"The Public Wealth of Cities"
Book Offers New Twist on Rags-to-riches
It’s a classic rags-to-riches story — with Copenhagen, Denmark, as the protagonist. In the 1990s, the former manufacturing city was in decline. Desperate to turn things around, government leaders got creative.
Rather than raising taxes or debt or selling assets, they consolidated waterfront land and buildings, as well as a former military garrison on the city outskirts, in an independent urban wealth fund, wholly owned by the government but managed by a professional staff.
These days, Copenhagen’s harbor district is a bustling mixed-use area with public housing, offices, schools and universities. In addition to regenerating a large part of the Danish city, the government built a transit system with resources raised through the new asset-management model, all without increasing debt or taxes or cutting public services.
It’s a success story that has been repeated across Europe and Asia for decades but has not yet translated to the United States. Now a new book, “The Public Wealth of Cities,” by Dag Detter and Stefan Fölster, describes how any city can harness the significant tools developed by the private sector. The book is a follow-up to “The Public Wealth of Nations,” named by The Economist and the Financial Times as among 2015’s best books.
Sitting on a Goldmine
“U.S. cities, even the poorest, are sitting on a goldmine,” Detter says. “Local governments could more than double their investments with smarter use of their commercial assets, including transit systems, airports, convention centers, utilities and convention centers, as well as large swathes of poorly utilized real estate.”
Take Boston, for example, Detter proposes. He estimates that if the city put its assets into an urban wealth fund, a modest yield of 3 percent on a fund with a market value in the neighborhood of $50 billion could amount to more than the city earned in total revenues during 2015.
Knowing What Cities Own
As management consultant Peter Drucker famously said, “If you can’t measure it, you can’t manage it.” Unfortunately, most cities struggle to understand exactly what is on their books, partly because ownership is split between many government departments and authorities, but also because the public sector does not use their balance sheets properly.
“In the United States, incredibly, we know what governments owe but not what they own. With a transparent balance sheet in hand, taxpayers, politicians and investors can better recognize the long-term consequences of political decisions and make choices that mobilize real returns,” Detter says.
Creating an Urban Wealth Fund
Once cities understand what they own, the next step is to set up an urban wealth fund, which is essentially a holding company wholly owned by the public sector.
“By structure and nature, governments are almost universally not great asset managers,” Detter says. “Creating an urban wealth fund owned by the government, but managed professionally, keeps decision-making about assets at arm’s length from short-term political influence and allows for more effective long-term investment.”
Detter looks forward to seeing the results from the first U.S. city to implement “The Public Wealth of Cities” approach. “It’s been said that if you always do what you always did, you’ll always get what you always got,” Detter says. “It’s time to harness the public wealth of cities and put it actively to work for our communities.”