Restoring Public-Sector Capacity Where It Counts

Oct 4 , 2025
By Mariana Mazzucato , Rainer Kattel

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The question confronting today’s cities is not simply how to build more roads or digital infrastructure, but how to make public institutions that can learn, coordinate, and rebuild trust with citizens. In this commentary provided by Project Syndicate (PS), Mariana Mazzucato, a professor in the Economics of Innovation & Public Value at University College London, and Rainer Kattel, deputy director and professor of Innovation & Public Governance at the UCL Institute for Innovation & Public Purpose, argue that as climate shocks and social divides deepen, the ability to adapt could prove as critical as any new technology.

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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 only a few "bros" richer.

Nowhere is this more evident than in cities. Once seen mainly as centres of service delivery, they are now at the front lines of modern governance. They are also where vulnerabilities are most acute and climate shocks hit first. They are where inequality is concentrated, jobs created or lost, democracy either fortified or allowed to erode, and innovation emerges most rapidly. As they expand, diversify, and gain political significance, municipal governments should therefore enhance their capacity to anticipate challenges, embrace diverse perspectives, and act swiftly.

However, 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 should be well-defined, measurable, and able to withstand shocks.

We created the Institute for Innovation & Public Purpose at University College London in 2018 to learn from such examples at the city, regional, and national levels. Key to the transformation is changing how civil servants are trained, allowing them to see themselves as value creators and market shapers, not simply 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 program.

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 views 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 30pc to 40pc of a government's budget, and state-owned enterprises can be part of the bureaucratic inefficiency problem. They can also 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 municipal 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 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 over 200 municipal officials in 45 cities across more than 20 countries to explore how these capabilities can be cultivated and measured. Our research shows that dynamic and 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 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 only about processes. They are about people. Bogotá's city council has established flexible teams, such as the Public Sector Innovation Lab and the Delivery Unit, that empower staff to act quickly and adapt to evolving challenges. By promoting a culture that values experimentation, collaboration, and responsiveness, and building organisational 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.

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PUBLISHED ON Oct 04,2025 [ VOL 26 , NO 1327]

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