Dynamic Economies

A lot of work from both the Brookings Institute and from the Mercatus Center at George Mason University comes across my radar. Oftentimes the perspectives of the two think-tank centers differ quite a bit, but one area where they align is on local economies. Brookings (a center-left think tank) and Mercatus (a Libertarian leaning academic quasi-think tank) both agree that local economies depend on dynamic innovation and thriving centers where people actually want to be. Both agree that attracting competitive companies and driving innovation requires investments in placemaking, not just tax breaks and financial incentives for firms.

Bruce Katz and Jeremy Nowak (both from Brookings) write, “A globally dynamic economy requires that any locality that wants to thrive must invest in the qualities of place that attract and retain residents and firms, in human capital, and in an enterprise environment that enables innovation and business growth.” Mercatus also suggests that places focus on infrastructure and development to attract firms and encourage people to move to them. Mercatus is likely to encourage this growth in an organic invisible hand manner, while Brookings is more encouraging of using the state to intentionally develop infrastructure and systems for growth and network development.

The important lesson is that economic growth and development require meaningful investments in infrastructure. Human capital is the heart of networks and the key to innovation and growth. In order to attract people and to attract companies that can compete in a globalized world, cities need to make themselves livable and attractive to young and dynamic people. Tax incentives are not enough to attract companies for the long term. A company that is willing to move for a simple tax break, is not a company that is in it for the long run. Stable companies that want to grow and develop in one place will want places that are interesting and offer the amenities needed for a thriving 21st century lifestyle. Companies that are looking to make long-term and winning investments need human capital, and in order to attract human capital they need dynamic places where people want to live and set roots.

Making Global Local

The first time I heard about globalism was in an English class as a freshman in college. Since that time, globalization has gotten a lot more attention and has come to represent people’s fears about automation and job loss, but also people’s ambitions as new markets across the world become more accessible to trade and innovation. Whether we like globalization or not, we must acknowledge the way that markets and societies are changing so that in our own minds globalization doesn’t remain the mysterious boogeyman that it so often is today.

 

In The New Localism, Bruce Katz and Jeremy Nowak discuss globalization and how our cities and metropolitan regions, as opposed to our states or federal institutions, are the most well poised to adapt to an increasingly globalized market and supply chain. The also ask what it means for civil institutions to adapt and change to globalization writing, “The connection between globalization and localism as an arena of enhanced civic action has not been as well explored as the general theme of global economic change and populism.”

 

Since 2016, we have been asking ourselves why a global wave of populism seems to have overtaken normal political processes in the US and UK. Why authoritarian leaders have seemingly become so well entrenched in Turkey and Russia, and why so many people across the globe are willing to protest traditional and seemingly rational governments. What we have not looked at as closely, is how local level leaders can make a huge difference on a global scale and how cities and metropolitan areas can shape policy that influences people’s lives at a greater scale than what we see with movements by populists and authoritarians.

 

Individual states in the US are reversing marijuana policy against the will of the Federal Government. Individual cities are designing their own immigration policy contrary to the demands of the Federal Government. And industries clustered in metropolitan areas are not waiting for new laws and regulations to make decisions that will impact people living within the US and across the globe. The scale of action is local, and that means that cities are the ones who set the agenda for globalization, rather than the larger state governments or federal institutions. How this will ultimately change those larger civil institutions is still a mystery, but in my opinion, local action can dismantle the energy and grievances of populists and authoritarians. Local action can drive economic performance and growth, pacifying the unrest we see at national levels. Globalization might be a phenomenon that connects networks and places all over the Earth, but its effects are felt locally, and good local management and innovation can help make globalization a positive and constructive force.

Competing in a Global Economy

“While competing in this global economy requires new thinking, many cities continue to pursue zero-sum economic development strategies that subsidize stadia and steal businesses rather than incent innovation,” write Bruce Katz and Jeremy Nowak in The New Localism. Our world’s globalized economy scares a lot of people. Add to globalization new technological innovations and the automation of a lot of jobs, and we find threatened people, threatened cities, and threatened industries. The proper response to such threats is adaptation and change, but a more common human reaction is fearful recalcitrance. Rather than go through reinvention, rather than develope new skills, and rather than embrace new changes, cities, states, countries, and the people within them double down on the familiar and the known, using policy to entrench themselves in the familiar jobs of yesterday.

