Inclusive Cities Key to Sustainable Growth: Ford Foundation VP

(Beijing) – Designing cities that are affordable for low-income groups could help resolve some of the problems created by China's breakneck urban growth, the vice president of a private U.S. foundation that has been working on poverty reduction issues in the country for over two decades says.

"Inequality is not simply problematic for the disadvantaged. It hurts us all," said Xavier de Souza Briggs, vice president of the Ford Foundation. "It undermines economic growth and business success. So now there's a business and economic case, to take inclusion seriously, and to figure out the most powerful ways to achieve inclusion."

Over half of China's population now lives in cities, and by 2020 the government wants the figure to reach 60 percent. To get there, policymakers need to loosen the restrictive hukou, or household registration policy, that has left millions of migrants without access to schools, hospitals and other public services in cities, Briggs said.

"Countries and well-known business leaders have observed that you cannot make the strides you want to as a society by leaving large segments of the population behind," he said.

Providing access to affordable housing is another area that the government needs to focus on, said Briggs, a professor of sociology and urban planning at the Massachusetts Institute of Technology.

Reforming the decades-old land tenure system, to allow farmers more freedom to mortgage, rent, or sell their land has stalled for years, is another priority for inclusive growth, he said.

The following are excerpts of Caixin's interview with Xavier de Souza Briggs.

Caixin: How do you assess the process of urbanization in China?

Xavier de Souza Briggs: In China, there is a clear-eyed recognition of the tremendous transformation that the country has already undergone, and problems of inequality, and of the scale of further reforms that will be required. There is a recognition that these challenges are substantial, that China will need to do certain things to be where it wants to be in five or 10 years. That impresses me. It is in contrast to visits I've done in other countries over the course of my career. In some of these places, there is no debate about the challenges. If there is, there is no pragmatic appreciation for the scale of action that is required. I don't have any of those concerns in China.

What are the priority areas the government needs to focus on?

Leaders in the government and the private sector are targeting the next stage of growth and have clearly recognized that more advanced skills, linked to greater inclusion, are absolute imperatives. Countries and well-known business leaders have observed that you cannot make the strides you want to as a society by leaving large segments of the population behind. It doesn't add up. It's not a recipe to boost competitiveness and for sustained economic growth.

Another issue has to do with land. I'm mindful of the plans to carry out several big reforms in the new urbanization drive, everything from reforming the household registration system that gives migrant workers access to public services, to land-tenure reform and recognizing how fundamental that is to national development. Things like land-tenure reform or the hukou system are crucial to achieving shared prosperity.

How do you define inclusive growth?

Economic change that produces shared prosperity. What we have learned from very careful economic research in different countries is that inclusive growth is greater and more sustained growth. Inclusion is important for both the rate and robustness of growth – the ability of an economy to sustain growth through various shocks and changes on the global landscape.

No country can completely write its own destiny. China, the United States, the European Union, all these regions are susceptible to broader global influences, further technological changes and shifts in climate. So we need to think about not just the rate of growth but how robust it is.

Inclusion goes from being a moral idea, something normative, to being something imperative and in the broad public interest. Inequality is not simply problematic for the disadvantaged. It hurts us all. Extreme inequality in particular, it hurts society as a whole. It undermines economic growth, business success. So now there's a business and economic case to take inclusion seriously, and to figure out the most powerful ways to achieve inclusion.

How do you see inequality in the United States?

It has become extreme, significantly worse in the last generation. It's essentially the worst economic inequality on record. As (Joseph) Stiglitz has put it, inequality is a choice. It is rooted in rules of the game in the economy, which could either magnify inequality or it can promote shared prosperity. We now understand that a number of things have contributed to extreme inequality in the U.S. The tax code, the erosion of our labor standards, value of wages at the bottom rungs of the economy, a failure to make certain critical public investments have all contributed to it. China has been much more intent on making large-scale public investments, like in critical infrastructure. In the U.S., we saw the erosion of public support and a lot of unfortunate political bickering over the need for things like investing in public goods and infrastructure. We saw some of our fiscal models for making those investments become dated and inadequate, but we need to update it.

