Cities and the Wealth of Nations: Financing the New Urban Agenda

By: Michael Cohen, Professor of International Affairs, The New School, New York, NY

Despite the growing economic and demographic importance of cities in both rich and poor countries, their role is neither widely understood nor recognized in global official and public debates. Six hundred cities now account for about 60 percent of global GDP[1] and official reports indicate that 70–80 percent of GDP in most countries comes from cities. Yet cities do not appear in the global discussions of the G20, they did not appear in most national stimulus packages following the global economic crisis of 2008, they have only recently been linked to climate change, and their attention in the media is not consistent or urgent.

Even the draft version of the New Urban Agenda does not highlight the fact that the economic futures of all countries depend on the productivity of their urban areas. This productivity, however, cannot be taken for granted. We see the fragility of urban life every day: infrastructure failures, accidents, citizen protests, financial collapse, and increasingly, the interaction between weather patterns and cities, whether in Bangkok, Jakarta, or New York. All of these can disrupt urban economic activity and, by implication, the performance of national economies.

This interdependence of the global, the national, and the urban levels become even more evident with the September 2015 adoption of the Sustainable Development Goals.

Twelve of the seventeen goals will have to be implemented in urban areas.

This will require a more integrated, collaborative urban practice, across institutions, sectors, disciplines, jurisdictions, and communities. The New Urban Agenda articulates these aspirations even farther through many specific urban policy goals.

This overlapping of the global, national, and urban contexts creates many opportunities for linking public and private finance. The overall rationale is clear: global and national progress depend on urban economic performance which, in turn, depends on financing needed physical infrastructure, industrial capacity, social services, shelter, environmental protection, and institutional capacity. But the perception from the private sector is often of chaotic and weak local public institutions overwhelmed by the challenges of urban governance and service provision. How can this perception be changed?

It is frequently said that there are trillions of dollars of foot-loose private finance traveling around the world every day. Yet these funds are in a “holding pattern”, skeptical that there are safe places to “land” where the likely economic return justifies the risks of local investment. The challenge is therefore to convince these funds to “land” and thus contribute to what should become a virtuous cycle of sustained economic growth.

One incentive for encouraging this “landing” could be a new “urban social compact” in which local governments would significantly improve their own performance, through better local revenue collection, expenditure management, and more focused investment on high priority projects. This performance-based compact could help to convince private capital to land, not just to invest, but also to buy equity in urban infrastructure and enterprises to establish the financial foundation for sustained growth. A new urban agenda requires a new urban practice involving responsible collaboration to serve the public interest.

The political will to establish a new urban social compact must be a shared project of national and local governments, with a serious engagement by civil society and the private sector, allowing all parties to appreciate the interdependence of their futures.