Today’s guest is Dror Poleg, an economic historian who explores how physical and digital systems affect human behavior, well-being, and dignity. Dror joins us on the show to talk about how technology is undermining the basic foundations of real estate’s value and how this is scrambling a lot of what we know about buildings as well as cities. Dror’s thesis is that because of the way technology has enabled remote work and access, people no longer make their choices about where to live for reasons of work and access. Therefore, if you want to attract people to a building, city, or neighborhood, it’s less about the location or the physical characteristics of your asset and more about how are you meeting the lifestyle needs of that specific group of people that you’re targeting. Dror sketches out different ways in which we could see cities and suburbs changing due to the emergence of residential and office brands that cater to multitudes of customers with specific and idiosyncratic needs. Dror also speaks to how entrepreneurs could take advantage of these changes, how the structure of corporations might change, and how remote work will impact things like innovation and productivity. Tune in today.
Key Points From This Episode:
• Dror’s thesis that technology is undermining the basic foundations of real estate’s value.
• How technology has influenced the reasons behind people’s choices of where to live.
• New factors that are driving value in real estate and shifting it toward being a consumer good.
• How these new forces driving peoples’ decisions about where to live are influencing human settlement patterns or the structure of cities.
• The widening gap between creative high earners and service workers.
• How superstar and second-tier cities will change as a result of these new patterns.
• What suburbs around cities will have to do to remain attractive and accommodate new residents.
• Whether it will be possible to make an economic case for urbanization in suburbs to suit the lifestyle needs of new residents.
• Which historical analogies are most applicable to the current changes in real estate.
• How entrepreneurs can take advantage of these up-and-coming trends.
• Ways in which remote work will change the importance of time zones.
• How WeWork exemplifies capitalizing on these shifting consumer needs for all its faults.
• Different ways that cloud kitchens are changing the urban landscape.
• How these changes will impact productivity over the next 20 years and the tensions it will create.
• The evolution of corporations and how remote work will affect firm formation.
• How remote work will impact innovation and productivity.
• Whether Dror agrees that everybody will be Western-educated, industrialized, rich, and democratic in the next two decades.
• Whether the changes Dror predicts will happen in low-income countries as well.
• How Mayor Saurez has apprehended these movements and could change Miami.
• What the tech diaspora would need to do to keep the places they move to attractive.
• Mark’s thoughts on what remote work will mean for the future of charter cities.
Mark: Hello and welcome to the Charter Cities Podcast. I’m your host, Mark Lutter, the Founder and Executive Director of the Charter Cities Institute. On the Charter Cities Podcast, we illuminate the various aspects of building a charter city, from governance to urban planning, politics to finance, we hope listeners to the Charter Cities Podcast will come away with a deep understanding of charter cities, as well as the steps necessary to build them.
You can subscribe and learn more about charter cities at chartercitiesinstitute.org, follow us on social media, @cci.city on Twitter and Charter Cities Institute on Facebook. Thank you for listening.
My guest today is Dror Poleg. He is an economic historian, who explores how physical and digital systems affect human behavior, well-being and dignity.
Mark: Welcome to the show, Dror.
Dror: Thanks, Mark. Pleasure to be here.
Mark: To get started, I read your book, I read a lot of your blogs online, where you talk a lot about, I guess, real estate and the impact of the Internet on the real estate. How do you sum up your thesis in two or three sentences?
Dror: Technology is undermining the basic foundations of real estate’s value, the meaning of location, the meaning of visibility, the meaning of accessibility. Farther afield, historically limited access to capital and information that kept the field relatively safe from competition, all of these things are now scrambling a lot of what we know about buildings, and more broadly, a lot of what we know about cities and where people choose to live and work and socialize.
Mark: Maybe this is the Marc Andreessen software is eating the world. Your expertise is how software eats real estate.
Dror: Yeah, you can say that. I think, part of the story is that also, the world is eating software. I would say, over the first decade of the 21st century, we saw the growth of these really big, pure software-ish companies, the Googles, the emergence of Facebook, Twitter, even Amazon in its early days was more about being a website, rather than being anything else, in terms of physical infrastructure.
Then over the last 5, 10 years, we started to see that, basically, software was starting to run out of things to eat, in terms of pure software. We started to see the funding of more and more businesses that are actually touching the physical world. They’re also, essentially, not really software businesses in terms of their economics, the Lyfts, the Ubers, the WeWorks, and even other categories that – tobacco, fake meat, etc., etc.
We’re starting to see technology coming and trying to disrupt these type of things. It still falls under the Andreessen software is eating the world, possibly, but it’s not necessarily driven by adventure venture type returns anymore and by software types economics anymore. I tie into that from the other side, looking at all these dynamics that disrupted online media, and disrupted peer software markets, and trying to think, what of that applies to much more physical industries, and particularly real estate, but a lot of things beyond that as well.
Mark: Let’s, I guess, go through different categories of real estate. How should we think about the impact of software on residential real estate?
Dror: That’s a big question. Generally speaking, we’re seeing that location on its own is no longer as important as it used to be, for various reasons. If in the past, you had to live within walking distance to your job, and your job had to be, if it’s a good job, at the center of a big city. Over the last two decades, at the center of only a handful of very large metropolitan areas. Now that is changing.
Beyond work, if you wanted access to all of the best services and all of the best products in the world, you also had to be at the center of those cities, because you couldn’t get it anywhere else. Likewise, for education, for medical advice, and a lot of other things. Now, we’re seeing that these things are becoming much more accessible remotely. Still on the margin in many cases, but to a significant enough extent that it’s driving some changes people’s decisions on where do you live.
Now, that doesn’t mean that people will not want to live where they already are, in the greatest cities that we already have. It means that they will have to make these choices based on a different mix of factors, let’s say. It’s no longer, “Okay, I have to live there, because my job is there.” Now it’s more, “Okay, do I want to live here? If I do, it’s because of certain aspects of quality of life, and the type of people that I have around me.”
At the real estate level itself, the building has to learn how to attract you based on all sorts of other aspects. Not just okay, this building is in a great location, but we offer all sorts of services that are specialized for whatever it is that you’re looking for. We offer flexibility that maybe is not available elsewhere. We offer even alignment with all sorts of values and participation in something that you identify with, that by choosing us, you can now feel you’re contributing, too.
Basically, real estate, physical buildings, but also neighborhoods and cities are becoming consumer products. They’re becoming something that people have more choice about. That choice is driven more by external characteristics. Again, the brand, the story, the values that its affiliated with, all sorts of secondary features, such as how is it delivered? How am I paying for it? How flexible it is, rather than the hard-traditional key characteristics of okay, where is this building? What is it made of? What air-conditioning system does it have? How fast are the elevators? Things that traditionally used to drive value and define value in the real estate industry.
