Production of the Built Environment as an Industrial Sector

 Industries, clusters and sectors

Parts of the economy that involve many different contributors and participants are often called an industrial or economic sector, an example is the non-profit sector with its wide variety of organisations. Although the idea of an industrial sector has no precise meaning, it is often used to describe a loose collection of firms with one or more common characteristics, like ‘manufacturing’ or ‘the business sector’, though firms in these sectors come from many different industries.

 

The starting point is the concept of an industry, which is defined in the Standard Industrial Classification (SIC) used by national statistical agencies as a group of firms with common characteristics in products, services, production processes and logistics. These firms are classified into a four-level structure. The highest level is alphabetically coded divisions such as Agriculture, forestry and fishing (A), Manufacturing (C) and Information and communication (J). The classification is then organised into two-digit subdivisions, three-digit groups, and four-digit classes.

 

The boundaries around an industry are tightly defined by the SIC, to allow identification of individual industries as producers of goods and services and measurement of their contribution to output and employment in the economy. However, to produce something supplies are needed, purchased from other producers, and these relationships between industries are also important. For example, bricks are manufactured products supplied to property developers to provide buildings for their customers. Many industries are structured around such supply chains and production networks, and when enough firms share sufficient characteristics they are often described as an industry cluster. 

 

An industry cluster brings together a group related firms and was originally applied in the 1990s to specific locations like the wine industry in California’s Napa Valley or Bordeaux in France. Over time, the concept itself broadened as different types of clusters were identified, such as creative industry hubs or knowledge centres. Two types of industry cluster are:

 

1.     Geographical – industries using the same resources in a specific location

·       Movies – Hollywood US, Bollywood India;

·       IT – Silicon Valley CA, Silicon Alley NY, Silicon Glen Scotland, Bangalore India;

·       Leather goods, spectacles and glasses – Italy;

·       Health – Boston US, Oxford England, Chennai India;

·       Electronics – Guadalajara Mexico, Cordoba Argentina, Guangdong China;

·       Finance – London England, New York US, Geneva Switzerland; and 

 

2.     Vertical – a hub and spoke value chain from suppliers to end products

·       Automotive – Detroit US, Dusseldorf Germany, Turin Italy, Curitiba Brazil;

·       Aerospace – Toulouse France (Airbus), Seattle US (Boeing);

·       Smart phones – Guangdong China (Apple), Hanoi Vietnam (Samsung).

 

Some industries do not have central locations like the clusters in IT, wine, finance etc., or major hubs where production is concentrated like automobiles and aerospace. These industries are built around decentralised production, distribution and delivery networks that make their products widely available to clients and customers. Four examples are:

·       Pharmaceuticals – a globally distributed industry, with countries combining some form of domestic production and imported supplies;

·       Shipbuilding – brings many suppliers together in a few locations;

·       Electricity generation – brings many suppliers together in many locations;

·       Building and construction – the world’s most ubiquitous industry, sharing the most widely used materials of wood, clay, glass, steel and concrete. Is this really a cluster?

 

Building and construction, in fact, is only one of the many industries involved in the production of the built environment. There is a diverse collection of industries that create, manage and maintain the built environment. On-site work links suppliers of materials, machinery and equipment, products and components, and all other inputs required to deliver the buildings and structures that make up the built environment. Consultants provide design, engineering, cost planning and project management services. Once produced, buildings and structures then need to be managed and maintained over their life-cycle, work done by another group of related industries. The built environment also needs infrastructure and services like water and waste disposal, provided by yet more industries. 

 

A dense network of many different firms and participants such as this is often called an industrial or economic sector, because it is too diverse and distributed to be a cluster. There is no definition of an industrial sector, beyond a broad collection of firms with one or more common characteristics, like ‘manufacturing’ or ‘the business sector’, though firms in these sectors come from many different industries. There are also sectors based around a definable market, two examples being:

·       Defence - there is no defence ‘industry’ because suppliers come from many different industries like IT, aerospace and shipbuilding, but as a sector share resources and clients; and 

·       Tourism - which brings together the contributions of industries like accommodation, tour operators and entertainment. Australia has an annual Tourism Satellite Account produced each year (cofounded by industry and government). 

