On March 5, Chinese President Xi Jinping spoke to the Shanghai delegates to the National People’s Congress (NPC) session in Beijing. China’s top leaders use these side meetings to convey policy guidance on a range of issues, and Xi used this particular one to offer his perspective on relations with Taiwan. There has been some nervousness in the wake of the January 16 elections, which swept the opposition Democratic Progressive Party (DPP) to power in both the executive and legislative branches. Because the Beijing government has always suspected that the fundamental objective of the DPP is to permanently separate Taiwan from China, observers were waiting expectantly to hear what Xi would have to say about Taiwan.

Well before the March 5 speech, of course, Xi’s subordinates responsible for Taiwan policy had already laid out what Taiwan President-elect Tsai Ing-wen and her party would have to do to prevent cross-Strait relations from deteriorating, and they continued to emphasize those conditions after Xi’s speech. But analysts believed that Xi’s own formulation would be the clearest indicator of Beijing’s policy. He is, after all, China’s paramount leader, and his words carry a far greater weight than those of other Chinese officials.

This is what Xi said to the Shanghai NPC delegation about Taiwan [translation by the author, emphasis added]:

Compatriots on the two sides of the Strait are blood brothers who share a common destiny, and are people for whom blood is thicker than water…Our policy towards Taiwan is correct and consistent, and will not change because of a change in [who heads] the Taiwan authorities. We will insist upon the political foundation of the “1992 consensus,” and continue to advance cross-Strait relations and peaceful development…If the historical fact of the “1992 consensus” is recognized and if its core connotation is acknowledged, then the two sides of the Strait will have a common political basis and positive interaction [virtuous circle] can be preserved. We will steadily push forward cross-Strait dialogue and cooperation in various fields, deepen cross-Strait economic, social, and financial development, and increase the familial attachment and welfare of compatriots [on both sides], close their spiritual gap, and strengthen their recognition that they share a common destiny. We will resolutely contain the separatist path of any form of Taiwan independence, protect state sovereignty and territorial integrity, and absolutely not allow a repetition of the historical tragedy of national separation. This is the common wish and firm intention of all Chinese sons and daughters, and is also our solemn pledge and obligation to history and to the people. The fruits of cross-Strait relations and peaceful development require the common support of compatriots on the two sides; creating a common and happy future requires the common effort of compatriots on the two sides; and realizing the great revival of the Chinese nation requires that compatriots on the two sides join hands to work with one heart.

The italicized sentences are key: They state what the new DPP government should do if it wishes to maintain healthy cross-Strait relations and affirms Beijing’s resolve to oppose any behavior it doesn’t like. Xi didn’t threaten specific actions, but he probably didn’t have to. As always, Beijing reserves the right to decide what DPP attitudes and actions constitute separatism and a quest for Taiwan independence. 

Xi didn’t threaten specific actions, but he probably didn’t have to.

Some background

There are two important points of reference contextualizing this statement from Xi. 

Xi on November 7, 2015. First, there are his reported remarks on the future of cross-Strait relations during his unprecedented meeting with current Taiwan president Ma Ying-jeou in Singapore last November 7. At that time, Xi first appealed to ethnic solidarity and national unity, as he did again on March 5. He asserted that the stakes to end the state of division between Mainland China and Taiwan were very high because it was a critical part of how he views rejuvenating the Chinese nation—a theme he repeated to the Shanghai delegation. 

Xi said Taiwan, under the new government, could either continue to follow the path it has walked for the last seven-plus years under the current Ma Ying-jeou administration (“peaceful development”), or it could take the path of renewed “confrontation,” “separation,” and zero-sum hostility. If Taiwan wished to follow the first path, Xi insisted, its leaders must adhere to the 1992 consensus and oppose “Taiwan independence.” Without this “magic compass that calms the sea,” Xi warned, “the ship of peaceful development will meet with great waves and even suffer total loss.” He was willing to overlook the DPP’s past positions and actions, but only if it identified with “the core connotation of the 1992 consensus” (a reference to the PRC view that the Mainland and Taiwan are both within the territorial scope of China, a view the DPP contests). Xi alluded to the “core connotation” on March 5 but did not re-state its content. Xi then made clear that if “disaster” occurred, it would be the DPP’s fault—it was therefore up to Tsai, he implied, to accommodate to Beijing’s conditions. 

In language and tone, Xi’s Singapore statement was far more strident and alarmist than what he said on March 5. He made that first statement more than two months before the election, when perhaps he thought that tough talk would weaken Tsai’s and the DPP’s appeal to voters. If that was his objective, he failed. The tone of his March 5 remarks was more modulated, but the substance was the same. Beijing would define the crossroads that Taiwan faced, and it was up to Tsai to take the right path—at least what it defined the right path.

Beijing would define the crossroads that Taiwan faced, and it was up to Tsai to take the right path—at least what it defined the right path.

Tsai on January 21, 2016. Second, there is an interview that Tsai gave to Liberty Times (Tzu-yu Shih Pao) on January 21—less than a week after the elections—in which she sought to meet Beijing partway. For the first time, she used the phrase “political foundation” and said it had four elements: 

• “The first is that the SEF-ARATS discussions of 1992 are a historical fact and both sides had a common acknowledgment to set aside differences and seek common ground;” 
• “The second is the Republic of China’s current constitutional order.”
• “The third is the accumulated results of the more than 20 years of cross-strait negotiations, exchanges, and interactions;” and
• “The fourth is Taiwan’s democratic principles and the will of the Taiwanese people to make sure that Taiwan voters understood the limits to his tolerance.”

