Why cities need a new economic approach

It is a truth universally acknowledged that a government in recession must be in want of a recovery policy.

There is an urgent need in the cities in the UK, especially in the north, for a new set of economic policies to kickstart local recovery. The Treasury has no such plan. The cities themselves often believe they must wait patiently until the government, or the economic cycle, bails them out.

But a new economic agenda is emerging, borrowed often from the most successful cities in Europe and North and South America, which can effectively allow cities to take back control of their economic destiny.

Our report, Ten Steps to Save the Cities, tries to distill this new approach from their experience. Cities will soon have the power to try out much of it, rather than a handful of bold but tiny experiments. If they have the nerve, this is the future:

1. Rebuild local economies by plugging the leaks that are draining local money away. How money circulates in an area is just as important as the amount money flowing into it. Traditional economics suggests that cities must specialise. That may be true for the largest businesses, but it is irrelevant for local business. For them, the best way forward is the way that cities developed through history – not just by specialising, but also by building diversity and looking for ways of replacing imports.

2. Develop local diversity and distinctiveness. Too many of our cities have devoted their imagination and resources to making themselves look the same as each other. But because economic diversity keeps money circulating locally, it is critical that any new developments design wellbeing, distinctiveness and sustainability indicators into masterplanning processes and that any new retail effort must make high streets more, not less, diverse.

3. Bust local monopolies to let enterprise flourish. One major reason why so many of our local economies have been hollowed out is that so many cities have been using net wealth destroyers as anchor stores.

4. Organise enterprise coaching, support and advice in every neighbourhood. The coach is backed up by a panel of local business people, bank managers and other local volunteers, who meet once a month and give information that helps to break down the barriers preventing enterprise from starting, replicating the kind of social networks that successful places have.

5. Use local resources to build an effective new local lending infrastructure. Our businesses are now in a far weaker position than American or German competitors, and potential competitors, because we have no equivalent lending infrastructure. The real problem is not lack of capital to lend, it’s a serious lack of institutions capable of lending it.

6. Invest in local energy and food. At present only 0.01% of electricity in England is generated by local authority-owned renewables, despite the scope that exists to install projects on their land and buildings. In Germany the equivalent figure is 100 times higher.

7. Use waste products as raw material for new enterprises. Traditional economics confines its interest to the point where money becomes involved and to the point when a product is thrown away. Cities are often blind to the potential value of what is wasted and thrown away – because all these have potential for enterprise.

8. Use public sector spending to maximise local money flows. Making sure that public sector contracts build the local economy, and provide permanent economic assets for the most depressed areas.

9. Launch a range of new kinds of money. Successful models are now running all over the world, keeping local resources circulating locally and providing independence for impoverished communities. They can provide low-cost or free credit, and – in some countries – they underpin whole sectors of the economy (the Swiss WIR system underpins the building and restaurant trade).

10. Experiment with new kinds of credit creation for local public benefit. The problem with quantitative easing (QE) is that it simply fuelled the institutions which had failed the economy so spectacularly. But there will be occasions when regional economies require the creation of new public money, free of interest, where necessary to cope with unprecedented financial emergencies, and as the basis for loans to rebuild the infrastructure of productive local economies.