Editor's Note: This article was the first published in the June 2008 World Cities Summit edition of ETHOS.

At the dawn of a new century, broad demographic, economic and environmental forces are giving American cities their best chance in decades to thrive and prosper. The renewed relevance of cities derives in part from the very physical characteristics that distinguish cities from other forms of human settlement: density, diversity of uses and functions, and distinctive design.

Across the United States (U.S.), a broad cross section of urban practitioners—private investors and developers, government officials, community and civic leaders—are taking ambitious steps to leverage the distinctive physical assets of cities and maximise their economic, fiscal, environmental and social potential.

A special class of urban interventions—what we call “transformative investments”—is emerging from the millions of transactions that occur in cities every year. The hallmark of transformative investments is their catalytic nature and seismic impact on markets, on people, on the city landscape and urban possibilities—far beyond the geographic confines of the project itself.

Recognising and replicating the magic of transformative investments, and making the exception become the norm is important if U.S. cities are to realise their full potential.

THE URBAN MOMENT
The U.S. is undergoing a period of dynamic change, comparable in scale and complexity to the latter part of the nineteenth century. Against this backdrop, there is a resurgence in the importance of cities due to their fundamental and distinctive physical attributes.

Cities offer a broad range of physical choices—in neighbourhoods, housing stock, shopping venues, green spaces and transportation. These choices suit the disparate preferences of a growing population that is diverse by race, ethnicity and age.

Cities are also rich with physical amenities—mixed-use downtowns, historic buildings, campuses of higher learning, entertainment districts, pedestrian-friendly neighbourhoods, adjoining rivers and lakes—that are uniquely aligned with preferences in a knowledge-oriented, post-industrial economy. A knowledge economy places the highest premium on attracting and retaining educated workers, and an increasing proportion of these workers, particularly young workers, value urban quality of life when making their residential and employment decisions.

Finally, cities, particularly those built in the nineteenth and early twentieth centuries, are compactly constructed and laid out along dense lines and grids, enhancing the potential for the dynamic, random, face-to-face human exchange prized by an economy fuelled by ideas and innovation. Such density also makes cities perfect agents for the efficient delivery of public services as well as the stewardship of the natural environment.

Each of these elements—diversity, amenities and density—distinguishes cities from other forms of human settlement. In prior generations, these attributes were devalued in a nation characterised by the single family house, the factory plant, cheap gas, and environmental profligacy. In recent history, many U.S. cities responded by making the wrong physical bets or by replicating low-density, suburban development—further eroding the very strengths that make cities distinctly urban and competitive.

Yet, the U.S., a nation in demographic and economic transition, is revaluing the quality of life uniquely offered by cities and urban places, potentially altering the calculus by which millions of American families and businesses make location decisions every year.

DELIVERING "CITYNESS": THE RISE OF TRANSFORMATIVE INVESTMENTS
Across the U.S., a practice of city building is emerging that builds on the re-found value and purpose of the urban physical landscape, and recognises that cities thrive when they fully embrace what Saskia Sassen calls “cityness”.¹

The move to recapture the American city can be found in all kinds of American cities: global cities like New York, Los Angeles and Chicago that lie at the heart of international trade and finance; innovative cities like Seattle, Austin and San Francisco that are leading the global economic revolution in technology; older industrial cities like Cleveland, Pittsburgh and Rochester that are transitioning to new economies; fast-growing cities like Charlotte, Phoenix and Dallas that are regional hubs and magnets for domestic and international migration.

The new urban practice can also be found in all aspects or “building blocks” of cities: in the remaking of downtowns as living, mixed-use communities; in the creation of neighbourhoods of choice that are attractive to households with a range of incomes; in the conversion of transportation corridors into destinations in their own right; in the reclaiming of parks and green spaces as valued places; and in the revitalisation of waterfronts as regional destinations, new residential quarters and recreational hubs.

Yet, as the new city building practice evolves, it is clear that a subset of urban investments are emerging as truly “transformative” in that they have a catalytic, place-defining impact, creating an entirely new logic for portions of the city and a new set of possibilities for economic and social activity.

We define these transformative investments as “discrete public or private development projects that trigger a profound, ripple effect of positive, multi-dimensional change in ways that fundamentally remake the value and/or function of one or more of a city’s physical building blocks”.

This subset of urban investments share important characteristics:

• On the economic front, transformative investments uncover the hidden value in a part of the city, creating markets in places where markets either did not exist or were only partially realised.
• On the fiscal front, transformative investments dramatically enhance the fiscal capacity of local governments, generating revenues through the rise in property values, the growth in city populations, and the expansion of economic activity.
• On the cognitive front, transformative investments redefine the identity and image of the city. They effectively “re-map” previously forgotten or ignored places by residents, visitors and workers. They create nodes of new activities and new places for people to congregate.
• On the environmental front, transformative investments enable cities to achieve their “green” potential by cleaning up the environmental residue from prior industrial uses or urban renewal efforts, by enabling repopulation at greater densities to occur and by providing residents, workers and visitors with transportation alternatives.
• On the social front, transformative investments have the potential, while not always realised, to alter the opportunity structure for low-income residents. When carefully designed, staged and leveraged, they can expand the housing, employment and educational opportunities available to low-income residents and overcome the racial, ethnic and economic disparities that have inhibited city performance for decades.

DISSECTING SUCCESS: HOW AND WHERE TRANSFORMATIVE INVESTMENTS TAKE PLACE
The best way to identify and assess transformative investments is by examining exemplary interventions in the discrete physical building blocks of cities: downtowns, neighbourhoods, corridors, parks and green spaces, and waterfronts.