So, Tsai accepts the 1992 meetings as a historical fact and acknowledges that the two sides did reach an agreement of sorts, but does not accept the 1992 consensus itself as a historical fact. She spoke more about process than content. The Republic of China’s “current constitutional order” is also part of the foundation, which some have read as Tsai’s acceptance that the Mainland and Taiwan are both parts of China’s territory (Beijing’s “core connotation”)—I, however, am not so sure. Tsai did not reject Xi’s requirements out of hand, but she framed them in her own way. 

So are ties growing friendlier?

Was Xi’s tonal moderation on March 5—relative to November 7—an indicator that mutual accommodation was going on? Perhaps. But the fact that the November meeting was ostensibly private while the March speech was public might explain the difference. 

Moreover, the stream of Chinese articles and statements since March 5 that explicitly restate Beijing’s long-standing preconditions are reason to doubt that much accommodation is actually occurring. The three basic scenarios I outlined last December—accommodation, limited Chinese punishment of the Tsai administration, and comprehensive punishment—are still in play, and the key variable remains whether Xi and his subordinates trust Tsai Ing-wen’s basic intentions. That is, will they accept her recent formulations as a good-faith effort to avoid deterioration? The next milestone will be May 20, when Tsai Ing-wen gives her inaugural address and may provide a more detailed formulation of her approach to China.

       

       

Editor's Note: During an event to launch a new report assessing the clean economy, Bruce Katz delivered a presentation highlighting the clean sector’s contribution to boosting exports and increasing manufacturing jobs. Katz's presentation also is featured in an iBook for the iPad.

Thank you, [Brookings Managing Director] Bill [Antholis] for that introduction, and for your leadership in this institution and more broadly in the national debate on climate change.

Before proceeding, I want to first thank my colleagues, Mark Muro, Jonathan Rothwell, Devashree Saha, and our friends at Battelle, particularly Mitch Horowitz and Marty Grueber for their creativity, collegiality, and painstaking attention to detail through a long and rigorous research effort. 

I’d also like to offer a special thanks to the Nathan Cummings Foundation, the General Electric Foundation, Living Cities, and the Surdna Foundation for their support and guidance of the program’s Clean Economy work, as well as the Rockefeller Foundation, who is supporting our policy and practice work around the clean economy in states and metropolitan areas.  

Today, we celebrate not just the release of a report, “Sizing the Clean Economy” but the unveiling of an interactive web site to spur further research, policy and practice, all freely available at www.brookings.edu/cleaneconomy.

We want today’s forum to be a participatory event and urge all of you in the audience and following on our webcast to engage online early and often. Please comment on Twitter via the hashtag created for this event (#cleanecon) and feel free to engage directly with me at @Bruce_Katz and Mark at @MarkMuro1 and send us any questions at MetroQ@brookings.edu.

 

The question before us: at a time of economic uncertainty and federal polarization, can America’s cities and metropolitan areas lead the nation to a clean economy—to create jobs in the near term and retool and restructure our economy for the long haul?

 

There is no doubt in our minds that moving to a clean economy is an environmental and energy imperative.  But consumers, companies, and cities are also sending an unequivocal signal: this is a market proposition and an economic transformation as profound as the information revolution.

Consumers around the globe are starting to demand lower carbon, energy efficient products and services: one in four drivers in the U.S., Europe, China, and Japan plans to buy electric vehicles when they are readily available. That would put about 50 million electric cars on the road in places from Baltimore to Beijing, Torino to Tokyo.

Companies see the clean economy as a growth sector: three quarters of major global corporations plan to increase “cleantech” budgets from 2012 to 2014. Global private investment in clean energy alone is up more than 6 fold since 2004, reaching $154 billion in 2010.

Cities and their metropolitan areas, early adapters of sustainable practice, are now competing to build out their special niches in the clean economy. I will provide details later on Greater Seattle’s bold strategy to be the global hub of clean IT. 

For two years, the Brookings Metro Program has hammered home the notion that the United States must pursue a different growth model post recession, a “next economy” that is driven by exports, powered by low carbon, fueled by innovation and rich with opportunity—and delivered by the large metropolitan areas that drive our economy.

Today, we will literally flip the dial and place the clean economy in the center of our macro vision and unveil the scale, scope and spatial geography of this promising growth engine. 

We have three sharp and timely findings.

First, the clean economy is a significant, diverse emerging market in the United States, already populated by some 2.7 million jobs. It is disproportionately manufacturing and export intensive—and offers better prospects for low and middle skilled workers than the national economy as a whole. This is exactly the kind of economy we want to build post-recession.

Second, metropolitan areas are on the vanguard of the clean economy due to their concentration of innovative drivers, as well as the built environment in which most people live, work and play. As in exports, metros specialize in different sectors of the clean economy—and the clustering of firms is catalyzing productive and sustainable growth.

Third, the U.S. must unleash the entrepreneurial energies and dynamism of our metropolitan engines to accelerate growth of the clean economy. That will require a strategic mix of private sector innovation and public policy that is stable, supportive, and predictable.  Given the nature and scale of global competition, U.S. governments, at all levels, must “get in the game” rather than “get out of the way.”  Smart public action can leverage private investment, create desperately needed jobs, and cement our position as the leading edge of innovative growth.

The stakes are very high. Make no mistake—we have a lot to do here and we are falling behind globally. Our competitors in mature and rising economies—Germany, Japan, and China—fully understand the potential of clean, and they are working at warp speed to set favorable conditions for rapid growth and grab their share of the next market revolution. We need to get our public-private act together—in cities and metros, in state capitals, at the now polarized federal level.

So let’s start with our first finding: the clean economy is a significant, diverse emerging market in the United States  

In total, we find there are 2.7 million clean economy jobs all across the United States. To put that number in perspective: the clean economy is nearly twice the size of the biosciences field and 60 percent of the 4.8 million strong IT sector. As you can tell, the clean economy also has more jobs than fossil fuel related industries.  