 

If the built environment encompasses the entirety of the human built world, then the built environment sector (BES) is the collection of industries responsible for producing, managing and maintaining the buildings and structures that humans build. To be included in the BES an Industry needs a direct physical relationship with buildings and structures. Those industries can be divided into those on the demand side and those on the supply side, like materials or specialised tradesmen, Demand side industries like property developers and facility managers pull output from the supply side, both for new output and for servicing and managing existing assets. Therefore the BES is a sector more like defence than tourism, because it also produces long-lived assets for clients outside the sector (governments and owners respectively) that require repair and maintenance, and that R&M generates significant ongoing revenue for firms across the broad industry sector that produces those assets. 

The concept of the BES is broad and extensive, so cannot be precise and exact. While the boundaries of industries and markets are important, in practice the data and SIC definitions are the starting point for the data used. The industries included are selected because they clearly have a relationship with construction, management and maintenance of the built environment. This may not capture every last contribution to the BES, but it does allow the development of a profile of the sector. Measuring the BES provides data on its relationship to the wider economy and is relevant to a wide range of policies and issues currently facing the built environment. 

Construction as a Mature Technological System

Technology and industry structure

An industry with a deep layer of specialised firms that form a dense network of producers, suppliers and materials was called a ‘technological system’ by Thomas Hughes:

Technological systems solve problems or fulfill goals using whatever means are available and appropriate; the problems have to do mostly with reordering the physical world in ways considered useful or desirable, at least by those designing or employing a technological system (Hughes 1987: 53).

Hughes was an engineer and historian of technology, who saw technology as “craftsmen, mechanics, inventors, engineers, designers and scientists using tools, machines and knowledge to create and control a human-built world”. Technological systems are, for Hughes, the key to understanding technological change. He studied the development and evolution of electric light and power between 1870 and 1940, and wrote a history of the industry. He saw these large, modern technological systems evolving in a loose pattern: “The history of evolving, or expanding, systems can be presented in the phases in which the activity named predominates: invention, development, innovation, transfer, and growth, competition, and consolidation”. As systems mature, they acquire style and momentum.” (Hughes 2004: 65).

When viewing the construction industry as a technological system, the age of the system is the most obvious feature. Most of the various elements of the modern industry came together over the nineteenth century, pushed along by ever larger and more complex projects building canals, roads, bridges and tunnels, railways, factories, offices and housing. During the 1800s the world was urbanising as population rapidly increased and major cities attracted migrants and businesses. In the second half of the century heavy industry and manufacturing spread around the world, from England and Western Europe to America then Japan. New industries needed new types of buildings, typically larger, higher and stronger than traditional methods and materials could provide. Bowley (1966) for the UK and Fitch (1966) for the US are well known histories.

It’s a remarkable fact that the building and construction industry we have today is a technological system that has been developing for 150 years. As a mature technological system, this can be expected to be in many places a quite concentrated industry, run mainly by finance and management types, and having a high degree of technological lock in due to the age of the system. Many of the industry’s global leaders are well-established, Bechtel for example is over 100 years old, and others like Hochtief, Skanska, and AECOM can trace their origin stories back over a similar period. Shimizu is over 200 years old.

Building and construction as an industry cluster has quite different characteristics to the industries studied by Thomas Hughes, and how the modern form of the industry developed over the twentieth century is another interesting story in its own right. The most obvious difference to the industries used as examples by Hughes is the size and diversity of building and construction, because statistics on the industry includes the enormous number of firms and people engaged in the alteration, repair and maintenance of the built environment as well as contractors and suppliers for new builds. The broad base of small firms is a distinctive feature of the overall construction industry as we define it. However, the part of the industry that is engaged in delivering projects (that is, part of a problem-solving technological system) is made up of larger firms than this long tail of small, typically family-owned, businesses.