Downtowns
If cities are going to realise their true potential, downtowns are compelling places to start. Physically, downtowns are equipped to take on an emerging set of uses, activities and functions and have the capacity to absorb real increases in population. Yet, as a consequence to America’s sprawling appetite, urban downtowns have lost their appeal. Economic interests, once the stronghold in downtowns, have moved to suburban town centres and office parks, depressing urban markets and urban value.

Across the US, downtowns are remaking themselves as residential, cultural, business and retail centres. Cities such as Chattanooga, Washington, DC and Denver have demonstrated how even one smart investment can inject new energy and jumpstart new markets. The strategic location of a new sports arena in a distressed area of downtown Washington, DC fits our definition of a transformative investment. Leveraging the proximity of a transit stop, the MCI Arena was nestled within the existing urban fabric on a city-owned urban renewal site. The arena’s pedestrian-oriented design strengthened, rather than interrupted, the continuity of the 7th Street retail corridor.² Today, the area has been profoundly transformed as scores of new restaurants, retail and bars dot the arena’s surroundings. Residents and visitors rely heavily on the nearby transit to come to this destination.

Neighbourhoods
Ever since the physical, economic and social agglomeration of “city” was established, the function of neighbourhoods has remained relatively untouched. While real estate values of neighbourhoods have shifted over time in response to micro- and macro-economic trends, a subset of inner city communities have remained enclaves of poverty. Victims of earlier urban renewal and public housing efforts, millions of people are consigned to living in neighbourhoods isolated from the economic and social mainstream.

Cities such as St. Louis, Louisville and Atlanta have been at the forefront of public housing (and hence neighbourhood) transformation, supported by smart federal investments in the 1990s. For example, the demolition of the infamous high-rise Vaughn public housing project in St. Louis enabled the construction of a new human scale, mixed-income housing development in one of the poorest, most crime-ridden sections of the city. This redevelopment cured the mistakes made by failed public housing projects, by restoring street grids, providing quality design, and injecting a sense of social and physical connection. Constructing a mix of townhouses, garden apartments and single family homes helped catalyse other public and private sector investments.

What made this investment transformative was that it included the reconstitution of Jefferson Elementary, a nearby public school. Working closely with residents, and with the financial support of corporate and philanthropic interests, the developer helped modernise the school, making it one of the most technologically advanced educational facilities in the region. A new principal, new curriculum, and new school programmes helped it become one of the highest performing inner city schools in the state of Missouri.

Corridors
City corridors are the physical tissue that knit disparate parts of a city together. In the best of conditions, corridors are multi-dimensional in purpose, where they are destinations as much as facilitators of movement. In many cities, however, corridors are simply shuttling traffic past blocks of desolated retail and residential areas or they have become yet another cookie cutter image of suburbia—parking lots abutting the main street, standardised buildings and design, and oversized and cluttered signage.

Cities like Portland, Oregon and urban counties like Arlington, Virginia have used mass transit investments and land use reforms to create physically, economically and socially healthy corridors that give new residents reasons to choose to live nearby and existing residents reasons to stay.

Portland conceived a streetcar to spur high density housing in close-in neighbourhoods that were slowly shedding old industrial uses. The streetcars traverse a three-mile route through residential areas, the water front, to the university. Since its construction, the streetcar has not only expanded transportation choices, it has helped galvanise new destinations along its route—including new neighbourhoods, retail clusters, and economic districts.

Parks and Open Space
City green spaces (such as parks, nature trails, bike paths) were initially designed to provide the lungs of the city and an outlet for recreation, entertainment and social cohesion. As general conditions declined in many cities, the quality of urban parks also declined, to the great consternation of local residents. Green spaces were turned into under-used, if not forgotten, areas of the city; or worse still, hot spots of crime and illegal activity. Such blight discouraged cities to transform outmoded uses (such as manufacturing areas) into more green space. In cities with booming development markets, parks failed to be designed and incorporated into the new urban fabric.

Across the US, cities are pursuing a variety of strategies to reclaim or augment urban green spaces. Cities like Atlanta, for example, have created transformative parks from outmoded economic uses, such as manufacturing land along urban waterfronts or by converting old railway lines into urban trail-ways.

Cities like Scranton have reclaimed existing urban parks consumed by crime and vandalism. This has required creative physical and programmatic investments, including: redesigning parks (removing physical and visibility barriers such as walls, thinning vegetation, and eliminating “dark corners”); increasing the presence of uniformed personnel; increasing the park amenities (such as evening movies and other events to increase patronage);³ and providing regular maintenance of the park and recreational facilities.⁴

Waterfronts
Many American cities owe their location and initial function to the proximity to water: rivers, lakes and oceans. Waterfronts enabled cities to manufacture, warehouse and ship goods and products. Infrastructure was built and zoning was aligned to carry out these purposes. In a knowledge-intensive economy, however, the function of waterfronts has dramatically changed, reflecting the pent-up demand for new places of enjoyment, activities and uses.

As with the other building blocks, cities are pursing a range of strategies to reclaim their waterfronts, often by addressing head-on the vestiges of an earlier era.

New York has overhauled the outdated zoning guidelines for development along the Brooklyn side of the East River, enabling the construction of mixed-income housing rather than prescribing manufacturing and light industry uses.

Pittsburgh and many of its surrounding municipalities have embarked on major efforts to re-mediate the environmental contamination found in former industrial sites, paving the way for new research centres, office parks and retail facilities.

