General Electric, one of the largest industrial conglomerates in the world, is moving its headquarters from a suburb of Stamford, CT to Boston, MA. Historically corporations developed in cities, but they later became part of the move to the suburbs following WWII. GE’s move is based on both a company growth strategy and its capitalization. In its most basic sense, however, the move is about the role cities play in our culture and the connectivity and exchange of ideas they provide. It is ironic that as the world becomes more digitally connected that companies are taking more value in face-to-face contact and the creation and fermentation of ideas that result from such collective action. A city, as it has been termed, is a social reactor.
About 18 months ago the chief economist for GE wrote a paper called “The Value of Connectedness” As reported by Rod Stevens, the paper “described the value to industry of creating networked devices to keep trains and planes moving.” The economist sees GE as playing a major role as a digital industrial company. It also may affect GE’s value as a company. A typical industrial conglomerate, according to Stevens, has a price to sales multiples in a range of 1 to 1.5x, but in the software industry that valuation multiple is about 5x. That is a significant uptick in value. Retail digital use is only part of the connected picture. GE sees digital connections as important in industry and transportation. If the future is robots, something (through someone) has to control and manage them. The move to Boston is based on a need for the company to be better connected to the engineering capacity of MIT and other Boston-based universities, and just as importantly the many small start-up technology and IT hardware companies that are taking hold in Boston. Boston still has a machine industry into which GE, and these start-ups can tap. Many of the new firms are being established within a short bicycle ride of a major university or of gentrifying neighborhood. These start-ups often locate in old factory or warehouse buildings that were missed in the loft apartment conversion craze of the last generation (think the 1980’s movie “Ghost”). What GE is realizing, and is driving their location to Boston is, as Stevens notes, “the flow of people and ideas is vastly more important than freight costs.” The tech start-ups in old buildings prove the idea of urbanist Jane Jacobs that new ideas often need old buildings. It is often too expensive to build new, much less in an area which provides the cultural landscape so often desired by the young high-tech work force. The culture is not the company alone, but in the other things that follow—gyms, restaurants, breweries (what is a millennial with craft beer?), and the like. But, this is not a new phenomenon. This connectivity is part of what, according to Harvard economist Edward Glaeser, makes cities one of the best human inventions.
 |
| Aztec sculpture |
As much as this may seem like a unique idea, the confabulation provided by cities goes back to their earliest formations, and just as interestingly, cross cultural. Luis Bettencourt and his colleagues have developed a model of settlement scaling theory that derives a relationship between population and settled areas as an interplay between social and infrastructure needs. They studied 1500 settlements over two millennia and in four major different cultural periods in pre-Columbian America. They determined that settlement scaling is similar among independent cultures as varied as Europe and South America Indians. For example, Ortman et al note that the “most important feature of human sociality is that individuals can derive advantages from social contact, e.g. by trading goods, sharing information and developing cooperative strategies.” This activity is part of growth and hierarchy of cities. This is why GE is moving from a Connecticut suburb to Boston. The company realizes the importance of this interaction and sharing of ideas. Humans have benefited from the creation of social networks from the advent of human time. Hunter-gatherers knew the importance of social interaction. Urbanization has led to increased specialty which results in increased importance in social networks.
 |
| Economist Edward Glaeser Book |
For urban areas to have developed in a similar manner and scale in widely varied cultures, with no known interaction between them, shows that the human mind and thoughts for human social organization is more alike than different. Anthropologist Dean Saitta in commenting on the work of Ortman, Bettencourt and others notes that his students are “intrigued by the sensitivity of ancient planners to local environmental conditions” and how they “used history, iconography, materiality and wider ‘sacred landscapes’ to promote civic identity out of cultural diversity.” This leads to what he quotes as “alternative forms of social and spatial belonging.” This fuels urban creativity. GE to Boston. Bettencourt and others have recognized Jane Jacobs’ insight that the creativity of cities is due to their being social reactors. A social reactor derives from people and their interactions. However, the built environment is not simply a result of the interactions, the form of the city helps shape the interactions. One is dependent upon the other. That is why settlement scaling is cross-cultural, and temporally similar. Each culture produces different urban processes, so urban form is more than its creation by settlement processes over time. As varied as the processes of settlement creation are, the theory of Bettencourt, Ortman et al holds that the settlements still follow a typical pattern of development.
 |
| Jane Jacobs |
General laws of human nature and ability create our urban form. People can only walk so fast, and until recent times (use of steel building construction) construction techniques limited building height. But, if the theory developed by Bettencourt, Ortman et al holds true, there are cross-cultural methods to human organization which inform past and current settlements. Technology has allowed human activity to change: we now have skyscrapers; we can communicate by skype over long distances in a fraction of a second; and we have mechanized travel that allows us to minimize the distance gap. However, there is no replacement for direct human interaction and the interplay of ideas that leads to expanded creativity and flow that allows commerce to flourish. Hopefully to the benefit of more than just a few shareholders, CEO’s, and the top ten percent. The true capital is not money but our connections with others. GE is betting that a change to a digital player in the industrial field on connections with planes and trains and other industrial aspects will increase its valuation and strengthen its position. GE realizes the importance of connectedness not just between devices, but between people. On his visit this week to the indigenous region of Mexico, Pope Francis noted, just this week, that we can learn a great deal from indigenous cultures. Settlements in pre-Columbian Mexico followed a scaling pattern similar to those of Europe and before cross cultural contact. Those cities, and their cutlures face obstacles from which one can learn. However, just as there is a pattern to settlement scaling there also exists similarities in one other critical aspects, which will be discussed in a future post.
 |
| Outside of New Delhi, India |
No comments:
Post a Comment