After years of underinvestment, governments around the world are struggling to keep pace with growing demands. The consequences are now widely evident, as underfunded and unprepared public agencies falter whenever crises strike. The problem is not “slimming” government down, but rather rendering it more capable, strategic, outcomes-oriented, and a good partner in solving the greatest problems of our time: providing adequate housing for all, strengthening climate resilience, and ensuring that technology makes our lives better, not just a few “bros” richer.
Nowhere is this more evident than in cities. Once seen mainly as centers of service delivery, they are now at the front lines of modern governance. They are also where vulnerabilities are most acute: where climate shocks hit first, where inequality is concentrated, where jobs are created or lost, where democracy is either fortified or allowed to erode, and where innovation emerges most rapidly. As they expand, diversify, and gain political significance, municipal governments must therefore enhance their capacity to anticipate challenges, embrace diverse perspectives, and act swiftly.
Yet investment in city governance is often treated as less important than investing in infrastructure, security, or new technologies. That is a mistake. Strengthening municipal governments is not a bureaucratic exercise; it is a strategic imperative for addressing urgent problems and bolstering democratic resilience. To achieve this, public-sector capabilities must be well-defined, measurable, and able to withstand shocks.
We created the Institute for Innovation and Public Purpose at University College London in 2018 to learn from such examples at the city, regional, and national level. Key to the transformation is changing how civil servants are trained—allowing them to see themselves as value creators and market shapers, not just redistributors, market fixers, and de-riskers. This means rethinking value, purpose, and creativity, and encouraging design thinking within public institutions—the key pillars of our popular Master of Public Administration and applied-learning programs.
Through our engagement with governments globally, we have learned that the old economics of correcting market failure leaves governments reactive, fragmented, and risk-averse. Today’s intertwined crises demand a new public-sector economics that regards the state as a proactive market shaper, co-creating innovation, public services, and socio-technical systems for inclusive, sustainable, and resilient futures. We have also learned that the way to transform governments legitimately is not by wielding chainsaws, Elon Musk-style, but by building trust and aligning with citizen needs.
At the national level, we have collaborated with Brazil to reassess the use of its tools in support of a green transition. In a 2024 policy report, State Transformation in Brazil, we focused on the need to redesign procurement, state-owned enterprises, and digital public infrastructure. Procurement is often 30-40 per cent of a government’s budget, and state-owned enterprises can be part of the bureaucratic inefficiency problem, or they can be part of the solution by helping to fund green infrastructure and develop green supply chains that allow smaller companies to have markets.
Much public-sector innovation, however, happens at the local level, partly because it is easier to experiment with new tools and new collaborations there. To learn from such hubs of experimentation we have been working for the last two years, in partnership with the Bloomberg Philanthropies’ Government Innovation program, on developing a Public Sector Capabilities Index—a global effort to assess how effectively cities learn, adapt, and solve complex problems over time. The Index focuses on practical questions: Can city governments innovate consistently? Can they coordinate across departments, engage communities, and manage uncertainty? And perhaps most importantly, can they build trust and deliver real value to residents?
These are not abstract concerns. On the contrary, they determine whether cities can confront today’s crises while preparing for tomorrow’s challenges and opportunities. We have worked with more than 200 municipal officials in 45 cities and more than 20 countries to explore how these capabilities can be cultivated and measured. Our research shows that dynamic, adaptive governments do not happen by chance. They are a product of deliberate investment, sustained coordination, and continuous learning.
We already have examples of cities that anticipate change and stay ahead of emerging challenges. In Helsinki, the city’s Strategy Team uses real-time data to identify trends and model potential outcomes, enabling policymakers to adjust priorities, shift resources, and plan responses before problems escalate into crises.
In Cape Town, officials track what matters most to residents through an annual customer satisfaction survey. By comparing results over time, they can see which services are improving and which require more attention. This enables the municipality to recalibrate priorities, focus on residents’ changing needs, and improve underperforming services.
Collaboration is another essential capability. In Madinah, Saudi Arabia, the municipality employs a franchise model to unite diverse actors around shared goals. Cross-departmental teams and external partners co-develop solutions, bringing fresh energy, insights, and resources to complex challenges.
Experimentation and evidence-based learning are equally vital. In Durham, North Carolina, the city’s Innovation Team, one of the many supported by Bloomberg Philanthropies, issues open calls for staff ideas, surveys residents, and monitors peer cities to spot opportunities for testing and refining services. This approach ensures improvements are grounded in real-world impact rather than theory.
Public capabilities are not just about processes. They are about people. Bogotá’s city council has created flexible teams, such as the Public Sector Innovation Lab and the Delivery Unit, that empower staff to act quickly and adapt as challenges evolve. By fostering a culture that values experimentation, collaboration, and responsiveness, and building organizational structures to match, the municipality enables officials to innovate, move decisively, and deliver meaningful results for ordinary people.
Will we equip our cities to meet the challenges ahead, or will we allow underprepared governments to keep struggling as pressures intensify? The longer we delay, the higher the price our cities and their residents will pay.
Mariana Mazzucato is professor in the economics of innovation and public value at University College London, founding director of the UCL Institute for Innovation and Public Purpose and a co-chair of the Global Commission on the Economics of Water.
Rainer Kattel is Deputy Director and Professor of Innovation and Public Governance at the Institute for Innovation and Public Purpose (IIPP), University College London. He studied at the University of Tartu, Estonia, and the University of Marburg. He has published extensively on innovation policy, its governance and specific management issues.
