Sep 16, 2020
BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.
Eve Picker: [00:00:07] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.
Eve: [00:00:13] My guest today is Bruce Katz, co-founder of New Localism Advisors. Over the last 25 years, Bruce has established himself as one of the foremost policy experts working on urban and metro areas. He founded the Metro Policy Program at the Brookings Institution and is credited with reshaping and revitalizing several cities in the U.S. More recently, he co-wrote several books shifting his thinking to how cities can thrive in the age of populism, what he calls the new localism.
Eve: [00:00:52] Be sure to go to evepicker.com to find out more about Bruce on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small change.
Eve: [00:01:13] Hello, Bruce. I'm so pleased you could join me today.
Bruce Katz: [00:01:16] Well, thanks for having me.
[00:01:18] Yeah, it's really a pleasure. So, I would really love to talk about your current work and what you call the new localism. And first, I just wanted to know what that means.
Bruce: [00:01:29] Well, I think the new localism is the way we solve problems in the world today. Cities are networks of public, private, civic, community institutions, intermediaries. They're not governments. And I think the kinds of challenges we have today require multidisciplinary and multi-sectoral solutions. And so, cities have become the places where you can do that. Whether it's around transportation or housing or small business or any number of other significant challenges we have today.
Eve: [00:02:10] How do you see this trend emerging?
Bruce: [00:02:12] Well, I think it's been emerging for quite some time. In the United States it's emerged partly to fill the vacuum left by a dysfunctional and erratic federal government. In many states, also, which have ceased to function in any effective and efficient manner. I mean, obviously, you've seen this play out during the Covid crisis in the United States. So, I think what has happened is governments at the higher levels, quote unquote, of our societies have become hijacked by partisanship and have been divided by ideological polarization. And so, the only place where pragmatism and problem solving is the order of the day is the local, is the city level or county or metropolitan level, because that's where you have different stakeholders who come together to collaborate to compete and collaborate to solve problems. So I think this is partly as a response to the growing partisanship in the United States and around the world, and partly just because 21st century solutions, which are enormously complex, require multi-sectoral horizontal solutions rather than one agency, one bureaucracy, which is more the way government is organized, resolving the issue.
Eve: [00:03:38] So, yeah, I'm not sure whether I find that comforting or scary. So, if the federal government is letting us down, we have to rely on each other locally that could be really good in a way that that could really promote innovation and entrepreneurism that's probably impossible at the federal government level.
Bruce: [00:03:59] Well, I think for, you know, the mid 20th century is when we saw national governments balloon up in the United States. It happened in the aftermath of the Second World War. And there's a purpose with national governments. They play a very important role around the safety net, around, obviously, universal health care and, you know, other essential supports for families. They obviously, the defence role they play around the military and so forth. I mean, there are certain things that a national government does that local networks can't do, and they should do that job well. But they are not the full sum of a nation, you know, and the United States is a federal republic with enormous amount of power and capacity and resources distributed and decentralized. And so, really what the new localism is about is about harnessing and leveraging all this incredible, innovative power that we have in our country to solve problems and push forward. And the national government can be a platform for that and be a participant in it. But we shouldn't be looking to that level to solve issues that, at the end of the day, require so much local interaction and local networks.
Eve: [00:05:33] That makes a lot of sense. So, I mean, what does this mean pragmatically then, for cities and metropolitan areas, at least in the way they are organized and might reorganize themselves moving forward?
Bruce: [00:05:48] Well, first is recognition that cities are not governments and metropolitan areas are not government, so you shouldn't be thinking the way we think about government. When we think about government, we say, well, what's the Department of Transportation going to do? Or what's the Department of Housing going to do? Very bureaucratic, very vertical, very hierarchical. Cities are networks so we should be thinking about, if we're going to solve our congestion problem or solve our housing affordability problem or grow Black- and brown-owned business. What's the network way of doing that? How do we knit together different kinds of sectors, different ways of thinking, different sources of capital? It's more likely that those solutions that are horizontal rather than vertical will be more sustained over time.
Bruce: [00:06:37] So, you know, thinking through network governance, right? Not just who do we elect to be mayor or county executive, which is very important, but really, how does universities and health care systems and corporations and entrepreneurs and the public sector philanthropies, how do these work together around solving specific concrete, tangible solutions or problems? I mean, what I'm trying to basically put forward with the new localism, which I co-wrote with a close friend of mine, Jeremy Nowak, is a completely different way of thinking about how we solve problems in the 21st century. And it's to get away from 20th century thinking about government and silos and compartments as a way to do that.
Eve: [00:07:29] So, you know, I have I have a couple of questions around that and one is what brought you to this thinking?
