[Editor’s note: This is a slightly edited text of a speech Bruce Katz gave to the Barcelona 2022 REACT Congress, an international forum focusing on that city’s future economy. The lessons he imparts here are relevant—and important—for all cities.]
It is an absolute pleasure to be back in Barcelona, a city of breath-taking beauty, incomparable assets and kinetic energy.
I am here to speak about the kind of economy that this city and other leading global cities should strive to create for themselves—and for their regions and nations—in the midst of a waning pandemic and a rising global conflict.
There is no doubt that cities are the right place—the right geography—to have a discussion about how to steward and reshape the economy during a period which I purposefully call the “New Disorder” rather than the “New Normal.”
The message is clear. To paraphrase Bob Dylan, “Those cities not busy being born are busy dying.”
Cities now confront a bewildering array of disruptive and destructive dynamics, some unleashed by the pandemic, some long-standing in nature, some catalyzed by broader policy decisions, some precipitated by the Russian invasion of Ukraine.
As Jeanna Smialek observed in The New York Times last week, “The pandemic, and now geopolitical upheaval, have taken the economy and shaken it up like a snow globe. The flakes will eventually fall—there will be a new equilibrium—but things may be arranged differently when everything settles.”
This uncertain period will take years to settle. It has the potential not only to reshuffle the order of successful cities but to redefine what we even mean by success. For cities that are organized, deliberate and purposeful, there is the tantalizing prospect of using this period to leapfrog, diversifying and greening their economies to become more economically resilient, socially inclusive and environmentally sustainable.
Cities have the mix of market relevance and civic agency that is necessary to navigate through a period of unprecedented economic disruption and destruction.
- Cities concentrate and co-locate what drives prosperity—advanced industry clusters, mature companies, small and medium-sized enterprises, educational and research institutions, investors, skilled workers, infrastructure to move people, goods, services and energy, vibrant nodes of commerce and civic life.
- When entrepreneurs and workers and investors and anchor institutions come together and collide in small geographies, rich with history and culture and amenities, magic happens. Ideas generate. Innovation flourishes. Companies form. Enterprises grow.
- For these reasons, cities are the organizing units of global trade and investment and the engines of national economies.
- Cities, in short, are the economic gift that keeps on giving.
But cities are not just marketplaces. As Jeremy Nowak and I described in our 2018 book The New Localism, they are also the platforms for interdisciplinary problem solving, thus unusually positioned to master the complexity of modern challenges.
Nations, states and provinces are exclusively governments, vertically organized as bureaucratic and compartmentalized silos and stovepipes. Cities, by contrast, are organized as networks of public, private, civic and community institutions and leaders, horizontally organized across multiple sectors and disciplines, aligned to the way the world actually works.
In the words of Matthew Taylor, the former head of the Royal Society of the Arts in the UK, cities have the unique capacity to “think like systems and act like entrepreneurs.”
The inherent power of cities will now be put to the test. The question is not whether cities will create the post-pandemic economy, but which economy they will create.
There is simply no going back to the pre-pandemic economy which was socially exclusive, spatially uneven and environmentally destructive. In the pre-pandemic economy, even “super star” cities found themselves beset with the externalities of growth—hyper housing unaffordability, crushing traffic congestion and resulting political unrest.
It is imperative that the economy cities build post-pandemic be innovative, inclusive and sustainable. Cities must re-balance the economic playing field, placing the small over the large, quality investment over parasitic capital, the long term over the short term. Cities must bend global capital to local vision and priorities rather than the other way around and, in the process, create new mechanisms and institutions to generate wealth for—rather than extract wealth from —local residents and enterprises.
With that backdrop, my talk today will cover the following
First, I will describe the disruptive and destructive dynamics that make up The New Disorder. This is not a period for the faint of heart. Cities are being buffeted by super-sized market, demographic, social, technological and environmental forces that defy conventional solutions and stress legacy institutions. These forces challenge the way we think about our cities and compel a reset in paradigms, policies and practices.
Second, I will capture some early signals from cities that are using this period to rethink the design, finance and delivery of solutions geared for transformative effect. I will showcase five ways in which a disparate group of cities are striving to fuel the Post Pandemic City by bulking up their distinctive strengths, being intentionally inclusive about the reach of those assets and braiding and blending strategies for cumulative rather than disjointed effect. Some of this is being accomplished with unprecedented flows of capital from our federal government. But all of this is dependent on networked governance and the marshalling of private and civic resources.
