This opinion article was written by Linda Bilmes, Senior Lecturer at the Harvard Kennedy School, Fernando Monge, Senior Associate of the Bloomberg Harvard City Leadership Initiative, and Jorrit de Jong, Senior Lecturer at the Harvard Kennedy School. For more like this, see our smart cities newsfeed.
Last November Bilbao was named Best European City by The Academy of Urbanism, adding to a long list of prizes the city has collected over the past decade.
It was yet another reminder of the city’s emergence from a deep economic, political and social crisis, leaving behind its industrial past to become a thriving cultural and economic engine for the Basque Country and Spain.
With Spain’s transition to democracy and its incorporation to the European single market in 1986, Bilbao was hit on almost every front.
Its industrial companies found themselves unable to compete in a global market. Unemployment soared. The bloody tactics of the terrorist group ETA resulted in a wave of killings (close to 100 homicides in 1980 alone) and put intense political pressure on the region’s young democratic institutions.
In August 1983, heavy rains swamped the city’s obsolete drainage infrastructure, leaving some parts flooded under polluted water. Bilbao had hit a low point.
The city’s resurgence in the following decades is often linked to the “Guggenheim effect” named after the architect Frank Ghery’s iconic landmark.
Bilbao was lucky to have what most cities around the world don’t: a metropolitan authority with de facto fiscal power
However, the Guggenheim museum was just one element. Two lesser-known but important “architectures” played a key role in the city’s revival. The first was a financing architecture, represented by the particular fiscal regime and innovative funding mechanisms.
The second was an architecture of collaboration established by and between government entities.
Bust and boom
During the 1980s and 1990s central and regional government entities executed a series of major infrastructure projects that provided the foundation for today’s modern economy in Bilbao and its metropolitan region.
The projects included repurposing hundreds of hectares of industrial sites along the waterfront owned mostly by central government entities, cleaning up the Nervion River and building the local metro railway system that connects Bilbao with the wider metropolitan area.
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In these projects, the province of Bizkaia, where Bilbao is located, played a central role. The province was also the main promoter and funder of the Guggenheim itself, putting up half of the project’s €133 million cost ($149 million USD).
Negotiating substantial fiscal transfers from the central government in Madrid was hard for the Basque authorities.
At the end of 1992, Spain was entering a deep economic crisis. The Olympic Games in Barcelona and the Universal Exhibition in Sevilla further strained the central government’s fiscal resources dedicated to transform cities.
Fortunately for Bilbao, the province of Bizkaia is one of four Spanish provinces granted special fiscal rights under Spain’s democratic constitution. These enable the province to collect its own taxes and give it wide discretion over how to spend the proceeds.
Bilbao was lucky to have what most cities around the world don’t: a metropolitan authority with de facto fiscal power.
A new urban vision
The city also leveraged an innovative tool to finance the transformation of the waterfronts.
The city’s navigable river had historically been Bilbao’s key connector with the outside world during its merchant and industrial past. But most of the riversides had become derelict.
A new urban plan envisioned the river as the backbone of a walkable and lively city. To achieve this required an orderly renewal of the brownfields — old industrial properties ripe for renewal projects — bordering the river.
This land was owned by government entities, each of whom had strong incentives to sell their holdings in order to raise revenues at a time of tight fiscal constraints.
To realize the bigger vision Josep Borrell, Minister of Transport, Public Works and Environment and Bilbao’s Mayor, Josu Ortuondo, devised a novel entity.
Their innovation was Bilbao Ria 2000: a limited liability corporation in which the public entities who owned land along the river became shareholders in return for their land. Using the land as collateral, Bilbao Ria 2000 was able to raise the funds needed to pay for the cleanup without any additional burden on public budgets.
The value of the pooled land considerably exceeded what could have been realized in individual sales. Profits from eventual sale to private developers could be used to repay debt and to finance additional development projects.
This form of “public value capture” made the whole endeavor financially viable while ensuring the implementation of a comprehensive long-term vision for the city.
The architecture of collaboration
Bilbao Ria 2000 also proved to be a fundamental piece in the architecture of collaboration at all government levels. The collaborative governance literature highlights three common challenges faced by collaborations.
First, it is hard to reach consensus around the problem and solution. Second, the process of collaboration needs to balance different values, interests and goals while maintaining trust among members. Third, the collaboration participants have multiple levels and lines of accountability that are often difficult to navigate simultaneously.
Bilbao Ria 2000’s governance and processes were devised to promote a shared understanding.
All government entities were represented at the board by their highest political levels. No government entity had a majority rule. All the participants agreed to make decisions by consensus and that agency heads would cut all ribbons jointly.
One thing we know from the past is that for innovation to work in a multiparty, multilevel context, collaboration needs to be carefully designed and managed
They followed these (mostly unwritten) norms throughout Bilbao Ria 2000’s life, but the journey was far from smooth.
It required the savvy and skillful leadership and management of the collaboration by three people: the mayor, Josu Ortuondo, the director general of Bilbao Ria 2000, Pablo Otaola, and the city’s chief urban planner, Ibon Areso.
This tandem worked tirelessly to align the technical and political dimensions of the urban transformation.
Bilbao Ria 2000 also offered a platform for multiparty negotiations in which trade-offs could be solved in original ways, changing the dynamics among the parties from one of value claiming to one of value creation.
These dynamics and the regular gathering of board members – during the board sessions themselves and the lunches that followed – helped to cement trust.
The intense pressure from Bilbao to do something urgent to remedy its dire economic situation, the presence of the heads of the key government organizations in Bilbao Ria 2000’s board and the political alliances between the nationalists and the socialists at all levels of government drove consensus building and ultimately ensured the collaboration’s success.
Bilbao’s story is one of shared values and understanding among partners, a story of leaders’ willingness to define a vision, leverage resources, create a platform for collaboration and take risks to deploy them innovatively.
Nowadays, amidst a very different political and economic landscape, Bilbao is again at a crossroads. Despite its economic resurgence, the city is losing inhabitants and the remaining population is ageing quickly.
The increased polarization of the political landscape also makes collaboration across party lines hard to build. As Bilbao writes the next chapter in its history, the city will need to devise new strategies to tackle these emerging challenges.
One thing we know from the past is that for innovation to work in a multiparty, multilevel context, collaboration needs to be carefully designed and managed.
This may help to identify new solutions and new ways to fund those solutions. Bilbao is lucky to have its recent history as a source of inspiration for the new architectures of innovation.
When thinking about the future, the city’s leaders can look in the past for rich lessons to draw from. — Linda Bilmes, Fernando Monge and Jorrit de Jong
This article is based on a teaching case about the transformation of Bilbao that will be published soon by the Bloomberg Harvard City Leadership Initiative.
Linda Bilmes is the Daniel Patrick Moynihan Senior Lecturer in Public Policy and Public Finance at Harvard Kennedy School and Faculty Director of the Rappaport Greater Boston Applied Field Lab.
Fernando Monge is a Senior Associate at the Bloomberg Harvard City Leadership Initiative and Adjunct Professor at IE School of Global and Public Affairs.
Jorrit de Jong is a Senior Lecturer in Public Policy and Management at Harvard Kennedy School, Faculty Director of the Bloomberg Harvard City Leadership Initiative and Academic Director of the Innovations in Government Program at the Kennedy School’s Ash Center for Democratic Governance and Innovation.
(Picture credit: Unsplash)