 

Katz and Nowak continue, “These strategies are rarely aligned with smart education and workforce strategies that give workers the technical skills they need to succeed in growing occupations. And reinvestment in neighborhoods, downtowns, and water-fronts still has a long way to go to make up for decades of disinvestment, depopulation, and decentralization.” 

 

Stealing jobs, offering tax incentives to get companies/sports teams to move, and passing policy which prevents companies from automating away common jobs is not a strategy built for success in a globalized world of changing technology. To be competitive in a world where companies can move easily, where ideas can take root anyplace, and where jobs and technology are changing the way we work, cities and governments need to find new ways to build human capital and new ways to get innovative ideas into the economy quickly. Approaching the world and the economy as a zero-sum competition prevents innovation and encourages the short term thinking that leads to the poor strategies mentioned above.

 

The only way to truly adapt to the changing globalized world is to innovate. Protectionism leads to eventual disruption and greater anger on the part of the people whose industry and jobs are being disrupted. Those who lose out to automation without any training or skill development to help them adapt are understandably frustrated, but the proper response is not to dig our heels into the dirt to pull back on innovation and change. The proper response is to embrace change and help people innovate and learn alongside new technology, new jobs/industries, and new institutions.

Policy Innovation and Diffusion at the City Level

During my Masters in Public Administration, I had a seminar class about theories of the policy process. One of the theories that I enjoyed was policy innovation and diffusion theory in which a policy introduced in one jurisdiction gained traction and was subsequently introduced and adopted within another jurisdiction. Networks, physical proximity, and other characteristics of jurisdictions influence whether or not a policy is likely to diffuse to a new jurisdiction. Policy can diffuse vertically, moving up from counties to states to the national government (or backward) and can diffuse horizontally across cities in a state or sates in a nation or across nations on Earth.

 

In the book The New Localism, Bruce Katz and Jeremy Nowak discuss diffusion at the city level. They argue that, “New Localism reflects a new horizontal rather than vertical mechanism for societies to solve hard problems.” Most innovation and diffusion research that I studied in the United States was related to states. The question is usually, if a state adopts a new law to address an issue, what factors make it likely that other states will or will not adopt a similar law? And how many states need to adopt a regulation before the federal government institutes the regulation nationwide? States have historically been the main laboratories of democracy, but Katz and Nowak suggest that in the future they will not be. Rather than having a state adopt policy and filter that policy down to the counties, cities, and local governments for implementation, it is cities that are now the ones experimenting with new policy.

 

“Cities are constantly crafting new ways to address challenges that are urgent, immediate, and often highly visible. Solutions that are concrete imaginative, and tested on the ground do not stay local for long. Instead, they are adapted to other cities’ situations, tailored to the different economic and social starting points and the fiscal conditions of different cities.” 

 

A big piece of new localism is its non-partisan nature. Flood drainage, snow removal, and local zoning ordinances are not Republican or Democrat issues, they are local issues directly relating to the lives of citizens. This allows people who might otherwise disagree with each other to come together and cooperate to find solutions to the immediate problems of a locality. Focusing on local strengths, weaknesses, opportunities, and threats (SWOT) allows local stakeholders to develop long-term plans and to find innovations to novel problems. Once these solutions have been identified and implemented, city leaders, especially people in the business community, can share their insights and solutions with groups from other cities. These policy innovations diffuse horizontally from city or metropolitan region to other cities and metros. State governments are not the ones innovating. Cities are developing the new networks and innovations that diffuse across state lines, across the country, and even across national boarders. Each solution is adjusted and tailored where appropriate for local contexts and in line with local SWOT analysis. This local problem solving and horizontal city level diffusion is the best current answer to global challenges and problems and to improve the lives of people through new innovations.

Cogoverning

A key aspect of new localism, as described by Bruce Katz and Jeremy Nowak in their book The New Localism, is cooperative governance. The national government and many state governments today are characterized and plagued by partisan gridlock, however local governments are able to function and get beyond gridlock through principles of new localism. Cogoverning is a term that the authors use to describe the new system of governance that is in action at city and metropolitan levels across the nation today, and that seems to be able to help communities thrive in a globalized world.

