CITY LEADERSHIP AND THE NEW DEVELOPMENT CYCLE By GREG CLARK
ARE EUROPE’S CITIES AT THE BEGINNING OF A NEW CYCLE OF DEVELOPMENT? AND IF SO, HOW WILL THE NEW CYCLE BE DIFFERENT AND DISTINCTIVE? WHICH CITIES WILL SUCCEED AND WHAT PART WILL CITY LEADERSHIP PLAY? WE PUT THESE QUESTIONS TO GREG CLARK, ULI SENIOR FELLOW, OECD ADVISOR, AND INTERNATIONAL EXPERT ON CITIES
Three years on from the financial crisis, how have Europe’s cities been impacted and how have they responded?
We should remember that the crisis has had four distinctive elements and each one has impacted on cities in different ways. There was a banking crisis, a global recession, a short-term public policy response and more medium-term public finance impact and public reform agendas, and the acceleration of global economic restructuring. These latter impacts are still very much playing themselves out. Some European cities were hit hard by the recession but not by the banking crisis, others are well-placed to leverage the global economic restructuring, whilst others are deflated by public finance cuts, just as some are still enjoying some stimulus. Swiss cities have generally done well. German and Polish cities are on the rebound. London faced enormous
short term challenges but benefited from the low value of sterling and is now rebounding. Barcelona has fared better than Madrid and was much less exposed to the debt crisis. Overall, most cities in Europe have seen some negative impact, even those that will be seen to have benefited overall (Zurich, Geneva, Basel). The key factors that have shaped how cities have been impacted have been their exposure to the different elements of the crisis, and this comes down to things like the structure of their economy, their relative dependence on local tax base (especially property taxes), their use of commercial debt finance, their export orientation and engagement with growing markets. These differ from city to city; Spanish cities borrowed more from banks, UK cities borrowed more from government. Overall, we could say that the response from cities has had four main elements. Most cities have reviewed and renewed their economic development strategies shifting more towards productivity and export orientation, embracing more sustainable models. Cities
have also sought new means to finance long-term investment, shifting towards a new generation of PPP models and other joint venture vehicles (eg leveraging public land rather than capital) and away from debt and tax-based models of investment. Cities have also begun important processes of institutional reform, often based on the need to drive cost out of their systems of service delivery, and to re-orientate around the citizen or customer. Lastly, a new era of more flexible relationships has begun between city governments and other governments at higher levels, in their nations, and in their wider regions. These responses have proved the crisis has also been a catalyst for solving city problems. It is clear that we are at the beginning of a new cycle of urban development and investment and it will be different from the last one. Overall, city leadership has proved itself to be very important during this crisis. Some city leaders have proved themselves very able to steer and lead through the turmoil and others have proved very effective at using the crisis as a catalyst to make positive changes in city strategy, organisation, and finance. The need for city leadership to maintain confidence, set direction, talk to the market, and protect the vulnerable, has been proved. City leaders have added to their collective sense of relevance and purpose.
What challenges are European cities facing in attracting investment currently?
Many European cities are attracting investment but not in the large quantities of the last cycle and with much greater contest and competition. The ‘flight to quality’ that investors took at the beginning of the crisis reinforced the core capitals of West Europe (Munich, Hamburg, Frankfurt, Brussels, Amsterdam, Paris) and has required many other cities to demonstrate that they can also offer ‘quality’ and that it may look different to what investors think. Smaller cities with strong knowledge economy systems like Eindhoven, Toulouse, Cambridge and Bologna have done better than others. Investors can see that they have a competitive future, even if their scale is smaller. Banks are back as investors in cities but not yet in a big way and there are still adjustments to be made to the value of balance sheets in both private and public sectors before we see a big expansion in bank lending for urban development. Other kinds of investors are very active, especially sovereign wealth funds and other institutional investors. Cities want these investors, but have to learn how to work with investors that may be more patient but require different scale and pace, and lower risk combined with greater freedom if they are to be attracted. The overall shortage of public funds has not yet been off-set by growth of new urban investment tools, even though there are many that are now being developed. A new approach to developing PPPs is emerging in many parts of Europe but there is an insufficient institutional framework for local governments to use these in many countries (especially in eastern Europe). The International Financial Institutions (IFIs) like the European Investment Bank and European Bank for Reconstruction and Development are very active and provide a new partner for many cities. They are now capitalising specialised urban development funds, as well as providing a large variety of loans, as we have seen in Brandenburg, and with Scottish cities.
Are some European cities better prepared for the investment climate than others?
Yes. Those that have a clear story and an articulate leadership will do well. Cities have to show how they fit with the major trends in demography, the next economy, serving growing globalisation, and finding new investment mechanisms that work. Scale, size, location, domestic market, and investment climate all continue to matter and cities have to leverage what they already have. Attractiveness for investment is about providing a convincing story on the scale of the opportunity and the attractiveness of potential returns and the means to limit risks. City governments are beginning to see that they have an important task there. A good case study is Aarhus. This is Denmark’s second city and a rapidly developing centre for alternative energy. It has re-engineered its long term economic strategy and investment programme to focus on the potential of energy and allied industries in the wider sustainable development industries; recasting itself as Capital of Wind Energy.
What makes a city good at attracting and retaining investment over the long haul?
