Just Growth and the Future of the Next Economy

By Chris Benner and Manuel Pastor

(An adapted and updated excerpt from the introduction to Just Growth: Inclusion and Prosperity in the New Economy, a new book released in early January 2012 from Routledge Press. See http://justgrowth.org for more details. )

The financial crisis of 2008-2009 and the lingering Great Recession that resulted have raised some profound questions about the nature of our very economic system. Some have suggested that the meltdown was an inevitable consequence of deregulation and have called for firmer control over the creation and implementation of new financial instruments. Others have pinned the blame on an unsustainable run-up in housing prices and argued that the Federal Reserve should slow future bubbles in asset prices. Still others have pointed to excess consumer demand, particularly in the U.S., and argued that we need to lift our savings rate to a higher and healthier level.

We agree on the need for regulation, protection against asset run-ups, and the need for a more future-oriented approach to savings and investment. However, we would suggest that another element at play in the crisis also deserves attention: income inequality. After all, what emerged in the years before the crisis was a nearly unprecedented – well, except before that other Great Depression – rise in the gap between the rich and the poor. With some so wealthy that they shifted to increasingly speculative investments to place their excess funds and others so strapped that they borrowed to prop up their falling household incomes, the financial trap was set. It could have been better regulated, to be sure, but the fundamental problem was not the market but the distribution that the market confronted.

If inequality was among the factors that got us into the crisis, dealing with inequality may be one of the steps to getting out of it. Yet this is not a simple matter of legislating fairness in taxes, social policy, or government spending; renewed economic growth is critical since the poor rarely do well in an economy that is stagnating. At the same time, recovery alone is not sufficient; the recent decades have been full of examples of national and metropolitan economies in which rapid expansion in employment and/or income has been accompanied by sharper social differentiation.

We need, in short, more than just growth (or growth alone); we need instead “just growth,” a framework in which the imperatives of equity have been coupled with strategies to shore up the macro-economy, spur new industrial development, and re-regulate the financial system. Such a new framework will require a stretch on the part of business leaders, many of whom have long been concerned about economic expansion but not worried much about equity – and it will also require a commitment and an analytical stretch by those that have long fought for “economic justice” but have not always thought about how best to promote the economic part of that couplet.

Fortunately, in our efforts to promote both growth and equity, we don’t need to start from scratch–long before the national meltdown helped to make this point, the notion that inequality might actually damage economic growth was gaining ground at a metropolitan scale in a growing number of regions across the country. In certain places, key metropolitan actors – including collaboratives of business, labor, civic and community leaders – have been increasingly clear that a more inclusive economic approach could actually strengthen the social consensus and human capital needed to compete in a global economy. Backing up that perspective has been a range of empirical studies, including from the Federal Reserve, showing that strategies that reduce social, geographic, and other disparities are actually correlated with broad economic success.

But what are the circumstances under which the imperatives of fairness and the need for economic drivers really do come together at the metropolitan level? What are the social and political arrangements, particularly given the lack of specifically regional government institutions, that allow this to happen in some regions? And what are the potential lessons for a U.S. economy seeking to stop the economic bleeding
and the distributional divisions?

These are the questions that we set out to answer in a recently completed study of ‘just growth’ regions across the country. Utilizing a sample of the largest 192 metropolitan regions in the country, we first used a quantitative approach to identify those regions with above median performance in terms of both economic growth and social equity indicators, and conducted regression-style analysis to explore the demographic, political and economic determinants behind these growth and equity patterns. We then identified a set of seven regions, including Sacramento, California, for more in-depth case study research in order to help identify the more subtle and detailed processes, policies and institutional arrangements that might help explain more equitable growth (or its absence) in our metropolitan settings.

The research provides insights into both the why and the how of achieving growth with equity. On the why side – what factors explain superior performance on both growth and equity – some of our findings square with previous work in the field while others represent both a challenge to current thinking and a reason for further research. For example, the case study work suggests that jurisdictional fragmentation is bad for a region’s economic and social health, a point previously made by urban scholar and former Albuquerque mayor David Rusk. But there are a series of other factors that emerge in both our statistical and qualitative work: the stabilizing effect of the public sector, the generally positive impact of deconcentrating poverty, the growth-enhancing but equity-reducing impacts of having a large immigrant population, and the important role of an influential minority middle class, which we argue contributes to both a political economy interest in prosperity and a continuing attention to fairness.

But the case studies also suggest a factor that is a bit harder to quantify precisely: the importance of efforts to create a diverse epistemic community. It’s hardly a bumper sticker slogan – “no justice, no peace” has a more fighting ring and romantic tone than “let’s share the same facts” – but conscious efforts to develop a shared understanding of the region amongst diverse constituencies seems to make a difference for blending the imperatives of equity and growth. Formally, epistemic communities are defined as like-minded networks of professionals whose authoritative claim to consensual knowledge provides them with a unique source of power in decision-making processes. The members of an epistemic community have similar normative values, and draw similar interpretations and make similar policy conclusions when presented with given situations.