This change, once the dimension of competition is moving away from the old factors to the new factors, it also opens up the possibility for all sorts of new players to come in, and be much better than the old companies at all of these new things. WeWork is probably the most famous example of that. WeWork for all its faults, did manage to attract half a million people to come and pay a premium in order to take spaces from it.
These people, basically voted with their feet by saying, “Hey, I’m not going to go to the fanciest, biggest building in the best location in the city, because now, I care more about the design, or the community, or the brand, whether that brand serves meat, or doesn’t serve meat, and what music do they play in the lobby? What general vibe do they have?”
Just like any other brand, too many people from the outside, “This might look silly, or frivolous.” To the people who actually like this brand, it looks great, because they’re saying, “Okay. Finally, there’s a product that is exactly what I’m looking for, that is catered towards people like me. Not just a general, one size fits all thing, that also happens to cater only to large corporations, rather than like me as an individual.”
Mark: Sure, but it’s another part of the WeWork story, just that – I mean, like Uber for a long time, it was large venture capital funds subsidizing consumers, as well as just a lot more flexibility. If you’re a two or three-man office, finding traditional office space is a giant pain in the butt, because you don’t want to sign a three, or five-year lease. You want to have a lot more flexibility to grow. To a certain extent, it’s not obvious to me that the value proposition that WeWork was the brand per se, so much as they say like, flexible, non-long-term commitment office space.
Dror: Yeah. That’s a fair question. The funding model and the lack of profit is definitely a big part of the WeWork story. WeWork’s losses were driven mostly by very, very fast expansion, by the fact that they were signing new leases and investing in build out. It wasn’t driven so much by them subsidizing the actual cost on a gross margin basis for every seat. In terms of the prices that they charge, they were very comparable to what other more like, old-school flexible office, service office operators have been charging for decades.
Unlike Uber, where every time you took a ride on Uber, the company was losing money on that ride alone, without even taking into account the overhead that they have, or the tech and the marketing. The ride itself was much cheaper than a traditional taxi, because Uber was trying to gain market share.
In WeWork’s case, actually, the seats that you were renting was costing you more than a traditional seat in an office. Even more often the traditional seating in another flexible office, run by one of these old-school companies. That’s important to note. Even those old-school companies, so Mark Dixon, who was the CEO of Regus, which is still actually the largest flexible office company in the world, and has been around for a few decades.
When he looked at their business, and they’re exactly the same as me. They had the same margin. They have similar price point. How come they’re getting those crazy valuations and how come they’re getting all this hype? Yeah. I would say that it wasn’t attractive, because it subsidized people to any extent. It was attractive to investors, because it subsidized its growth, maybe in an unsustainable way, which is a fair point.
When we gauge what made it attractive to consumers, it wasn’t that it was cheaper than other places, per se. Even on that front, I remind you that there’s a lot of other companies that were trying to do exactly what WeWork was doing, including landlords themselves, who have been trying to do it and are still trying to do it that are not as successful at it, because they don’t bring to it all the other narrative elements that WeWork brought into it.
Maybe more importantly, we see this in the world of all consumer brands all the time. People, if you just look at the products, the actual characteristics, you’d say, “Okay, why are people buying this phone over that phone? Or why are people buying this watch over that watch?” There’s no reason for them to pay five times more. They do, because they want to identify with something. More importantly, they want something that is specifically tailored to their needs; that is not just the best watch, but it’s the best watch for people like me, that have this specific need and take it for this type of activity, and like to buy it in that certain way and like to have it delivered in that certain way. People pay a premium for that. That’s something that historically, real estate was not very interested in.
The whole source of value for real estate assets is the fact that they’re boring, the fact that they’re a one size fits all, the fact that they are completely fungible, and the landlord doesn’t have to care about whether the tenant is a law firm, or a media firm, or a big company, or a small company. Historically, they would build more or less the same thing. They would sign more or less the same leases. They would assume that if one tenant moves out, another one comes in and replaces them, and they don’t really need to know too much about their business, or aspirations, and definitely don’t need to know too much about the individual people who work for their tenants and what they care about, or don’t care about.
Mark: Let’s go back to residential. You, in the, I guess, previous discussion, you were focusing on how now people are looking at, I guess, residential more as consumer goods, instead of just as, I guess, complements to production in terms of location, in terms of aesthetics. How does this also affect, I guess, the spatial layout of cities?
For example, if we think about, what I sometimes think is practice – somewhat analogous to change to remote work, which is air-conditioning. What happened with air-conditioning? You basically saw a mass migration from the northeast. As a little bit of a decent bit from the Midwest, to the Sunbelt, because people like, when sunbelt cities were then more livable with air-conditioning, you saw a mass change in human settlement patterns. How should we think about changes broadly, not just in the, I guess, how real estate is consumed, but in human settlement patterns that results from the Internet and remote work?
Dror: I see two, maybe contradicting, or countervailing pattern. The first instinct is to say, okay, things are just going to disperse much more, because they can. On the other hand, with every technology that we’ve seen so far over the last 250 years that enabled people to expand over larger distances, what we ended up seeing is bigger and bigger cities. I wouldn’t bet on cities necessarily becoming smaller, or disappearing.
I would bet, more likely on cities becoming even more segregated than they have been, and even more unequal that they have been. Because now, the cities that we have today, especially the superstar cities, are essentially bundles of people, and of two big classes of people. You have the, let’s say, so-called creative class, the urban, highly-educated, high-earning professionals. Then for each one of those, you have about five other people who are working in service industries in order to serve these people.
Now, these two groups need each other. That bundle sustains itself, because the service providers need those big-ish spenders, and the big spenders need access to all of the services that make the city wonderful.
Now, if you’re saying to the creative class, “Hey, you don’t have to live here anymore for your job, but maybe you still want to live here for your lifestyle.” Even for the lifestyle, you no longer need to access a lot of these services physically, necessarily. Then suddenly, those people can say, “Hey, why do I need to live in New York in order to be around half a million people like me, who I like to interact with? Maybe I can move to another place and just live next to half a million people like that.” Without the other 5 million people who are here to provide all sorts of services and who are requiring my taxes and who are angry at all sorts of things and they’re protesting.
Of course, I’m not condoning it. I’m just describing a big picture process that I see unraveling. That creates an opportunity to create more segregation within cities, and also between cities, and also, the emergence possibly, of a new city. I don’t see that question so much about where are people going to move to, but more about, what will be the structure of those places that people live in? Because I think, a lot of people will still remain in the places that we have today, at least for the next decade or so.
To bring it to your area of interest, I do think that it does open up the possibility of the emergence of all sorts of affinity-based places. Whether it is at the building level, as I mentioned, with things like WeWork, or the neighborhood, or even at the city level, where people that share the same values are looking to build a new place, and now they’re much less tied, or much less hindered by various other considerations, than they were even five years ago, and definitely, 30 years ago.
