Catalyzing Economic Success for Every Citizen
The Brookings Institution Deputy Director, Alan Berube, delves into how city leaders can combat the fractious effect of inequality for long-term sustainable economic growth. Learn the 3 key areas you should focus on.
Realizing inclusive growth in our cities
How a focus on inclusion can build stronger communities and drive long-term economic health
The United States suffers from a large gap in income equity. In fact, the income of the top 10 percent is nearly nine times that of the bottom 90 percent. And while 95 of the 100 largest U.S. metropolitan areas grew economically from 2009 to 2014, research from the Brookings Institution’s Metro Monitor shows that only eight grew inclusively, meaning median wages and employment rates increased and poverty rates decreased.
As city leaders work to improve quality of life for their citizens, they face growing concerns about inequality separating their communities—and potentially hampering their cities’ long-term economic health.
Many city leaders care deeply about this issue and are striving to create more inclusive economies. They have good reasons to do so: researchers believe that inclusive growth is necessary for the long-term economic health of a city.
“Places that grow in more unequal ways may be able to achieve economic growth in the short term. Eventually that inequality has negative impacts on society, on the availability of skilled labor, on the factors that drive long-run economic growth,” Brookings Senior Fellow and Deputy Director Alan Berube says.
“There are major functions of local, county, and state government around education, economic development, and infrastructure investment that matter greatly for the ability of lower-income people to connect to opportunity and achieve economic mobility,” explains Berube. “We haven’t often approached those issue areas from the standpoint of committing to economic inclusion.”
What makes an economy inclusive
The Brookings Metro Monitor report notes that despite robust growth in many areas between 2009 and 2014, median wages declined in 80 of 100 metropolitan areas studied.
In a follow-up report, “Measuring ‘Inclusive Economies’ in Metropolitan America,” Brookings took a closer look at this issue, measuring inclusiveness based on the following five characteristics of inclusive economies:
- Equitable - everyone has equal access to transportation, education, clean air, and water.
- Participatory - people are able to participate fully in economic life—as workers, consumers, and business owners.
- Growing - Good job and work opportunities are growing, and incomes are increasing, especially for the poor.
- Sustainable - economic and social wealth can be sustained over time.
- Stable - individuals and enterprises are secure enough to invest in their future. Economic systems are increasingly resilient to shocks and stresses.
Brookings researchers measured how the 100 largest U.S. metropolitan areas were performing in those five areas. (See chart).
Growth alone is not enough
The Brookings report showed that economic growth alone does not assure better outcomes for all groups in metropolitan areas. “Local leaders hoping to extend and accelerate this economic recovery need to make deliberate efforts to ensure that more people and communities benefit from a rising tide,” Berube says.
According to Metro Monitor, improvements in inclusion proved more elusive during the economic recovery, compared to outcomes in growth and prosperity.
Only eight of the nation’s 100 largest metropolitan areas registered increases in their median wage and employment rate, and decreases in their relative income poverty rate, from 2009 to 2014. The median wage declined in 80 of the nation’s 100 largest metropolitan areas during this period.
Even in metropolitan areas where outcomes for middle- and low-wage workers improved, disparities between whites and people of color often widened.
Inclusion is necessary to sustain prosperity.
When all residents have the money to buy more goods and services and invest in their education, demand increases and the pool of skilled labor grows—which helps businesses prosper. When all residents benefit from economic growth, that helps build support for policies that spur growth.
“I think we can see economic inclusion and economic growth as complements to one another, and not requiring a tradeoff,” Berube says.
Key to inclusion: Weaving inclusive strategies across all investments
To make a difference in economic inclusion, local leaders must weave inclusive strategies throughout all their investments—in education, transportation, planning, affordable housing, and other areas, Berube says.
“To really achieve economic inclusion means you have to hit all those levers at once,” he explains. “You really have to have a multi-front strategy. It has to be threaded through the budget process, the community engagement process, and measured at the end.”
Partnerships are key
And cities will need strong intergovernmental partnerships. For instance, if a city is redesigning its transit system, a key goal should be ensuring that any changes help disadvantaged residents get to jobs and schools more easily. And because those jobs and schools may be in other communities, cities must work closely with other local governments to co-invest in common goals.
