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Market interventions, whether taxes, subsidies, or regulations, have always been one of the most powerful tools at governments' disposal. So it makes sense that, as the problems faced by cities intensify, local leaders are finding new ways to fine-tune their market-shaping efforts to ensure they most effectively meet the needs of their communities.
This is an increasing responsibility for today's cities as they tackle climate change, housing affordability, unemployment, and other mounting challenges, explains Parul Agarwala, an urban expert with UN-Habitat. "We talk a lot about how cities are engines of growth," she says. "But they also need to be drivers of their economies in order to address structural misalignments."
Addressing those misalignments are core to the efforts of several of the winning cities in the Bloomberg Philanthropies Global Mayors Challenge—including Rotterdam in the Netherlands and Butuan in the Philippines—where city leaders are eager to share some of the insights emerging from their work.
A close look at expansive challenges can spotlight opportunities for targeted interventions.
City leaders don't need a degree in economics to spot a market failure or fissure. They just need to listen to what residents and businesses say are the biggest challenges they're confronting.
In Rotterdam, where unemployment was twice the national average and rising, the challenge is connecting job seekers with the companies looking to hire them. To that end, Rotterdam requires businesses that contract with the city to dedicate 5 percent of their revenue to hiring vulnerable residents. But many companies find that's more difficult than it sounds, according to Rotterdam Impact Economy Project Manager Michiel van Keulen. "They tell us they want to contribute, but they don’t know how."
In Butuan, the problem is food. That's because price volatility for local produce makes it difficult for area farmers to make a stable living. As a result, local farming has declined to a point where the city imports most of its fruits and vegetables, and consumers are paying as much as 75 percent more for those products than people in neighboring cities.
Investments in new infrastructure can solve multiple problems at once.
One of the ways municipalities have always been able to shift market dynamics to meet their goals has been by investing in infrastructure. Doing so strategically, in both physical and digital infrastructure, has helped these Mayors Challenge-winning cities tackle multiple objectives.
Rotterdam's new infrastructure, a digital platform called Rikx, advances both the labor market and the broader social good. Companies that are contractually committed to spend 5 percent of their revenue on employing vulnerable residents can now log onto the platform to invest that money in social entrepreneurs who will train those people and then put them to work installing solar panels, for example. Rikx works a bit like a crowdfunding platform, except that the projects available for funding have been vetted by experts and scored for how much social impact they can create.
Butuan's intervention brings together a mix of physical and digital infrastructure. There’s both a new warehouse, where farmers drop off vegetables to be washed and processed for sale, and a new online platform, where farmers and vendors forge long-term contracts with each other. That provides both parties much needed price stability while raising their margins by eliminating middlemen.
Additionally, cities are pairing these efforts with investments in workforce development, enabling communities to make the most of the infrastructure they put in place. Because farming has almost disappeared as a vocation in Butuan, the city is training people how to grow vegetables—last year 120 new farmers attended sessions—and providing vendors new financial, digital, and organizational skills.
Data and resident feedback will empower iteration and improvement.
Market interventions have great potential to yield rich data to see what's working and make adjustments. That data is critical in Rotterdam, particularly in calculating the social impact of investments companies make on the Rikx platform. Once experts assess the potential of projects put forth by social entrepreneurs, the resulting scores both determine which projects get listed on Rikx and then help companies measure the return on their investments. So far, 44 companies have invested more than €300,000 through the platform, leading to an employment boost for 103 people in the form of jobs, diplomas, internships, and more.
In Butuan, city leaders are using data to engage farmers and vendors around iterations in a new system for pricing vegetables. In the beginning, long-term contracts were locked in to ensure stability on both sides. Then, as prices outside this system went up and down, farmers and vendors expressed interest in trying out dynamic pricing. They’ve now gone back to static prices, but with some limited experiments in letting prices float for certain commodities.
"A big lesson for me is to keep an open mind and be very receptive to ideas," says Brenda Dimas, supervisor of the project in Butuan. "This is a co-design project with the farmers and vendors, with the whole city. The success of the project depends on being representative and reflective of what is really needed by the market and the entire community, and the only way we can do that is if we really listen to them."
These approaches can be scaled and stretched to address other problems
As they roll out these programs, leaders in these cities are already thinking big about how they can grow them. In Butuan, for example, Mayor Ronnie Vicente Lagnada has pledged to scale up and replicate its market model for vegetables to other commodities, such as rice, corn, and fruit. Meanwhile, in Rotterdam, city leaders see potential for their model working elsewhere in the Netherlands and around the world—a lot of companies want to do social good, and Rikx offers them a better way to do it. They also think the model can extend beyond the job market to work in other domains as well.
"These efforts also have the potential to influence change on a broader scale," explains UN-Habitat’s Agarwala. "The opportunity here is to encourage a whole ecosystem of frontier technologies [and interventions],” she says. “Cities can serve as the incubators of those ideas until the market picks them up in a larger way."