Mark: Okay. Let’s get, I guess, some concrete predictions. Will superstar cities as a result of remote work, will they expand, but remain neutral, or decline?
Dror: I would say, it’s actually going to get even more polarized there as well, probably. I expect New York City, New York City, so Manhattan to be actually more residentially populated in 10 years.
Mark: What’s the mechanism that it gets? Because at least, if I think about cities becoming less labor markets, and more basically, consumption bundles, then on net, it feels that that makes it slightly less attractive. Where you do have, let’s say, I don’t know, all right 50% of hedge fund managers really like the consumption bundles. Maybe it’s even more than that. Maybe it’s 80% of hedge fund managers really like the consumption bundles.
Now, 20% suddenly decide like, “I don’t care about the consumption bundle of New York. I would rather live on a beach, where it’s hot all the time. Or I would rather live in the mountains, just with my family on a ranch.” Who knows? It seems conservative to say that 20% of them would want that. That 20% of hedge fund managers, if we assume are only looking at the New York population, moving out suggest that on net, actually, New York ends up becoming less attractive.
Dror: I agree with everything you said, but I see another, second half of this story where there’s huge pent up demand to live in walkable cities, like New York and like London. I’m not mentioning New York and San Francisco here deliberately. I think, once these cities become more geared towards people living in them, rather than prioritizing office buildings above everything else, and prioritizing commuters above everything else, they’re actually going to be much more attractive to those people and much more able to accommodate those people. I do see more demand for that.
Whether that means that on net, especially in the short to medium-term, they will be able to make up for the tax shortfall for this transition is a separate story. My bet here is probably no for most of them, so that it will be a painful transition. In terms of overall demand, I still see places like, again, like Manhattan, like London, like certain other cities around the world, being even more attractive, because if we are indeed moving from work determining where you live to lifestyle, determining where you live – these cities are very, very attractive.
If they allow themselves to accommodate all these people that want to live in them, they will succeed. By allowing themselves, I mean, enable people to build more housing, develop, or improve infrastructure in a way that is competitive, to compete on taxation, which again, some of them are reluctant to do, but they will either be forced to compete, or indeed, fall behind because of it. I think, their destinies in their own hands, in that sense. I think, they have the potential. I think, if they do die, it will not be because of remote work itself, it will be because of their failure to respond and to maximize the advantages that they have.
Mark: All right. What happens to, I guess, second-tier cities, so Austin, Denver, Seattle, do they benefit, or do they lose from remote work?
Dror: They definitely don’t lose. They benefit to the extent that they now have an opportunity. They have an opening to attract people, as they have started to do before COVID as well, over the last five, six years. However, even before COVID, we started to see these cities struggling with the same types of issues. They don’t have enough housing. Their infrastructure cannot sustain this type of growth. The high growth in living expenses, and housing expenses is already causing all sorts of social tensions.
We’re starting to see that probably, the New Yorks and Londons of the world, they’re actually much better in dealing with these types of challenges, than those smaller cities. Most of these smaller cities will just not be able to grow as fast as they can grow, just again, because they don’t have the right infrastructure, they don’t have the right housing policy. I think that on it, I would say, it’s positive for them. I think, we shouldn’t overestimate their ability to capitalize on the opportunity that they have.
Mark: What about suburbs? One of the biggest impacts when I think about remote work is there will be a lot of positions that will – some offices will switch to full-time remote work, some will do a hybrid. I’m skeptical of the hybrid model. Then, there will be a lot where there’s an expectation to be in one or two days a week, maybe two or three days a week. You can choose the same – it might be the same one to three days, or maybe it’s different. To me, that unlocks a, I don’t know, much wider suburb range, where suddenly, you’re willing to take an hour, or an hour and a half commute if you’re only doing it once or twice a week. If you’re doing it five times a week, nobody wants to do that. Once or twice a week, suddenly you get 30% more square footage in your house, you get a quieter neighborhood, where your kids can play in the yard, etc., in exchange for a very long commute that’s only once a week. It’s not that bad. Once or twice a week. Do you agree that this is going to lead to, I don’t know, more suburbanization, or am I missing something?
Dror: Yes, generally. Here too, the composition of which suburbs will win or lose and what suburbs will have to do in order to benefit from this growth. I think, that’s where those details are where it gets interesting. We’re already seeing now in 2020, and up until now, how suburbs around all of these big cities are actually struggling to accommodate the growing demand, or even the growing interest.
Housing is becoming more expensive. It’s impossible to find service providers. Congestion is rising. A bit like those second tier, third tier cities, I think the suburbs that will benefit most are the ones that are actually able to adapt, to rezone some areas around train station. To generally orient themselves to double down on things that make life nice.
If historically, suburbs were more about, okay, we have a good school here and you have a backyard and you can drive back to the big city, now, a lot of these movers out of this city, and these explorers, and I’m among them, are looking for a certain lifestyle that is not typical of the American suburb, let’s say.
They want it to be walkable. They still want access to all sorts of – to high street, or to places where you can go and see other people, again, that you can walk out of your house and access those things. They want access to public transport, if possible. Most American suburbs in particular, are not very good at providing these things. I think, those that are, are going to benefit immensely. Those that are able to transition themselves into something similar are going to benefit as well.
Here, actually, see, and maybe this is the biggest opportunity of the next decade or two, is actually, the further urbanization of many American suburbs. To increase density there, and to do so in a way that is more sustainable and more viable than what we have in our cities. Because a lot of our cities, I think, in terms of their some costs, in terms of their overhead, in terms of their politics, it’ll be very hard to reform them.
On the suburbs, I think in many places, I see a healthier political environment, a healthier even civic culture, where people are already much more involved in decisions that are made around them. People are much more able to deal with people who are ideologically not identical to them, which is something that again, cities like New York and San Francisco are struggling to enable.
Maybe because there’s a higher percentage of homeowners, people are generally more committed to the place where they live, and more involved in the general institutions there. I think, that’s probably the most critical question for America over the next 15 years. Can its suburbs evolved to become a little more urban, a little more dense, and to really be attractive to a lot of these people that now don’t have to be in the city, but also cannot live their desired lifestyle in the suburbs as they currently are?
Mark: That’s interesting. Because I think, this is the first time I’ve heard somebody be more optimistic about up-zoning the suburbs in the city. My impression of the suburbs is that they tend to be much less open to up-zoning than the city, in the sense that suburbs are largely the result of white flight in the 60s. There’s a long history of redlining of basically, using zoning laws to keep undesired groups out.