Milwaukee, Providence and Portland have demolished the freeways that separated (or hid) the waterfront from the rest of the downtown and city, and unleashed a new wave of private investment and public activities.

WHAT IS THE RECIPE FOR SUCCESS?
The following are underlying principles that set these diverse investments apart from other transactions:

Transformative Investments advance “cityness”: Investments embrace the characteristics, attributes, and dynamics that embody “city”—its complexity, its intersection of activities, its diversity of populations and cultures, its distinctively varied designs, and its convergence of the physical environment at multiple scales. Project by project, transformative investments are reclaiming the true urban identity by strengthening aspects of the ‘physical’ that are intrinsically urban—be it density, rehabilitation of a unique building or historic row, or the incorporation of compelling, if not iconic, design.

Transformative Investments require a fundamental rethinking of land use and zoning conventions: In the midst of massive economic global change, 21st century American cities still bear the indelible markings of the 20th century. In the early 20th century, for example, government bodies enacted zoning to establish new rules for urban development. While originally intended to protect “light and air” from immense overbuilding, later versions of zoning added the segregation of uses—isolating housing, office, commercial and manufacturing activities from each other. Thus, transformative investments require, at a minimum, variances from the rigid, antiquated rules that still define the urban landscape. In many cases, examples of successful transformative investments have become the tool to overhaul outdated and outmoded frameworks and transform exceptions into new guidelines.

Transformative Investments require innovative, often customised financing approaches: Cities have distinctive physical forms (e.g., historic buildings) and distinctive physical visions (e.g., distinct districts). Yet private and even public financing of the American physical landscape, for the most part, is standardised and routinised, enabling the production of similar products (e.g., single family homes, commercial strips) at high volume, low cost and low quality. Transformative investments, however, require the marrying of multiple sources of financing (e.g., conventional debt, traditional equity, tax-driven equity investments, innovative financing arrangements, public subsidy, patient philanthropic capital), placing stress on project design and implementation. In addition, achieving social objectives often require building innovative tax and shared equity approaches into particular transactions, so that appreciations in property value can serve higher community purposes (e.g., creating affordable housing trust funds). As with regulatory frames, the evolution from exceptional transactions to routinised forms of investments is required to ensure that transformative investments become more the rule rather than the exception.

Transformative Investments often involve an empirically-grounded vision at the building block level: While a vision is not a necessary pre-requisite for realising transformative investments, cities that proceed without one have a higher probability of making the wrong physical bets, siting them in the wrong places, or ultimately creating a physical landscape that fails to cumulatively add up to “ cityness”. It is easy to find such examples around the country, such as isolated mega-projects (a new stadium or convention centre) or waterfront revitalisation efforts that constructed the wrong projects, having misunderstood the market and the diversifying demographic.

Telescoping the possibilities and developing a bold vision must be done through an empirically-grounded process. A visioning exercise should therefore include: an economic and market diagnostic of the building block; a physical diagnostic; an evaluation of existing projects; and the development of a vision to transform the landscape. From here, disparate actors (public, private, civic, not-for-profit) will have the best instruments to assess whether a physical project could meet specific market, demographic and physical needs—increasing its chances of becoming truly transformative.

Transformative Investments require integrative thinking and action: Transformative investments are often an act in “connecting the dots” between the urban experiences (e.g., transportation, housing, economic activity, education and recreation), which are inextricably linked in reality but separated in action. This requires a significant change in how cities are both planned and managed.

On the public side, it means that transportation agencies must re-channel scarce infrastructure investments to leverage other city building goals beyond facilitating traffic. It means that agencies driving a social agenda, such as schools and libraries, have to re-imagine their existing and new facilities to integrate strong design and move away from isolated projects.

In the private sector, it means understanding the broader vision of the city and carefully siting and designing investments to increase successful city-building and not just project-building. It means increasing their own standards by using exemplary design and construction materials. It means finding financially beneficial approaches to mixed income housing projects and mixed use projects instead of just single uses. In all cases, it requires holistic thinking that cuts across the silos and stovepipes of specialised professions and fragmented bureaucracies.

BUILDING GREAT CITIES
For the first time in decades, American cities have a chance to experience a measurable revival. While broader macro forces have handed cities this chance, city builders are also learning from past mistakes. After investing billions of dollars into city revitalisation efforts, the principles underpinning particularly successful and catalytic projects—transformative investments—are beginning to be clarified. The most important lesson for cities, however, is to embrace “cityness”, to maximise what makes them physically and socially unique and distinctive. Only in this way will American cities reach their true greatness.

---

• ¹Saskia Sassen defined the term “cityness” to be the concept of embracing the characteristics, attributes, and dynamics that embody “city”: complexity, the convergence of the physical environment at multiple scales, the intersection of differences, the diversity of populations and culture, the distinctively varied designs and the layering of the old and the new. Sassen, S., “Cityness in the Urban Age”, Urban Age Bulletin 2 (Autumn 2005).
• ²Strauss, Valerie, “Pollin Says He’ll Pay for Sports Complex District, Awaits Economic Boost, Upgraded Image”, Washington Post, Thursday, 29 December 1994.
• ³Personal communication from Peter Harnik, Director, Center for City Park Excellence, Trust for Public Land, 6 June 2005.
• ⁴Harnik, Peter, “The Excellent City Park System: What Makes it Great and How to Get There”. San Francisco, CA: The Trust for Public Land, 2003. Available online at http://www.tpl.org/tier3_cd.cfm?content_item_id=11428&folder_id=175

      

Event Information

On February 2 and 3, 2010, the Brookings Institution Metropolitan Policy Program and Lazard convened leaders from the public sector, energy, infrastructure, finance and venture capital communities for an in-depth conversation focused on innovative policy and business practices that will help build the next American economy.