Bruce: [00:07:36] Well, I spent my professional career moving from the federal level to the local level. I was chief of staff at HUD, the federal Department of Housing and Urban Development in the United States. I was chief of staff, staff director of a U.S. Senate subcommittee on Housing and Urban Affairs. So, I, I spent 10 years in the federal government working on issues of importance to cities but coming at it from a top down perspective. Then I left to start a city think tank at the Brookings Institution in Washington, D.C., and really spent the next two decades working with cities all over the U.S. and around the world and beginning to work out a different theory around bottom-up nation building, essentially.
Bruce: [00:08:24] And so I've traveled a pretty long circle here of starting at the federal level, wanting to work on cities, but then really trying to work with cities and think through different mechanisms, different approaches and fundamentally different, more transformational outcomes that we're trying to achieve. So, you know, we're in an odd moment now because of these multiple pandemics that we're facing in the United States and beyond. The health pandemic, the race pandemic. But at the end of the day, I think success will occur ultimately when communities, cities, counties, metropolitan areas are able to operate in this in a very radically different way than they’ve operated in the past.
Eve: [00:09:13] Interesting. So, you know, are there some cities that have emerged that are shining examples of this new power shift or new localism?
Bruce: [00:09:24] I think many cities actually have, and the crises that we're going through have forced more collaboration across multiple sectors. In the book, The New Localism, we wrote a lot about Pittsburgh, which is sort of an informal network of philanthropies, universities, hospitals, corporations, government, community, to sort of lift Pittsburgh from the depths of a industrial collapse, which happened back in the late 1970s. Pittsburgh today is seen as that incredible vanguard of the innovative economy, partly because of.....
Eve: [00:10:04] I have to, I have to say full disclosure. You're not just saying that because I'm in Pittsburgh, right?
Bruce: [00:10:10] No, not at all. I didn't even know you were, but.
Eve: [00:10:12] I'm in Pittsburgh, so I've seen that transformation firsthand. It was pretty interesting and mind blowing to watch. But please, please go on.
Bruce: [00:10:24] Pittsburgh was a normal older industrial city in the United States. It would have been left for dead. I mean, most were, right? I mean, the comeback of Pittsburgh is because of local leaders understanding their distinctive advantages, investing in them for decades without any significant returns. And now, as the economy restructures and we move to the next generation of technologies, Pittsburgh has the ability not just to be a competitive city, but to be an inclusive city. So, Pittsburgh has an informal network that has been operating for decades. Indianapolis, which we also talk about has a more formal structure where the corporations and the universities and the philanthropies came together and set up an entity called the Central Indiana Corporate Partnership to literally help steward the economy for several decades. And what distinguishes Pittsburgh and Indianapolis is the ability to think long term. The US is a very short-term culture. Someone once said to me their idea of planning was lunch. We have a culture that looks at, you know, the corporations look at quarterly returns. You know, people watch stock market gyrations on a daily basis. The key here is to think in these 20, 25, 40-year cycles, just that's how long it takes to really restructure economies and to have them have full inclusive effect.
Eve: [00:12:01] That's really interesting. So, you know, I've actually seen that myself as I invested in properties in Pittsburgh maybe two decades ago. And now the city is, I don't know if I would say booming, but it's certainly in a very different place. But, you know, one of the things that we haven't done well here in Pittsburgh and I'm sure is probably mimicked in other places, is the race issue where I think Black people have been left behind for a whole multitude of reasons. And, you know, the affordable housing which affects every city certainly becomes worse when a city gains more value. So, are local leaders really thinking about that well enough in advance?
Bruce: [00:12:48] Well, I think this is a, you know, this is an interesting thing about the United States and the other story we tell of the new localism is around Copenhagen. And how Copenhagen was able to move from an older industrial city where manufacturing collapsed to really one of the wealthiest cities of the world in a 30-year cycle. They did that because they established a public asset corporation that was able to use the land and the buildings that were owned by the public sector to basically grow a very different kind of economy and then to generate revenues as the economy grew so that they were able to reinvest in infrastructure. So, there was a public benefit to growth. In the US, the benefit to growth only accrues to the private sector, right? In Northern Europe, in Germany and the Netherlands and in Denmark and the Nordics there is a public benefit. The public has a piece of the pie, so to speak. So, as the pie grows, you're able to generate revenues that can benefit a much broader segment of the population.
Eve: [00:14:00] That's interesting. Yeah, the other place I've been watching with interest is Australia, because I've been gone from there for a long time, but they really lack an affordable housing policy and they're.... it's a very wealthy country. And from what I've seen, they've done a very poor job of transferring any of that wealth for public benefit. So, I don't think the US is the only place with this issue. Don't know if I'm right, but that's my guess.