By the time you live in a city, for example, like I moved to Washington, DC, and there’s, I don’t know, there’s a nearby park Logan Circle that I frequently go to, it feels like there’s less of a sense of ownership of that park, than there is of the park I spent most of the pandemic with my parents, the neighborhood park, where there’s an elementary school, just because I walked to the neighborhood park that’s an elementary school, you just walk in a bunch of single-family buildings. You know, or know the parents of a lot of the people there. While, Logan Circle, to walk there, walk past some three, four, sometimes six-storey apartment buildings, there’s a lot more cars on the streets. It feels like there’s a much more diverse, I guess, larger group of people at the park where I’m often two, three, maybe four degrees of connection removed.
To me, that kind of, to certain extent, mitigates the sense of spatial ownership that I consider to be the baseline for NIMBYs. Let me stop there and try to understand your political analysis for writing more optimistic, but upsetting the suburbs.
Dror: Yeah. First, to clarify the premise, I think, most suburbs will fail at trying to do this. I think, some will succeed and will can create a path for others, or at least an example. Most Americans live in suburbs, most Americans live in single-family detached, or two-family attached houses, the room for change there, if we can change a few percentage points, I think, that would make a dramatic difference already.
In the suburbs, and I agree with you, there is that history of white flight and of segregation, and a lot of its effect and even its practical constraints still persist, and are still a big problem in this country. I think, we’re starting to see examples of places that have to up-zone, if they want to have access to all sorts of things. Again, if you have a train station, but you also want to have cool restaurants next to it, and some offices for these people that are not working from home, or from near home part of the day, you basically have to create more density.
By creating more density, I don’t mean the type of projects, low-income housing that you see in the city and let’s build now and 15,000 units around every train station. I’m talking about going from two-storey to four-storey, and from having a block and a half of retail, to five blocks of commercial space near those train stations. In a lot of suburbs, the area around the train station is to begin with, it’s not where single-family houses are. It’s already often, a bit rundown, or it already has housing for lower-income people.
It’s not exactly building something in someone’s backyard, I think. It’d be actually, requires its own version of urban, or in this case, suburban renewal. I am hoping that in some places, that migration of people from the city that like that lifestyle, have different values from the traditional values that typify the American suburbs is going to help drive that change.
Not necessarily for idealistical reasons, but just for selfish reasons. Again, we just bought a house in a place called Port Washington, just on the edge of New York City. It’s an extremely walkable suburb by any measure, but differently, in relation to anywhere else in America. It has sidewalks. I can walk to a train station. I can walk to a high street with various shops. I can walk to the beach. I can walk to some of the schools.
Me as a resident now, I want more density in the high street. The high street, I don’t live on it, but it’s very, very close to my house. I would love it if there are more services available here that I could walk to. I realized that the price for that means that we probably have to up-zone parts of that area. I think, there will be enough people who are going to be open to that, especially if the economic case is made properly. I think, one of the biggest challenges that we have over the next 10 years is to make the economic case. I’m definitely not taking for granted, or saying that it’s just going to happen, because it makes sense. I think, there’s an unprecedented opportunity to drive that change. I think in some places, it will work. If not, call me an optimist. I’ve been called worst things.
Mark: What historical analogies are most applicable to the current changes in real estate?
Dror: I mean, the most relevant ones to learn from parallels within real estate, rather than parallels across periods of time. What I mean by that is, for example, the evolution of the hotel industry, which is really, my favorite example here. Historically, hotels, especially in the railway era, were classic real estate assets, which meant location was almost everything. You had a train line. You drop people at a certain location every day at exactly the same time.
If you own the hotel, who, across the road from that railway station, then you got the traffic and you’ve got the business. Now, when people suddenly starting to have more independent mobility to drive around in cars, suddenly, the trains didn’t deliver captive audiences to hotels anymore, but actually, the customers themselves could suddenly decide where to park their car and where to stop along the way, and what’s most convenient to them, and what time they would like to arrive at. Which then meant that hotels could be in all sorts of new places. It also meant that the basis for competition for hotels became something completely different.
It wasn’t any more just about location. Again, it’s not that location didn’t matter anymore. Just that it wasn’t about only that anymore. Then it was about, “Okay, how do I convince people to pull over here and to come and park here and to come to my hotel, rather than the other hotel who is half a mile before, or half a mile after, or further into the city?” Then, we saw the growing importance of brand for those hotels. You needed that person to recognize that thing that they saw from the highway and to decide to pull over.
Gradually, it also emphasized the importance of technology and of networks, because ideally, you wanted people to book stuff in advance and to call your 1-800 number, or later to go to your website and book something, rather than go to somebody else’s website. We saw the balance of power in terms of determining the value of the asset and the economic abilities of the asset’s shift from the hard characteristics of location and what the building looks like, to things like brand and digital, or phone, distribution and national advertising, which drove the emergence of big national brands for hotels, and ultimately, also change the ownership structure of hotels.
If in the past, you had these hotel companies who own the buildings, operated the brand, if they even had a brand, and did a bit of everything, or just brought even a restaurant company, in many cases, to operate the hospitality aspects of the hotels. Over the second half of the 20th century, with the advent of the automobile, we saw that ultimately, the business of building the buildings that hotels are in, and the business of actually managing the hotel brand and the consumer-facing aspects of it, become two completely different businesses, both in terms of the skills that they require and the management that they’re required, but also financially. One is a physical asset, that is financed in a certain way, and those who finance it expect to get a regular mortgage payment and a regular dividend if they’re traditional real estate investors that they buy income properties.
On the other hand, you have this brand business that invest in technology and distribution, in marketing that maybe can grow much faster, but has investors that expect higher returns, faster growth. On the other hand, they don’t expect a regular dividend and the type of stability, or the type of guarantees that an owner of a physical asset requires.
What we saw there over, especially in the 90s, or so, is the splitting of these hotel companies into two separate entities in many cases. One is a real estate investment trust, which owns and develops the actual physical buildings. The others are those brand franchises. Companies like Marriott, and Hilton and others, that these days mostly don’t own any hotels, and often don’t even lease any hotels. They just own the brand. They provide the service envelope.
By brand, I mean multiple brands that cater to all sorts of specific groups with very specific needs. I think, this same dynamic is now coming to the office world, into the residential world, which is why I use WeWork as an example. The specific characteristics of WeWork don’t really matter here. The fact that it was long-term, or short-term, or if it’s for young people, or old people, the fact that it even made these tradeoffs is what matters.
I think, over the next decade or two, we’re going to see the emergence of multiple residential and office brands that cater to all sorts of types of groups of customers with all sorts of very specific and idiosyncratic needs. To a lesser extent, but still a meaningful extent, we’re going to see that with neighborhoods and cities as well. Places that cater to groups of people that now have more choice and are looking for something that is much more specialized to their very idiosyncratic needs. By the way, if this doesn’t make sense, I would love to hear how you’re seeing things.
Mark: No. I think, that does make sense. Let’s assume that we have an entrepreneur listening to this, who is looking for their next project. What is a business model for taking advantage of the shifting trends?
Dror: For cities, for buildings, for both?