California Governor Arnold Schwarzenegger and Pennsylvania Governor Edward G. Rendell provided the keynote remarks. Both stressed the need for strategic investments in innovative infrastructure and energy practices going forward.

Framing the conference was the notion that the next American economy must be export-oriented, low carbon, innovation-fueled and opportunity rich—an idea which has been proposed by leading economists such as Director of the National Economic Council Larry Summers. It is with this mindset that Brookings and Lazard put together high-level, dynamic panels that centered around the private sector needs for building out the next American economy—and the policy implications. Specifically, they focused on how the traditional industry leaders (e.g., utility companies), the new industry leaders (e.g., venture capital investors), and public sector leaders can work together to move our country forward, especially within the metro areas where the resources and networks that drive innovation are rooted.

For media coverage of the event, please visit the following:

Time Is Running Out: The New York Times – Bob Herbert

Watching China Run: The New York Times – Bob Herbert

High Hopes for Clean-Energy Jobs: The Wall Street Journal - Rebecca Smith

Campaign for 'Next American Economy' Begins: San Francisco Chronicle - Andrew Ross

Bruce Katz, Vice President and Director, Metropolitan Policy Program, Brookings Institution		Vernon Jordan, Senior Managing Director, Lazard and California Governor Arnold Schwarzenegger
Wall Street Journal reporter Rebecca Smith leads a conversation with business leaders		Pennsylvania Governor Edward Rendell
Conference participants Jim Robinson of RRE Ventures and Michael Ahearn of First Solar		From left: Bob Herbert (New York Times), Mallory Walker (Walker and Dunlop) and George Bilicic (Lazard)

Video

• The Keys to American Competitiveness

Audio

• The Next American Economy: Transforming Energy and Infrastructure Investment

Transcript

• Transcript (.pdf)
• Bruce Katz's delivered remarks (.pdf)

Event Materials

• 0203_transcript
• 0203_nextecon_katz
• 0203_overview
• 0203_agenda
• 0203_nextecon_pres

      

In partnership with the ESADE Business School and the City of Barcelona, the Metropolitan Policy Program planned and participated in three intensive days of learning in Barcelona in June 2011.  The focus of the session was to look at examples of strategies Barcelona, Spain and its greater metropolitan region is embracing to rebuild and re-invent their economies.  The goal is to share innovative ideas with U.S. metros engaged in similar initiatives as they face the challenge of moving to a new economic growth model.

This paper features brief synopses of the tours and meetings held with the City of Barcelona and the Catalonia Region on their economic development strategies.

Specific strategies include:

Barcelona Activa »

Barcelona Economic Triangle » (PDF)

22@Barcelona » (PDF)

Parc de l’Alba »

Click on any image below for a larger version

Barcelona Activa
The 22@Barcelona revitalization area	The Parc de l'Alba revitalization area

Downloads

• Download the Full Paper

      

       

Event Information

View the report

The geography of innovation is shifting and a new model for innovative growth is emerging. In contrast to suburban corridors of isolated corporate campuses, innovation districts combine research institutions, innovative firms and business incubators with the benefits of urban living. These districts have the unique potential to spur productive, sustainable, and inclusive economic development.  

On June 9, the Metropolitan Policy Program at Brookings released “The Rise of Innovation Districts,” a new report analyzing this trend. The authors of the paper, Brookings Vice President Bruce Katz and Nonresident Senior Fellow Julie Wagner, were joined by leaders from emerging innovation districts across the country to discuss this shift and provide guidance to U.S. metro areas on ways to harness its potential.

Join the conversation on Twitter using #InnovationDistricts

Presentation by Bruce Katz

---

Event Photos

---

Bruce Katz, Vice President and Director, Metropolitan Policy Program

Lydia DePillis, John A. Fry, Nicole Fichera, Kofi Bonner, Julie Wagner

The Honorable Andy Berke, Mayor, City of Chattanooga, TN and Bruce Katz

Video

• What Are Innovation Districts?
• Innovation Districts Aligned With Disruptive Dynamics of Our Era
• Cities are For People
• Boston's District Hall a Living Room for Innovation Economy
• Innovation Happens Anywhere and Everywhere
• Are Innovation Districts Another Form of Gentrification?
• Philadelphia Behind but Competing in Innovation Districts
• Chattanooga Has Fastest, Cheapest Internet in Western Hemisphere
• We Live In an Innovation Century
• The Rise of Innovation Districts - Opening Remarks
• The Rise of Innovation Districts - Presentation by Bruce Katz
• The Rise of Innovation Districts - Panel Discussion
• The Rise of Innovation Districts - Moderated Dialogue

Audio

• The Rise of Innovation Districts: A New Geography of Innovation in America

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• 20140609_innovation_districts_transcript

       

The tide of uncertainty that has swept the United Kingdom after its vote to leave the European Union has spared few—including its emerging class of innovation districts.

These hubs of innovation—where anchor institutions, such as universities and R&D laden companies cluster and connect with startups, incubators, and a host of public spaces, coffee shops, retail and housing—are now asking themselves important questions that will affect their future. Will the U.K. broker a deal to continue free trade with Europe? Will access to talent across Europe be curtailed? Will the devalued pound keep U.K. advanced manufacturers competitive for the medium to long term? Will European Union legal frameworks be replaced with a regulatory platform that continues to support advanced sectors? What will happen to EU funding on science and innovation, such as Horizon 2020?