As you will see, these strategies go way beyond the remaking of the Physical City that make up the bulk of media coverage and Twitter chatter—bike lanes, car free zones, sidewalk cafes. Those strategies explain why many of us love cities and help shape robust economies but are only a piece of the puzzle. The strategies I will describe are equally building the Enterprise City as a path towards resolving climate and equity challenges, growing wealth, and building global bridges.
Finally, I will provide some thoughts on what this means for Barcelona. Since the 1992 Olympics, Barcelona has been a global leader in how to reposition cities for a new age. You invented the “innovation district.” You mobilized the Smart Cities movement. You have taken a remarkable hand—an historic Mediterranean city—and played it to the max. Your business schools are second to none. The New Disorder represents another opportunity for Barcelona not only to position itself at the vanguard of cities but to lead hundreds of cities around the world to a prosperous future, a Green New Deal.
The New Disorder
So, let me begin. We often hear the phrase the “New Normal” to define periods that follow economic tumult. Yet that phrase inadequately captures the complexity and discontinuities of this moment. The “New Disorder” more aptly describes the large disruptive, if not destructive, dynamics which create the context within which cities function.
The New Disorder is being propelled by a disparate set of precipitating factors and economy bending forces. Here is the view from the U.S.
The pandemic itself has reset the context for city, regional and national competitiveness by upending global supply chains and triggering a new era of inflationary pressures, exacerbating what was already a housing affordability crisis. A run-up in the stock market and real estate prices has increased the volume of private capital seeking investable projects, which, in the U.S., is worsening the affordability crisis as investors buy up swaths of rental housing.
Beyond housing inflation, the pandemic is accelerating remote work and ushering in a new era of digital commerce and tele-services. The pandemic showed that nearly everything—from cars to electronics and groceries to prescription drugs—can be ordered online and arrive “just in time.” This surge is punishing many small local retailers that have fragile finances and fewer ties to our mainstream banking system.
The pandemic lastly unveiled the ravages of institutional racism in the U.S., disproportionately decimating Black- and Brown-owned businesses and placing low-income Black and Brown workers and communities in harm’s way. The racial reckoning that has followed the murder of George Floyd further highlighted the deep racial disparities that continue to define American society.
But the forces affecting cities today are not limited to those unleashed or accelerated by the pandemic. Changes that have been decades-in-the-making are now reaching critical mass. The maturation of next generation technologies—the internet of things, robotics, artificial intelligence, big data analytics, genomics and precision medicine, machine learning—is redefining the very nature of work across the economy and fundamentally altering the skills our workers need to succeed. These technologies permeate all sectors of the economy, fundamentally altering what we even mean by the tech sector and giving small startups advantages over long-established companies.
Climate change has also reached a point of no return during this period. Most cities around the world actually exacerbate carbon emissions due to the dirty sources of their energy, the excessive level of dependence on automobiles for intra-city mobility and the low energy efficiency of their buildings. They also, increasingly, bear the brunt of climate change, due to the consequences that extreme weather has for urban populations and urban infrastructure.
To further complicate matters, investments and policy changes at the global, national and state levels set new parameters for the economic positioning of cities around the world. In the United States, these changes include the electrification of the auto sector, the greening of the nation’s energy supply, the upgrading of the nation’s infrastructure and boosting domestic manufacturing capacity around medical supplies, pharmaceutical products, and high-tech. Policy changes are being bankrolled by unprecedented (but likely short lived) volumes of federal rescue and recovery funding.
And then there is Russia’s horrific invasion of Ukraine which, as Mark Carney, a former head of the Bank of England recently contended, could leave a bigger mark than the pandemic, triggering volatility in energy and commodities markets, reinforcing deglobalizing dynamics already underway and intensifying the struggle between autocracies and democracies.
These forces raise a series of hard questions and tantalizing possibilities:
- Will supply chain issues inspire companies to manufacture more domestically, reversing years of globalization that had held down wage and price growth for decades?
- Which cities will own the next generation economy and invent rather than just deploy the technologies used by the rest of the world? Which cities will lead the Blue Economy? The Green Economy?
- How will cities speed the transition to clean energy?
- Which cities will use the technology revolution to crack at long standing racial disparities on income, health and wealth?