Mark: Residential, commercial, whatever.
Dror: Yeah. The main thing you want to do is to have an audience, to have a group of people that you have a story that clearly resonates with, and that you can show a deep understanding of their needs, and to prove that they’re willing to pay a premium in order to have those needs met. Now, you definitely don’t have to go and buy buildings and buy places, I would start by taking existing assets, whether they are distressed, or even if they’re doing well, and either convincing their owners to try something new, but more likely, to secure those assets by actually signing a lease initially, but proving that your model works.
Then, going out and raising more money, but raising that money in a slightly smarter way than WeWork did, which means for the real estate part, get real estate money. Get investors who are just looking to buy buildings and to get the return that they’re used to from that and the level of risk that they’re comfortable with. On the other hand, get people to finance your envelope, your technological and brand and marketing envelope, who are looking to invest in that type of business.
Then, I think, there’s plenty of all of these things available now, which is why it’s such a great time. I mean, there’s plenty of capital available for any type of investments, whether it is for real assets, or for venture type investments in technology. There’s plenty of supply available, whether it is office, or housing in some cases. Landlords are more open-minded now than they have ever been, just because they’re mostly shell-shocked. They’re looking at the world and trying to cling to anything that looks like certainty. I think, that a large enough percentage of them are now willing to better to experiment with all sorts of things, because they realize that to figure out what will win over the next few years, they just have to make multiple bets. There’s no single answer.
Yeah, I would do some of these great companies are already doing, what they call living companies, and some of the distributed hospitality companies, and some of the co-working companies are doing. I would learn from some of the failures that we’ve seen happened before. I mean, again, the WeWork failure was completely self-inflicted. I mean, they’ve done a lot of things that were just completely unnecessary. They don’t really reflect on the core of their value proposition, or the need that they identified in the world. I mean, the need they identified is bigger than ever, but all the crazy stuff that they added around, it basically made them a bad business, as a business.
Mark: How is remote work going to change the importance of time zones?
Dror: I think, time zones still matter. Here too, there’s a marginal flexibility that is being added. I just saw research from a startup called Spaceflow, which provides a virtual office, so a place that people can just log into, and then they can collaborate all day. One of the counterintuitive insights that they saw after analyzing, I don’t know, millions of hours of people working together over the last year remotely, was that time zones are so much more important that you would have imagined.
I mean, the hours of the day that are busiest, so the hours where there’s an overlap between all those different zones where people are. Here too, it’s the marginal difference that matters. It’s not about saying, “Okay, time doesn’t matter, or time doesn’t matter.” Instead of everyone being in the same place for nine hours a day, now you only need to have three hours, or four hours where people overlap. That still opens a lot of possibilities. Second, I think, we talk a lot about remote work these days, but I think, one of the things that remote work is driving is also the adoption of more asynchronous work, which has been a trend even before COVID, too. It’s coming from the world of open source, but it’s being adopted in more and more industries and in more and more fields, not necessarily just in software development.
That also makes time less important than before. If I would summarize my answer, I think time zones still matter. These changes are opening up a lot of possibilities that were not possible before on the margins. In addition, one thing I have to mention when we talk about time zones is Africa. We have places in the world, or even South America as well, to a lesser extent, that have a lot of people that are just coming up, a lot of them speak English, or French, or other international languages, they’re in the same time zone.
If you suddenly don’t have to commute to the office, but you just have to be on the same time zone, then that’s already a much less strict constraint than before. It opens up a lot of possibilities for those people, and a lot of possibilities for people in developed markets as well to take advantage of all the skills that are available there.
Mark: How are ghost kitchens changing the urban landscape?
Dror: This is another one of those models where software is eating the world. Then it decides to take its views and its strategies that initially started completely in the cloud, or in software, and then to bring them to the physical world. Cloud kitchens, basically say, okay, we’re like the AWS for the physical world. Instead of having your own infrastructure in-house, or having a bundle in the old way, where you have a kitchen and a restaurant and a place for people to see it, and it has to be at ground level, and can only be in certain locations, we’re just going to give you this back-end capability that you can tap into for whatever it is that you want.
It started with speaking about cloud kitchens. Now, I see there’s all sorts of other uses that are emerging to that, whether it’s small logistics, or even putting together furniture, or doing all sorts of other things, just before you deliver them to the consumer, but not in a traditional, industrial, larger facility outside of the city. I think, these services are candidates for taking up a lot of the slack that is being created in the office world. If we’re talking about the city becoming a place for more people to live, rather than more people to work and commute, obviously, the ideal scenario is let’s convert all these office buildings into housing.
In most cases, this is actually not going to work. There’s a lot of other housing adjacent uses that these offices are suitable for. I think cloud kitchen and generally, last mile logistics and an even small-scale manufacturing, or last step of manufacturing, or assembly could start to happen in a lot of this vacant office and retail as well. Which is part of an even bigger trend, when you talk about the urban landscape of a growing mixing of uses, and a general shift away from just like, okay, this is employment, and then this other area around the city is housing.
More mixed use within the city, even in cities that are already very mixed, such as New York, I think, we’re going to see more mixed use. That means actually, bringing more industrial use into the city, rather than just being residential. I’ll face, which just doing the history would sound very familiar. These are the early modern, pre-modern large cities that we already had, which were much more mixed, and much more diverse in many ways, and much more walkable.
Mark: How should we expect these changes impact productivity over the next 10 to 20?
Dror: Short answer, immensely, I would say. I think, we’re opening – the amount of time saving, I think is significant. A point that is even more that is specifically is interesting to me is not just the fact that you’re saving time for everyone, or that you’re using resources more efficiently, or that you using cheaper resources to do something that generates the same amount of economic value.
To me, the most interesting change here is at the individual level, I feel, and I’m collecting data on it and trying to quantify that the old office world, the old 9 to 5 world actually held back a lot of our most talented people. I mean, the fact that you forced them to work certain hours of the day, in a certain way, in a very specific environment, actually held back a lot of our people. In that sense, I always say, geography is the patron saint of average performers.
He puts all of us in an office, which means that all of us can turn out something reasonable. The best among us probably cannot concentrate enough, cannot produce their best, because they’re forced into this paradigm. If we are indeed in a world where the most important resources is human ingenuity, which means the most important resource is human concentration, then whatever enables an exponential explosion in human concentration, I think, is super valuable. I think remote work enables a lot of that.
However, beyond what will happen in the real world, I think that we will struggle to actually measure these things properly and to see them probably fully reflected in our economic data, which I think is a problem that we’ve had over the last two decades, or last four decades as well, where there’s been a lot of growth in productivity. Most of it has not been properly measured, or reflected, because a lot of it was free, or just because there were other things that were easier to measure, which is what economists focused on.