Bruce: [00:14:31] Well, I think it's, again, I think of the US. The US as quite odd because in the United States we tend to localize education policy and to some extent, nationalize housing policy. The rest of the world operates in a completely different way. They tend to natutionalize education policy and localize housing policy, right? So, the reason why Hamburg and Copenhagen and Stockholm are able to grow very robust economies but continually invest in affordable housing is because it's localized in these places. They're not looking to their national governments to somehow solve the housing problem. They're basically baking in affordability in the way they grow. And so, a lot of what really applies to cities is to think at a system level but to also think at a global level, because somewhere in the world there's a city that's cracking the code on whatever the issue that bedevils you. And that means that there's just a very broad sort of pool of cities to draw from.
Eve: [00:15:42] Yeah, interesting. Do you know of any cities in the US cracking the affordable housing code, so to speak?
Bruce: [00:15:50] I think they're mostly sort of at the edges of the affordable housing problem because I think it'll take a radical systemic change. I mean, I think it'll take what essentially is more of a German or Danish model and applying it here. We're doing bits of that, but we're not doing it at the scale they're doing it. So, I think we haven't quite broken out of our own failed system to tell you the truth. You know, on the other hand, you know, the Germans and the Danes and others could learn a lot from our innovation ecosystem, right? The US is hard wired around technological innovation and the rest of the world, you know, some parts of the world are obviously very competitive with us, but we have basically built the very unique U.S. innovation ecosystem. Built, by the way, on federal research and development like at Carnegie Mellon or Pitt, or etc. But we're quite good at that and we're quite terrible at these other things.
Eve: [00:17:00] Yeah. So, and then, how do you think this pandemic, the health pandemic, might change the trajectory for these rising cities, the cities that are actually doing a good job of new localism?
Bruce: [00:17:15] Well, personally, it just depends how long this going to go on for?
Eve: [00:17:20] A yeah, we know it's going to go for a little while, right?
Bruce: [00:17:22] I'm very concerned as we keep cycling through this. So this is a moment where you really do need the national government to step in and sort of catch everyone if they fall, catch people through unemployment insurance, catch small businesses through capital that's fit to purpose, catch local and county and state governments because of the loss of fiscal revenue. This is the role the federal government, right? This is why we have a federal government. They play this role during natural disasters like hurricanes or floods. Well, this is a hurricane happening everywhere, for an uncertain period of time. And what we really don't have at the national level at this stage, curbing the spread of the virus or responding to its economic effects, is any kind of functional, predictable, reliable partner. It's just partisanship. We're know nothing-ism, you know, on steroids. So, I am worried that the aftermath of this pandemic is going to be with us for a long period of time because of the centrally federal malpractice. Other countries have already come out of the pandemic like the Nordics, and they were smarter about how they supported their workers, their companies and their cities during the entire process. So, I'm very worried about the decade long effect of the corona virus. And on top of it now, we have civil unrest following the death, the murder of George Floyd and we need systems change in the US. And that's the only way that we're going to accelerate any kind of inclusive growth recovery. And it's going to require some real soul searching about why the economic performance and prosperity we had pre-covid was not shared by large segments of our population. So, there's no return to normal here. And normal was not getting us the kind of outcomes we wanted in the first place.
Eve: [00:19:39] Yeah, exactly. No more is not getting us the outcomes. You know, the question I have is how, there's so many answers to this, how do you make cities more equitable places for everyone? Because they are inequitable in a thousand and one ways. And yeah, I could see that networks of people are perhaps the only way to solve it. I don't know. It's a very big problem.
Bruce: [00:20:05] Well, we do take what we're good at. We're very good at innovation in the US. It's partly because we have an ecosystem in every major city. Take Pittsburgh, we have advanced research. We have the companies. We have start-ups and scale-ups. We have capital to commercialize research, you know, with angel loans, seed money, series A's, Series B, we have incubators we have accelerators. We have an ecosystem. If you move that over to, how do we grow Black-owned business or Latino-owned business or even women-owned businesses. There frankly is no ecosystem.
Eve: [00:20:40] No, there's no ecosystem.
Bruce: [00:20:41] We have a, we have sets of goals. Sometimes we have set asides, but we don't really have this deep infrastructure, intermediaries and different kinds of capital that fit the purpose. So, I think that's what has to happen. We should take what we're good at and begin to apply it more broadly. We're never going to be the Danes or the Germans or the Israelis or someone else. I mean, we need to take what is exceptionally American, this network of sectors that tend to come together and collaborate to compete globally, we need to build on that because that is what makes us highly distinctive in the world.