With industrialised production, prices of manufactured goods decline over time as economies of scale and scope kick in, and over time those cheaper prices allow new technologies to spread and find new uses. Moore’s Law and the price/performance relationship of computers is athe best known example. An example of this price effect in building and construction was machine-made nails. Originally nails, like everything else, were hand made, and in fact were more expensive than screws, “but by 1828 the cost was down to 8c per pound [two kilos] and in 1842 to 3c. Dimensioned lumber and cheap nails made possible a whole new order of speed and economy in wood framing.” (Fitch 1966:121). Combining these two innovations a new system of building known as the ‘balloon frame’ came out of Chicago in the 1840s, and with nailed light timber frames two people could do the work of twenty using traditional methods. This very large increase in productivity came from two relatively simple innovations that, together, had a major impact. Balloon frames were sold in catalogues in many styles, and were used to build the new railway towns and suburban housing spreading across America over the following decades. This highlights the importance of understanding how a combination of new innovations within a technological system is often more significant than the individual new technologies themselves.

This also highlights the fact that the single most important factor in technology uptake is the price/performance relationship, or the gain in productivity or other measure (time, quality, safety, choice) the new technology delivers for a given level of investment. To successfully displace an older technology a new technology has to provide an overwhelming economic advantage to overcome the inbuilt conservatism of an existing industry, due to the investment by incumbents in the current system.

Between 1800 and 1900 there were a series of technological shocks to building and construction, as the new materials of iron, glass and concrete opened up opportunity and possibility for designers, for both what was built and how it was done. Iron and steel divorced the building frame from the envelope between the Crystal Palace in 1851 and the rebuilding of Chicago after the Great Fire of 1871, and with the separation of the frame from the envelope came mass produced infill materials to replace load-bearing construction. Then the combination of steel and concrete made possible the development of reinforced concrete and steel skeleton structures. Both ‘building art and the art of building’ were transformed, not once but several times, over these years as the methods of industrialised building with iron, steel and reinforced concrete were refined.

Over the 1800s the increasingly widespread use of concrete had changed its status from hobby or craft to a modern industry, as scientific investigation into its material properties revealed its shear and compressive characteristics. With the development of reinforced concrete there was change in architectural concepts of structures and approaches to building with concrete. The industrial standards of concrete technology influenced ways of thinking based on building systems and standardized building elements, and became identified with what was known as the Hennnebique System, a simple to use system of building with reinforced concrete columns and beams patented in 1892. According to Pfammatter (2008), by 1905 this system had spread across Europe and elsewhere, and Hennnebique’s company employed 380 people in 50 offices and had 10,000 workers. Concrete then set the agenda for the development of the construction industry as a technological system over the next hundred years, driven by the modernist movement in architecture, which explored the possibilities of these materials, and the increasing height and scale of buildings.

In these examples the relationship between technological change, conceptual thinking and organisational form is clear. While the striking thing is the interrelationship of these three aspects, the driver of these changes is technology, or more precisely new technology that fundamentally changes existing industry practices and delivers a shock to the existing system. With the advent of iron-framed and reinforced concrete buildings the construction industry had to not only master the use of these new materials, but also develop the project management skills the new technology required. That organisational change, in turn, was based on the deeper change in the way of thinking about the world that was fundamental to the industrial revolution and the invention of the scientific method (Landes 1972).

So, why would be experience of the industry over 100 years ago be relevant today? There are two parts to the answer. The first is that the nineteenth century is the only other period of disruptive change we have for comparison. The second is that the effects of technological change on industry structure and performance might plausibly again be in the same key areas as the organisation of projects and the mechanisation of processes, but in the twenty-first century these effects will be heightened and quickened by the network effects associated with digital platforms and artificial intelligence. Because industry structure (the number and size of firms) is fundamentally determined by technology (Sutton 1999), the emergence of new technologies and periods of rapid change can lead to new industries, but can also extensively restructure existing industries (Kamien and Schwartz 1982).

The construction technological system is extraordinarily wide and diverse, and the various parts of the digital construction technological system are in various stages of development. There are very many possible futures that could unfold over the next few decades. However, it is clear that the key technology that underpins these further developments, and upon which new combinations of technology will be based on, is intelligent machines operating in a connected but parallel digital world with varying degrees of autonomy. These are machines that can use data and information to both interact with each other and work with humans, and importantly this digital world will be one designed and built by humans. We are at the point where intelligent machines are moving from operating comfortably in controlled environments, like car manufacturing or social media, to unpredictable environments, like driving a car or truck. In many cases, like remote trucks and trains on mining sites, the operations are run as a partnership between humans and machines, as the saying has it “running with the machines not against them”.