- Will superstar cities retain their stranglehold on venture capital or will there be, in the words of Steve Case, “a rise of the rest?”
- Will the shift to an Amazon economy and just in time consumerism affect the ability of small enterprises to compete on price and convenience and the ability of nodes of commerce to thrive and survive? Will cities and their anchor institutions be able to use the procurement of goods and services to provide new sources of demand for small businesses?
- Will remote work undermine the concentration of office work in downtowns and central business districts, triggering second order effects on small business performance, transit ridership and local tax revenue generation? Will polycentric nodes of commerce and employment now be the future?
- Will innovation districts be sheltered from remote work trends, since the nature of research and commercialization still rewards collaboration, proximity and collisions?
- Will private capital be productive or parasitic and predatory? Who will own the city? Its homes and commercial real estate? Its waterfronts and amenities? Residents? The public? Absentee landlords? Large private equity firms?
- In short, what changes will be structural as The New Disorder settles? And what will be cyclical?
These questions are not academic or theoretical or abstract. They are already being answered by actions that different cities are taking to reposition and diversify their economies, test new approaches, unlock hidden strengths and build new assets.
The message is clear. To paraphrase Bob Dylan, “Those cities not busy being born are busy dying.”
Mastering the New Disorder
So how do cities master The New Disorder, particularly given dynamics that have not settled and are often chaotic, confusing and even contradictory?
Over the past two years, my colleagues and I have been working with dozens of cities and metropolitan areas across the United States first to address the economic fallout from the pandemic and now to plan and deliver the future. With funding flowing at unprecedented levels from our federal government, a good portion of this work involves helping cities design solutions that match the scale of problems, avoid the pitfalls of the pre-pandemic economy and affirmatively deliver a more inclusive and sustainable future.
In multiple cities, leaders across multiple sectors are rising to the challenge and showing the measure of agility and adaptation, purpose and intentionality, that our times demand.
Given the fog of disorder, there is still no clear roadmap or easy recipe to codify and repeat. But five major moves are emerging as “must-haves” and merit keen observation.
First, a growing number of cities are creating Investment Playbooks to take full advantage of federal resources in geographies like downtowns, waterfronts and innovation, commercial and industrial corridors.
These playbooks respond to the reality that the federal government is investing trillions of dollars across hundreds of programs and dozens of agencies. These resources will only have transformative effect if cities identify, prioritize and cost out concrete projects that can access federal resources, leverage private and civic capital and together add up to a “big bang” effect. This tool follows the simple maxim that “failing to plan is planning to fail”; federal resources may now be ample but only localities can design specific projects that are fit to place and ripe for investment.
Investment Playbooks have already been created for Dayton’s downtown, El Paso’s health innovation corridor and disadvantaged commercial corridors in Buffalo, Greensboro, Philadelphia and Pittsburgh. Probably the most ambitious Investment Playbook in progress is in Erie, Pennsylvania, a former industrial city of 100,000 people that is reimagining the economic purpose of its waterfront, downtown, adjoining low-income neighborhoods and industrial areas. The draft Playbook prioritizes 25 separate projects that have the potential, together, to make Erie a poster child of older industrial city revival. Those projects include a layering and alignment of different federal infrastructure investments in transportation, energy, broadband, port reconstruction and remediation of polluted industrial sites, successfully overcoming the fragmentation of federal programs.
Second, cities are seeing their Anchor Institutions use a broader range of their powers and resources to drive the post pandemic economy.
In many cities, anchor institutions—local governments for sure, but also corporations, universities, hospitals and philanthropies—are already major employers, sources of tax revenue and catalysts for revitalization. A group of these institutions have been leading efforts that are now likely to become norms rather than exceptions.
Use Anchor Procurement to Grow Local Businesses: In Cleveland, major anchor institutions have built a model for sizing, aggregating and channeling the procurement needs of universities and hospitals towards the formation and growth of local businesses, including those owned by employees. University Hospitals was a key initiator and leader alongside the City of Cleveland and the Cleveland Foundation in this civic-led partnership. More ambitious supplier diversity efforts are underway in the UK and Scotland. Each of these efforts build on the pathbreaking work done by the Democracy Collaborative.