Of course, innovation districts are no stranger to uncertainty, if not chaos. These districts thrive on random mixing, on smashing different kinds of disciplines and people together to generate new ideas and new products for the market. In this close-knit, highly networked ecosystem, chaos breeds creativity. At the same time, the backbone of districts is a clear regulatory and legal framework with rules on intellectual property, investment, and funding streams. The twinning of chaos and certainty is what makes these places simply superb spaces to incubate new technology, aggregate talent, and experiment in linking placemaking with innovation.

Yet from the distinctive innovation districts in London to those emerging in the middle of England, such as in Sheffield and Manchester, to those rising in Scotland, such as in Glasgow, this moment of uncertainty could be not only painful—it could be downright dangerous. 

In the face of such uncertain times, the temptation will be to sit back and wait for the cards to fall. But this tempered, conservative approach is ironically the more risky tactic.

We recommend another path.

Now is the time for the institutions and firms that are driving innovation districts to strengthen their competitive position and expand their reach.

Now is the time to try new forms of collaboration between universities, large companies, and local enterprises.

Now is the time to test more democratic modes of innovation with maker spaces, fab labs, and shared infrastructure and equipment.

Now is the time to forge new partnerships with other innovation districts in the United States and Europe to share promising strategies around commercialization, networking, and financing.

Now is the time to apply new energy to creative placemaking, including strengthening the innovation–place nexus around key nodes and applying quick interventions around traffic calming, bike lanes, and pop-up gathering spaces. 

U.S. cities and innovation districts have demonstrated that progress can persist even when higher levels of government are adrift. U.K. cities and districts can do the same.

       

       

       

       

The past few months have seen a flurry of reports on discouraging trends in life expectancy among some of the nation’s struggling populations. Different researchers have emphasized different groups and have tracked longevity trends over different time spans, but all have documented conspicuous differences between trends among more advantaged Americans compared with those in worse circumstances.

In a study published in April, Stanford economist Raj Chetty and his coauthors documented a striking rise in mortality rate differences between rich and poor. From 2001 to 2014, Americans who had incomes in the top 5 percent of the income distribution saw their life expectancy climb about 3 years. During the same 14-year span, people in the bottom 5 percent of the income distribution saw virtually no improvement at all.

Using different sources of information about family income and mortality, my colleagues and I found similar trends in mortality when Americans were ranked by their Social-Security-covered earnings in the middle of their careers. Over the three decades covered by our data, we found sizeable differences between the life expectancy gains enjoyed by high- and low-income Americans. For 50-year old women in the top one-tenth of the income distribution, we found that women born in 1940 could expect to live almost 6.5 years longer than women in the same position in the income distribution who were born in 1920. For 50-year old women in the bottom one-tenth of the income distribution, we found no improvement at all in life expectancy. Longevity trends among low-income men were more encouraging: Men at the bottom saw a small improvement in their life expectancy. Still, the life-expectancy gap between low-income and high-income men increased just as fast as it did between low- and high-income women.

One reason these studies should interest voters and policymakers is that they shed light on the fairness of programs that protect Americans’ living standards in old age. The new studies as well as some earlier ones show that mortality trends have tilted the returns that rich and poor contributors to Social Security can expect to obtain from their payroll tax contributions.

If life expectancy were the same for rich and poor contributors, the lifetime benefits workers could expect to receive from their contributions would depend solely on the formula that determines a worker’s monthly pensions. Social Security’s monthly benefit formula has always been heavily tilted in favor of low-wage contributors. They receive monthly checks that are a high percentage of the monthly wages they earn during their careers. In contrast, workers who earn well above-average wages collect monthly pensions that are a much lower percentage of their average career earnings.

The latest research findings suggest that growing mortality differences between rich and poor are partly or fully offsetting the redistributive tilt in Social Security’s benefit formula. Even though poorer workers still receive monthly pension checks that are a high percentage of their average career earnings, they can expect to receive benefits for a shorter period after they claim pensions compared with workers who earn higher wages. Because the gap between the life spans of rich and poor workers is increasing, affluent workers now enjoy a bigger advantage in the number of months they collect Social Security retirement benefits. This fact alone is enough to justify headlines about the growing life expectancy gap between rich and poor

There is another reason to pay attention to the longevity trends. The past 35 years have provided ample evidence the income gap between America’s rich and poor has widened. To be sure, some of the most widely cited income series overstate the extent of widening and understate the improvement in income received by middle- and low-income families. Nonetheless, the most reliable statistics show that families at the top have enjoyed faster income gains than the gains enjoyed by families in the middle and at the bottom. Income disparities have gone up fastest among working-age people who depend on wages to pay their families’ bills. Retirees have been better protected against the income and wealth losses that have hurt the living standards of less educated workers. The recent finding that life expectancy among low-income Americans has failed to improve is a compelling reason to believe the trend toward wider inequality is having profound impacts on the distribution of well-being in addition to its direct effect on family income.

Over the past century, we have become accustomed to seeing successive generations live longer than the generations that preceded them. This is not true every year, of course, nor is it always clear why the improvements in life expectancy have occurred. Still, it is reasonable to think that long-run improvements in average life spans have been linked to improvements in our income. With more money, we can afford more costly medical care, healthier diets, and better public health. Even Americans at the bottom of the income ladder have participated in these gains, as public health measures and broader access to health insurance permit them to benefit from improvements in knowledge. For the past three decades, however, improvements in average life spans at the bottom of the income distribution have been negligible. This finding suggests it is not just income that has grown starkly more unequal.