 Our definition of the clean economy is as follows:

“Any economic activity—measured in terms of establishments and jobs—that produces goods and services with an environmental benefit, or adds value to such products using skills or technologies that are uniquely applied to those products.”

This definition yields a broad and varied picture of economic activity: old and new, public and private, “green” and “blue.”

At the highest level, we find establishments and jobs grouping together in 5 discernible categories: Renewable Energy; Energy and Resource Efficiency; Greenhouse Gas Reduction; Environmental Management, and Recycling; Agricultural and Natural Resources Conservation; and Education and Compliance. Here we follow the categorization the Bureau of Labor Statistics is using for its own “green jobs” assessment due next year.

These categories then naturally break down into fine-grained segments, ultimately 39 in all.

Renewable Energy, for example, has nine segments, including Solar and Geothermal power, and Renewable Energy Services.

Energy and Resource Efficiency has 13 separate segments, from Electric Vehicle Technology to Water Efficient Products.

Greenhouse Gas Reduction, Environmental Management, and Recycling has 12 segments including Green Chemical Products and Professional Environmental Services.

And so on—you get the idea.

Each of the segments, in turn, has a distinct economic profile (cutting across multiple activities, occupations and skills) and a distinct spatial geography given the special assets and attributes of different places.

Let’s drill down a little so we all get on the same page.

Under renewable energy, let’s look at solar photovoltaic, a young rapidly innovating area. This segment employs more than 24,000 people in 555 establishments.

The list includes two major solar manufacturing firms, First Solar—with a major plant in Toledo—and BP Solar—with a facility in the Washington, DC metro, and Bombard Electric in Las Vegas, which helps businesses in that region—casinos, hotels, shopping centers—shift their energy use.

Under Greenhouse Gas Reduction, let’s take a look at Professional Environmental Services, an example of the role that expert services can play in domestic and global markets. This segment boasts some 140,000 workers in 5,400 establishments.

CH2M Hill in Denver provides environmental consulting services throughout the U.S. and the world, Ecology & Environment is a science and technical services firm with a large presence in Los Angeles, and Black & Veatch, out of Kansas City, is an engineering firm specializing in areas from environmental permitting to remediation.

One more definitional cut to consider: we have identified a group of young, super innovative “Cleantech” industries that cross multiple categories and show enormous growth potential. These industries are populated by companies with a median age of 15 years or less.

Most notably, this portfolio of segments—including wind power, battery technologies, bio fuels, and smart grid—grew about 8 percent a year since 2003, or twice as fast as the rest of the economy.

The clean economy, however, is not just broad and diverse, it is disproportionately productive.

The clean economy is export intensive, already taking advantage of the demand for clean goods and services coming from abroad.

In 2009, clean economy establishments exported almost $54 billion, including about $49.5 billion in goods and an additional $4.5 billion in services.

Significantly, clean economy establishments are by our calculations twice as export intensive as the national economy: over $20,000 worth of exports is sold for every job in the clean economy each year compared to just $10,400 worth of exports for the average U.S. job.

The export orientation of the clean economy today provides a platform for more exports tomorrow. With rising nations rapidly urbanizing, the demand for sustainable growth in all its dimensions will only grow, and the U.S. has the potential to serve that demand.

The clean economy also supports a production-driven innovation economy.

We find it employs a higher percentage of scientists than the national economy. Ten percent of clean economy jobs are in science and engineering, compared to 5 percent in U.S. economy generally.

As we now know, manufacturing and innovation are inextricably linked. This provides a stark challenge to the U.S.: we will innovate less unless we produce more.

By our account, the clean economy is a vehicle for production.

Twenty six percent of all clean economy jobs are involved in manufacturing, compared to just 9 percent of jobs in the economy as a whole.

Manufacturing accounts for a majority of the jobs in over half of the clean economy segments, with many sectors having a supermajority of production-oriented jobs.

Solar and wind energy, for example, have more than two thirds of their jobs in manufacturing. And some segments, including appliances, water efficient products, and electric vehicle technologies have over 90 percent of their jobs in manufacturing.

The good news: clean manufacturing is growing, even in the face of national declines in manufacturing employment. 

Finally, the clean economy is opportunity rich, providing prospects for a wide range of workers, and good wages up and down the skills ladder.

The clean economy is easy to enter, available to people of all skill levels: 45 percent of all clean jobs are held by workers with a high school diploma or less, compared to only 37 percent of U.S. jobs.

Once a worker enters the field, he or she is more likely to receive career-building training, as 41 percent of clean jobs offer medium to long-term training, compared to 23 percent of U.S. jobs.

The payoff is higher wages: the median wage in the clean economy is almost $44,000 for the average occupation, significantly higher than the national equivalent of $38,000 and change.

In summary, the clean economy is the kind of economy we want to build: export oriented, innovation fueled, opportunity rich, and balanced.

So here is our second major finding, metros are on the vanguard of the clean economy

Here is the heart of the American economy: 100 metropolitan areas that after decades of growth take up only 12 percent of our land mass, but harbor two-thirds of our population and generate 75 percent of our gross domestic product. 

These communities form a new economic geography, enveloping cities and suburbs, exurbs and rural towns.

Our research shows the extent to which these top 100 metros, in the aggregate, are driving growth in the Clean Economy.

In 2010, they constitute an increasing share of clean economy jobs, almost 64 percent.

And they include an outsized share, 74 percent, of jobs in cleantech industries, including extraordinarily high shares in solar photovoltaic, battery technologies, smart grid, and wind energy.

Innovative clean jobs are predominately in the top 100 metros because these places concentrate the assets that drive innovation, from initial research through commercialization through ultimate deployment

The major metros are also leading the growth of clean economy jobs around the built environment. They harbor 78 percent of jobs in public mass transit, and 90 percent of the jobs in green architecture, design and construction since moving people more efficiently and making buildings energy efficient will primarily be a metropolitan act, given where most people live and travel, and businesses locate.

