An interesting article that fits nicely with Buy Local and other Community Wealth Building strategies. We all need to get together to discuss next steps in building an equitable and inclusive local economy in Ottawa!
Money in Place by Bruce Katz and Michael Saadine
The two of us recently attended a remarkable retreat on Fogo Island, off the coast of Newfoundland. The retreat, hosted by Shorefast and the Canadian Urban Institute, focused on ways to bridge the gap between global capital and local economies — moving money into “place”. Participants included community practitioners as well as representatives from financial institutions and capital providers.
The moment for the brainstorming was perfectly timed. Trump’s trade war with our Canadian trading partners, let alone his talk of annexing the 51st state, has unified our neighbor to the north and catapulted Mark Carney to the premiership in one of the most extraordinary electoral turnarounds in the modern era. Carney now has the remit to reset the Canadian economy to make it less reliant on US integration and more resilient. In that spirit, our Canadian colleagues in Fogo were more focused on strengthening their own internal ties than mourning their relationship with the US.
The setting was also uniquely tailored to the topic. Like many North Atlantic economies that were dependent on fishing, Fogo Island has been a victim of globalization. 60 Minutes recently featured the herculean effort of Zita Cobb to regenerate the economy through the building of a luxury inn in a non-profit structure that, to the maximum extent practicable, sources the purchase of goods, services and food locally.
As the Inn’s website explains:
All the furniture pieces at the Inn were made locally, by hand, with wood sourced as close to home as possible to lighten our carbon footprint. Our textile pieces were stitched, knitted, crocheted and hooked on Fogo Island.
The sustainable sourcing of food follows a similar logic:
Our team follows the 80/20 rule: 80% of ingredients they use are fished, farmed, hunted, or harvested from Newfoundland and Labrador. The other 20% follows our sustainable sourcing chain or are from traditional trading partners.
All this is good for the planet, of course, but it is also impactful for community businesses. The Procurement Economy turns out to be supersized, if mostly hidden and rarely unlocked. If this sounds like Jane Jacobs thinking, it is. The most original urban thinker of the past 100 years famously observed that:
Economic life develops by grace of innovating; it expands by grace of import-replacement.
The Fogo Island Inn exemplifies how places can work harder for themselves, setting a platform for the formation and growth of community businesses and generation of tax revenue. The thread line between Jane Jacobs and Fogo Island is quite personal; Mary Rowe, the head of the Canadian Urban Institute and Zita’s partner in crime, worked closely with the urban guru herself.
The Current State
The topic of taking wealth generated in a place — a nation, a region, a state or province, a city or metropolis — and investing it back in the place where it was generated, has long been a holy grail of economic development.
Typically, individual, corporate and worker wealth follows what our friend Ross Baird calls the “two pocket rule.” Invest in philanthropic endeavors with one pocket; make market, return-oriented investments with the other pocket.
For the most part, wealth tends to be exported away from the places where it was generated. Capital is aggregated at scale. Investment managers are hired. Institutional funds with the highest returns are identified. Funds are invested. And certain asset classes in certain cities are the recipients of market largesse.
This explains why venture capital is so concentrated in superstar metros like Boston, Los Angeles, New York, Seattle and Silicon Valley and why institutional real estate investors flock to the next round of “it” cities like Austin, Denver and Nashville.
Large institutional investors, and the wealth that fuels them, tend to compartmentalize rather than integrate. Economies and places are divided up into segmented “asset classes.” The result is that the value of places that are not the fortunate few are radically minimized and dismissed.
Focus on Place
This can and must change.
There are, increasingly, exceptions to the “two pocket” rule that demonstrate how smart capital can unlock the potential value of left-behind places. The remake of downtown Detroit by visionary billionaires like Dan Gilbert and Bill Ford as well as place-focused philanthropies like the Kresge and Ralph C. Wilson Foundations have required the conviction of a true believer and the leveraging of philanthropic, patient and market capital. A few pension funds, including the Quebec Deposit and Investment Fund (or Caisse de depot et placement du Quebec), are mandated to make economically targeted investments in the communities where the pension funds are raised. Similarly, wealthy investors in Alabama and Erie were able to realize the full intention of Opportunity Zones by investing back in their home communities.
