The Public Wealth of Cities: How to Unlock Hidden Assets to Boost Growth and Prosperity

by Dag Detter, Stefan Folster

Crumbling streets and bridges. Poorly performing schools and inadequate social services. These are common complaints in cities, which too often struggle just to keep the lights on, much less make the long-term investments necessary for future generations.

It doesn’t have to be this way. This book by two internationally recognized experts in public finance describes a new way of restoring economic vitality and financial stability to cities, using steps that already have been proven remarkably successful. The key is unlocking social, human, and economic wealth that cities already own but is out of sight—or “hidden.” A focus on existing public wealth helps to shift attention and resources from short-term spending to longer-term investments that can vastly raise the quality of life for many generations of urban residents.

A crucial first step is to understand a city’s balance sheet—too few cities comprehend how valuable a working tool this can be. With this in hand, taxpayers, politicians, and investors can better recognize the long-term consequences of political decisions and make choices that mobilize real returns rather than rely on more taxes, debt, or austerity.

Another hidden asset is real estate. Even poor cities own large swathes of poorly utilized land, or they control underperforming utilities and other commercial assets. Most cities could more than double their investments with smarter use of these commercial assets. Managing the city’s assets smartly through the authors’ proposed Urban Wealth Funds—at arm’s-length from short-term political influence—will enable cities to ramp up much needed infrastructure investments.

Genres: Economics, Urban Planning, Politics, Nonfiction

259 pages, Hardcover

First published January 1, 2017

Reviews

[Lobstergirl]

The authors argue that cities are sitting on large amounts of wealth that lie fallow because city governments haven't created asset registers of them, and haven't valued them properly. Much of this is real estate. Much of the rest is operational assets such as utilities (water, electric) and transportation-related (airports, subways, ports, bus lines). When cities do value real estate, it is often at book value rather than fair market value.

What cities need to do to extract value and profit, they argue, is first create transparency with public asset registers and a balance sheet. Then transfer legal ownership of the assets to a holding company that is operated at arms-length from the city's political governance, with a professional board of directors responsible for the management of the assets. This entity they call an Urban Wealth Fund.

To me this sounds like privatization. The authors argue that privatization vs. nationalization is a "phony" argument. I'm still unclear on whether the UWF is privately owned, publicly owned, or some hybrid of the two. The authors write that the UWF "actually transfer[s] the legal ownership of the assets to the holding company" (p. 142). Wikipedia's Urban Wealth Fund page writes that it is "government-owned" and "The assets are publicly owned by the city but administered by an independent management structure that is free from political influence..."

Ok, but transferring "legal ownership" of assets to something outside the government means the government no longer legally owns the assets. "Legal owners" have all sorts of rights of ownership when we are talking about assets, across all asset classes. Or are these rights restricted somehow in a UWF?

The devil would seem to be in the details.

A very rosy scenario is painted. Failing cities, or languishing cities, will be able to bloom and prosper as their languishing assets are suddenly well-managed, and profits wrung from them, profits which previously came from overtaxing city taxpayers. Assuming this is a good idea, can it even be done in the United States? All of the authors' examples of successful urban wealth funds are from Asia and Europe (the most successful being Temasek in Singapore). As I read, I thought, "This is a fever dream." Simply finding the large numbers of qualified fund managers to run the funds, and fill the boards of directors, for all of our cities, and pay them what the market would demand to draw them away from Wall Street or wherever, all of this happening absent political influence, corruption, and clientelism, seems fantastical.

There is some confusion in the book. Early childhood intervention in education is promoted as an investment paying huge dividends on p. 186, but on p. 202 a bold header reads, "The Education-as-Investment Fallacy." In this later chapter the authors argue that using years-of-education as a metric when valuing human capital is mistaken.

This points to the problem that the book's scope is too wide. Perhaps it should have focused only on economic assets - real estate assets and operational assets; and most of the book looks at these. But later chapters look at, exceedingly briefly and superficially, social capital and human capital. These have the whiff of an afterthought, perhaps not the authors' main areas of expertise.

Praise for Boris Johnson and Rudolph Giuliani has dated the book.

Published by the Brookings Institution, it appears not to have been edited. It's rife with missing words, typos, subject and verb non-agreement.

I realized only after finishing the book that I had read the authors' previous book, which makes the same set of arguments, The Public Wealth of Nations, six years ago.

[Parker]

"For example, Chicago Public School, the Chicago school district, is part of the city government, yet it has its own balance sheet and taxes and funding program. Chicago has an independent metropolitan sewerage district, a parks district, and so on. Yet the city is within Cook County, which encompasses other municipalities and provides another layer of administration. Such balkanization combined with redundant structures is common in cities around the world. Given such messy structures for political decisionmaking, decisions for long-term investments are easily sidelined as decisions are made to solve acute immediate problems or to satisfy powerful interests or groups of swing voters. Yet it is precisely the long-term investments that can lift a city from a treadmill town to a turbo city. That is why we advocate a strategy in this book that is all about making the value of long-term investments more transparent and visible to the public." Loved it, balkanization is a messy structure that leads to poor long term planning....

[Carl]

Not an easy read. Some of it is highly specialized as in professional literature; some of it is downright dry & boring as justification for double entry bookkeeping techniques for public entities; some of it reads like an infomercial for consulting services. In fact, I'd have put it down except that I'd recommended it to a friend, an unemployed anthropologist, & I felt some obligation to follow through. Then, not far from the end, I got to the good parts - put public entities, cities, on sound economic footing & planning becomes long-term & yields economic benefits - public services that empower citizens while reducing taxes! This should be required reading for urban planners!

[Jason Carter]

Detter and Foster argue that poorly run cities lack something fundamental that well-run cities possess: an asset-based understanding and managing of public wealth. According to the authors, very few cities even have a balance sheet, and fewer still manage assets to increase wealth.

They suggest creating urban wealth funds managed by semi-indepenent professionals distinct from elected officials to minimize the political pressure on those investing in city assets; as well as investing in social and human capital.

They provide anecdotal evidence throughout, both of "treadmill" cities failing on many levels and "turbo cities" which have managed to buck the trend.

Recommended.

[Dani]

GOOD BUT REPETITIVE.

The book is good and helpful but often repetitive. It could have been shorter or better longer if I it looked more solutions on all size cities not just large ones.

[Ashley]

The authors are largely onto something here, but unfortunately their ideas are poorly explained and argued.