Incredibly, metros also include a decent share of clean jobs that are traditionally rural, with at least 23 percent of jobs in resource-intensive activities like hydropower, sustainable forestry products, and biofuels, and more than half of organic food and farming jobs.

Metro economies, of course, do not exist in the aggregate; they have distinctive starting points and distinctive assets, attributes and advantages. 

Our research digs deep to profile the clean economy potential of each of the top 100 metro areas.

Four metro areas—New York, L.A., Chicago and Washington—are supersized job centers, with more than 70,000 jobs apiece in the clean economy in 2010. The New York metro alone has more than 152,000 clean economy jobs.

Other major metros—Philadelphia, San Francisco, Atlanta, Boston, Houston and Dallas—are also key players, with more than 38,000 jobs apiece as of that year.

Yet this is not just about the largest metros. As we see here, a different group of small and medium sized metros have more than 3.3 percent of their jobs situated in the clean economy. Albany leads the way, with an impressive 6.3 percent of its jobs in the clean economy.

The power of metros is the power of agglomeration, networks and clusters. 

Our report finds that clusters—the proximity of firms to businesses in related industries—boost metros’ growth performance in the clean economy, and metros facilitate clustering.

Examples include professional environmental services in Houston, solar photovoltaic in Los Angeles, fuel cells in Boston, wind in Chicago, water industries in Milwaukee, and energy efficiency in Philadelphia.

We can talk about clusters in the abstract, but its best to see them in practice from the ground up.

So let’s travel to the Philadelphia metropolis—the nation’s fifth largest—which includes the city of Philadelphia and surrounding counties.

Philadelphia is the fifth largest clean economy job center in the country.

Here we can find the advanced research engines of the University of Pennsylvania and Drexel in University City, who have partnered together on clean energy research and have provided a steady stream of talented workers to public, private and nonprofit firms and intermediaries.

These universities are part of the Greater Philadelphia Innovation Cluster, based at the Navy Yard, on the Delaware River.  This consortium received $129 million in federal funding from multiple agencies to demonstrate the efficacy of new building energy efficient components, systems and models.

The consortium includes strong support of City Hall, led by Mayor Michael Nutter, who has pioneered smart skills training in the energy efficient sector as well as the Philadelphia Industrial Development Corporation, which has been an investor in the Navy Yard.

And then, of course, there are firms and companies, the fuel of the economy, located throughout the Philadelphia metropolis.

Downtown we find Veridity Energy, a small smart grid firm with powerful technology tools. The density of Center City supports a healthy mix of highly skilled service firms. Just around the corner is Realwinwin, which provides finance services to companies making capital investments in energy efficiency.

But metropolitan economies cross city and county borders because different kinds of firms require different urban and suburban footprints—so if we look out to the suburb of Radnor, just past Bryn Mawr and I-476, we find Iberdrola, the second largest wind operator in the United States and a subsidiary of a major Spanish renewable energy company and an example of the wave of foreign direct investment that can help the U.S. build out the clean economy.   

The Philadelphia story reveals why cities and metro areas power our economy: they are hyper linked networks of private firms and public and nonprofit institutions that fertilize ideas, share workers, extend innovation, enhance competitiveness and catalyze growth.

Which leads to our final proposition: to build the next economy the U.S. must unleash the entrepreneurial energies and dynamism of our metropolitan engines.

We compete in a fiercely competitive world.

While America continues to debate the legitimacy of global warming research, our competitors in established nations like Germany, Japan and the U.K. and rising nations like China are taking transformative steps to grow their clean economies in the precise places—Munich, Tokyo, London, Shanghai—that drive their national economies. 

The United States can compete with these and other nations. No other nation can match us in domestic demand, advanced research, venture capital, the power of metro concentration.

But our potential will not be realized unless we provide a strong policy platform for the build out of the clean economy. 

Four steps are essential:  

Step one: scale-up markets by catalyzing demand for clean economy goods and services.  

Step two: drive innovation by investing in advanced R&D at scale, over a sustained period and via new distributed networks.

Step three: catalyze finance to produce and deploy more of what we invent. 

And step four: align with cities and metros to realize the synergies of clustering and place.  

Our competitors know that economy shaping of this magnitude should start at the national scale.

And so, in a perfect world, we would have our federal government create a framework for growth and success.

We have seen some of that leadership in the past few years, through: the procurement driven, market scaling efforts of the Department of Defense, the creation of new innovation vehicles like ARPA-E, some of the financial investments of the Department of Energy’s Loan Guarantee Program, and the metro-supporting investments in new energy regional innovation clusters—like the Greater Philadelphia example—supported by agencies with diverse sets of missions and resources, including DOE, Commerce, Labor, Education, and SBA. 

But with our global competitors continuously upping their goals and expanding their commitments, we desperately need our federal government to go further and act with vision and ambition and consistency.

To scale-up markets, Congress should enact a national clean energy standard (CES) that signals a long term, consistent commitment to alternative energy sources.

To drive innovation, Congress should embrace the call by the American Energy Innovation Council, led by corporate titans like Bill Gates and Jeff Immelt, to invest $16 billion annually in clean energy research and development through ARPA-E and networks of institutions that are multi-disciplinary and engage seamlessly with the private sector.

To catalyze finance, Congress should authorize a technology deployment finance entity—a Green Bank for short—to provide finance of the right scale and risk tolerance to ensure that ideas generated in America lead to products made in America.

Congress should also rationalize, reform, and selectively extend the myriad tax provisions and incentives that currently support the clean economy but which are now chaotic, unstable, inconsistent, and obtuse about evoking innovation and steady price declines from maturing clean technologies.