Editor's note: This piece originally appeared in Real Clear Markets.

       

Unlike prime-age Americans, who have experienced declines in employment and labor force participation since the onset of the Great Recession, Americans past 60 have seen their employment and labor force participation rates increase.

In order to understand the contrasting labor force developments among the old, on the one hand, and the prime-aged, on the other, this paper develops and analyzes a new data file containing information on monthly labor force changes of adults interviewed in the Current Population Survey (CPS).

The paper documents notable differences among age groups with respect to the changes in labor force transition rates that have occurred over the past two decades. What is crucial for understanding the surprising strength of old-age labor force participation and employment are changes in labor force transition probabilities within and across age groups. The paper identifies several shifts that help account for the increase in old-age employment and labor force participation:

• Like workers in all age groups, workers in older groups saw a surge in monthly transitions from employment to unemployment in the Great Recession.
• Unlike workers in prime-age and younger groups, however, older workers also saw a sizeable decline in exits to nonparticipation during and after the recession. While the surge in exits from employment to unemployment tended to reduce the employment rates of all age groups, the drop in employment exits to nonparticipation among the aged tended to hold up labor force participation rates and employment rates among the elderly compared with the nonelderly. Among the elderly, but not the nonelderly, the exit rate from employment into nonparticipation fell more than the exit rate from employment into unemployment increased.
• The Great Recession and slow recovery from that recession made it harder for the unemployed to transition into employment. Exit rates from unemployment into employment fell sharply in all age groups, old and young.
• In contrast to unemployed workers in younger age groups, the unemployed in the oldest age groups also saw a drop in their exits to nonparticipation. Compared with the nonaged, this tended to help maintain the labor force participation rates of the old.
• Flows from out-of-the-labor-force status into employment have declined for most age groups, but they have declined the least or have actually increased modestly among older nonparticipants.

Some of the favorable trends seen in older age groups are likely to be explained, in part, by the substantial improvement in older Americans’ educational attainment. Better educated older people tend to have lower monthly flows from employment into unemployment and nonparticipation, and they have higher monthly flows from nonparticipant status into employment compared with less educated workers.

The policy implications of the paper are:

• A serious recession inflicts severe and immediate harm on workers and potential workers in all age groups, in the form of layoffs and depressed prospects for finding work.
• Unlike younger age groups, however, workers in older groups have high rates of voluntary exit from employment and the workforce, even when labor markets are strong. Consequently, reduced rates of voluntary exit from employment and the labor force can have an outsize impact on their employment and participation rates.
• The aged, as a whole, can therefore experience rising employment and participation rates even as a minority of aged workers suffer severe harm as a result of permanent job loss at an unexpectedly early age and exceptional difficulty finding a new job.
• Between 2001 and 2015, the old-age employment and participation rates rose, apparently signaling that older workers did not suffer severe harm in the Great Recession.
• Analysis of the gross flow data suggests, however, that the apparent improvements were the combined result of continued declines in age-specific voluntary exit rates, mostly from the ranks of the employed, and worsening reemployment rates among the unemployed. The older workers who suffered involuntary layoffs were more numerous than before the Great Recession, and they found it much harder to get reemployed than laid off workers in years before 2008. The turnover data show that it has proved much harder for these workers to recover from the loss of their late-career job loss.

Download "Labor Force Dynamics in the Great Recession and its Aftermath: Implications for Older Workers" »

Downloads

• Download "Labor Force Dynamics in the Great Recession and its Aftermath: Implications for Older Workers"

       

       

       

       

Event Information

Register for the Event

The financial sector has undergone major changes in response to the Great Recession and post-crisis regulatory reform, as a result of the Dodd-Frank Act and Basel III. These changes have created serious questions about the sector’s role in supporting economic growth and how it affects financial and overall economic stability.

On June 8, the Initiative on Business and Public Policy at Brookings explored the intersection of the financial system and economic growth with the goal of informing the public policy debate. The event featured a keynote address by Richard Berner, director of the Office of Financial Research and other participants with a wide range of views from a variety of backgrounds. Among other issues, the experts considered the changing landscape of the financial sector; growth-promoting allocation and investment decisions; credit availability for low- and moderate-income households; the ideal balance between growth and stability; and the impact of the 2014 midterm elections on regulatory reform.

 Follow the conversation at @BrookingsEcon or #Finance.

Video

• Keynote remarks by Richard Berner
• The financial sector: How has it changed?
• The view from the trenches
• The future of the U.S. financial sector

Audio

• Can the financial sector promote growth and stability?

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• Aaron Kleins presentation
• 20150608 BAER slides
• 20150608 MEHTA slides
• 20150608_financial_sector_stability_transcript

      

Australia's economic performance has been the standout among advanced economies for several decades. With economic growth at nearly twice the pace of US or Germany over the past decade, a remarkable 25 years without a recession and a large, highly competitive mining sector despite the end of the resources boom, Australia remains a strong economic participant in a region of the world where future global growth is likely to be generated.

But with drivers of growth over the past 25 years unlikely to be the engines of growth in coming decades, now is not a time for complacency. And if there's one lesson from Britain's decision to leave the EU, it's that that disruptive forces are sweeping through the global economy. Australia, with its cohesive politics and economic success, has been able to avoid the worst of these problems, but the dangers are present if the economic challenges are not met.

To start with, the impacts of the reforms of the 1980s and 1990s are fading. The investment boom in mining is over, and the prices for mining and agricultural exports will probably remain subdued with slower growth in China. While Australia's incomes were boosted by the improved terms of trade, this has partially reversed. The housing boom will inevitably eventually slow.