What are the lessons China can learn from the United States in terms of inclusive growth?

Number one is access to higher skills and advanced credentials. One of the ways America created a large and prosperous middle class was by making higher education accessible and attainable for a much broader swath of its people. In addition, we learned some things in the postwar period about how to create wealth in an inclusive way. For example, how to make home ownership affordable, accessible and something more than just a dream. We learned a lot about how to make credit markets work differently, how to prepare people for home ownership. If they didn't bring lots of assets to the table, like a large down payment, we learned to make mortgages in an innovative but an appropriately prudential ways. I'm not talking about wild risk taking that can endanger the financial sector.

In the United States, small-to-medium enterprises (SMEs) are one of the major engines of job creation. What role should the government play to support them?

There are very different types of SMEs. One way to differentiate them is based on whether they produce products and services for export or for the local economy. Then there are those that start and remain fairly small, which should not be confused with companies that have the potential to really scale.

Sometimes the government fails to recognize those differences.

The issue is not primarily about how to encourage as many people as possible to become business owners. Most small businesses in America fail within a few years. The issue is much more about how to create access to the tools for making a business successful. Some get access to those tools but fail. But that's part of a creative, competitive economy. If the entrepreneurial ecosystem is there, some businesses really have the potential to grow, and to become significant source of innovation in the economy or partners for larger companies.

Finally, the foundation of competitiveness is being able to produce something that cannot be easily replicated elsewhere. An important aspect of competitiveness is the set of local arrangements that affect the ability to produce something that is better, recognizable, differentiated and distinct. It doesn't matter whether you're producing Italian suits and shoes, whether you're producing air purifiers. The role of the government is to support this combination of factors that make regions successful and enable them to reinvent themselves over time.

Urbanization is one of the major goals of the Chinese government. How do you define inclusive urbanization?

It involves two kinds of social institutions. One provides access to meaningful learning opportunities and economic security. They are not physical and material, but they're crucial to success. The other is physical systems like access to affordable housing and mobility regardless of your income level or background. Many cities in the world do not invest or succeed in the domain of pro-poor public transportation. They fail to define urban success in terms of the ability of poor people to access a livelihood, whether it be through formal employment or by running a small business even in an informal economy. Whatever the nature of your livelihood, you need meaningful access to mobility. For the poor, that almost always means an important reliance on walking, biking and public transportation.

It is very hard to imagine how China can attain the results it wants, make success in shared prosperity by only investing in roads and the idea that everyone will have a motorcycle or an automobile. The investments we've seen in Guangzhou in rapid transit, to upgrade airports and inter-city rail links can be part of a high performing system. You never want to fall in to the trap of simply measuring success of a transportation system in terms of the volume of people it moves, the travel times etc. Equity is not only an important social value, but it's an important measure of how successful your system is.

What do you think is the biggest challenge for China during the urbanization push?

The dual challenge of reforming access to the full package of urban services and urban citizenship, the ability to participate and benefit from institutional access. The household registration system is at the heart of that. It's getting the physical fundamentals right. They are both central to the nature of urbanization and to how inclusive it can possibly be.

Can you give us a good example of urbanization and a bad one?

There is a lot to admire about the Northern European model. It emphasized very strong institutional access, education and economic security. Northern European cities are virtually without poverty, which to a greater degree is due to institutional access. Next, effective spatial planning in public investment and close attention to affordable public housing. Large-scale commitments to affordable housing are founded on the idea that workers, in order to succeed, need to count on affordable housing.

When it comes to bad examples, there is a long list. The most obvious failure in so many cities has been to address the problem of affordable housing supply. Brazil represents the full spectrum from early indifference to the housing needs of low-wage workers, which produce these land invasions and infamous favelas in the hillsides, to focusing on upgrading of those communities, and much greater public commitment to affordable housing. India has made a huge stride. Cities like Mumbai have gone from a political impasse over a situation in which slum dwellers were simply stigmatized for many years, to having a conversation about where they need to move the slums to expand and improve railways or airports. Doing those things helps the city become competitive on the world stage. But they are also negotiating the relocation of thousands of people.

(Rewritten by intern researcher Harry W.S. Lee)