Are cities like businesses? What does the re-urbanisation of business mean for cities?

Emily MoirAuthors: Greg Clark, Chair of JLL Cities Research Center, with Emily Moir

Cities and businesses have always been closely linked. A great number of cities owe their very origins to business, having developed from trading posts where merchants and artisans gathered to engage in commerce. At various points in history, the distinctions between cities and businesses have been blurry. In medieval cities like Genoa and Venice for example, businesspeople, guilds and corporations effectively controlled the city as governors. In the latest wave of globalisation, the lines are once again becoming hazy, as cities take on fundamental characteristics of businesses, and as business re-urbanises. So, to what extent are cities now like businesses?

The new global era has seen cities become much more like businesses for one key reason. Globalisation has made the content of national and city economies more mobile than ever before, and now cities – like businesses – have no choice but to directly compete in contested national, regional and global markets.

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Of course, cities have been competing to attract tourists since the advent of leisure travel, as far back as the days of the Grand Tour, and this remains perhaps the purest form of city competition. But cities today are not just competing to attract visitors, but also businesses, workers, students, investors, events and institutions. They compete not only in relation to price but also on factors such as environment, provision of services, amenities, quality of life and presence of skilled labour, all of which make them more or less attractive to mobile individuals and organisations.  So, just as businesses carry out and fund research and development activities in order to remain ahead of their competitors, cities also have to innovate, invest and adjust to differentiate themselves in the global marketplace. They have to change old patterns of land and resource use, and connect assets with opportunities in new ways and over new spaces. Like firms, cities have to attract and retain talent.

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Cities seem to be embracing their growing likeness to business, and are adopting and adapting private sector practices to help them tackle problems head on. They are developing strategic plans in order to achieve clearly defined goals, whether this be talent attraction, enhanced market profile, or a targeted investment rate. London, Paris, Auckland, Johannesburg, Sao Paulo, Singapore, New York, and Barcelona are just some of the cities which have developed strategic plans in recent years.  Cities are also looking to the private sector for inspiration on how to use innovative financing to achieve their goals with a defined (and often shrinking) budget. Cities are learning how to leverage their balance sheets and assets.

And increasingly cities are engaging in marketing and branding so as to better project their advantages, and foster a clear identity and reputation that will help them win the competition for mobile opportunities. But building a single clear identity is a particular challenge for cities, which can be seen as having four different and competing ‘sub-brands’ (see image below). For a city brand to be effective, all four dimensions must work together, synthesising multiple images of the city to create a coherent, consistent and authentic brand story.

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Nonetheless, global competition has not made cities and businesses indistinguishable. Whilst it is appealing to think of citizens and businesses as a city’s customers or shareholders, or the Mayor as the CEO of the city, these comparisons overlook key differences. Unlike corporate shareholders, citizens have wider interests than pure economic success of the ‘business’ – they are also interested in the city as a political and social entity and as a long term environmental stakeholder.  And city leaders and mayors are often constrained by democratic systems, party politics, and regulation in ways that business leaders are not.

In fact cities are subject to many constraints that don’t bother businesses. Despite the popular rhetoric about the rise of ‘city-states’, in reality most cities do not have government functions akin to a state – they have limited autonomy and restricted access to fiscal resources. Whilst companies (and states) are largely free to use their cash reserves or borrow money, cities have to work within wider governmental frameworks which may restrict their access to capital, exposure to risk, and to full use of their assets. Furthermore, unlike businesses, most cities cannot capture and reinvest their own ‘profits’, but must yield them up to state or national coffers. They can’t often capture the value that they create. They must then petition higher tiers of government or external third parties for investment funds, often in competition with other jurisdictions.

Cities are also restricted in their strategic direction in a way that businesses are not. They can choose neither their ‘customer’ nor the services they provide them with: city councils have to provide a core set of services to all their citizens, no matter how desirable, profitable or even feasible that might be. Even a city’s branding options can be more constrained than a company’s, as a city’s identity is often substantially shaped by others. Pre-existing national or local brands, or perceptions of the city’s nation or locality can restrict the identity which a city can convincingly take on. As cities are more fluid and invested entities than businesses (see table), they also require more multi-faceted branding strategies.

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Cities suffer from other wicked problems that businesses just don’t face. Electoral cycles build a short termism into city politics which often prevents long term planning and makes decision makers risk averse. Fragmented jurisdictions create multiple priorities and limit the impact that leaders can make. And of course, cities operate within complex governance frameworks which constrain their decision making abilities, often relying on hand outs or orders from higher tiers of government.

So is it a waste of time to draw an analogy between businesses and cities? Certainly not. Focusing attention on their growing similarities highlights the fact businesses and cities can offer help and inspiration to each other. Of particular interest to those of us working with cities is the potential for businesses to help cities develop operational efficiency, budgetary discipline, and new ways of working and engaging with stakeholders. As long as they recognise their differences, individual contexts, and separate constraints, businesses can play a crucial role in helping secure better value for citizens, city governments and city investors alike.  Observing the key differences between businesses and cites also reveals critical priorities in urban governance reform.

 

About the Author

Greg Clark has spent more than two decades putting his passion for cities to good use, by advising and mentoring global cities, firms and institutions. He has worked with over 100 cities around the world and holds senior advisory roles at international bodies including the OECD, Brookings Institution, ULI, and the Future Cities Catapult. A prolific author, Greg has published ten books to date on cities and investment practices, with three more in the pipeline for 2016-17. And as Chairman of The Business of Cities research and intelligence group, Greg leads a small high calibre team that advises and reports on global trends and changes in cities. In his academic life Greg is Hon Prof of City Leadership at UCL and co-chairman of the UCL City Leadership initiative, Visiting Professor at Strathclyde University, and Global Fellow at LSE Cities. He has received international awards for his work from cities as far afield as Barcelona, Brisbane, London, and Toronto and in 2016, Greg was honoured by HM Queen Elizabeth II with a CBE for his services to city and regional economic development. Meanwhile, outside of the day jobs, Greg is an avid tennis player, wine enthusiast, and lifelong follower of Arsenal FC.

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