Overall, I think, it will give a huge boost to productivity, but that boost will not necessarily have outcomes that people are happy with, because it will probably means more inequality, more polarization of income, more segregation in many cases. Purely economic, it might look good, but it will create all sorts of other tensions on the other side.
Mark: How will remote work impactful formation?
Dror: That’s another great question. I think here, too, pretty dramatically, one of the interesting things – and again, this has been the trend for a while with the Internet, and even before the Internet, with more outsourcing, more experiments, at least, with integration and unbundling of corporations, more use of on-demand skills. Beyond labor itself, more reliance on APIs, on cloud services and other things that are completely on demand, and the modularization of a lot of aspects of work.
Definitely, by working remotely and working asynchronously, working workers and work itself is becoming much more conducive to being much more on demand. The transaction costs of getting that thing that you need, when you need it are becoming lower, and the options for getting those things are expanding quite dramatically. I think, the result will probably be an intensification, but quite a significant intensification of the trends that we’ve seen over the last 20 years, which is on the one hand, you see this emergence of long-tail, much more flexibility, many more creators, many more mini-superstars in different economies that are experts at different things, that don’t have a single job, but can work with the largest providers in the world.
On the other hand, we’ll see, actually, bigger companies than ever, but then these companies are built more networks, or series of bits, rather than the traditional structured corporation of the 20th century with clear hierarchy and clear roles. I wrote an article recently about the evolution of the venture capital model. To go back to Marc Andreessen. Marc Andreessen said that he sees Andreessen Horowitz as modeled after HP of the late 20th century. HP was a corporation, but basically, saw itself as a series of bits. It has this big layer that does legal and marketing and distribution and sales. It seeded all of those bits and the bits that look promising, it gave them more resources to help them grow.
He saw venture capital evolving in that direction with A16Z, basically providing that layer to its portfolio companies. When I hear that, I actually think there’s a broader implication here. This is not just the future of venture capital. This is the future of the corporation itself. If we are becoming more dependent on innovation, which means that all corporations will have to make many more bets, not just on initiatives, but even on individuals, to know which one of those thousand people that you hired is going to come up with the next Gmail, or with the next Instagram is barely impossible, even if they’re all very, very talented.
You do want to have a piece of all of them. Assuming that the one who can make more bets is the one that ends up winning, you either become a huge company, like Amazon, where you have to hire millions of people and then see what happens. Or you have to build a more efficient network structure, where you can have a certain claim over the future cash flow, whatever this person, or this group, or this team, or this product can do. At the same time, not to fully control it, and through that, to build economic value. Then the bets that seem promising to still give them all that support that HP has to give.
I think, the future of the corporation, in some cases, will be these networks that have a piece of a lot of different bets, and even have a lot of different individuals, but a much smaller piece and much less control than having an employee and telling him what to do and owning whatever it is that she, or he ended up producing. Does that make sense? It’s a bit abstract.
Mark: Yup. How has remote work going to impact innovation?
Dror: That’s the multitrillion dollar question. I think, it’s going to have a net positive effect on it. Historically, urban economies and labor economists have pointed out that innovation can only happen in big cities. There’s no edge spillovers –
Mark: Internet is the biggest city in the world.
Dror: Exactly. There’s no edge spillovers. There’s improved matching. Indeed, the Internet is the most – the biggest city in the world. Here, you see the two pillars of agglomeration, of urban agglomeration theory, which used to support the move to cities are now suddenly in conflict. You have on the one hand, the importance of in-person interaction and of knowledge spillovers and nearby complementarities in terms of, “Okay, I’m here and I have all the lawyers I need and all the accountants and all the consultants and we all bump into each other in a bar.”
On the other hand, you have the importance of the size of the talent pool and of matching with the most specialized person for whatever tasks that it is that you’re trying to achieve. I think, that the matching angle and the depth of the talent pool of the Internet is going to overwhelm whatever disadvantages there are two working remotely, I think, the advantage of accessing a huge talent pool is going to overwhelm all of the pitfalls of remote work. Especially, since remote work is not really anti-cities, or anti-people ever meeting each other, or ever socializing, or ever doing anything else.
Yeah, so I think, it will increase productivity. I mean, when I read urban economics books, even from five years ago, a lot of that sounds like a comedy now, when they say, “Oh, this tech company is more productive, because if they need a venture capital lawyer, there’s one in their neighborhood. If they need a VC experienced accountant, there’s one in the city.” What are you talking about? I don’t need to be in the same city to talk to the best lawyer on Earth, or to the best accountant on Earth. Or for that matter, to exercise with the best fitness instructor on Earth, or to access that, at least to have a conversation with the best doctor on Earth, and to have them measure whatever it is that they want to measure about me remotely. It’s all feasible now. In five years, it’s going to be dramatically more feasible than it is today. Whatever the shape of the battle is today, it’s only going to tilt more towards remote productivity.
Mark: Marc Andreessen, one of his interviews, made a prediction that everybody would be weird in two generations. Weird being, Western educated, industrialized, rich democratic. The content of his claim is that the Internet, which is primarily consumed, or produced, the content consumption is mostly from the US and Europe. Therefore, this is going to spread to other cultures and going to have a very profound impact and I don’t know, long-term social organization. Do you agree with that claim? Why yes? If not, why not?
Dror: First, it’s a pleasant thought to contemplate. I’ve lived for 10 years in China, during a very dramatic period in China’s growth, so 2005 to 2015. I’ve seen how you can, on the one hand, adopt a lot of Western ideas, and a lot of Western consumer culture. I was building shopping malls there. On the other hand, become even more autocratic, and actually, leverage that culture and that technology to have further control and to be farther away from the western ideals, and in two ways. One, in terms of hard technology, and using it to attract people and to control them, but also in a soft way, in terms of bread and circuses, giving people, okay, you can buy Louis Vuitton, you can buy a house, you can buy a car. It actually means you have more to lose than you’re going to behave now, because this is how we designed the system.
I do think, I’m pessimistic on China as a model, because I think they couldn’t have been able to achieve all of that without the West developing the technology and building the capital and giving them a free pass on a lot of things. The fact is that they are managing to do it, and we will probably continue to enable them to do it. I can’t say that I’m as overwhelmingly in agreement with Marc Andreessen here. I do see points for optimism. I was thinking about it just this morning. About 900 years ago in the Middle Ages, a lot of Greek science and Greek philosophy returned to Europe after being kept alive by scholars and merchants in North Africa and Arabia, and in the Eastern Mediterranean.
I think, that over the next century, over the next few decades, Africa and Asia are once again in a position to rejuvenate the West. I’m less hoping that we will spread our values to them, but I’m hoping that they will help us remember what the West great in many ways. To also do it in a way now that is actually accommodating to all the people on Earth, and doesn’t rely on colonialism and on violent oppression.
