State Function


Insight & Analysis

How We Can — and Should — Link Recovery Spending to Long-Term Transformation

Indianapolis, Indiana | Corbin Mathias/Unsplash

States and local governments should ensure that the new federal funds are invested in lasting economic development. There are lessons to draw upon from around the world.

By Clare Lockhart

This article originally appeared on

Over the next few months, states and local governments will begin to receive a once-in-a-generation windfall of federal funding from the American Recovery Plan and successive recovery programs. Much of this new money from Washington will rightly go toward meeting immediate needs and emergency recovery measures. But the influx of federal funds also offers a rare opportunity for cities and states to plan beyond near-term recovery from the COVID-19 crisis and make investments in lasting, transformative economic development.

Success will depend on how the funds are spent: what plans are put in place for spending, how those plans are executed and the mechanisms that are established to ensure accountability. These processes must incorporate the multiple arenas where transformation will take root, including research and development, technology, education and re-skilling, and infrastructure.

This will be a massive undertaking. For guidance, we can certainly draw lessons from America’s past — especially from the New Deal. But the New Deal is not the only relevant precedent. At the Institute for State Effectiveness, we have studied recovery and transformation processes from around the world as countries have emerged from conflicts and crises, including the 1997 and 2008 financial meltdowns. Lessons from countries as varied as Canada, Colombia, Finland, Korea, Malaysia and Singapore, which have used transition and recovery periods to lay the foundations for large-scale transformation, can provide a practical framework today.

Four key recommendations are particularly relevant for states, cities and counties as they prepare for the influx of federal recovery funds:

Tailor investments to opportunities for growth: First, cities and states need to use foresight to predict and anticipate economic opportunities. There is rich data available that cities and states can utilize to prepare opportunity plans, which can be used as road maps to direct investments in infrastructure, research and development, and re-skilling and education programs. Opportunity plans will help to ensure that recovery funds are directly tied to, and can begin to underwrite, lasting transformations across sectors and economic arenas.

Singapore uses such foresight, through its Centre for Strategic Futures, to enhance strategic decision-making. It focuses on issues that may be blind-spot areas, pursues open-ended long-term-future research and experiments with new foresight methodologies. Singapore’s Industry Transformation Programme uses industry transformation maps to visualize and incorporate long-term planning across 23 industry clusters.

Ensure community input: Second, cities and states should establish structures for sourcing ideas and input from partners in the community and use existing ones where possible. In the U.S., chambers of commerce, as well as organizations and programs like Main Street AmericaEnterprise and the Urban Land Institute, can help to facilitate input from communities around key infrastructure development issues.

In Malaysia, as a part of its reform process in 2009, the government set up labs where stakeholders convened to create action plans based on industrial and sectoral priorities. These labs helped to generate “collective leverage” among private- and public- sector representatives. Malaysia also institutionalized flexibility in the reform process by providing structures for groups to revise goals when needed. Singapore’s “national conversation” is another model for structuring community input. It used community dialog to gather views from the community to shape and direct policy changes.

Allocate funds where they will have the most impact: Third, local governments and states should take steps to ensure that grant and investment funding reaches communities and small businesses. They should also support and provide funding opportunities that incorporate incentives to use these funds for re-skilling programs and for research and development. In the midst of major budget cuts during the economic crisis of the 1990s, Finland actually increased its spending on business research and development, which proved both an effective counter-cyclical measure and an investment in long-term growth and transformation to a knowledge-based economy.

Establish a framework for sharing information with the public: Fourth, it is crucial that governments establish and maintain accountability and transparency measures to ensure that recovery plans are actually implemented and that implementation occurs equitably. Through the recovery process, we can simultaneously define standards for accountability and build structures to ensure we meet those standards. This is what Canada did when it implemented its 2009 Economic Action Plan. To reduce its deficit, the government launched a comprehensive review of spending in all departments and all programs. In doing so, Canada created new standards of accountability and new systems of information management.

State and local governments can also prioritize transparency and accountability in infrastructure development, including by establishing monitoring systems to track progress in real time. That’s what Colombia did through its Rodando la Vía initiative, which both integrates technological innovations into infrastructure projects and elevates the role of auditing. Other countries, from Korea to Ukraine, have implemented e-procurement systems that reduce corruption, encourage competition, lower costs and improve transparency and efficiency in infrastructure projects.

These are but a few of the examples of lessons learned from across the globe. As we begin to emerge from the challenges of the past year, we owe it to our communities and citizens to draw from them and take full advantage of new opportunities. Many states and localities are already making strides in these directions. Other governments should follow suit so that we can ensure life-changing returns on our country’s historic investment in recovery.