Friday, December 1, 2017

The Rise of the Creative Class, the New Urban Crisis, and the Promise of Inclusive Growth (part two)

By Stephanie Allen, Project Assistant

Last week, in part one of this post, I talked about the rise of the creative class and the new urban crisis we find ourselves in following the success of knowledge clustering. This week I want to talk about inclusive growth.

Inclusive growth is contrasted with exclusive growth. Exclusive growth is, by and large, the kind of growth we have seen accompany the knowledge clustering of the creative class. Exclusive growth increases economic inequality and segregation. Exclusive growth creates barriers to opportunity and makes upward social mobility more difficult. Inclusive growth is meant to do the opposite: to remove barriers to opportunity, to make upward social mobility easier, and to decrease economic inequality and segregation. Inclusive growth is our best bet for dealing with the new urban crisis according to Richard Florida.

So, what is inclusive growth? It’s more common to find talk about inclusive growth in international economic development, where the focus is on developing economies in the second and third world. The director of the Sustainable Development Goals Fund at the United Nations Development Programme, sums up inclusive growth in an article on what inclusive growth means in practice: “inclusive economic growth is not only about expanding national economies but also about ensuring that we reach the most vulnerable people of societies.”

Inclusive growth is about equality of opportunity and growth for all. The focus is not just on economic expansion, it is also on making each person’s economic situation better—especially the middle and lower classes, who aren’t often affected positively by economic expansion (as we saw in part one of this post).

In September, the Brookings Institution published a report on the importance of inclusive growth for local economies: Opportunity for Growth. This report defines inclusive growth as “a process that encourages long-run growth (growth) by improving the productivity of individuals and firms in order to raise local living standards (prosperity) for all (inclusion).” They argue that inclusive growth is important because reducing barriers to economic opportunity can enhance economic growth. Metros with greater equality of opportunity have higher aggregate growth.

Why is that? According to their research, it is because they maximize the potential of the talent and entrepreneurship bases on which their growth and productivity depend and when they do that they also minimize fiscal and social costs of exclusion fostering environments that allow for better collective decision making about their economic future. Ultimately, inequality of opportunity hinders long-term competitiveness.

So, in order to deal with the new urban crisis, we should promote inclusive economic growth. How do we do that? Brookings offers the following metrics for tracking inclusive growth:

Source: Brookings Institution report, “Opportunity for Growth: How reducing barriers to economic inclusion can benefit workers, firms, and local economies”

The report identifies economic development organizations (EDOs) as potential anchors in developing inclusive growth coalitions. EDOs serve as agenda setters for their regions and they bring together key players to develop strategies and collaborate on putting their strategies into action. New practices and new policies will need to be developed to promote inclusive growth and they will likely require new partnerships to put them into action. This is where EDOs shine.

How does it work? What can EDOs do? They must simultaneously create environments where businesses can thrive and create good jobs while also creating an environment that will help lift up all workers and communities, especially the historically disadvantaged. The report identifies three important sets of barriers that EDOs can help remove: 
  1. Dynamism barriers that inhibit the process of firm creation and expansion that fuels employment and productivity growth; 
  2. Skills barriers that inhibit individuals from gaining the knowledge and capabilities to fill good-paying jobs and reach economic self-sufficiency; and 
  3. Access barriers that isolate individuals in particular communities from economic opportunity. 
In order to promote inclusive growth, EDOs will need to create goals and incentives that will promote the removal of these barriers to opportunity. The first step for most communities and regions will be to convince members, boards, and partners that inclusive growth is fundamentally an economic development issue. This will require compelling evidence.

As part of the Inclusive Economic Development Learning Laboratory, Brookings worked with three US cities to undertake the challenge of reorienting their economic development goals and practices towards inclusive economic development. Committing to inclusive growth, a companion paper to the “Opportunity for Growth” report, documents this six-month process in EDOs in San Diego, Nashville, and Indianapolis. The paper contains lessons from the work in these three metros to create a deeper understanding of their local inclusive growth challenges; to provide a clear business case to their members, boards and partners for how inclusion enhances growth; and to establish the outlines for how they will respond to the challenges identified.

In each EDO, the process was structured around five core questions. For EDOs grappling with how they can reposition to promote inclusive growth, asking (and honestly answering) these questions is an excellent place to start.
Source: Brookings Institution paper, “Committing to inclusive growth”