Crucially, these efforts take a holistic view of place – infrastructure, livability, entertainment, and innovation – rather than compartmentalizing into buckets.
Putting Money (Back) in Place requires, at the threshold, a fundamental understanding of how value gets generated in cities. Cities are aptly defined, in the words of Ed Glaeser, as the “absence of physical space between people.” Going further, Indy Johar, the Director of Dark Matter Labs and a contributor to the Fogo retreat, defined places as “the entanglement of density.” The Power of Where, the recent book by Jack Dangermond, the founder of the geographic information system (GIS) company ESRI, explores the layered and complex nature of place and its problem-solving capacities.
There is a market magic to quality places which combines residential, commercial and industrial real estate, ample amenities (e.g., dining, retail, riverfronts, public parks, sports and entertainment), historic buildings, iconic architecture, a mix of transportation options and reliable energy infrastructure. These are the bones of cities that provide a platform for anchor universities and hospitals, government uses, financial institutions, startups and innovation and residents across the full income spectrum.
Value is created, in short, when there is a mash up and density of uses. That is what fiscal analysts like Urban3 have demonstrated again and again and again.
Market decision makers occasionally embrace this reality. The Amazon “HQ2” competition prompted cities across the US and Canada to demonstrate how places were wired and connected and acted as platforms and magnets of talent. Unfortunately, after Amazon HQ2 highlighted the strengths of many overlooked cities and neighborhoods (Columbus, Indianapolis, and Pittsburgh were all finalists), the tech giant selected two of the superstar cities on their shortlist – Washington DC and New York City.
More recently, cities vying for the reshoring of manufacturing routinely showcased the interplay between large scale production companies, new suppliers, universities, community colleges, and the innovation districts where disparate components co-locate and concentrate. New economy winners like Columbus, Phoenix and Syracuse have emerged.
These market decisions recognize at the core the integration of things, the entanglement of those separate bits that come together to make grand economies.
Place Going Forward
A focus on “place,” of course, can feel aspirational at best and naïve at worst in the current geopolitical climate. The post-COVID economy has hollowed out traditional office uses and moved residents to the suburbs. Isolationism, trade wars, and economic transformation overwhelm any sense of microgeographic focus. Countries like Canada are compelled to examine the existential viability of their economies rather than the spreading of stable prosperity to overlooked corners.
In fact, place-based economic development can be central to the new economic era, if hard questions are answered. As the US federal government scales back funding for research and housing, will state and local governments work with civic leaders to stabilize their downtowns and anchors? If we really decouple manufacturing from China, which communities will create the conditions for next-gen manufacturing?
Place-based thinking is a dynamic phenomenon. The Amazon HQ2 competition and enactment of Opportunity Zones occurred during a particular economic cycle, which exacerbated spatial disparities and made the prospect of spreading economic growth to overlooked places, via corporate location and capital investment, tantalizing. The industrial place-based federal programs of the past several years, focused on reshoring and remilitarization, representing a different path to what the British call “levelling up.”
Ways through the current economic storm are dependent on places working harder for themselves and realizing their full potential.
As Fogo Island (or downtown Detroit) illustrates, successful places require a radical integration of economy shaping and place making coupled with strategic, risk-embracing capital. As Zita said of the Fogo Island Inn, it’s about the past and the future. What existing assets does a place have, what untapped potential exists, and what future-facing economies would it like to participate in?
These simple questions apply to places, large and small. Fogo Island currently has a population of 2200 spread across 10 distinct communities. Incredibly, its application of import-replacement matters to similar sized rural places as well as cities and metropolitan areas a hundred or even a thousand times larger.
The bottom line is that being thoughtful about place is not a luxury — it is necessary for survival in a rapidly evolving macroeconomy.
Bruce Katz is the Founding Director of the Nowak Metro Finance Lab at Drexel University.
Michael Saadine is a Senior Advisor to the Nowak Lab and Managing Partner at Invisible Group, an interdisciplinary real estate investment platform.