developments

It is interesting to compare the major economic models in the western world – the American Anglo-Saxon model, the European Rhineland model and the Scandinavian model.

The Anglo-Saxon model is very much driven by small government, market-driven economic and social policies, and in general has a large focus on shareholders value.

By contrast the other two models operate more in accordance with the so-called triple-bottom-line; a more equal focus on combined economic, social and ecological outcomes. The Scandinavian model goes the furthest with a very high level of government involvement in all sectors of the economy and the society – all the basic  elements of life are fully looked after (education, healthcare, social welfare, childcare, old age pension; but also public transport and other essential infrastructure). Obviously this is reflected in higher taxes, but people in these countries clearly see the value of their socio-economic model as it provides peace of mind throughout their lives. As is clear in the recently published World Happiness Report – the annual UN survey that looks at ‘happy citizens’ – the Scandinavian countries consistently score the highest results, despite their high tax regime. This year Norway is number one, Denmark 2, Iceland 3, Finland 5 and Sweden 9. The latter shares this position with Australia. The USA came out in 19th place.

The Rhineland model is perhaps best described as a socio-democratic adaptation of the capitalist Anglo-Saxon model, with clear hybrid characteristics, for example in countries such as the Netherlands. Both the Rhineland and the Scandinavian model are based on the broader stakeholders value and not just on shareholders value.

While in the current political climate the Australian federal government’s focus is still very much geared towards the Anglo-Saxon model, the story is completely different at a city and community level. When I travelled with the Dutch-led Global Smart City and Community Coalition (GSC3) through Australia earlier this month, I was very surprised that all nine Australian cities we visited voluntarily talked about the need for a triple-bottom-line approach regarding their smart city developments. I had hardly ever come across this language in my discussions with private industry.

Having said that, the tide is turning. Private industry has now been talking with cities for several years regarding their options to assist them in building smart cities with the aim of selling their ‘smart city wares’. In general, many of these companies – especially American-based multinationals – haven’t got very far, since their own business models don’t match the ones that the cities use. Some involved in the most pure form of the Anglo-Saxon model have actually left the market or significantly scaled down their operations in this segment, as their activities didn’t deliver the shareholders value they were after. Their model still largely depends on the next quarter’s results and this doesn’t fit the smart city model, which looks at results over much longer periods.

Cities and communities operate at a very different level. They need to deliver to all of their stakeholders, who in turn are all citizens of their communities, and in doing so they are not profit-driven. Happy citizens mean a well-functioning city in all aspects of life. The abovementioned happiness ratings also correlate with the high-functioning societies of, for example, Scandinavia. The companies that understand the need for a holistic approach to smart cities also recognise the need for business models based on the triple-bottom-line concept. This is not always easy as, while the people involved in smart cities within the companies selling smart city products and services might understand that message, the companies themselves might not yet be geared up for such an approach within their current business models. However in the Australian Smart Communities Association (ASCA) – led by some 150 cities and communities around the country – an industry board has been established of companies that do subscribe to this triple-bottom-line approach, and that are willing to place the wellbeing of the citizen central in their discussions with the cities to develop long-term sustainable business and funding models for the development of smart cities.

Coming back to the GSC3 trip around the country, it was therefore no wonder that the GSC3 approach towards smart cities (more based on the Rhineland economic model) totally resonated with the cities they visited in Australia. International collaboration within this model is therefore a perfect fit for the leading smart cities around the globe, all of whom are already working from that model. At the same time the alliance provides an example for other cities that still have a way to go in their journey towards smart cities.

And the good thing about cities is that they are very happy to share their knowledge, experience and insights with other cities around the world. This enables cities to learn from each other, sharing knowledge and insight, and even working together on smart city projects – each taking care of certain use cases within the project. This not only saves costs but also speeds up the implementation.

This video clip gives a nice insight from an Australian perspective into this international collaboration model.

Paul Budde

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