Personal View: Inclusion is good economics

By Bethia Burke, Personal View for Crain’s Cleveland Business

A recent opinion piece in Crain’s Cleveland Business by local economist James Trutko took aim at the Cleveland Innovation Project, suggesting the vision that the Fund for Our Economic Future and its partners support is misguided. While I disagree with many criticisms leveled by Trutko, I welcome his public scrutiny. It provides an opportunity to sharpen the project’s thinking and hold it to account.

However, Trutko raised one issue I cannot ignore. He asserted, “sustained economic growth is … inherently unequal” and further asserted the project (and presumably the region at large) “should give more attention to creating a bigger economic pie and be less concerned with how the pie is split.” He goes on to argue for the mythical trickle-down approach in which regional success will ultimately accrue to women and minorities, diminishing the vast difference in economic outcomes that exist today.

An inclusive economy — one where access to opportunity is not defined by race or place — is far from being an “unrealistic social objective.” Our region’s economic competitiveness cannot be decoupled from our ability to achieve inclusive economic growth. A series of analyses conducted by and on behalf of the Fund over the past 15 years supports this claim.

As early as 2006, soon after the Fund’s formation, we engaged the W.E. Upjohn Institute for Employment Research to analyze factors associated with economic growth. The resulting “Dashboard of Economic Indicators” looked at scores of variables across more than 100 metropolitan areas over a decade. The data showed a clear and positive correlation between both racial inclusion and income equality and a metro’s ability to grow jobs, income, output and productivity. Following this, the 2007 update of the dashboard conducted by Cleveland State University’s Maxine Goodman Levin College of Urban Affairs found racial inclusion and economic equality to be the only factors associated with all four measures of growth. The results remained consistent in subsequent iterations. Analysis in 2013 by Emily Garr Pacetti, then at the Fund and now vice president and community affairs officer at the Federal Reserve Bank of Cleveland, demonstrated that while inclusion was associated with growth, growth alone does not guarantee either racially or economically inclusive outcomes. Many of the metros with high employment growth rates also had the highest rates of poverty, crime and other social ills. Garr Pacetti looked more exhaustively at the relationship again in 2014, summarizing research across the nation and globe. The conclusion: “High and rising inequality combined with stagnant mobility is a recipe for inefficiency, making it harder for well-qualified individuals at any income level to move up” and “inequality likely affects the extent to which economic growth can be sustained over time.”

More recently, the Fund collaborated with leaders in Stark and Summit counties as they developed Strengthening Stark and Elevate Greater Akron, respectively. Both efforts analyzed local data and concluded that economic prosperity can only be achieved and sustained through racial and economic inclusion. Analysis in Akron, for instance, suggests that the lack of inclusion has resulted in nearly 200 fewer startups.

These local examples are corroborated by national studies and the work of peer cities. “Growth, prosperity and inclusion are complementary, not competing, goals for meaningful economic development,” writes Brookings Metropolitan Policy Program director Amy Liu in “Remaking Economic Development.” Other cities with enviable growth rates, such as Minneapolis, Indianapolis and Orlando, have embedded inclusion into their metrics of success. The Indy Chamber, for instance, differentiates business development incentives according to job quality, emphasizing its objective to “build a ladder, raise the floor.”

Growth does not trickle down; it bubbles up from the sum of an economy’s assets. Included residents provide the labor and ideas that supply the economy, and when financially successful, they create the demand and provide the capital that enables continued success. On the flip side, when large portions of a region’s population are disconnected from jobs, the entire economy suffers, as businesses cannot find workers and people can’t earn a living wage.

Looking ahead, the region faces a meaningful chance for an economic reset, following the pandemic-induced setback.

There is no single, universal measure of economic vibrancy. Society must decide for itself what is success. In The Two Tomorrows, the Fund put forth a vision for the region: a continuously regenerating economy that creates good jobs and rising incomes for everyone. Such a vision is neither fantasy nor a call for social service — it is an attainable goal predicated on sound data, practical experience and a holistic approach to people and businesses. The same report suggests a blueprint for how to get there.

On one point of Trutko’s I quite agree: Reform across all systems — education, criminal justice, health care and so on — is needed to address and undo centuries of racial exclusion. But economic development doesn’t get a pass. The Cleveland Innovation Project must — and can — deliver on its stated objective to strengthen technology-led growth and prosperity for all residents of Greater Cleveland. That’s good economics, and it’s a future of which I’m excited to be a part.

 

Bethia works with our members to identify and shape new opportunities, conduct due diligence and review performance outcomes of grantee partners.