Driving economic growth in a world of fiscal constraints

Global cities and their leaders now face a perfect storm of sudden and unanticipated challenges as they look to revolutionize public and citizen services, manage financial constraints and drive economic growth. It has also created significant permission to change how cities work, deliver services, and interact with citizens and stakeholders. This is a an opportunity to catapult forward – a rare opportunity that should not be wasted.

While the pandemic has fueled the rapid emergence of remote work and innovative business models, it has also forced cities to respond with massive stimulus programs to support their communities and economies amid crisis conditions.

Intensifying the pressure on local and city leaders in today’s dynamic economic environment is a reality. Many national and regional governments have decentralized decision making in the wake of the pandemic, empowering local administrators to assume broader responsibilities as they grapple with today’s pressing public needs and the attendant soaring costs.

With cities everywhere now on the front lines to manage and address evolving public needs, and fiscal challenges soaring as a result of the pandemic, city leaders will need to pursue new economic strategies and solutions. 

Some future-focused municipal governments are actively pursuing initiatives that will help them evolve toward a corporate approach to budget management amid the formidable fiscal challenges before them. They are replacing traditional cost-cutting and budget-restraint strategies, for example, with innovative approaches that include productive partnerships with private enterprise and startups to support innovation and future economic growth. They are also pursuing new ways to generate much needed revenue and boost city finances.

While smart digitalization differs from city to city – ranging from the adoption of basic automation technologies that facilitate public services, to predictive analytics that can anticipate service and infrastructure challenges – technology is opening exciting new paths to revenue generation and economic growth. Cities are capitalizing on game-changing capabilities – seamless connectivity, 5G, sensors, GPS, social media, the IoT and more – to evolve from the traditional expenditure-led approach to a modern, income-generating model that holds significant potential for future prosperity.

Cities are realizing, for example, that as public service delivery becomes increasingly automated, accessible and convenient, citizens and businesses are willing to pay a bit more when such advantages eliminate the need for time consuming and less efficient face-to-face services. As city leaders pursue a modern approach to enhancing revenues, they are also keenly tapping into industrial activity within local economies for its potential to offer massive revenue-generation opportunities.

Remote work has gained global popularity and island jurisdictions such as Barbados¹ and Bermuda² are taking the concept to a creative new level with the launch of ‘remote-work visas’ – offering people the opportunity to work from a tropical setting. The goal is to attract entrepreneurs and businesses that will help drive local economic activity while providing adventurous city dwellers a unique opportunity to experience a coveted island lifestyle while teleworking.

Barbados launched the Welcome Stamp program in July 2021³ and Bermuda’s Digital Nomad program followed shortly after. More than 800 applications have been received for the Digital Nomad program from individuals and families looking for one-year residency in Bermuda. The visa programs have helped to replace a portion of economic activity lost amid reduced tourism during the global pandemic.⁴

Pandemic-induced changes that are accelerating the adoption of new capabilities and approaches are also delivering significant new workforce efficiencies and cost savings across the spectrum of city agencies and departments.

The current exodus from offices and workplaces to residential workspaces, and the movement of many employees to smaller, more affordable communities, is a trend that positions today’s financially constrained cities to capitalize on an unexpected opportunity to downsize from large, centralized workplaces and eliminate significant overhead costs. No one knows how the live-work-play equation will ultimately resolve itself.

It will likely be different in each city, country, jurisdiction and culture – but everyone needs to be acutely aware of the changes they see, their severity and the degree of permanence in order to optimize approaches and results. The ongoing shift among many businesses to local manufacturing and low-cost geographies is also expected to deliver new cost savings and economic advantages to cities that rely on such organizations.

The movement of workplaces and workforces to new locations will need to combine cost-saving advantages for businesses with the needs and preferences of employees, particularly amid talent shortages that demand new ways to attract employees and future skills.

In our view, businesses looking to remain competitive will not move simply because an area is the cheapest place to manufacture but also because it offers a strong quality of life – a place where employees are happy to be. And achieving that balance will require collaboration among all levels of government, businesses and not-for-profits – with a singular focus on the sectors that they want to grow and the targets they want to achieve for future prosperity and growth.

If this localized approach to doing business emerges, it should be accompanied by a significant shift in what public policy looks like, in order to ensure future agility and resilience, including the continuing realignment and management of city workforces and supply chains toward new efficiencies.  

As cities embrace a modern virtual reality that creates new possibilities for productivity and economic prosperity, we believe the future will demand new solutions that increase data-sharing capabilities and collaboration across siloed municipal government departments and services that typically remain disconnected.

Local governments in India are making significant progress through that nation’s innovative DigiLocker program, in which citizens and businesses access a secure cloud-based platform to obtain, share and store personal documents, certificates, licenses, permits and more across a range of public services and departments such as health, education, transportation and utilities. The service currently has nearly 80 million registered users and has issued more than 4.5 billion documents.⁵

• To enable and sustain economic growth and prosperity, city leaders and administrators should continually pursue modern digital capabilities that provide reliable seamless services and innovative applications to citizens, industry and all stakeholders.
• Enhancing processes that accelerate interactions, workflows, approvals and decision making between local businesses and the cities they work with can be instrumental to supporting economic growth.
• Forward-looking city leaders should continually explore new possibilities to boost revenue-generating services and capabilities in ways that will help them solve financial challenges and support future growth.