 

The authors write, “Cogoverning also helps explain why New Localism is nonpartisan. The regular engagement of business, civic, and academic leaders elevates pragmatic thinking and commonsense discourse and crowds out the inflammatory rhetoric associated with partisanship and ideology. This creates a healthy group psychology that rewards creative tinkering (the essence of problem solving) rather than obstructive action (the essence of partisanship). Localities, in other words, engender group innovation; legislatures reward groupthink.”

 

At a local level, our common interests are more clear. We can more clearly see that a rising tide in our city or metro will lift all boats, and we can get on board to make big advances. Having the leaders of businesses, civic groups, and academic research facilities coordinate together helps bring elements that might normally oppose each other and cause friction into alignment to GSD (get shit done). On a national level, we lose our common interest, and we revert to a form of tribalism where we look for the group that reflects our identity, and lose an ability to GSD as we become recalcitrant partisans, only favoring legislation if we gain without the possibility of a loss.

 

A key distinction at the local level between new localism and business-as-usual is that new localism brings together leaders from different arenas. It is not just a single business leader who dominates or a single industry that holds the loudest voice. Placemaking requires the input of people living in the place, and it requires that those with money and authority also work with those who can bring a civic perspective and cultivate local support for initiatives. By incorporating these voices and working together, business leaders can find new innovative solutions to problems that will actually be supported and aligned with the spirit and interests of the local community. Creative tinkering cannot be a top-down process that is guided by business and government agencies alone, it requires a bottom-up element that incorporates the desires and values of the local population. New localism incorporates this bottom-up element in a constructive way, by bringing the top leaders of organizations and groups together in structures and situations that demand decision-making and not just deliberation.

A New Kind of Problem Solving

Bruce Katz and Jeremy Nowak’s third highlighted feature of New Localism in their book The New Localism is that it, “reflects a commitment to a new kind of problem solving that is distinct from the uniformity of policymaking.”  American cities and metropolitan regions are leaders in innovation, diffusion, and development in the United States. The networks formed between university researchers, students, business and industry, government agencies, and local non/not-for-profits or charities help new research translate into real-world applications and eventually into new innovations. Crucially, this is not just true of new technological innovations. In medicine, material science, and communications technology we see new devices entering the market to change the ways we live, but outside these areas we are also seeing cities and metropolitan regions innovate thanks to dynamic networks and united stakeholders. New Localism is helping to drive new forms of governance, new forms of funding for local projects, and even new ways of engaging communities.

 

Katz and Nowak continue, “It adapts the risk-taking and attitude of individual entrepreneurs and investors to the collective sphere. It is experimental and tolerant of failure. It is the twenty-first century embodiment of Franklin Roosevelt’s words in his famous 1932 speech: It is common sense to take a method and try it. If it fails, admit it frankly, and try another, but by all means, try something.”

 

Government is frequently criticized for being slow and unresponsive. Rules and regulations take over, and creativity, customer service, and improvements seem to disappear. Without a profit motive, it is hard to see why governments should feel a pressure to move quickly and why they should feel a pressure to be highly responsive to the public. Free markets on the other hand (and especially tech start-ups), seem to operate on a model of, “move fast and break things.” They feel pressured to always up the design and innovate, although they also face a pressure to provide gimmicks and overstate their level of innovation and fast-breakiness.  New Localism helps by finding a way to establish more of a common ground between these two extremes.

 

New forms of social and civic organization can help create quasi-governmental structures that provide the regulation and oversight necessary to protect citizens, but businesses can find profit and reward from working closely with those structures to innovate in a way that actually solves the local problem. Funding from associations and foundations help reduce the risk that government agencies would otherwise face, again providing a new avenue to help encourage innovation and development while avoiding typical roadblocks in a standard policy making process. These new ways to solve problems are a direct result of new networks and local action to address challenges in a cohesive manner.

Markets & Civil Society Organization

I tend to be a bit hard on the idea of free markets. I grew up learning about the invisible hand and in a family that started a business and did well. I (mostly because of my family’s business) appreciated the idea that setting up a market and running a business was a good thing from the standpoint of finding an efficient point at which to price a product or service. Today however, perhaps as a result of my healthcare interests, I see numerous examples of markets falling short of the goal we establish in our minds based on the idea of the invisible hand.

