Build Community Wealth with Incremental Investment
This article is part six in a new in-depth series we’re launching on the economic challenges facing resource-based communities, and strategies that can help build lasting prosperity. Read part five here. Part seven will be published tomorrow.
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Listen to any economist being interviewed on cable news and it’s only a matter of time before they recommend investments in infrastructure. There is a simple reason for this: investments in infrastructure create jobs and provide a platform for future growth. Jobs and growth are metrics that economists highly value. Since the Great Depression, there has not been an economic downturn that hasn’t included investments in infrastructure as economic stimulus.
Listen to any local mayor or public works official and they will also talk about infrastructure, but from a very different perspective. Cities experience job creation and increased growth potential when building infrastructure, but the transaction doesn’t end there. Local governments also assume the long-term responsibility to provide ongoing service and maintenance, a cost that will ultimately grow to be greater than the initial investment.
This is the major difference between state and federal spending on infrastructure, and local investments is the commitment involved.
State and Federal Investments in Local Infrastructure: Jobs and Growth
Local Investments in Local Infrastructure: Jobs and Growth + Long-Term Maintenance and Replacement
This difference in commitment means that the objectives of infrastructure investments must be different for local governments than it is for state and federal policymakers. For a community, not only does an infrastructure investment need to create jobs and economic growth, it needs to generate enough local wealth and capacity to sustain the investment when it needs to be maintained and replaced. Without that, the community grows poorer with each infrastructure project they do.
Unfortunately, the math on infrastructure investments demonstrates just that: Communities have experienced a lot of growth (capital flow) since the end of World War II, but nowhere near the wealth creation necessary to meet the long-term commitments they assumed. The financial productivity is not there and so, like a company founded with a lot of cash but a bad business model, cities have literally grown themselves into decline.
There is no way for a community to grow their way out of this using the same development model. Cities must stop building more infrastructure and switch to a model of intensive maintenance, combined with making better use of what has already been built. Our cities need to thicken up, increasing their financial productivity as they become better places to live.
This happens with incremental development, the time-tested approach cities used for thousands of years to build wealth over a broad area over a long period of time. Instead of building projects all at once to a finished state—locking them in fiscal and regulatory stasis—communities return to their evolutionary roots, allowing neighborhoods to adapt incrementally in response to opportunities and stresses. The Strong Towns approach uses many incremental steps to build momentum instead relying on the luck of a few large leaps.
A Necessary Mental Shift for Making Productive Investments
Building community wealth using incremental investments requires resource-focused communities to think differently about some things.
Infrastructure is not an asset. General accounting practices direct cities to consider infrastructure an asset, but it’s not. The community’s tax base is an asset, but its infrastructure is a long-term liability, one that never goes away. Do not assume eternal liabilities on a whim.
Image via Unsplash.
You don’t need (or even want) more infrastructure. Building more infrastructure generates quick and easy growth today in exchange for much greater long-term liability. Such exchanges make cities poorer, a reality North American cities now struggle with. Instead of expanding existing infrastructure systems, cities need to work to make more productive use of infrastructure that has already been built.
Small steps are better than large leaps. The lowest risk, highest returning investments most communities can make are small, incremental, and based on getting more use of existing investments. These kinds of projects (planting trees, painting crosswalks, fixing broken sidewalks, etc.) are not the kind that get ribbon cuttings and grand opening celebrations, but they are the attention to detail that builds lasting wealth.
Maintenance is king. When a local government prioritizes maintenance, it signals to the community that it is serious about the future, that it can be trusted with more substantial undertakings. When a local government does not obsess over maintenance, when it chases the next shiny object instead of sustaining core and critical systems, it does serious damage to the social compact every community needs to function.
Steps for Building Community Wealth with Incremental Investment
The Strong Towns approach for building community wealth relies on incremental investment and a process of learning and adapting to drive growth and productivity.
Rely on little bets, not transformational projects. In the book Little Bets, author Peter Sims describes how low-risk actions can help us discover, test, and refine ideas. Communities can apply this approach to their place as well. The book Tactical Urbanism: Short-Term Action for Long-Term Change, by Mike Lydon and Anthony Garcia, is a how-to guide for making low-risk, high-return investments in a place. Identify the minimum viable project, get it up and running, see what happens, then refine the approach.
Emphasize resiliency, not simply efficiency. Darwin’s core insight was never “survival of the fittest,” but survival of the most adaptable. Systems that are fine-tuned for efficiency of execution lose their adaptability. They become fragile and prone to failure. They lack resiliency. A Strong Towns approach recognizes that success over the long term cannot be mass-produced through some efficient process. It must be built incrementally over time.
Design to adapt to feedback. Cities are complex adaptive systems. They need to be able to respond to feedback at the block level. Neighborhoods that are frozen in place through zoning and other regulatory action become fragile. A Strong Towns approach not only welcomes feedback, it favors approaches that allow individuals and businesses to adapt their places incrementally over time.
Use bottom-up action, not top-down systems. Instead of developing a grand, top-down plan, local leaders must humble themselves to learn from the people in the community. When the effort is made to humbly observe where people struggle to live in the places built for them, and then those observations are followed quickly by the minimum viable project that can make that struggle a little bit easier, communities discover that they can iterate their way to success, even on a limited budget.
Conduct as much of life as possible at a personal scale. There is an overwhelming correlation between places built for human beings and financial productivity. The more places are built to the scale of a human instead of an automobile, the more financially successful they are going to be.
Always do the math. Local governments budget year-to-year, yet they tend to be amazingly casual about debt and, even more so, about taking on long-term maintenance obligations. When communities don’t hold themselves to a rigorous financial approach, they tend to descend into dogmatic thinking and start relying on convenient urges instead of prudence. Cities are not collections of people serving the public balance sheet. Quite the opposite: the public balance sheet needs to serve the people. To ensure the community is doing this, they have to keep score. Rigorously and obsessively.
Focus on reducing debts and liabilities. Cities are burdened with decades of legacy obligations: promises of the past that now rob communities of options. The obligation to maintain a road or repair a pipe has real consequences on people’s lives if ignored, so it’s not clear how these unpayable local commitments are rebalanced to fit local capacity. Local leaders must be cognizant of not expanding the communities’ liabilities while they look for ways to adjust community commitments to match community resources.
The Strong Towns 4-Step Approach to Capital Investment
Improving the financial productivity of a community will not be done at scale. Making better use of what has already been built is a hyper-local undertaking, one done at the block level.
Fortunately, the scale of the activity means that it’s the kind of thing any community can undertake, regardless of size, regardless of budget. It begins with the recognition that the best investments—the ones with the highest financial rate of return—address a real and urgent need experienced by someone in the community.
At Strong Towns, we’ve developed a simple, four-step process for identifying this kind of opportunity and making it happen:
Step 1: Humbly observe where people in the community struggle to use the city as it has been built.
Step 2: Ask the question: What is the next smallest thing we can do right now to address that struggle?
Step 3: Do that thing. Do it right now.
Step 4: Repeat.
The 4-step approach is not a solution that eradicates struggles from the community, as if that were even possible. Instead, it is a process that can be repeated over and over, creating a feedback loop that prompts low-risk, high-returning investments that not only build community wealth and capacity, but also improve people’s lives in the process.
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