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”

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

By Stephanie Allen, Project Assistant

You’d be hard pressed to find an urban planner or economic developer in the western world who hasn’t heard of Richard Florida and his 2002 book The Rise of The Creative Class. The book was wildly popular. And, depending on who you ask, it either predicted or drove the revival of postindustrial cities. Cities and towns across the United States developed strategies to help them attract the creative class. And, for the most part, the cities and towns (big and small) that were successful in attracting these sought after knowledge workers have prospered.

However, as Florida’s new book points out, that prosperity has come at a cost. The rise of the creative class and the increasing economic inequality and segregation that has seen the downfall of the middle class and the suburbanization of poverty seem to go hand in hand. According to Florida, the rise of the creative class caused what he’s calling “the new urban crisis” in his book of the same name, The New Urban Crisis: How Our Cities Are Increasing Inequality, Deepening Segregation, and Failing the Middle Class – and What We Can Do About It.

Reviews of Florida’s new book, which came out in April, have titles like “Rise of the Creative Class Worked a Little too Well,” “Is the ‘creative class’ saving our cities or making them impossible to live in?” “How Our Reignited Love Affair with Cities Created an Urban Crisis,” “Does Creativity Breed Inequality in Cities?” and, my personal favorite, “Richard Florida Is Sorry”—he’s not, by the way (that’s because he is among those who would say he predicted, or rather under-predicted, the rise of the creative class, but didn’t drive it).

For years economic developers have created strategies to attract these young, mobile knowledge workers to their cities, towns, and regions based on Florida’s theory that attracting the creative class would grow their economies. And, the places that were successful in attracting a large creative class, like San Francisco, San Jose, Austin, Los Angeles, Denver, and Portland, have seen a great deal of economic prosperity. Along with this prosperity, though, have come soaring rates of economic inequality and segregation.

As the knowledge workers of the creative class (aka, the upper middle class or, more precisely, the college educated, mostly white children of the upper middle class*) rediscovered the city, they spurred gentrification, displacement, and skyrocketing home prices and rents. The less affluent and less advantaged have been increasingly priced out of such cities, making the landscape of the United States more and more economically segregated, and, in turn, making it harder and harder for the less affluent and the less advantaged to gain access to the kinds of opportunity required to live the American Dream of upward social mobility.

This kind of economic inequality is problematic. It isn’t just bad for the wallets of those attempting to climb up the ladder of the American Dream. Research suggests that this kind of inequality makes us all (upper, middle, and lower classes) less happy and less healthy. Research also suggests that as inequality rises so do rates of violent crime. And, if that’s not enough, while specific cities may prosper as their economic inequality increases, the data suggests that when we zoom out to the state level we become, on average, less wealthy—income per capita decreases as economic inequality increases. So, even as cities prosper based on the clustering of the knowledge workers of the creative class, we’re actually all getting a bit poorer, on average.

The new urban crisis impacts all of us. And, it seems as if it is the inevitable product of the kind of knowledge clustering that spurs innovation and drives the economy. In a recent piece in The Atlantic, Florida calls this “the fundamental contradiction that stands at the heart of today’s urban knowledge capitalism.”

So, after years of hard work attracting the creative class, are we simply doomed to increasing inequality; decreasing health, wealth, and happiness; and increasing rates of violent crime?

Perhaps. In his book Florida suggests that the problems that have created this crisis are systemic and deeply rooted in the American economy. If that’s so, they might be best addressed at the national level. But, that’s not likely. And, reviewers like this one think Florida knows it.

So, what can we do?  Focus on inclusive growth. In recent articles on his City Lab website (like this one and this one), he calls on local governments, economic development organizations, non-profits, philanthropic organizations, and urban anchors (like high-tech companies and real estate developers) to foster the creation of inclusive growth and reduce barriers to economic opportunity.

I’ll talk about what inclusive growth is and how we, as economic developers, can promote it in next week’s post.

*Full disclosure, I am the white, college educated child of upper middle class parents.