 

Rather than seeing markets find an efficient point where competition drives efficiency and provides everyone with better products at better prices, I see too many externalities from free markets and unfettered competition. We are producing a lot of greenhouse gasses that harm life on the planet. CEOs are getting better (maybe deservedly so) at capturing greater salaries from their companies, driving economic inequality, and straining social stability. Private health insurance markets seem to drive overall healthcare costs up at every turn, and no one seems to be able to understand how health insurance actually works. The free market, and open competition, does not appear to function as clearly and organize as succinctly as my simple understanding from high school would have suggested.

 

What is missing is something that ties markets and capitalism back into civil society. Bruce Katz and Jeremy Nowak, in their book The New Localism, suggest that shifting political power and decision making back to local contexts within cities and metropolitan regions can help correct these problems. They write, “New Localism is a mechanism for converting the self-organizing power of markets and civil society into structured fiscal and financial resources, and ultimately, political power.”

 

National and multinational sized corporations often have a responsibility to maximize profits for shareholders or top executives. Their huge scale means that any local or regional place is less important for them, since there are always markets in other countries and other states. However, when local governments exert more control over such companies, the local contexts begin to matter more. When CEOs and executives from these companies are invited in to help shape policy beginning at the local level, and are held accountable to the local individuals in the places where their markets are strong or where their employees actually live, the business motives that encourage negative externalities are shifted. The dynamic becomes one where civil responsibility is elevated, and ultimately political power is shifted in a way to help organize business in a more responsible manner in relation to the local context.

 

The lesson that Katz and Nowak share is that businesses on their own are encouraged to organize themselves in a way that maximizes profit at the expense of the local communities in which they operate. By giving localities more power and better networked governance structures, big businesses can instead be a cooperative part of the political and social structure, re-organizing themselves within society in a way that helps make Adam Smith’s invisible hand dream a little more plausible. The Invisible hand in this model is not so invisible, but more of a structured handshake creating a commitment to more than just profits.

Who Does What in Society?

The New Localism by Bruce Katz and Jeremy Nowak is titled as if it were a new development in local governance and problem solving, but the authors suggest that New Localism is really more of a return to historical problem solving and idea formation. Over the last few decades, the national government has captured more attention and focus in national media and public debates about problems, policies, and solutions. However, it has always been the case that the place where people actually experience and live out any problems, policies, or solutions is in a local context. We have all felt the disparity between regions when an economy is “strong” or “in free-fall.” We know that things can be great for our neighborhood, but a total train-wreck in the next, town, or even just a few blocks away.

 

Katz and Nowak reassert the importance of local action and problem solving. The authors describe a current phenomenon in the United States where people, businesses, non-profits, foundations, and civic groups are rediscovering local authority and collaborative institutions to achieve meaningful goals at the local level where people live and experience the problems we actually face.

 

Katz and Nowak write, “Correcting the confusion over who does what in societies is an essential act of civic education and a necessary first step toward national progress.”

 

Countering the intuition that solutions must be national is an important first step toward addressing our real problems. Learning what it means to be connected and organized locally to implement solutions quickly with the support of the public and private organizations is the heart of New Localism. Deferring action toward higher levels of government is effectively an abdication of the authority and ability of local actors to make changes that work in their region. A standard playbook and actor chart cannot be developed across all cities and communities, but each individual community can rediscover the impact that local individuals and local businesses can have moving our societies forward.

 

What the quote also addresses is the confusion we have over who can and should take action in problem solving. It is easy to think that a problem is the responsibility of someone else and that some other governmental agency or some other public actor will step in to make a change. It is hard to remember that it is the people experiencing the problem and living in the area where the problem exists who are the ones that can best respond. Businesses often complain about regulations or public decisions, but don’t always make the investments in the institutions which make those decisions. Citizens often complain about an issue, but don’t often form a group or make decisions that would actually address the issue. We don’t have a good sense of how the public can work with government or how communities can organize around a solution to make the places we live better places to be. Everyone is busy and under a lot of pressure, so learning how things work and taking the time to be involved is understandably challenging, but bringing visibility to the roles that we need citizens and businesses to play in problem solving is important as we rediscover what local governance looks like.