In a way, they are more people that I meet, or speak to in Africa and in Asia, in the developing world, actually much more optimistic, and much bigger believers in a lot of the values that made the West prosper than the West is. I’m optimistic in that sense, not in as spreading all our ideals to them, but in them helping us understand our ideals in a better way, and you forge a new path based on those ideals, but in a way that makes more sense than what the West has been trying to do over the last 250 years in terms of spreading those ideals, forcefully.
Mark: Sure. How do you think about the changes that you’re predicting in America and I assume, European high-income cities? Will similar changes apply in cities in middle and low-income countries? If yes, why? If no, what changes would be different?
Dror: I haven’t thought so much about this question, specifically. I think, in middle to low-income countries, I mean, in China, for example, the labor market – On the one hand, of course, the economy is competitive in many ways, but the labor market, it’s competitive, but I think, the employees have much less power compared to the employees here, because there’s always new people moving into those cities.
The economy as a whole is in much higher growth mode. There’s less of that zero-sum vibe that we have in the West, which means that employees still feel they’re competing against a lot of other people. Even if they’re really skilled, they have to put up with whatever it is that their employer is telling them to do, and work really, really hard. They’re still moving up into the world. They’re much less satisfied than employees in the West.
I think, a lot of the drivers of this choice that I mentioned in the beginning of our conversation, and of people’s willingness to exercise this choice to say, “Hey, I’m not coming back to the office, if you’re forcing me to come back every day. Or, I’m not going to live in that place, because I want to live somewhere else.” I think, these are still privileges of very advanced economies, and of people who feel like, “If you can’t get me, you’ll never find anywhere else like, me.” Which in China, even with the best engineers, they still assume that there’s just a much bigger backlog of people that are breathing down their neck, and they’re moving up in the world, that will come and replace them.
I think, it will take a little longer there. It really depends on the stage of development, because some of these countries obviously, are going to leapfrog a lot of our assumptions altogether and just build their economy differently. For those that already have large cities like China, I think the change will be slower, but it is coming as well. I mean, we’re starting to see even in China, this new movement of people lying down in protest to the 996, working nine hours a day, six days a week, I forgot what’s the other nine for.
Even there, we’re starting to see a backlash. Because again, if the economy is indeed moving to depend on a handful of very, very talented people and on their level to concentrate and innovate, then these people are going to have an increasing amount of power.
Mark: How is transportation technology going to change cities, self-driving cars, micro-mobility, meaning scooters, bikes, Hyperloop, supersonic?
Dror: This still comes back to undermining the basic assumptions that we have about location, accessibility, visibility, and the general growing dynamism and competition between places. If in the past, I mentioned that hotel near the train station, that dynamic still applies today, to office buildings that are on top of a train station, or to apartment buildings that are near public transport, or near a road. These type of things, that type of infrastructure, made for a very static market in the past.
If I bought a piece of land, I knew exactly how much traffic is going to arrive to it. I knew exactly what is being built, what is being planned for the next 30 years. New York, a new subway line takes 50 years to build. If I buy a piece of land, I know what’s going to be next to it in terms of infrastructure. When you have things, I mean, start from micro-mobility, which it seems trivial, but now it means that people can move around along patterns that are completely different. They can go against traffic, they can go into sidewalk, they can do all sorts of things to avoid traditional public transport, which is very rigid in terms of the way it is planned. Even avoid cars to a certain extent, which only go on roads, which can only go in a certain direction. Again, they don’t change very often.
It creates a more dynamic environment. It opens access to new areas. Flying cars, and flying things, I think, are going to make a dramatic impact on the built world over the next decade. Probably less so people just driving around, everyone driving around in a flying car, but more about the flying things. More about delivery and smaller things move around differently, and again, change where our warehouses should be, change the type of things that we can access and how quickly they can get to us if we need them, which changes the way a lot of our assumptions about where we need to be and how much space do we have? Where do we have openings to buildings?
I think, overall, it contributes more to this growing dynamism and to this growing competition, which then leads again, to the fact that if you want to attract people, it’s less about their specific location on the physical, traditional characteristics of your building and more about what else are you offering, and how are you meeting the specific needs of that specific group of people that you’re targeting?
More broadly, it’s a bit like the remote work conversation, you’ll see. If suddenly, people can go in and out of the city very, very quickly, what does it mean for the city? I’m not sure. Frankly, I think, remote work is probably a more interesting and more dramatic factor than people being able to fly from the suburbs to a meeting in the city very quickly. Or even within parts of the country.
Mark: Who is Mayor Suarez, and how should we interpret his success as being, I don’t know, a frontrunner for the future of cities?
Dror: Mayor Suarez of Miami understood a lot of the things that we just discussed. Places, is more about a narrative. It’s more about having a specific attitude. It’s more about picking a group of people that you’re trying to cater to, and then trying to attract them. At some point during COVID, he realized that Miami has a lot to offer. Interestingly, I think, as a mayor of Miami, you actually don’t have a lot of formal power, I think, because there’s mayors of the cities underneath him, who are actually deciding most of the things.
He embraced that, and he serves more as an ambassador of telling people, “Hey, my city welcomes you. I want more innovation. I want more startups. I want more VCs. We have lower taxes. We have a certain lifestyle. We don’t have a lot of things that you would expect to see in the biggest cities in the world, but we have other things. We think that those things are now more appealing to you, than whatever it is that your city is offering.”
He’s been able to attract a bunch of VCs to move, or to open offices and representation in the city. He’s been able to attract more intrapreneurs to give the city at least, consideration and to go there and to spend some time. What he’s hoping to achieve is to kickstart some virtuous cycle. Because I mean, a city is ultimately, a network with network effects. The bigger it is, the more valuable it is, to everyone else there, assuming that those people have something to benefit from each other.
He was trying to kickstart that process. It seems to be working. He’s making noise. Also, he did attract people, and I think, in terms of employment and investment and other specific metrics, it seems to have a positive impact. Here, too, I’ll temper this story with what I said before. They think that a lot of these smaller cities are going to bump into a lot of the challenges that New York and LA and San Francisco are struggling with. They’re going to do meet those challenges much sooner in their development, and they’re not necessarily going to be in a great position to respond to them. Again, like traffic, lack of infrastructure, housing costs, density issues.
I think, what Mayor Suarez is doing is a great start. Then to actually reap all the rewards that he’s now exposing himself to, they’ll have to make hard changes in the physical environment in those cities. I think, that’s a much bigger challenge. I’m not saying that it will not happen, but I think, that’s a completely different story. Again, to change infrastructure, to change zoning.
Mark: What does the tech diaspora mean for the future cities?
Dror: What do you mean by tech diaspora? Like people –
Mark: Moving from SF in the tech industry, bringing their values, culture, networks, etc., to other cities.