Use Anchor Hiring to Grow Local Skilled Workers: In Philadelphia, several efforts are underway that enable local residents to participate in the quality economy. The West Philadelphia Skills Initiative, for example, helps local universities and hospitals train cohorts of eligible residents and designs a customized curriculum that responds to specific hiring needs. As an employer-driven program, this initiative exemplifies the benefits of a ‘train and place’ model rather than the ‘train and pray’ approach common to many workforce programs.
Use Anchor Location to Spur Inclusive Growth: A substantial number of cities are remaking their economies through the un-anchoring of anchor institutions. In the past two decades, advanced educational and research institutions have moved key facilities and units to the cores of cities as a means of building world-class innovation districts and generating greater innovation output and inclusive job growth.
The inherent power of cities will now be put to the test. The question is not whether cities will create the post pandemic economy, but which economy they will create.
This follows the advice of the late United States Senator Daniel Patrick Moynihan, who famously said, “If you want a great city, start a great university and wait 200 years.” Moynihan was right on the concept, but wrong on the length of time it takes to transform a community.
Examples of this “un-anchoring the anchor” phenomenon include the University of California-San Francisco’s biotechnology campus in Mission Bay; the University of Washington’s medical research hub in Seattle’s South Lake Union; Brown University’s medical school in downtown Providence, R.I.; Duke’s Clinical Research Institute in downtown Durham; and, most recently, Washington University neuroscience research facility on the Cortex campus in St. Louis.
It will take time for cities to find their true balance post the upheavals the world has experienced and is experiencing. There will be no bounce back; The New Disorder will be with us for a while.
The most powerful example of this is the decision by Cornell University and Technion-Israel Institute of Technology to build a game-changing applied sciences and technology campus on Roosevelt Island in New York City, in response to a global competition orchestrated by then New York City mayor, Mike Bloomberg.
In recent years, Buffalo, Cleveland and St. Louis have extended the strategy of un-anchoring anchors beyond universities to include a manufacturing workforce center, a major philanthropy and a federal intelligence agency, respectively.
The co-location of major institutional assets matters, creating a new platform for market demand and business growth.
Third, cities and their broader metropolitan areas and regions are unlocking the power of their distinctive Advanced Industries to ensure that the post pandemic recovery generates the growth of innovative firms and quality jobs.
We’ve known for quite some time that advanced industries—those sectors that prize innovation, invest in R&D, have high proportions of STEM workers and boost productivity, exports and pay—offer the greatest benefit to regional economies. They foster entrepreneurialism and a vibrant startup community. They create jobs that pay well for all skill levels, with a significant proportion requiring only an associate degree or completion of an accelerated training program. Over time, this job growth attracts transplants to the region and encourages undergraduates and graduate students in the area to stay on after graduation. With high-value economic activity and wage premiums across the board, advanced industries offer regions the best chance for sustainable and inclusive economic growth.
Earlier this year, the Biden Administration put forward the $1 billion Build Back Better Regional Challenge to advance national competitiveness by scaling distinctive industry clusters. The program was smartly structured as a multi-phased process. The funding—up to $500,000 for technical assistance grants awarded to 60 winners of a first phase, and between $25 million and $100 million for project execution awarded to a final group of 20 winners—was large enough to attract 529 applicants from across the country.
In some cases, applicants sought to burnish the power of a traditional industry cluster like advanced mobility in Detroit or advanced aerospace in Wichita. In other cases, applicants sought to focus on advanced technologies that cut across convergent sectors in manufacturing and services, as is the case in the State of Georgia and Northeast Ohio. In still other cases, applicants sought to be a first mover on a next generation cluster, like the Blue Economy in the state of Rhode Island and the clean tech economy in Chicago. And, in a relatively small number of cases, applicants sought to use the power of innovation to crack at hard social challenges, like persistent racial health disparities in Birmingham, Alabama.
In all cases, applications catalyzed impressive networks of research universities, major industrial companies, small and medium sized enterprises, entrepreneurs, investors, community colleges and others to come together to collaborate to compete. Such collaboration is the only way to connect the dots, often across vast geographies, between the commercialization of research, the development of talent, the formation and scaling of innovative firms and the adoption of cutting edging technologies in companies large, medium and small. Networked governance is the heart of New Localism.
Fourth, cities are pushing the envelope on Innovative Financial Funds and Products to grow a more inclusive and sustainable economy.