And to align with regions, Congress should more than double the number of energy innovation hubs and clusters that are seeded and funded.

Frankly, it is not difficult to lay out what reforms and investments are needed to grow the clean economy. Our competitors have given us clear guidance on that score. The only issue is whether our federal government, riven by excessive partisanship and ideological polarization, can muster the will to get anything done.  

Fortunately in the U.S. we have a default proposition when our national government falters, our states act as our “laboratories of democracy” and, as California Lt. Governor Gavin Newsom recently observed, our cities and metros act as the laboratories of innovation.

And so that’s how, for the time being, we will need to build our clean economy in the United States, the hard way, from the ground up.

The good news: there is no shortage of policy innovation and political commitment at the state and metro scale.

To scale up markets, California has set an aggressive renewable portfolio standard of 33 percent renewable energy by 2020. With this strong foundation, San Jose and other cities and counties are doing their part to facilitate consumer adoption: streamlining or even eliminating building permitting for solar panels.

To drive innovation, Wisconsin has created the School of Freshwater Sciences at the University of Wisconsin-Milwaukee to leverage that metro’s rising position in the blue economy. The Milwaukee Water Council is building on this, spearheading a network of scientists and companies to realize Milwaukee’s ambition to be a global hub for freshwater research, firm creation, and business expansion. 

To catalyze finance, Connecticut recently created the Connecticut Clean Energy Finance and Investment Authority. Capitalized with some $50 million annually, this Green Bank could accelerate the generation, transmission, and adoption of alternative energy.

At the municipal level, New York City has capitalized an Energy Efficiency Corporation to spur the financing of energy efficiency in the building sector.

And, finally, smart metros are now moving to build out their distinctive industry clusters.  In Greater Seattle, for example, the Puget Sound Regional Council has developed a business plan to cement that metro’s natural position as a global hub of energy efficient building technologies. This smart public-private initiative includes the establishment of a facility to test, integrate and verify promising energy efficient products and services before launching them to market.

Significantly, this metro vision is being supported by the State of Washington, which has committed to match any federal investment in the testing network.

Let me conclude with this vision: Let’s imagine a world in 20 years where the clean economy permeates every aspect of our economic and social fabric and, in the process, enhances productivity and competitiveness, lowers energy use, spurs further innovation, and provides quality work for a broad cross section of our citizenry. 

We believe today’s research—and the power of millions of consumers, tens of thousands of companies and hundreds of cities and metros—gives us the hope that this vision can become reality.

We have the data to set a platform for sustainable growth.

We have the roadmap to set the foundation for smart investment.

We have the entrepreneurs in all sectors to innovate and replicate. 

Let’s build the clean economy—worker by worker, firm by firm, metro by metro.

Thank you.

       

       

On Friday, June 3, S&P Global Ratings announced that it would not downgrade South Africa’s credit rating to junk, letting South Africa breathe a sigh of relief. The outlook, however, remained negative. While some experts were confident that the rating would not be cut, most continued to warn that future economic or political turmoil could spark a downgrade later this year. The South African Treasury agreed, but remained positive releasing a statement saying:

Government is aware that the next six months are critical and there is a need to step up the implementation [of measures to boost the economy] … The benefit of this decision is that South Africa is given more time to demonstrate further concrete implementation of reforms that are underway.

South Africa, whose current rating stands at BBB- (one level above junk), has been facing weak economic growth—at 1 percent—over past months. The International Monetary Fund has given a 2016 growth forecast of 0.6 percent. Many feared that a downgrade could have pushed the country into a recession. Borrowing by the government would have also become more expensive, especially as it tackles a 3.2 percent of GDP budget deficit for the 2016-2017 fiscal year.

Other credit ratings agencies also are concerned with South Africa’s economic performance. Last month, Moody’s Investors Service ranked the country two levels above junk but on review for a potential downgrade, while Fitch Ratings is reviewing its current stable outlook and BBB- rating.

For South African Finance Minister Pravin Gordhan’s thoughts on the South African economy, see the April 14 Africa Growth Initiative event, “Building social cohesion and an inclusive economy: A conversation with South African Finance Minister Pravin Gordhan.”

Former Chadian President Hissène Habré is sentenced to life in prison by African court

This week, the Extraordinary African Chambers—located in Dakar and established in collaboration with the African Union—sentenced former Chadian President Hissène Habré to life in prison. Habré seized power in 1982, overthrowing then President Goukouni Oueddei. He fled to Senegal in 1990 after being ousted by current Chadian President Idriss Deby. After he fled to Senegal, the African Union called on Senegal to prosecute Habré. In 2013, the Extraordinary African Chamber was created with the sole aim to prosecute Habré. The Habré trial is the first trial of a former African head of state in another African country.

Habré faced a long list of charges including crimes against humanity, rape, sexual slavery, and ordering killings while in power. According to Chad’s Truth Commission,  Habré’s government murdered 40,000 people during his eight-year reign. At the trial, 102 witnesses, victims, and experts testified to the horrifying nature of Habré’s rule. His reign of terror was largely enabled by Western countries, notably France and the United States. In fact, on Sunday, U.S. Secretary of State John Kerry admitted to his country’s involvement in enabling of Habré’s crimes. He was provided with weapons and money in order to assist in the fight against former Libyan leader Moammar Gadhafi. Said resources were then used against Chadian citizens.

Also this week, Simone Gbagbo, former Ivorian first lady, is being tried in Côte d’Ivoire’s highest court— la Cour d’Assises—for crimes against humanity. She also faces similar charges at the International Criminal Court though the Ivoirian authorities have not reacted to the arrest warrant issued in 2012. In March 2015, Simone Gbabgo was sentenced to 20 years in jail for undermining state security as she was found guilty of distributing arms to pro-Laurent Gbagbo militia during the 2010 post-electoral violence that left 3000 dead. Her husband is currently on trial in The Hague for the atrocities committed in the 2010 post-election period.