Dror: Here, a bit like the Miami story, I think it creates, of course, a lot of opportunities. In a way, it undermines itself. Because if these people will move and will bring with themselves, their nimbyism, then that’s not going to help. If you moved to Austin, or to Arizona, or Colorado, or Florida, and then you’re not willing to vote for more housing, you’re not willing to help keep taxes low, you’re not willing to embrace a lot of the things that made those places attractive to you to begin with, then you’re not going to help those places respond to your own arrival in a way that helps keep them sustainable, then great.
You’re just going to make them more expensive, and less attractive to other people, which might be great for you, which is part of the issue here. It’s not going to be great for a lot of other people who arrived there later. I mean, one of the biggest conundrums in cities is that the people are already there have all the power. Then in order to grow, cities have to actually accommodate people who are not already there, but there’s no one to speak for them.
Even within the people who are already there, there’s the homeowners and the ones that are not homeowners yet. Here too, those that are already comfortable have too much power at the moment, which is why in most countries around the world, the zoning is much less of a local issue than it is in the US. In many places, it’s federal, or at least, it has clear federal guidelines, or at least, it’s not something that is the side of the neighborhood, or at the town level.
In order to think of broader consideration for society and the economy as a whole, rather than the interest of the people who live there. That’s a fine, an important balance. That’s one of the unique things about America, that you have you have conflicting values here. On the one hand, you say, “Okay, it’s my private property. I want to be able to decide with myself and my neighbors, what happens where I am.” On the other end, you say, “Okay, but we want prosperity. We want to accommodate more people. We want growth, and we want sometimes, to force ourselves to do things that are good for the commonwealth of everyone, and ultimately, for us, as well, rather than to our own narrow interests.” Balancing those interests is tricky. I think, we’ll see different places experiment with that in different ways, and may the best team win.
Mark: We’re coming up on the end of the episode. are there any questions that I should have asked you that I didn’t, that you would like to answer now?
Dror: No, but I would love to hear a little bit more from you about what opportunities do you think the shift to remote is creating for charter cities, and where are we most likely to see concrete steps forward on that front over the next decade?
Mark: One project that we’re working with, for example, there’s in Zambia. They do not have charter city status. It’s a South Bay City development outside of Lusaka. They hope to get charter city status at some point in the future, but they’re focusing on knowledge work. Zambia is a landlocked economy. They mostly export copper. The question is, how do you start creating a different industry base, because its landlocked transportation costs are high, which make manufacturing difficult and traditional, the traditional industrial sector. They’re English-speaking. With remote work, they can take jobs in the US, or with the – I expect, time zones will get increasingly important, and so, because they’re effectively in the same time zone, as most of Europe, and they speak English, there’s a substantial arbitrage opportunity there, where they could be designers. They could be computer engineers. They could be even nurses and doctors, if they’re just reviewing charts and stuff and making recommendations.
Obviously, you can’t do any of the hands-on stuff remote, but there’s a lot of hands-off stuff. You could be accountants, etc. I suspect, there will be more of such projects. I’m relatively bullish on they’re not really satellite cities, but satellite towns, an hour outside metropolitan areas that suddenly become bustling, and probably, target more on local, I guess, affinities.
At the Charter Cities Institute, we are not focused on remote work and I guess, technology per se. We tend to think that the – if you look at where most the urbanization is happening in Africa and Asia, there’s 75 million new urban residents annually. The way to create jobs for most of those people is manufacturing. That’s been the dominant path which every country up till now effectively has escaped poverty.
Some examples, like India has grown relatively effectively without a large industrial base. The question is, how sustainable is that growth? Which remains to be seen. China, Japan, Korea, Southeast Asia now, Europe, the US, all grew with strong industrial bases, which tends to be much more labor intensive. Remuneration tends to be much less substantial than the technology sector. That is what we see as the core. That’s what we advocate. I see the remote work, charters – remote work is playing part of that.
Then there is a question of for example, once robotics get good, it might be possible to replace the attendant, I don’t know, a gas station, or the attendant who’s taking tickets, go into a parking lot, or something like that. Many of those jobs might be easily replaced by somebody in India, or Bangladesh, who sits at a computer all day and just press the button, yes or no, or something like that. I do imagine that that will change, I don’t know, working settlement patterns, but that’s a little bit outside of the scope in which most Americans typically think about remote work.
Dror: That makes sense. One other topic that with one word that we didn’t even mention today is crypto, which is probably relevant here in a few different ways.
Mark: How so?
Dror: How so. I think in a few ways. One, in providing people the chance to build alternative institutions, which are somewhat government-like, which is part of the idea of a charter city. We want to have the right to build our own little thing and experiment with it, but without going too far and without building our own army. Crypto allows you to do that in the virtual world, but also to a certain extent in the physical world.
Second, is being a locus for community, as being a place that attracts specific types of people and enables them to build tools that align their incentives in all sorts of new ways, which here too, I think building a new city and a new physical community, a lot of that is about how do we align everyone’s incentives. A lot of the challenges that we discussed today in terms of zoning and infrastructure and how to make sure that the decisions are made by the right people at the right time, and that the benefits are shared with the people in order to incentivize them to welcome new people and to help the growth of the community overall, rather than think about whatever it is that they own. I think, there’s a lot of room for experiment here.
Third, crypto is also a way to play the biggest political powers in the world against one another. We’re seeing now with the US and China, trying to figure out what’s their approach to it. Do they embrace it? Do they build it on their own? Does China wants more people to use Bitcoin in order to undermine the US dollar? Or is it more scary that people will use it and undermine China itself and be more free and more resistant to censorship?
I think, by having this external point of pressure, that at least creates some threat on the old political structure. In doing so, I think, it represents the broader threat of the Internet itself to these institutions. I think, it might make more of these large countries more open to experiment with things like charter cities. With saying, “Okay, we have our own way of doing things. Obviously, we’re not going to change overnight. Maybe we’re not going to change at all, but we’re going to be willing to allow all sorts of smaller experiments. We’re going to be willing to try different things, and to put them in a sandbox, and to see what happens.” I think charter cities are exactly that.
Yeah. I think, that’s a relevant aspect of it. Then of course, it ties also into remote work and into distributed work, which are both the natural work culture, I think, of the crypto world in most cases. Also, they allow you to have a global workforce that gets paid in the same currency and then gets compensated easily and automatically for all sorts of smaller tasks and on-demand things. Yeah, I think there’s a little various tangents here that are worth exploring in the future.
Mark: Great. Thanks for coming on the show.
Dror: Thank you very much, Mark. I enjoyed it.
Mark: Thank you for listening to the Charter Cities Podcast. For more information about this episode and our guest, to subscribe to the show, or to connect with the Charter Cities Institute, please visit chartercitiesinstitute.org. Follow us on social media, @cci.city on Twitter and Charter Cities Institute on Facebook. I’m your host, Mark Lutter and thank you for listening to the Charter Cities Podcast.