Each year I'm reminded of how distorted the image of our City really is. The release of the Economist Intelligence Unit's list of the Top Ten Most Livable Cities sees the average punter become part of a collective throng which revels in the global broadcast that we are yet again one of the most livable cities in the world. As with Melbourne, there's an audible if not tangible shock-wave that moves over the citizenry of the world's most livable cities as they engage in a curious, albeit momentary, jingoism. The task of head cheerleader falls to the ubiquitous mayors of these cities, each striding in front of the various forms of media, making the tacit claim that the City's recognition is a direct consequence of well considered policy under their watch.

There is nothing new in this well-worn political aesthetic, which has been used to great effect ever since power was accumulated through organized means. But the notion of "livability" is, in the grand scheme of power accumulation, a very contemporary strategy, one which positions the city as a commodity in its own right, and sees the value of our cities go from being sites of wealth generation to being a hybrid playground-lifestyle supermarket in which they themselves are being transacted.

On the surface, no pun intended, this might seem innocuous enough, were it not for the fact that the business of government in Australia seems determined to perpetuate this condition. But why should we care? Simply, according to many of the world's leading economists, the obsession with livability has, amongst others, prioritized investment in servicing our society rather than strengthening it; and in so doing has underpinned the current global financial crisis.

A recent guest of the Grattan Institute, Nobel Laureate Economist Michael Spence noted – and these are my words not his – that the confluence of fiscal policy and the self-regulation of the financial services sector resulted in an over stimulation or investment in the exchange of and speculation about asset value, rather than in the creation of the asset itself. That is to say that for over two decades the United States' investment in the non-tradeable sector saw some 27 million jobs created in services like hospitality, retail, property, entertainment and health. This contrasts with an investment over the same period of time in the tradeable sector, which saw approximately half a million jobs created in asset (or capital) production such as manufacturing, education, agriculture, energy and culture. The result, to put in crudely, is that our economy has become obese, over stimulated, inflated and perhaps most worryingly of all, unsatisfied. We have, paradoxically, consumed more wealth than we have created.

This emphasis on speculating about the value of the city rather than actively pursuing a value-creating policy is alive and well right here in Australia. Unlike the majority of other cities in the Top Ten Most Livable, Australian cities also rank in the top ten of the worlds most expensive. According to the 2010 Economist Intelligence Unit's Ten Most Expensive Cities in the World, Melbourne is 41% more expensive to live in than New York. Melbourne, it seems, is largely reliant on others, (eg. recreation tourists, business tourists and education tourists), for creating its wealth. In fact, the political emphasis on what Michael Spence calls the "non-tradeable" sector sits at the heart of Melbourne's designation as a leisure capital, and its long term frailty in the face of global drivers of change. Like countless cities in the US and the UK, Melbourne (and Sydney, for that matter) has over emphasised the "non tradeable" in its urban renewal and regeneration. Regardless of whether we choose to look at Dandenong, Coburg, Barangaroo or Green Square, our policy regularly emphasises the speculative value of retail, entertainment and property, (eg. "activity centres") as the basis to the urban recovery business case.

When it's all said and done, not only are we facing the need to reform our city-making agenda so that the consumptive city is subordinated to the productive city, we're challenging the basis to the aestheticisation of politics and, critically, advocating for the radical empowerment of local government.

If our cities are to truly influence and respond to key global drivers of change, then they will, eventually, have to exist as material evidence of the massive and at times catastrophic re-birthing of the capital which currently underpins our economies. This renaissance won't be of the cosmetic variety: it will be structural and bear witness to the subordination of those that control the speculation of value to those that control the production of technology, food, energy and knowledge as capital.

Crucially, it will require "production" to assume a more devolved focus, with the transfer of power shifting to "the local" as domestic energy security, amongst others, becomes a reality. With this, it will be necessary for government – and particularly local government – to shift away from its traditional priority of servicing its community, towards strengthening it.

To this end, local government is arguably at the forefront of efforts to create more resilient local communities, a task which requires their structures, resourcing and corporate accountancy to reflect strengthening rather than servicing; and where the purpose of investment and development policy is to enable the production and accumulation of value, in a way that prioritises the health of our planet and our society.

Ingo Kumic is a consulting urban strategist. He has worked in Asia, the Middle East and Europe assisting regional and city government with the strategic business of making and managing contemporary cities. He has a PhD in architecture and has been a guest critic in architecture, urban design and planning at the Architectural Association in London and the University of Technology in Sydney amongst others. He is currently the Strategic Advisor, City Strategy and Development for the City of Knox in Melbourne, Australia.