Eve: [00:21:24] Yeah. On a slightly different track. Do you think there are any current trends in real estate development that are important to the future of cities? Keeping in mind the pandemic as well, I think about this a lot. And, you know, I own real estate with restaurant tenants, and we talk about whether they will survive or not and what it's going to look like.
Bruce: [00:21:49] Well, to some extent, what you're describing is that a lot of landlords in the US are really small business, so...
Eve: [00:21:56] Oh yeah, they are. Absolutely.
Bruce: [00:21:57] So, there's a domino effect to this crisis as we just shut down the economy. The first that were affected were the face-to-face businesses like restaurants and bars and hair salons. But all of those businesses are ecosystems unto themselves. They have lenders, they have landlords, they have suppliers, they have workers, they have customers. So, this whole crisis has exposed the intricacy and the complexity of our economies. I've been working on this idea about a new kind of intermediary that we're calling regenerators, you know, in our main streets, where many of our face serving businesses are co-located and concentrated. And over the course of the next several years, I think what we need to do is have entities that can refill vacant buildings quickly, maybe pop-ups that can provide master leases. So that we don't see a collapse in the real estate sector, essentially looking for an intermediary that can stabilize important cadres and business districts and main streets in our cities until we really begin to see businessman come back to where it needs to be. So, I think part of the issue here is just the need for different kinds of business models. If we think that every small business is going to snap back by itself, I think we're delusional. I think we need more collaborative, cooperative models, particularly around retail and particularly around these business districts in which a lot of enterprises co-locate. And real estate's a big part of that.
Eve: [00:23:47] Yeah, it is.
Bruce: [00:23:47] Another cost of the equation.
Eve: [00:23:50] Yeah, definitely. I am also very worried. But I'm pretty sure we're going to get through it one way or another. So, what what's your hope for cities and metros maybe in the next five or 10 years?
Bruce: [00:24:06] You know the imperative, I think at this point, is that cities and metros begin to grow in very different ways, right? The kind of growth that we had in the US pre-crises was not sustainable and was not inclusive. I mean, the US was not making the kind of transition to a carbon neutral future that needs to be made. Copenhagen is, Stockholm is. But our cities were not. At the same time our cities were not really growing income or wealth for large portions of their populations due to a whole complex set of reasons, some deeply rooted in our history. So, we need a different growth model in the US. And there's a lot of commitment to, quote unquote, inclusive growth and quote unquote, sustainable growth. But those are slippery terms. They're vague terms. So my hope in the next year or so is that U.S. cities and metropolitan areas commit to some audacious goals for the next decade and then use this period to sort of back cast the kind of more ambitious initiatives and system change that's necessary so that they can achieve those goals. And if the federal government can be a partner, fantastic, they should be. If states can be partners, great. But the vision for what our future should look like should be essentially designed locally.
Eve: [00:25:46] Oh, I can't wait to see that.
Bruce: [00:25:47] These are systems or communities with radically different pasts and different priorities, and they should, so, every major city in Metro of the US should be going through this kind of process.
Eve: [00:26:01] It's an exciting thought. And so, final question, what's next for you? You said you're very busy.
Bruce: [00:26:09] I've been spending a lot of time thinking about this question about, and, you know, first of all, looking at the current set of data that we have in the US around Black-owned business, brown-owned business, and trying to think through what would be a step change. You know, only two percent of employer firms in the US are owned by Blacks today. They're 14 percent of our population. There's a whole set of reasons around that. So, the question is, if over the next decade we were going to double that share or triple that share and also have Black-owned businesses participate in sectors of the economy which tends to pay higher wages, have higher benefits, higher revenues. What would that take? And I think that's the kind of system building that I'm really interested in working on, perhaps with the next administration, should that come to pass in this election, but also really growing from the local level on up. So, intensely focused on building what I call community wealth in the US as a antidote to the kind of deep racial and ethnic disparities on income, health and wealth we have today.
Eve: [00:27:31] Well, I, I really can't wait to see what comes of it and I really appreciate the time you've taken today. Thank you so much.
Bruce: [00:27:38] No, thanks for having me. I really appreciate the.
Eve: [00:28:00] That was Bruce Katz. Bruce thinks we should stop thinking about cities as governments and instead think of them as networks. The question is, how can we knit together lasting solutions to improve our cities from a network of leaders, both public and private? Transforming our cities requires long term thinking. It will take a 20 to 40-year cycle. But Bruce believes this is an imperative. We need a different model in the U.S. for growth so that it is sustainable and inclusive.
Eve: [00:28:40] You can find out more about impact real estate investing and access the show notes for today's episode at my website EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.
Eve: [00:28:58] Thank you so much for spending your time with me today. And thank you, Bruce, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.