The impacts of new technology on a mature technological system like the construction industry are generally thought to be gradual, changing industry practice over time without significantly affecting industry structure or dynamics. There are good reasons to think this may be wrong because of the current surge in advances in machine learning and the broadening potential of AI. A period of rapid restructuring of the industry similar to the second half of the 1800s may be about to start, when the new materials of glass, steel and reinforced concrete arrived, bringing with them new business models, new entrants and a greatly expanded range of possibilities. In the various forms that AI takes on its way to the construction site it will become central, in one way or another, to all the tasks and activities involved. In this, building and construction is no different from all other industries and activities, but the path of AI in construction will be distinct and different from the path taken in other industries. This path dependence varies not just from industry to industry, but from firm to firm as well.

The full conference paper Construction as a Mature Technological Sysytem can be downloaded here or read on ResearchGate here.

 

New Anticorruption Website

Practical help for public officials and politicians planning anticorruption reforms

CurbingCorruption is a new website that provides concrete anticorruption advice tailored to specific sectors such as construction, education, health, fisheries, etc. For those concerned about this issue it will, I think, be an important resource.

It has been set up by Mark Pyman, and developed by him with assistance from other anticorruption specialists. Pyman was the Programme Director for Transparency International tackling corruption in the military and Defence Ministries worldwide 2004-2015, and in Afghanistan he was one of three international Anti-Corruption Commissioners 2015-2017. He believes that much more progress against corruption is possible, as the mission statement explains:

Our vision is that corruption can be addressed and reduced better than people realise. Even in the toughest corruption environments, where progress may only be possible in tiny steps, there are many improvement measures that can help, and which can form the basis of a much larger improvement when circumstances change.

We believe that there are two key components to doing this. First, enabling public officials and politicians to develop counter-corruption initiatives. At present, only a very small proportion of people in these positions have knowledge or experience of ways to tackle corruption. Public officials, because they operate the machinery of government, are in perhaps the best position to enable sustainable reforms and to collaborate with politicians, civil society, corporate stakeholders and others.

Second, building up knowledge, insights and experience at sector level. At present, most anti-corruption knowledge is at the national, cross-government level, which is broad and complex. At sector level, whether public service delivery sectors like health or economic sectors like telecommunications, there is both more knowledge and more ownership from those working in the sector. This increases the chances of success whether for small initiatives, such as within a department, or large ones, such as across a whole agency or ministry.

The site collects a vast number of reports and studies, all referenced and usually linked, and the sector reports contain many examples of a wide range of initiatives from around the world. The construction sector report runs to 59 pages. The Introduction to the Construction, Public Works and Infrastructure page says:

The value of this sector is huge, with roughly half of all fixed capital investment by governments and Public-Private Partnerships being in the construction of public infrastructure. The volume is increasing every year. The value of losses through corruption is estimated at between 10 and 30% of this total, and others believe that a similar amount could be lost through mismanagement and inefficiency (Wells 2015, Matthews 2016). This means that by 2030, unless measures are introduced that effectively improve this situation, close to $6 trillion could be being lost annually through corruption, mismanagement and inefficiency. Losses on this scale cannot be tolerated in any sector, but losses in infrastructure investment have particular significance, because infrastructure underpins every aspect of economic growth and human development. ‘Engineering and construction’ is the sector with the most reported bribery and corruption in advanced economies globally – see the figure below from Price Waterhouse Coopers (2014).

 

The website is still a work-in-progress, but the idea is to use what’s already on the site as a foundation and to crowdsource additions and revisions by inviting users to contribute their own experiences, insights, and suggestions, and eventually for the website to be managed by collaborative groups of users, with different teams focused on different sectors.

This will, I hope, become a widely used resource in the fight against corruption and illegal practices. It shows there are alternatives to accepting corruption as inevitable and something to be accommodated, and highlights the role of local action as well as institutional measures.

Previous relevant posts:

Australian Royal Commissions here

Canadian Charbonneau Commission here