In full academic garb, the words sound fancy but the concept is clear: epistemic refers to what you know (what facts, figures, and perspectives) and community refers to who you know it with (whether alone or in collaboration with others). When such collective knowledge includes not just the “usual suspects” of urban growth coalitions, but a broader constellation of community interests and perspectives, it seems to make a difference in regional trajectories. In the various cases studies, we find that creating a regional consciousness about the problems of poverty and their impacts on growth potential tends to focus attention; jurisdictional ties can help (because suburbs, for example, that are annexed realize more quickly that they cannot escape the drag on regional growth from high levels of poverty) but this can be pushed along by intentional leadership programs and other strategies for collaborative governance. In short, inclusion in knowledge generation and related decision making processes is important for inclusive sharing of a growing economic pie.

The second level we consider in the work is just how regions are achieving growth with equity. Regions may find themselves with exactly the right structural elements to generate fairer growth, including stabilizing public employment, limited jurisdictional fragmentation, and, as the case studies suggest, industrial or sectoral diversity. But one can easily imagine a region blessed with all the right attributes but unable to fully exploit them to capture the potential for prosperity and inclusion. This requires not just the diverse epistemic community – the shared values and vision across diverse constituencies– but also policy practices that link distressed neighborhoods to economic development opportunities, that insure that workforce development includes everyone, that join up the driving sectors of the economic with previously disadvantaged employees.

In each of the cases we consider, we try to lift up what sort of policy strategies make a difference. We complement with a consideration of some of the policies that have become the standard litany for those promoting regional equity, including community benefits agreements, workforce development, and community college promotion. We argue, however, that the usual tools of progressives have focused primarily on ensuring that poor people are getting more of their fair share of the “economic pie”. Equity advocates have had little success, and in many cases little interest, in contributing to job creation or economic growth per se, or even to paying attention to selecting among equity strategies those that have the highest pay off in terms of increased economic performance.

But this is the other half of just growth – you need a compelling economic growth agenda as well as a commitment to fairness. You can’t assume that the proper balance of policy is struck in the balance of politics – that the business sector will worry about economic growth, that community advocates will worry about “the people,” and that politicians will sort out the differences. You cannot press for equality in a stagnant economy – as we have seen in dramatic fashion recently, when the economy doesn’t work, people don’t work. Moreover, poor people are most dependent on economic growth and most in need of the jobs created by a region’s economic drivers. Equity proponents, we would suggest, need a clear economic growth model and agenda and this is often missing in (in)action.

In August of this year, as we were making final edits on the manuscript of the book, it seemed that the national opening for progressive economy policy that opened with the Obama presidency was closing. The constraints of domestic policies and the power of Wall Street insured that we had a stimulus too small to make a real dent, an approach to regulating the financial system that was insufficient to the task, and a brief burst of attention to equity that was quickly eclipsed by efforts to resuscitate the macro-economy. The rise of the Tea Party seemed to indicate that their coherent and consistent message might carry the day: that the best government is limited government, that the best economy is a market economy, and that the best anti-poverty strategy is no strategy at all.

In just the last four months, however, the emergence of the Occupy Wall Street movement has transformed the national imagination, and we now face a perhaps historic opportunity to shift our economic trajectories to once again create an economy that effectively meets the needs of all, not just the few. We believe that the principles of “just growth”—a set of outcomes that include economic expansion and social equity but also an inclusive conversation about how best to achieve economic inclusion—can contribute to the discussion. Yet the ability to achieve this perspective in practice is not easy. Here in the Sacramento Region, for example, regional leaders including Valley Vision, the Sacramento Area Commerce and Trade Organization, the Sacramento Area Regional Technology Alliance, and the Sacramento Metro Chamber, have launched a prominent “Next Economy” initiative, aimed at accelerating recovery in the regional economy through promoting diversification, innovation and improved workforce skills development. The initiative is a welcome effort to concentrate regional attention on the critical imperative of promoting job growth, and a recognition that this won’t happen simply through market mechanisms but will require coordinated action and investment. The process of developing a strategic Next Economy response to our current crisis is designed to open and collaborative, but at least two things are clear in the efforts to date: the priorities of the business and public sector leadership at the helm of the initiative have been on understanding the region’s competitive position and economic strengths and weaknesses in fairly traditional terms with little specific attention to social equity; and the region’s social equity advocates have not prioritized engaging in these efforts to jump start economic growth.

If we are going to be able to truly emerge from our current economic troubles, we need to do better than this. Our challenges as a region and a country are not simply rooted in a short-term financial crisis, but a 40-year process of growing inequality and slowing economic growth rates. Our future depends yes on developing a Next Economy, but the next economy must be built more fundamentally on a new economic paradigm, one in which the promotion of social equity is not simply seen as a beneficial social goal but as an important component of economic development policy and practice.

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Chris Benner, Ph.D., is Chair of the Geography Graduate Group and Associate Professor of Community and Regional Development with the Human and Community Development Department of the University of California at Davis. He is also a member of the Executive Committee for the Center for Regional Change at UC Davis.

Dr. Manuel Pastor is Professor of Geography and American Studies & Ethnicity at the University of Southern California where he also serves as Director of USC’s Program for Environmental and Regional Equity (PERE) and co-Director of USC’s Center for the Study of Immigrant Integration (CSII).

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