As evidenced by the results of the Brexit referendum, there is a distrust of the political and economic elites that have led the world's biggest economies. Disruptive, rapid changes in technology have not led to broad-based productivity growth. Workers in many countries have been left with stagnant incomes and governments with rising public debt.

Industry policy has a bad name among American economists who see it as a manifestation of "capture" where special interests are able to obtain subsidies from taxpayers or special protections that are not in the national interest. The modern theory of industry policy, however, recognises that a well-designed policy can actually help markets work better, therefore helping an economy like Australia's make the transition to a new growth path when faced with changing economic conditions. Productivity is the key to high growth and rising incomes – and well-designed industry policy can help.

Structure of trade competitiveness

Take, for example, Australia's manufacturing sector. Mostly because of comparative advantage, it is the smallest among all advanced economies relative to the size of its economy. In 2010, Germany had 21.2 per cent of its workforce in manufacturing while Australia's was 8.9 per cent. While it's not surprising that Australia's structure of trade competitiveness differs from Germany's because of its enormous export strength of mining and agriculture, it will benefit by taking advantage of its highly skilled workforce and the potential to develop industries based on this human capital – including advanced manufacturing industries.

One of the traditional strengths of the American economy is the close link that exists between leading universities and businesses – an area Australian policymakers are seeking to improve upon. At MIT and Stanford, professors of engineering, biology, finance or economics finish their lectures and head off to the companies they run or advise. They often enlist graduate or undergraduate students to help them with their commercial projects and these collaborations often result in jobs as well as experience. There is a danger in this model if pure research loses out to business interests, but the interaction between academia and the practical needs of companies can largely improve both research and business profitability. It's worth recalling that even the giants of science in the 18th century were motivated by the need to improve navigation or build new machines or design buildings. Funding for research should support greater industry-university cooperation as highlighted by the Watt Review.

Another important element in Australia's continued economic success is the growth of its service industries. With most jobs in these industries, the performance and productivity of services will be the largest determinant of Australia's living standards. Productivity comparisons between Australia and the United States show that Australian productivity lagged behind the US as recently as the mid-1990s, but there has since been substantial catch-up taking place. Smart regulation that promotes competition and rewards innovation are necessary to bring up the laggards. While there is a continuing debate about the possible end of productivity growth in advanced economies, Australia can still do much to catch up to global best practice.

The winners of this weekend's election will be charged with answering an important question: what is the role of government in a modern economy? How they answer that will determine future prosperity for all Australians.

High taxes, large government, poorly regulated markets (particularly labour markets), excessive debt and poor infrastructure undermine the drivers of growth. The realities of a fragile global economy and the need to build a solid foundation to generate productivity growth in Australia must be at the core of the policies that follow this election campaign.

Martin Baily is a senior fellow at the Brookings Institution in Washington and a former chair of the US President's Council of Economic Advisers. He has been invited by the Australian Ministry of Industry Innovation and Science to report on lessons from the US for policies to enhance economic growth, innovation and competitiveness.

Warwick McKibbin AO, is the director of the Centre for Applied Macroeconomic Analysis in the ANU Crawford School of Public Policy and is a non-resident senior fellow at the Brookings Institution.

Editor's note: this opinion first appeared in Australian Financial Review.

       

       

Event Information

Register for the Event

 

On June 23, voters in the United Kingdom will go to the polls for a referendum on the country’s membership in the European Union. As one of the EU’s largest and wealthiest member states, Britain’s exit, or “Brexit”, would not only alter the U.K.’s institutional, political, and economic relationships, but would also send shock waves across the entire continent and beyond, with a possible Brexit fundamentally reshaping transatlantic relations.

On May 6, the Center on the United States and Europe (CUSE) at Brookings, in cooperation with the Heinrich Böll Stiftung North America, the UK in a Changing Europe Initiative based at King's College London, and Wilton Park USA, will host a discussion to assess the range of implications that could result from the United Kingdom’s referendum. 

After each panel, the participants will take questions from the audience.

Join the conversation on Twitter using #UKReferendum

Audio

• Brexit—in or out? Implications of the United Kingdom’s referendum on EU membership

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• 20160506_uk_eu_brexit_transcript

       

Twenty-five years ago, in March 1991, shaken by the fall of the Berlin Wall and the rise of nationalist-separatist movements in the Soviet Baltic and Caucasus republics, Mikhail Gorbachev held a historic referendum. He proposed the creation of a new union treaty to save the USSR. The gambit failed. Although a majority of the Soviet population voted yes, some key republics refused to participate. And so began the dissolution of the USSR, the event that current Russian President Vladimir Putin has called the “greatest geopolitical catastrophe” of the 20th century.

Today, in the wake of the referendum on leaving the European Union, British Prime Minister David Cameron seems to have put the United Kingdom on a similar, potentially catastrophic, path. Like the fall of the wall and the collapse of the Soviet Union, the fallout from Brexit could have momentous consequences. The U.K. is of course not the USSR, but there are historic links between Britain and Russia and structural parallels that are worth bearing in mind as the U.K. and the EU work out their divorce, and British leaders figure out what to do next, domestically and internationally.