Partnering with the private sector is also a key, since its spending and economic impacts dwarf those of the public sector. City leaders should engage the employer community to help the community grow in an inclusive way, by encouraging businesses to create more on-the-job training opportunities and build career pathways that can give workers upward mobility over time.
“[Cities have] more fiscal and economic leeway to bake this commitment into what they do now … I think it’s really now or never for American cities.”
-- Alan Berube, Brookings Senior Fellow and Deputy Director
Three practical ways to drive inclusive growth
Improving public transportation for all
Efficient public transit is a critical component of inclusion. Poor access to transportation aligns to higher rates of unemployment, lower incomes, and lower rates of upward mobility.
Public transportation can be improved and more inclusive by implementing contactless fare payment technology that allows riders to simply tap credit, debit cards, or mobile phones to pay for their bus or train—eliminating the need for them to carry cash or buy a separate transit card.
Contactless payments can help cities reduce costs by streamlining fare collection. When the city of London, working with Mastercard, switched to such a system, its cost of collecting fares dropped from about 14 percent of revenues to just below 9 percent in the first year, a 35% reduction in fare collection.
London is also working to provide a unique reward program that allows low-income commuters to be able to enjoy discounted fare as many of them can’t afford to buy the traditional monthly tickets that typically offer the best value.
Using data analytics to unlock inclusive growth opportunities
Cities now have an unprecedented amount of data from both public and private sources that can help them identify strengths and weaknesses and invest public funds strategically to get a higher return on their investment.
Cities can now use those data to plan their infrastructure and transportation investments in ways that better connect communities that have often been disconnected from jobs and other economic opportunities.
For example, Baltimore worked with MasterCard—in partnership with the White House’s Data-Driven Justice Initiative—on an analysis to demonstrate the impact crime has on merchant locations and local job opportunities. Having that information could help Baltimore better target community policing efforts and help merchants make good decisions about where to site shops.
Reducing the reliance on cash
One powerful way of increasing financial inclusion is to provide alternatives for the estimated 29 percent of U.S. households that are unbanked or underbanked, meaning they have little or no access to mainstream financial services like checking accounts. The highest unbanked rates are among minorities, low-income households, unemployed households, and younger households.
Lacking access to financial services unnecessarily complicates daily life for these people and adds to their living expenses. When cities design systems to reduce the need for cash, they help alleviate those burdens.
Governments at all levels can help by offering the option for citizens to receive social welfare benefits—and paychecks if they work for government—via pre-paid cards.
In Toronto, the city worked with Mastercard to offer the City Services Benefit Card, which makes it easier for recipients to access their welfare funds and streamlines the disbursement process for the city. Now funds are loaded on a prepaid card, which recipients can use anywhere. Card users are saving money and time on check cashing, while the city expects to save at least $2.5 million a year by not issuing checks.
By converting from paper-based to electronic payments, governments also lower their costs and operate more efficiently, freeing up resources for other needs.
A collaborative approach
Making cities more inclusive is a complex challenge, and with sustained, coordinated effort, real progress is possible. Cities won’t succeed alone; they’ll succeed by building strong partnerships with governments, nonprofits, and businesses.
“It really takes effective public-private partnerships,” Berube says. “It takes employer engagement and community engagement.”
Strategic partnerships with the private sector can have the added benefit of lowering costs and shortening time to completion on many projects. With shrinking municipal budgets and diminishing federal assistance, cities are looking more and more to private organizations as partners of change.
Mastercard: Your partner for smart-city change
For Mastercard, “smart” is not an end in itself, but a means towards enabling cities to become more efficient, livable, resilient, sustainable and inclusive; to attract more visitors and to unlock economic growth opportunities; and for citizens to live a better quality of life.
Mastercard is deeply committed to helping cities improve the quality of life for their citizens. Mastercard provides technology that can:
- Make cities more efficient and welcoming, by providing seamless electronic payments.
- Make cities safer and more inclusive by reducing the reliance on cash.
Make cities more sustainable, resilient, and set them up for future growth by unlocking the power of data.