a photo of the abandoned Richman Brothers garment factory in Cleveland in 2012.
The abandoned Richman Brothers garment factory in Cleveland in 2012. Benjamin Lowy/Getty Images

The Inclusive Growth Problem

Can left-behind Rust Belt cities in the U.S. catch up to booming tech hubs without magnifying local economic disparities? So far, the evidence is mixed.

The concept of inclusive growth is center stage in policy circles, and for good reason: America isn’t inclusive. Gaps in economic security and physical and mental well-being are growing, particularly along race and class lines. But saying cities aren’t inclusive is the easy part. Knowing why, a bit harder. Knowing what to do about it? That’s where things fall apart.

And the more that cogency loosens, the more likely it is that “inclusive growthwill join buzzwords like “sustainability” and “placemaking” in the white noise of urban policy talk, thanks to a lack of clarity in how the term is being used, who’s using it, and why.

The idea itself is hardly new. Back in 1934, the economist Simon Kuznets, who developed the metric of the gross domestic product, warned that “the welfare of a nation can scarcely be inferred from a measurement of national income as defined by [GDP].” Robert Kennedy echoed this warning in 1968. Speaking to a crowd at the University of Kansas, Kennedy said he was running for president in part “to know and examine where we’ve gone wrong.” He listed the things GDP counts, from air pollution and cigarette advertising to nuclear warheads and “chaotic sprawl.”

“[GDP] measures everything…except that which makes life worthwhile,” Kennedy said.

Charting growth for growth’s sake, then, is broken as a barometer. You can see this in the standard urban revitalization narrative. In it, knowledge workers with means move into areas with potential that are populated by working- and service-class folks with less means, signaling to investors to buy low and sell high—or open businesses nearby to get a chunk of those newcomers’ disposable income. While a given block may grow economically, such methods don’t have trickle-down effects. Rather, it’s deck-chair shuffling.

And though the issue to be addressed is most pointedly about finding new opportunities for those economically displaced—historian Yuval Noah Harari terms this crisis “the rise of the useless class”—the policy discourse on the matter has been muddied. A lot of the talk on inclusive growth has been about regional divergence, or what to do about the prosperity gaps between, say, New York City and the Rust Belt. But as the framing of inclusive growth got abstracted from the person to the region, the focus got abstracted as well. The stock ideas floating around to decrease disparities will likely just make things worse.

Cities, for example, are falling all over themselves to be “next Silicon Valley.” (See the “Rise of the Rest”.) And for good reason. The latest Bureau of Economic Analysis figures rank tech hubs like San Jose, San Francisco, Boston, Seattle, and Washington, D.C., as the richest when it comes to real per capita income out of the nation’s largest 40 metros. But the same richest metros also own four out of the six worst income disparities between black and white households in their respective urban centers. In San Francisco, white households make $138,214, while black households make $31,073, according to 2017 Census figures.

Further down the urban hierarchy, efforts at neighborhood revitalization are not dissimilar. Here, the goal is commonly housing price growth, backed by the notion that houses are worth way too much in coastal cities and way too little in Rust Belt cities. The fix? We need to even out the playing field, via appreciation of the latter, not the contraction of the former.

For instance, Akron, Ohio, made headlines recently regarding their tax abatement efforts. This is a tactic long-deployed in shrinking cities in which home builders and their buyers pay no taxes on new home properties for upwards of 25 years. Given the price point of these homes—here’s a sleek two-bedroom condo in Cleveland listing for $950,000—it’s largely a knowledge worker play, enticing people with means to move into places with less means.

What happens when we play the tape? Pittsburgh, which is often touted as a Rust Belt success story, offers a guide. “Our downtown and East End…have been booming, with significant growth in sales prices,” Dan Gilman, chief of staff for Mayor Bill Peduto, told the Washington Post, crediting the city’s tax abatement efforts. But the boom—one spreading well beyond one or two “hot” neighborhoods to points citywide—has brought problems, including a growing inclusivity crisis.

That effect is most acutely felt on Pittsburgh’s African American residents. “The contemporary Pittsburgh landscape is a shifting one,” Njaimeh Njie wrote in Belt Magazine, “in which Black Pittsburgh residents are pushed to and beyond the literal margins of the city.” Pittsburgh’s predominantly African American East Liberty neighborhood recently tipped to majority white, spurred in part by the presence of Google and a tech-job-spawned real estate boom.

Viewed from the lens of the “great divergence” between coastal and midland, Pittsburgh is a success. In the aggregate it bridges the haves and have nots. But narrowing the aperture shows increased divergence at the neighborhood level. That’s fine if the economic revitalization of the Rust Belt is the lone definition of success, but don’t call it “progress,” at least in the spirit of inclusivity. It’s the starving pointing to the gluttonous and saying, “I want your ill effects.”

***

Part of the issue, according to Neil Lee of the London School of Economics, is that inclusive growth is a “fuzzy concept,” with room to wiggle into the purview of various agenda setters. For some it is a “growth plus” model, meaning growth is good—be it GDP expansion, real estate appreciation, etc.—and the more growth occurs, the more it can be incurred.That’s arguably where much of urbanism is today, particularly as it relates to easing zoning restrictions and increasing housing density in the name of affordability.