Despite Mozambique’s debt crisis and low global gas prices, energy company Sasol will continue its gas investment

On Monday, May 30, South African chemical and energy company Sasol Ltd announced that Mozambique’s ongoing debt crisis and continuing low global gas prices would not slow down its Mozambican gas project. The company expressed confidence in a $1.4 billion processing facility upgrade stating that the costs will be made up through future gas revenues. In explaining Sasol’s decision to increase the capacity of its facility by 8 percent, John Sichinga, senior vice president of Sasol’s exploration and production unit, stated, “There is no shortage of demand … There’s a power pool and all the countries of the region are short of power.” In addition, last week, Sasol began drilling the first of 12 new planned wells in the country.

On the other hand, on Monday The Wall Street Journal published an article examining how these low gas prices are stagnating much-hoped-for growth in East African countries like Tanzania and Mozambique as low prices prevent oil companies from truly getting started. Now, firms that flocked to promising areas of growth around these industries are downsizing or moving out, rents are dropping, and layoffs are frequent. Sasol’s Sichinga remains positive, though, emphasizing, "We are in Mozambique for the long haul. We will ride the waves, the downturns, and the upturns."

       

In this post-election season and with a fiscal cliff looming, states and metros have begun the work of meeting their many challenges. They’re implementing game-changing initiatives to create jobs and restructure their economies for the long haul. The federal government needs to take notice and get on board note, Metropolitan Program policy experts Bruce Katz and Mark Muro as they urge a move for remaking our federalism and renewing the economy. Katz and Muro explain in this episode of @ Brookings.

Video

• Bruce Katz and Mark Muro: Remaking Federalism and Renewing the Economy

       

       

Baltimore police officer Edward Nero, one of six being tried separately in relation to the arrest and death of Freddie Gray, has been acquitted on all counts. The outcome for officer Nero was widely expected, but officials are nonetheless aware of the level of frustration and anger that remains in the city. Mayor Stephanie Rawlings Blake said: "We once again ask the citizens to be patient and to allow the entire process to come to a conclusion."

Since Baltimore came to national attention, Brookings scholars have probed the city’s challenges and opportunities, as well addressing broader questions of place, race and opportunity.

• In this podcast, Jennifer Vey describes how, for parts of Baltimore, economic growth has been largely a spectator sport: "1/5 people in Baltimore lives in a neighborhood of extreme poverty, and yet these communities are located in a relatively affluent metro area, in a city with many vibrant and growing neighborhoods."
• Vey and her colleague Alan Berube, in this piece on the "Two Baltimores," reinforce the point about the distribution of economic opportunity and resources in the city:
  

  In 2013, 40,000 Baltimore households earned at least $100,000. Compare that to Milwaukee, a similar-sized city where only half as many households have such high incomes. As our analysis uncovered, jobs in Baltimore pay about $7,000 more on average than those nationally. The increasing presence of high-earning households and good jobs in Baltimore City helps explain why, as the piece itself notes, the city’s bond rating has improved and property values are rising at a healthy clip."

• Groundbreaking work by Raj Chetty, which we summarized here, shows that Baltimore City is the worst place for a boy to grow up in the U.S. in terms of their likely adult earnings:

• Here Amy Liu offered some advice to the new mayor of the city: "I commend the much-needed focus on equity but…the mayoral candidates should not lose sight of another critical piece of the equity equation: economic growth."
• Following an event focused on race, place and opportunity, in this piece I drew out "Six policies to improve social mobility," including better targeting of housing vouchers, more incentives to build affordable homes in better-off neighborhoods, and looser zoning restrictions.
• Frederick C. Harris assessed President Obama’s initiative to help young men of color, "My Brother’s Keeper," praising many policy shifts and calling for a renewed focus on social capital and educational access. But Harris also warned that rhetoric counts and that a priority for policymakers is to "challenge some misconceptions about the shortcomings of black men, which have become a part of the negative public discourse."
• Malcolm Sparrow has a Brookings book on policing reform, "Handcuffed: What Holds Policing Back, and the Keys to Reform" (there is a selection here on Medium). Sparrow writes:
  

  Citizens of any mature democracy can expect and should demand police services that are responsive to their needs, tolerant of diversity, and skillful in unraveling and tackling crime and other community problems. They should expect and demand that police officers are decent, courteous, humane, sparing and skillful in the use of force, respectful of citizens’ rights, disciplined, and professional. These are ordinary, reasonable expectations."

Five more police officers await their verdicts. But the city of Baltimore should not have to wait much longer for stronger governance, and more inclusive growth.

      

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.

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• 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

      

November's U.S. Bureau of Labor Statistics (BLS) employment report showed continued improvement in the job market, with employers adding 211,000 workers to their payrolls and hourly pay edging up compared with its level a year ago. The pace of job growth was similar to that over the past year and somewhat slower than the pace in 2014. For the 69^th consecutive month, private-sector payrolls increased. Since the economic recovery began in the third quarter of 2009, all the nation’s employment gains have occurred as a result of expansion in private-sector payrolls. Government employment has shrunk by more than half a million workers, or about 2.5 percent. In the past twelve months, however, public payrolls edged up by 93,000.

The good news on employment gains in November was sweetened by revised estimates of job gains in the previous two months. Revisions added 8,000 to estimated job growth in September and 27,000 to job gains in October. The BLS now estimates that payrolls increased 298,000 in October, a big rebound compared with the more modest gains in August and September, when payrolls grew an average of about 150,000 a month.

