What local governments need to lead

Local governments are manning the front lines of our most important global battles – from managing severe weather and other climate shocks to preparing for the next pandemic, ensuring health for all, rectifying long-standing racial inequities, and addressing housing affordability. Urban areas now account for over half the world's population, and their governments are uniquely positioned to understand and address their own communities' needs.

Whether or not we realise it, we have pinned many of our hopes for progress on municipal action and bottom-up creativity. Recent "recovery programs" like NextGenerationEU and the US Bipartisan Infrastructure Law are explicitly designed to inject cash into local economies, and such place-based funding requires local governments to bring new thinking to bear on issues such as sustainable mobility and the digital divide.

But after decades of everyone assuming that innovation must be left to the private sector, local governments often lack the capacity to mobilise resources and expertise on the scale required. We have mistakenly bought into the idea that governments should only rescue markets, not create new ones; that they should merely de-risk the value creators, rather than taking risks to create value themselves. Having absorbed the gospel of "efficiency," we have eschewed public-sector investments and outsourced critical strategic functions.

This blinkered view of the public sector has limited policymakers' understanding of how they could be catalysing growth, and reduced public confidence in government. Rather than being recognized as a potential entrepreneurial force in its own right, the state is widely regarded as vulnerable to capture by special interests.

But what capabilities and structures will local governments need to carry out their proper role of creating and shaping markets and enabling activity that would otherwise not take place? How can we foster fit-for-purpose local governments that anticipate change, seize once-in-a-generation opportunities, and keep mass transit running on time? Governments and their activities are usually evaluated retrospectively. Until we have developed a new framework for creating and evaluating local-government capacity, we will not know which governments are capable of taking the lead, or where to direct additional investments in capacity-building.

As the government innovation lead at Bloomberg Philanthropies (Anderson) and the founding director of the UCL Institute for Innovation and Public Purpose (Mazzucato), we understand how this lack of data keeps city leaders, residents, and national officials in the dark. For more than a decade, our organisations have supported local governments as they have tried to bridge the gap between their aspirations and their means.

While there are many city indexes that rate everything from livability to investability, none has benchmarked cities on their capacity to solve critical challenges. What does the data say about local governments' capacity to improve lives? Are governments in California better prepared to tackle climate change than those in Texas? Are cities in Spain more or less equipped to innovate through the next pandemic compared to cities in other OECD countries? What critical skills, processes, and structures will a given municipality need in order to detect emergent issues and fashion appropriate responses?

To answer these questions, we have joined forces to create a public-sector capabilities index. With the support of Bloomberg Philanthropies, UCL IIPP will conduct the research to develop an index that articulates what governments will need to propel us forward. A new, first-of-its-kind metric will show us where local government capacity is strong, and where critical public-sector skills – such as public engagement through innovation, cross-sector collaboration, and leveraging data infrastructure and digital platforms – need to be strengthened.

As part of its output, the index will examine areas where a municipality can quickly scale up or invest in existing capabilities, thus offering guidance to city leaders, budget officials, and the state. More importantly, our goal is to start driving greater resource allocation to localities from national governments, which often hand down mandates without providing the resources needed to achieve them.

The index will be informed by the work we have already done globally. For example, in recent years, UCL IIPP helped set up the new Camden Wealth Fund; designed a tax system alongside the Biscay government in Spain, which has become the first local authority to align its fiscal policies with the Sustainable Development Goals; and supported Greater Manchester's mission to achieve carbon neutrality by 2038.

For its part, Bloomberg Philanthropies has over a decade of experience with capacity-building programs, including the Bloomberg Harvard City Leadership Initiative for mayors and senior municipal leaders, and the standard-setting What Works Cities Certification. It also manages the City Data Alliance to track and bolster the use of data and analytics in city halls, and supports innovation teams and global competitions for discovering ambitious, scalable ideas.

Of course, we recognize that indices are not neutral. In fact, they have often been part of the problem. The World Bank's Doing Business index, for example, drew criticism for its simplistic assumptions about labour-market structures, and for sometimes creating a race to the bottom on taxation and regulation. We want our index to reflect the lessons of past successes and failures, so that it creates the conditions for a collaborative journey – not a race – to the top. For this reason, it will be open-source, available at no cost, and accessible globally.

The public and private sectors alike will have the data to understand the challenges cities face, and to identify opportunities for solving them. Though we will begin at the city level, we are convinced that many lessons will be scalable at the national level, too. But while the insights flow upward, the finances should flow downward, to where they can do the most good.

Mariana Mazzucato, Founding Director of the UCL Institute for Innovation and Public Purpose, is Chair of the World Health Organization's Council on the Economics of Health for All. James Anderson leads the Government Innovation program at Bloomberg Philanthropies.