For others, growth itself as it’s currently conceptualized is the issue, as illustrated by the recent series “Beyond GDP” by the World Economic Forum. An economy can grow and society can regress simultaneously, as San Francisco’s current problems show. Or even more pressingly: Growth in today’s “winner-take-all” economies is part and parcel with societal division, making expansion and inclusion too often mutually exclusive. MIT’s Erik Brynjolfsson and Andrew McAfee have noted there’s been a “great decoupling” in how economic development happens, with GDP gains becoming untethered from employment and household income growth. This harkens back to Kuznets’ premonitions that GDP is but a metric, not the metric.

One solution is to broaden our definition of success. Last year, New York Senator Chuck Schumer and New Mexico Senator Martin Heinrich introduced a bill that would require the Bureau of Economic Analysis (BEA) to supplement its quarterly GDP figures with an “income growth indicator,” or IGI, that measures how growth is distributed across each decile of earners.

The strategy is intuitive. “If we measure the wrong thing, we will do the wrong thing,” as the Nobel-winning economist Joseph Stiglitz wrote. “If we focus only on material wellbeing—on, say, the production of goods, rather than on health, education, and the environment—we become distorted in the same way that these measures are distorted.”

Adding inclusive growth to the scorecard is laudable, but the issue is deeper than one of misguided measurement. Inclusive growth is less about whether measuring the wrong thing will lead to doing the wrong thing, and more about whether valuing the wrong things lead to measuring the wrong things that lead to doing the wrong things. The collective gauge of societal value is what’s broken.

To fix it, we need to understand where we went wrong. Mariana Mazzucato, author of The Value of Everything: Making and Taking in the Global Economy, argues that things broke when our economy pivoted from a system in which value drove price to one in which price drove value. In early agrarian economies, for instance, the value of labor drove the value of the crop. Embedded in each was the inherent value to society—to eat so as to sustain life! But in modern national accounting systems, value gets abstracted formulaically. “In GDP we don’t make any value judgements,” Mazzucato said in an interview with Dissent, other than to say what has a price must be valued. Pollution thus counts positively in GDP because we have to pay people to clean it up. Same with sickness in healthcare, imprisonment in corrections, and bankruptcy proceedings in finance.

“If we don’t know the difference between value creation and value extraction activities … we risk passing off anything included in GDP as value creation,” Mazzucato said. “In the process we reward those activities, so it becomes sort of a feedback loop: because they’re valuable, we consider them valuable and they will be valued by society so policymakers will try to increase those activities, and that then also increases those activities’ share of GDP.”

Finance and the housing market are a case in point. The U.S. finance, insurance, and real estate sector accounts for roughly 33 percent of national GDP (up from 10 percent), according to United Nations economist Jacob Assa. A not-insignificant amount of this growth is tied to how housing is financed. For example, your mortgage may originate with a bank, but it’s probably been bought via a security trust to be bundled and sold as an investment. These intermediary industries don’t really add value: They just extract fees where there previously was none. But those fees make money. They have a price. And since price drives value, the process is legitimized, despite the consequences of folks being gouged simply for seeking shelter.

(Such dissonances are hardly confined to finance. Look at tech: Facebook’s “surveillance capitalism” stokes user engagement by preying on emotions like fear—a boon to their precision advertising strategy, but also a source of any number of negative social externalities.)

These conventionalities in capitalism have become ingrained because there’s money to be made, despite the costs they impose on society. To break this cycle, Jason Hickel of the London School of Economics calls for strict caps on consumption and a switch from GDP to the Genuine Progress Indicator (GPI), an economic index that accounts for pollution and natural asset depletion. “This is going to require a radical paradigm shift,” he writes. “Right now, our primary economic goal is growth, growth, growth. This objective may have made sense in the early 20th century, but it’s no longer fit for purpose.”

It’s not an impossible pivot. We just need a system that incentivizes human capital as both an input to production and an output from consumption. Think healthcare and wellness instead of sickness. Or housing as a necessity to grow opportunity as opposed to a scheme to suck it away.

Come to think of it, the ultimate limits to growth are the shallow nature from which it is sought.

About the Author

Most Popular

  1. a photo of Uber CEO Travis Kalanick in 2016.
    Transportation

    What Uber Did

    In his new book on the “Battle for Uber,” Mike Isaac chronicles the ruthless rise of the ride-hailing company and its founding CEO, Travis Kalanick.

  2. Environment

    A 13,235-Mile Road Trip for 70-Degree Weather Every Day

    This year-long journey across the U.S. keeps you at consistent high temperatures.

  3. A photo of a police officer in El Paso, Texas.
    Equity

    What New Research Says About Race and Police Shootings

    Two new studies have revived the long-running debate over how police respond to white criminal suspects versus African Americans.

  4. a photo of a NYC bus
    Transportation

    Why the Bus Got So Bad, and How to Save It

    TransitCenter’s Steven Higashide has created a how-to guide to help city leaders and public transportation advocates save struggling bus systems.

  5. Transportation

    A Micromobility Experiment in Pittsburgh Aims to Get People Out of Their Cars

    The Pittsburgh Micromobility Collective will create all-in-one mobility hubs near transit stops, to compete with Uber and Lyft and help commuters go car-free.

×