Access to capital has been a persistent barrier for entrepreneurs, especially for women and founders of color. Eighty-three percent of all entrepreneurs in the US lack access to traditional banking or startup capital; instead, they fall back on personal savings or credit cards, costly and risky methods for starting a business that further drive inequality. The rise of fintech has vastly expanded the reach of predatory lending, beyond the purview of current federal rules and regulations.
As for venture capital, over 80 percent of all investment targeting high-growth entrepreneurs is deployed in five metropolitan centers of the country, even less representative of entrepreneurship and business ownership, let alone American society, as a whole. Our current capital landscape thus shows disparities at both the national and local scale with vast differences between regions but also adjacent neighborhoods, across all types of firms.
There are early signs of correction that, if scaled, will construct a continuum of capital (from equity to debt) for a continuum of entrepreneurs (from Black- and Brown- owned businesses to rural communities; from fintech to food trucks). In Cincinnati and Philadelphia, for example, the Minority Business Accelerator and The Enterprise Center respectfully are raising private and philanthropic capital to create new funds and products to grow Black- and Brown-owned businesses and regenerate commercial corridors.
Here, again, federal recovery resources may accelerate the creation of new funds and products. One year ago, Congress appropriated $10.5 billion investment for states to invest in bottom-up, inclusive economic growth that has the potential to leverage over $100 billion in private capital. States and cities are now looking to adapt successes from earlier versions of the program.
A decade ago, for example, Anchorage, Alaska capitalized a new 49th State Angel Fund to provide risk capital to budding entrepreneurs and foster the state’s entrepreneurial ecosystem, provide networking opportunities, and host pitch competitions, among other programs. Similarly, New York State created a loan guarantee mechanism to boost quality capital minority- and women-owned firms receiving state and local government contracts. This financial innovation pushed the representation of minority- and women-owned firms in state contracts from 9.2 percent to 21 percent in three years.
With federal funding at record levels and private and philanthropic capital in abundance, the challenge is not whether cities have sufficient capital to grow an inclusive and sustainable recovery but whether capital can be organized through routinized funds and products to do so.
Finally, cities are building Community Equity Institutions with the capital, capacity and community standing to deliver inclusive and sustainable solutions and leverage the full public powers and private and civic resources that cities possess.
Such institutions enable cities to use expert knowledge and sophisticated mechanisms to translate policy into action, drive creative financing and generate a persistent stream of revenue over the long-term for reinvestment.
In Cincinnati and Erie, for example, business leaders have invested hundreds of millions of dollars through the Cincinnati Center City Development Corporation and the Erie Downtown Development Corporation. This patient capital has enabled the development corporations to acquire strategically located properties in blighted areas and rejuvenate them with a mix of public and private sector investments. The same model is now being considered for distressed neighborhoods in multiple cities around the U.S.
Tulsa, Oklahoma has gone a different route, creating a public asset corporation modeled after European successes in Copenhagen and Hamburg. The effort started with a merger of multiple public authorities and entities into a new Tulsa Authority for Economic Opportunity (TAEO). This new authority will own substantial assets, including multiple parking structures and surface lots in the downtown, large landholdings prime for redevelopment just outside of downtown, residential lots throughout the city, and a hangar leased by American Airlines. Excitingly, these assets generate stable cash flow and have the potential to generate even more revenue through smart development and disposition, which then be reinvested into the poorest neighborhoods in the city.
These five moves—around planning, anchors, clusters, finance and institutions—are not the full sum of what is happening in the United States. But they are a powerful snapshot of the different kinds of strategies that could make up a radically different approach to city building in the post pandemic environment.
Let me conclude with this thought. It will take time for cities to find their true balance post the upheavals the world has experienced and is experiencing. There will be no bounce back; The New Disorder will be with us for a while.
The combination of market relevance and civic agency give cities the ability to master this moment if and only if they focus on the fundamentals that drive prosperity and innovate without restraint or limit.
As Jeremy Nowak and I wrote several years back:
Power belongs to the problem solvers. And these problem solvers now congregate disproportionately at the local level, in cities and metropolitan areas across the globe.
New Localism embodies this new reality of power. It is the twenty-first century’s means of solving the problems characteristic of modern life: global economic competition, poverty, the challenges of social diversity, and the imperatives of environmental sustainability.
Barcelona has what it takes to emerge from this period stronger and more resilient and inclusive than before. Carpe Diem.
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