Average hourly pay in November was 2.3 percent higher than its level 12 months earlier. This is a slightly faster rate of improvement compared with the gains we saw between 2010 and 2014. A tighter job market may mean that employers are now facing modestly higher pressure to boost employee compensation. The exceptionally low level of consumer price inflation means that the slow rate of nominal wage growth translates into a healthy rate of real wage improvement. The latest BLS numbers show that real weekly and hourly earnings in October were 2.4 percent above their levels one year earlier. Not only have employers added more than 2.6 million workers to their payrolls over the past year, the purchasing power of workers' earnings have been boosted by the slightly faster pace of wage gain and falling prices for oil and other commodities.

The BLS household survey also shows robust job gains last month. Employment rose 244,000 in November, following a jump of 320,000 in October. More than 270,000 adults entered the labor force in November, so the number of unemployed increased slightly, leaving the unemployment rate unchanged at 5.0 percent. In view of the low level of the jobless rate, the median duration of unemployment spells remains surprisingly long, 10.8 weeks. Between 1967 and the onset of the Great Recession, the median duration of unemployment was 10.8 weeks or higher in just seven months. Since the middle of the Great Recession, the median duration of unemployment has been 10.8 weeks or longer for 82 consecutive months. The reason, of course, is that many of the unemployed have been looking for work for a long time. More than one-quarter of the unemployed—slightly more than two million job seekers—have been jobless for at least 6 months.  That number has been dropping for more than five years, but remains high relative to our experience before the Great Recession.

If there is bad news in the latest employment report, it's the sluggish response of labor force participation to a brighter job picture. The participation rate of Americans 16 and older edged up 0.1 point in November but still remains 3.5 percentage points below its level before the Great Recession. About half the decline can be explained by an aging adult population, but a sizeable part of the decline remains unexplained. The participation rate of men and women between 25 and 54 years old is now 80.8 percent, exactly the same level it was a year ago but 2.2 points lower than it was before the Great Recession. Despite the fact that real wages are higher and job finding is now easier than was the case earlier in the recovery, the prime-age labor force participation rate remains stuck well below its level before the recession. How strong must the recovery be before prime-age adults are induced to come back into the work force? Even though the recovery is now 6 and a half years old, we still do not know.

      

Voters and policy makers bemoan our crumbling roads, airports, and public transit systems, but few jurisdictions do much about it. The odd thing is that historically low interest rates now make it cheap to fix or improve our public facilities. The mystery is why decision makers have passed on this opportunity.

The sorry state of the nation’s roads, bridges, and public infrastructure has been widely reported. Every few years the American Society of Civil Engineers draws up a report card on U.S. infrastructure, highlighting its strengths and shortcomings in a variety of areas—drinking water systems, wastewater, dams, roads, bridges, inland waterways, ports. The report card spotlights areas where spending on maintenance falls short of the amount needed to keep our infrastructure functioning efficiently. For many kinds of infrastructure, a bigger population and heavier utilization require us to invest in brand new facilities. In its latest report card, the ASCE awards our public infrastructure a grade of D+.

It’s hard to think of a time more attractive for public investment than years when total demand for goods and services is depressed. The Treasury’s borrowing cost for investment funds is near historical lows. Since 2011, the interest rate on 10-year government bonds has averaged 2.3 percent. Savers buying inflation-protected bonds have been willing to lend funds to the federal government at a real interest rate of just 0.22 percent.

So long as there is excess unemployment, especially in the building trades, the labor resources needed to fix or improve public facilities should be abundant and relatively inexpensive. Employment in the construction industry has rebounded as home building and business investment have improved. Nonetheless, construction employment has recovered only half the loss it experienced between its pre-recession peak in 2006 and its post-recession low in 2011. Skilled labor is not nearly as abundant as it was in 2011, but the trend in wage inflation does not suggest employers are bidding up worker salaries.

The federal government’s failure to use fiscal policy and, in particular, public investment policy to bring the nation closer to full employment represents a notable lapse in policymaking, perhaps the most grievous lapse since the crisis began. It unnecessarily prolonged the suffering of the nation’s long-term unemployed and it wasted a rare opportunity to rebuild the nation’s public infrastructure at relatively low cost.

Why did this failure occur? One reason is that policy makers were too optimistic when the financial crisis took place back in 2008. Most public and private forecasts at the time understated the severity of the economic fallout from the bank meltdown. Decision makers in Congress and the Administration may have believed infrastructure investment would be unhelpful in the recovery. Well-conceived infrastructure projects take many months to design and many years to complete. Policy makers may have believed the economic crisis would be over by the time federally infrastructure spending reached its peak.

When forecasters and Democratic policy makers recognized their error, voters had elected a Congress that supported only one kind of fiscal policy to deal with the crisis—big tax cuts focused on high-income tax payers. Whether or not such a policy could have been effective, it would not make additional funds available for infrastructure projects.

Harvard’s Lawrence Summers and Rachel Lipset recently pointed to another reason voters have failed to back a big program to boost infrastructure investment—government ineptitude. In the Boston Globe they documented the painfully slow progress of the Massachusetts Department of Transportation in overhauling a bridge across the Charles River. The bridge, which was built over 11 months back in 1912, has so far required four years for its reconstruction. No end date is in sight. In addition to the over-budget cost of the project, the overhaul has also caused massive and highly visible inconvenience for drivers, cyclists, and pedestrians trying to move between Boston and Cambridge.

Few readers can be under the illusion Boston’s experience is exceptional. Many of us pass near or use public facilities that are being rebuilt or repaired. We often see bafflingly little progress over a span of months or even years. As Summers and Lipset note, the conspicuous failure of public managers to complete capital projects speedily and on budget undermines voters’ confidence that infrastructure projects can be worthwhile.