The key thing is the underlying dynamics of the city itself and how visible the city is to investors. The key dynamics are attracting and retaining people, and attracting and retaining public investment, entrepreneurship, knowledge, and trade. Cities that do these well will attract private investment. Of course, other things will help, public sector assets like universities and cultural institutions make a big difference now, connectivity is vitally important. A good investment climate and an open and ‘business friendly’ approach that respects commercial disciplines is also key. Cities also do well if they define investment opportunities clearly and adopt a sound approach to asset management so that value is protected. One reason that capital cities do well is because they have some capital city attributes such as HQ locations, universities, media clusters, diplomatic functions, conference facilities, connectivity and cultural amenities. These are spill-over benefits from being capital cities, and are very useful in the modern knowledge economy. Cities like Warsaw, Prague, Vienna, Copenhagen, Stockholm and Amsterdam have an inbuilt advantage. This means that
secondary cities often have to try to build up these attributes even thought they are not national capitals: Milan, Barcelona, Lyon, and Manchester have done this successfully in the past. Other cities must follow them. Established world cities like London and Paris must demonstrate that they are much more than financial centres and have the ingredients for success in a more diversified economy and have the quality of life to attract entrepreneurs and ‘talent’ for many decades to come. Identity and reputation matter: city branding and communication, when done well, make the city and its opportunities more credible, visible, and attractive. Some of Europe’s cities have successful economies but only limited definition of their identity (Frankfurt, Basel, Warsaw) and they will benefit from having a clearer international image.
What part does city leadership play in attracting investment to a city?
City leaders have a unique role and can make the decisive difference in whether a city attracts investment or not. Throughout Europe and the rest of the world city leaders find that they do not have the full control of all the levers required to make cities succeed. City governments are only limited organisations. They have some direct responsibilities and they must manage these well, but the key role is often to influence or coordinate things they don’t control, what others do to make it add up for the city. They must manage things they do control such as land use planning, infrastructure provision, housing and amenities, city brand identity and the local regulatory environment to make them work for business. They must also lead and influence the wider agenda for international connectivity, the voice of business and investors already within the city, the openness to international talent that comes into the city, the work of universities and research institutes, the broader regulatory climate, the relationship with growing international markets, and the agendas of higher tiers of government. City leadership can only take these leadership roles if it also has credibility in the management roles and has built strong relationships of trust between business and institutions within the city. City development is a medium to long-term game, and city leaders must also look beyond their own mandate and build a shared city development agenda for consistency and continuity beyond political cycles and between political parties.
Is it only the role of the elected mayor or city leader or do other people matter?
Executive leaders are very important to cities. They provide the can-do attitude that cities need to gain credibility with investors. Torino’s redevelopment can be traced to the moment in 1993 when Valentino Castellani became the first executive mayor of the city. He had the powers to borrow money for the first time and the power to make long term reinvestment came from that. But not all cities have executive leaders and sometimes this role has to be created within different political systems. At the same time, cities are led by teams, and city leaders have to lead teams and be the captain. For example, Hamburg’s successful redevelopment has been the product of very successful collaboration between multiple actors, led by a capable development corporation. There are usually four teams that are critical to city development and the city leaders must create and lead all of them. Internally, city governments must have a strong team agenda for the city development. Across a metropolitan space that involves many important other public bodies, including neighbouring municipalities, and many other public organisations that must work together to create effective metropolitan governance. City leaders also have to somehow form a team with the national governments, perhaps with other cities involved, to get the national government more focused on the local business climate. Lastly, all successful cities have some kind of business leadership team that articulates the business voice to media and higher governments. City leaders need such teams to provide support for progress and to advocate for investment. The mayor may not lead such a business team, but he or she often needs to encourage it to be bold and audible.
What kinds of investors do cities really need and want?
City development is not a short term business and never really has been. Cities need a variety of many different kinds of investors but some of them must be long-term investors who want to add value to the city and help it grow. They need investors that can do some things at a large scale and create capacity in the city economy. Some investors can foster brand enhancement, bringing the city an extra visibility and credibility from their presence and provide confidence to, and leveraging, other investors. Some investors want to syndicate with others and this is usually good for cities.
Are the city governments of Europe ready for the global challenges that are now coming? What else is needed?
Many city governments are ready but some have yet to see the full extent of the changes that are required. The competitive environment has changed quite fundamentally and all cities will have to work harder for investment in the future. City governments should be reviewing their economic and investment strategies and looking for efficiencies and new sources of investment. As we have seen already, cities must be prepared to figure out how they will attract and retain talented people, what quality of life they will offer to do this, which economic activities they will specialise in and how they
will connect with growing markets beyond Europe. This means that they must be pro-active. European cities may have advantages in terms of sustainability, culture, and attractiveness, but they must go beyond old traditions in order to fully leverage them in the global system. This means that Europe’s capitals will have to become more specialised nodes of knowledge. Europe will need all its major cities to complement each other in the way that Germany’s major cities already do.
What will the next generation of city leaders be like, and what are they doing now?
Many of Europe’s cities have remarkable young new leaders coming through. Many have international business experience and are multi-lingual. There is a move towards recognising the value of executive city leaders with business experience. For example, Warsaw’s leadership is very savvy and has exceptional business and international experience. Poznan has exceptional city leaders with a strong business engagement programme. There are also more women and there is more racial diversity in city leadership in Europe. This will help Europe to be seen as younger and more modern. Look at Europe’s main cities and you will find female deputy mayors ready to take the next step.
What tips would you give to city leaders and business leaders on how to make the most of the current opportunities?
There are three key tips that I would offer: Make sure you build a longer term multi-party city development agenda which would survive when you are out of office. Focus on the international ‘openness’ of your city so that you can attract diverse people and diverse investors, innovators and entrepreneurs. Actively build the next economy so that you can sell things the world really needs to growing markets abroad. Cities that do these things will find that the crisis has provided a trigger to build a more successful and sustainable path for the future and will thank their leaders for it.
From “City Leaders – an initiative of mipim in association with PROPERTYEU” November 2010
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