A quick Russian history recap

The British and Russian empires formed at around the same time and frequently interacted. Queen Elizabeth I was pen pals with Ivan the Terrible. The union of the Scottish and English parliaments in 1707 that set the United Kingdom on its imperial trajectory coincided with the 1709 battle of Poltava, in which Peter the Great ousted the Swedes from the lands of modern Ukraine and began the consolidation of the Russian empire. The Russian imperial and British royal families intermarried, even as they jockeyed for influence in Central Asia and Afghanistan in the 19th century. The last Czar and his wife were respectively a distant cousin and granddaughter of British Queen Victoria. The Irish Easter Uprising and the Russian Revolution were both sparked by problems at home, imperial overstretch, and the shock of the World War I. 

Like the fall of the wall and the collapse of the Soviet Union, the fallout from Brexit could have momentous consequences.

Since the end of the Cold War, the U.K. and Russia have both had difficulty figuring out their post-imperial identities and roles. The U.K. in 2016 looks structurally a lot like the USSR in 1991, and England’s current identity crisis is reminiscent of Russia’s in the 1990s. After Gorbachev’s referendum failed to shore up the union, the Soviet Union was undermined by an attempted coup (in August 1991) and then dismantled by its national elites. In early December 1991, Boris Yeltsin, the flamboyant head of the Russian Federation, holed up in a hut deep in the Belarusian woods with the leaders of Ukraine and Belarus and conspired to replace the USSR with a new Commonwealth of Independent States (CIS). With Gorbachev and the Soviet Union gone by the end of December, the hangover set in. Boris Yeltsin was the first to rue the consequences of his actions. The CIS never gained traction as the basis for a new union led by Russia. 

The Ukrainians, Belarussians, and everyone else gained new states and new identities and used the CIS as a mechanism for divorce. Russians lost an empire, their geopolitical anchor, and their identity as the first among equals in the USSR. The Russian Federation was a rump state. And although ethnic Russians were 80 percent of the population, the forces of disintegration continued. Tatars, Chechens, and other indigenous peoples of the Russian Federation, with their own histories, seized or agitated for independence. Ethnic Russians were “left behind” in other republics. Historic territories were lost. Instead of presiding over a period of Russian independence, Boris Yeltsin muddled through a decade of economic collapse and political humiliation.

Separating the U.K. from Europe...could be as wrenching as pulling apart the USSR.

Is Britain laying the same trap?

Another Boris, the U.K.’s Boris Johnson, the former mayor of London and main political opponent of David Cameron, risks doing the same if he becomes U.K. prime minister in the next few months. Separating the U.K. from Europe institutionally, politically, and economically could be as wrenching as pulling apart the USSR. People will be left behind—EU citizens in the U.K., U.K. citizens in the EU––and will have to make hard choices about who they are, and where they want to live and work. The British pound has already plummeted. The prognoses for short- to medium-term economic dislocation have ranged from gloomy to dire. The U.K is a multi-ethnic state, with degrees of devolved power to its constituent parts, and deep political divides at the elite and popular levels. Scotland and Northern Ireland, along with Gibraltar (a contested territory with Spain), clearly voted to stay in the European Union. The prospect of a new Scottish referendum on independence, questions about the fate of the Irish peace process, and the format for continuing Gibraltar’s relationship with Spain, will all complicate the EU-U.K. divorce proceedings. 

Like Russia and the Russians, England and the English are in the throes of an identity crisis.

Like Russia and the Russians, England and the English are in the throes of an identity crisis. England is not ethnically homogeneous. In addition to hundreds of thousands of Irish citizens living in England, there are many more English people with Irish as well as Scottish ancestry––David Cameron’s name gives away his Scottish antecedents––as well as those with origins in the colonies of the old British empire. And there are the EU citizens who have drawn so much ire in the Brexit debate. 

As in the case of the USSR and Russia where all roads led (and still lead) to Moscow, London dominates the U.K.’s population, politics, and economics. London is a global city that is as much a magnet for international migration as a center of finance and business. London voted to remain in Europe. The rest of England, London’s far flung, neglected, and resentful hinterland, voted to leave the EU—and perhaps also to leave London. At the end of the divorce process, without careful attention from politicians in London, England could find itself the rump successor state to the United Kingdom. If so, another great imperial state will have consigned itself to the “dust heap of history” by tying its future to a referendum. 

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

Introduction

Ninety years after the foundation of the Turkish Republic, Ankara appears to be on the verge of a paradigmatic change in its approach to the Kurdish question. It is too early to tell whether the current negotiations between Ankara and the Kurdish Workers’ Party (PKK) will manage to accommodate Kurdish cultural and political demands. Yet, for perhaps the first time in its history, the Turkish Republic seems willing to incorporate Kurds into the political system rather than militarily confront them. For decades, Turkey sought to assimilate its sizable Kurdish minority, about 15 million people, or around 20 percent of its total population. From the mid-1920s until the end of the Cold War, Ankara denied the ethnic existence of Kurds and their cultural rights. It took a three-decade-long PKK-led insurgency – which started in 1984 and caused a death toll of 40,000 – for the republic to start accepting the “Kurdish reality” and introduce cultural reforms. This perhaps explains why the PKK’s jailed leader Abdullah Öcalan is a national hero in the eyes of significant segments of Kurdish society.

Of the approximately 30 million Kurds in the Middle East, about half live in Turkey. Kurds also constitute a significant minority in neighboring Iraq, Iran and Syria. The Palestinians are often referred to as the most famous case of a “nation without a state” in the Middle East. But the Kurds, who outnumber the Palestinians by a factor of five, are by far the largest ethnic community in the region seeking national self-determination. The future of Turkey - and the Middle East - is therefore intimately linked to the question of Kurdish nationalism.

Downloads

• Turkey and the Kurds: From Predicament to Opportunity