How does COVID-19 impact the urban economy and what measures are cities taking to mitigate its effects?

The health crisis caused by COVID-19 has already transformed into an economic and labour market crisis with a particularly vulnerable actor, the city. Why? Many of the fields where the battles will be most intense are found in the city. Firstly, cities have become incubators of the epidemic where the infection grows at a greater speed. In Spain, the region most affected in absolute and relative terms has been Madrid. As of 30th March, about 45% of those infected in the U.S. were located in the New York metropolitan area, the largest and most densely populated city in the U.S. Likewise, the impact of a crisis of these characteristics has economic consequences that clash with two of the key elements in the running of the city: agglomeration and connectivity.

The economic activity of cities, essentially, depends largely on bringing together a large number of people, firms and institutions. This is what in economics is known as an agglomeration economy. This includes cafeterias, restaurants, markets and shops, hotels, shopping centres, museums, sports events, congresses, educational centres... The concentration of people, in turn, allows companies to hire and attract talent that can be highly qualified and specialised. But the relevance of the agglomeration is not only based on the concentration of people, companies and institutions but also on the connection between them. Cities have become epicentres of new capital, creativity and innovation, because proximity generates serendipity, a "spill over" effect and connections from which new ideas and opportunities arise. Confinement locks us all up in the house and, at the drop of a hat, takes away everything that agglomeration has to offer. At the same time, and closely related to the beforementioned, cities are a key point in international networks and act as a magnet for tourism, investment or culture. They are also key in global trade and in the development of international networks and professionals. The mobility restrictions that the crisis will cause, and its foreseeable phased exit will have consequences on this dimension.

In view of this situation, many cities have already begun to work on preparing packages of measures to mitigate the effect of the crisis. From Orkestra, and within the framework of the Bilbao Next Lab project, we have launched a benchmarking exercise to find out what actions and policies are being carried out by other cities. This analysis allows us to conclude that, for the time being, measures are being defined for both phases of the crisis.

Local governments, immersed in a resistance stage, are, above all, trying to guide the measures fostered from the national, regional and provincial governments. In all the cases analysed, it can be seen that the majority of the economic support comes from other administrations and the cities are working to distribute it adequately through single points of service for companies, the self-employed and citizens in general. This has given the cities a political status, making it clear that although they are increasingly relevant on the global map, they still depend on other, broader territorial realities. Their adequate overlapping in this regard is key to their development.

In addition, municipal entities are working on needs and impact assessments for local businesses (Toronto through an online survey, for example) demonstrating their unique role as proximity agents.

Other common measures are the postponement or exemption of municipal fees, specific support for cultural and leisure activities which are so crucial in urban contexts as well as others of a social nature. This is the case of Helsinki where a call centre has been set up to help the population over 80 years of age. Another example can be found in Tallinn, where an on-line hackathon was launched to find ways of helping groups in difficulty during this crisis. One of the solutions was the creation of the COVID-Help platform that connects local volunteers with the most vulnerable members of their own community.

After this first stage, the cities will have to look for recovery measures. To this end, initially, the cities we have contacted have conveyed that they will analyse the effects in greater detail and develop specific support measures since it is still difficult to carry out prediction exercises. From the economic point of view, the principal concern is to maintain the liquidity of the productive fabric and to curb unemployment. In this sense, cities will again reap the benefits of agglomeration and proximity to rethink their policies. Likewise, this phase will open opportunities to face socioeconomic challenges such as the sustainable transition itself or digitisation.

We would like to point out several examples: Barcelona is considering redirecting living lab initiatives towards the challenges arising from the COVID-19 crisis and in this way support the technological business ecosystem; Helsinki will align the measures it implements with its 'climate friendly' commitment; Rotterdam, for example, wants to develop local consumer platforms that promote the digitisation of local trade. The complexity of each challenge raises, more than ever, the need to develop models for co-creating solutions.

Cities throughout history have suffered from many pandemics, but none of them have challenged their resistance. Although we are now in the midst of confinement in what seem to be ghost towns, let's think of it this way: all those speeches and arguments on social networks, memes, gifs, individual and collective actions on balconies, etc. are signs that there is a need to return to public spaces and meet once again. If there is something that we can take from this crisis, it is that the social value, and therefore the economic value, of the spaces we all share is ultimately priceless.


Mikel Albizu

Mikel Albizu

Mikel Albizu is a pre-doctoral researcher at Orkestra. At present he combines his doctoral studies with the participation in several research projects.

His main research area is employment and the factors that drive it at a regional and local level, although he has also studied and worked in the field of urban planning and territorial planning.

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miren estensoro

Miren Estensoro

Miren Estensoro is a Researcher at Orkestra-Basque Institute of Competitiveness and a lecturer at Deusto Business School. She holds a PhD in Economics from the University of the Basque Country. Her research area is mainly local economic development, territorial governance and multi-level coordination of competitiveness policies.

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