City Power

Where does power and authority come from? I think this is an interesting question to ask ourselves. What is it that makes a nation, a state, a city, or an institution powerful and authoritative? Thousands to hundreds of years ago we solved this question by outsourcing – we decided that a divine being had vested power and authority in a single individual. Today, what creates authority for our mayor, the supreme court, and our nation is not divine, but public trust, cooperation, and economic prospects. Building society with these blocks isn’t always perfect, but it has managed to work for humans for a few hundred years now.

 

Bruce Katz and Jeremy Nowak look at the implications of the authority and power philosophy I described above in their book The New Localism. They write, “The power of cities and counties is not like the power of nations or states. It is grounded in markets and civics more than in constitutions or charters.” The authors make a split between the local and national in terms of how power and authority play out to create a social structure of trust. Nations and states tend to be based on written charters agreed to by relatively diverse populations. Cities and local counties tend to be based on shared values, experiences, and backgrounds with shared economic prospects and motives being the ultimate binding glue.

 

I think there are two things that we can understand about national versus local systems from the description provided by Katz and Nowak. Nations and states, with authority grounded in written constitutions and charters, have a more permanent and stable feel to them. changing something in a drastic manner requires a change to the written founding documents. This gives national and state governments more structure and a form that is more likely to endure longer into the future, but at the cost of making them rigid and hard to adapt to changes in the economy, in social preferences, and other trends.

 

As a contrast, city and local governments, which are based more on shared interests, engaged civic actors, and local economic contexts are more flexible and adaptable to trends, changing social preferences, and new economic developments. This gives local and state governments the flexibility that is needed to take advantage of new innovations and technologies. It allows the governments to solve problems through the power of collective action, but it also leave them vulnerable to wild swings in economic fortunes and broader sociopolitical forces.

 

While nations are able to define their populaces and establish binding rules for citizens across decades or centuries, cities often find it hard to create structures and institutions that are guaranteed to last as long. City populations are more prone to leave when things go south, and the strength of institutions can be greatly diminished when the population falls and a few actors exert undue influence in local decision making. Nevertheless, humans seem to be drawn toward cities and seem to be willing to reinvent cities on a continual basis. This creates the dynamic power that cities are exerting today to solve problems and address global challenges that seem to be paralyzing nations.

Outpacing Design

The United States of the American Revolution and of 1787 (the year the US Constitution was written) was dramatically different than the Untied States of today. The 1787 Constitution written for that time was meant for the country and the world in which the country existed during our nation’s young independence. Our nation today in many ways does not resemble the nation of 232 years ago, and in many ways has moved far beyond what the Constitution was imagined to deal with.

 

In New Localism authors Bruce Katz and Jeremy Nowak look at the ways in which the American economy and American governance are changing and co-evolving and what that means as we move forward. With regard to the Federal Government and Constitution they write, “Programmatically, the basic architecture of the American Federal Government is in contrast to the fact that American demography and wealth are metropolitan.” 

 

At the time that our constitution was written, our nation was more agrarian than industrial. Wealth was tied up with land owners who had vast plantations and farms. Many of our founders, like Jefferson even though he was absent when the Constitution was written, praised bucolic values and had an almost romanticized notion of the good life being one of space, freedom, and simple farming lives.

 

Our nation today has moved far away from the view of the nation that our Constitution was designed for. We have outpaced the imaginations of our framers and the way we live and the lives we romanticize are far different than the visions of the framers. American cities are dynamic engines of productivity and economic growth today, while American farms are often forgotten, have become large conglomerates, and are often stuck in a battle between hiring cheap immigrant or low skilled labor and automation. For the time being, government is reacting by not reacting. Instead of changes and adaptations at the Federal level, we see a shift in governance and problem solving to the local level. The shift involves not just local government, but new networks that have come together in an adaptable framework to include actors and groups outside government. This is helping, for the time being, cities and metropolitan areas to respond to the challenges of the world today with new and innovative solutions, helping our nation which has outpaced its design adapt to a new, globalized world.