Despite wide agreement the nation’s infrastructure needs to be modernized, we have made little progress toward that goal. On the contrary, government capital spending has shrunk significantly as a share of the economy. In 2014, net government investment spending on items other than defense dipped to a 60-year low when spending is measured as a percent of GDP. Using this indicator, net government investment has shrunk almost half compared with its level in the first decade of the century. For many reasons this is a good time to fix our public infrastructure. It is also an excellent time to overhaul public management of government capital projects.

Editor's note: This piece originally appeared in Inside Sources.

       

       

       

       

       

The 2016 Brown Center Report (BCR), which was published last week, presented a study of Common Core State Standards (CCSS).   In this post, I’d like to elaborate on a topic touched upon but deserving further attention: what to expect in Common Core’s immediate political future. I discuss four key challenges that CCSS will face between now and the end of the year.

Let’s set the stage for the discussion.  The BCR study produced two major findings.  First, several changes that CCSS promotes in curriculum and instruction appear to be taking place at the school level.  Second, states that adopted CCSS and have been implementing the standards have registered about the same gains and losses on NAEP as states that either adopted and rescinded CCSS or never adopted CCSS in the first place.  These are merely associations and cannot be interpreted as saying anything about CCSS’s causal impact.  Politically, that doesn’t really matter. The big story is that NAEP scores have been flat for six years, an unprecedented stagnation in national achievement that states have experienced regardless of their stance on CCSS.  Yes, it’s unfair, but CCSS is paying a political price for those disappointing NAEP scores.  No clear NAEP differences have emerged between CCSS adopters and non-adopters to reverse that political dynamic.

"Yes, it’s unfair, but CCSS is paying a political price for those disappointing NAEP scores. No clear NAEP differences have emerged between CCSS adopters and non-adopters to reverse that political dynamic."

TIMSS and PISA scores in November-December

NAEP has two separate test programs.  The scores released in 2015 were for the main NAEP, which began in 1990.  The long term trend (LTT) NAEP, a different test that was first given in 1969, has not been administered since 2012.  It was scheduled to be given in 2016, but was cancelled due to budgetary constraints.  It was next scheduled for 2020, but last fall officials cancelled that round of testing as well, meaning that the LTT NAEP won’t be given again until 2024.  

With the LTT NAEP on hold, only two international assessments will soon offer estimates of U.S. achievement that, like the two NAEP tests, are based on scientific sampling:  PISA and TIMSS.  Both tests were administered in 2015, and the new scores will be released around the Thanksgiving-Christmas period of 2016.  If PISA and TIMSS confirm the stagnant trend in U.S. achievement, expect CCSS to take another political hit.  America’s performance on international tests engenders a lot of hand wringing anyway, so the reaction to disappointing PISA or TIMSS scores may be even more pronounced than what the disappointing NAEP scores generated.

Is teacher support still declining?

Watch Education Next’s survey on Common Core (usually released in August/September) and pay close attention to teacher support for CCSS.  The trend line has been heading steadily south. In 2013, 76 percent of teachers said they supported CCSS and only 12 percent were opposed.  In 2014, teacher support fell to 43 percent and opposition grew to 37 percent.  In 2015, opponents outnumbered supporters for the first time, 50 percent to 37 percent.  Further erosion of teacher support will indicate that Common Core’s implementation is in trouble at the ground level.  Don’t forget: teachers are the final implementers of standards.

An effort by Common Core supporters to change NAEP

The 2015 NAEP math scores were disappointing.  Watch for an attempt by Common Core supporters to change the NAEP math tests. Michael Cohen, President of Achieve, a prominent pro-CCSS organization, released a statement about the 2015 NAEP scores that included the following: "The National Assessment Governing Board, which oversees NAEP, should carefully review its frameworks and assessments in order to ensure that NAEP is in step with the leadership of the states. It appears that there is a mismatch between NAEP and all states' math standards, no matter if they are common standards or not.” 

Reviewing and potentially revising the NAEP math framework is long overdue.  The last adoption was in 2004.  The argument for changing NAEP to place greater emphasis on number and operations, revisions that would bring NAEP into closer alignment with Common Core, also has merit.  I have a longstanding position on the NAEP math framework. In 2001, I urged the National Assessment Governing Board (NAGB) to reject the draft 2004 framework because it was weak on numbers and operations—and especially weak on assessing student proficiency with whole numbers, fractions, decimals, and percentages.  

Common Core’s math standards are right in line with my 2001 complaint.  Despite my sympathy for Common Core advocates’ position, a change in NAEP should not be made because of Common Core.  In that 2001 testimony, I urged NAGB to end the marriage of NAEP with the 1989 standards of the National Council of Teachers of Mathematics, the math reform document that had guided the main NAEP since its inception.  Reform movements come and go, I argued.  NAGB’s job is to keep NAEP rigorously neutral.  The assessment’s integrity depends upon it.  NAEP was originally intended to function as a measuring stick, not as a PR device for one reform or another.  If NAEP is changed it must be done very carefully and should be rooted in the mathematics children must learn.  The political consequences of it appearing that powerful groups in Washington, DC are changing “The Nation’s Report Card” in order for Common Core to look better will hurt both Common Core and NAEP.

Will Opt Out grow?

Watch the Opt Out movement.  In 2015, several organized groups of parents refused to allow their children to take Common Core tests.  In New York state alone, about 60,000 opted out in 2014, skyrocketing to 200,000 in 2015.  Common Core testing for 2016 begins now and goes through May.  It will be important to see whether Opt Out can expand to other states, grow in numbers, and branch out beyond middle- and upper-income neighborhoods.

Conclusion

Common Core is now several years into implementation.  Supporters have had a difficult time persuading skeptics that any positive results have occurred. The best evidence has been mixed on that question.  CCSS advocates say it is too early to tell, and we’ll just have to wait to see the benefits.  That defense won’t work much longer.  Time is running out.  The political challenges that Common Core faces the remainder of this year may determine whether it survives.