Contents

• A background on the nation’s slow growth
• Major metro areas show greatest growth downturns
• Pandemic year out-migration impacted select urban cores
• Post-pandemic urban population growth

There has been much speculation about the impact that COVID-19 has had on population changes across the country since the pandemic began in the early part of 2020. Most of this discussion has been focused on the ways COVID-19 has affected moves across the US—from large metropolitan areas to smaller ones, and from cities to suburbs—largely reflecting a “flight from density” and greater capabilities to telecommute.

Yet, there are other demographic components that have been impacted by the pandemic and hold important consequences for these shifts—a marked downturn in immigration to the U.S. from abroad, along with well documented reductions in the number of births and rising number of deaths . Changes in each of these components since the pandemic began have affected population growth in much of the U.S., especially in large metropolitan areas and their urban core areas.

The analysis below examines annual population changes for metropolitan area and core counties resulting from each of these demographic components based on recently released Census Bureau data showing annual population changes from July 1, 2019 to July 1, 2020.¹ As such, it provides the first comprehensive assessment of how domestic migration, international migration, and natural increase (the excess of births over deaths) impacted area population change during the year that the pandemic hit.

The results show that each of these demographic components continued and often exacerbated trends that were already evident before the pandemic. Many large coastal and midwestern metropolitan areas and their urban core counties registered their lowest population gains (or greatest declines) in a decade due to this combination of demographic components: accelerated domestic out-migration, lower immigration from abroad, and a decline in the excess of births over deaths. Because each of these components have different pandemic and non-pandemic related explanations, predicting post-pandemic population shifts is not a straightforward exercise.

A background on the nation’s slow growth

Any examination of population changes within the U.S. needs to first recognize that they were occurring in the context of a national population growth slowdown that was evident before the pandemic occurred. The demographic components of national growth are, respectively, immigration from abroad, as well as births and deaths to U.S. residents.

Immigration is subject to economic forces, as well as to U.S. immigration policy and enforcement practices. As Figure 1 shows, the immigration levels began to plummet in 2017-18, coincident with restrictive policies enacted by the Trump administration, and dipped further to a low of just 477,000 in 2019-20 because of further pandemic year limits. This was the smallest annual gain of international migrants in at least 30 years.

The nation’s natural increase (births minus deaths) component for 2019-20 of 677,000 represents a substantial dip from 921,000 and 996,000 in the two previous years and levels of well above 1 million annually in years prior (download Table A). This clearly reflects a sharp rise in deaths due to COVID-19, which has continued through 2021. At the same time, the downsizing of births for 2019-20 represents childbearing decisions made before the pandemic began—a pattern consistent with delayed fertility of young adult women exacerbated by the previous decade’s Great Recession. The lower birth and higher death totals for 2019-20 were notable for the nation and most areas within it.

Together, low immigration, more deaths and fewer births led to a national 2019-21 growth rate of 0.35%—the lowest in at least 120 years. This sets the context for growth patterns in most regions and metropolitan areas throughout the U.S., leaving domestic migration—movement within the U.S.—as the factor which can either exacerbate or reduce these areas’ further population downturns.

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Major metro areas show greatest growth downturns

Even before the current pandemic began, the nation’s biggest metropolitan areas experienced a topsy- turvy decade with respect to population growth. The decade began when major metropolitan areas, as a group, grew substantially greater than those with smaller populations or nonmetropolitan areas.² This could be attributed, in part, to the fact that many young adults and other potential movers were unable to obtain jobs and housing elsewhere in the aftermath of the Great Recession and remained in large metros and in core cities of those areas. The picture changed after mid-decade, as the economy picked up bringing greater movement to smaller-sized areas as well as to suburban portions of the major metros.

This is useful context for evaluating population shifts during the first pandemic year, 2019-2020. As shown in Figure 2, the aggregated populations of major metros experienced even greater declines in growth—registering growth levels that were about two-fifths of those earlier in the decade. Smaller sized metros also showed growth drops but not nearly as large as those of major metros. Nonmetropolitan areas registered a population decline.

Yet an examination of demographic components of major metro area population changes in Figure 3 indicates that increased domestic out-migration was only a partial cause of the accentuated 2019-20 growth drop. While these areas’ aggregated populations experienced domestic out-migration since 2015-16, that out-migration stayed relatively flat over the past three years. What did occur, especially in 2019-20, were lower levels of immigration from abroad and natural increase. And while smaller areas experienced in-migration over the past five years, their recent downturn in overall growth is attributable more to smaller immigration and natural increase levels.

Although there was variation across the 55 individual major metro growth patterns, 40 of them showed lower growth, or greater declines, in 2019-20 than in the previous year (download Tables B and C). Moreover, 30 registered their lowest growth in 2019-20 than in any other year of the decade.

Among those exhibiting the greatest 2019-20 population losses are the nation’s two most populous metros, New York and Los Angeles. As shown in Figure 4, each exhibited their largest domestic out-migration of the decade during the pandemic year. At the same time, both registered marked slowdowns in natural increase and, for New York, immigration from abroad.

Increased 2019-20 out-migration has affected population shifts in several other major metros including San Francisco, Minneapolis-St. Paul, Columbus, Atlanta, San Jose and New Orleans. At the other extreme, several large metros, such as Phoenix, Austin, Houston, Nashville and Tampa, experienced increased 2019-20 growth due to their rise in in-migration. In these areas, domestic in-migration more than made up for downturns in natural increase and immigration from abroad.

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Pandemic year out-migration impacted select urban cores

Much of the attention given to pandemic year population change has focused on the urban core or city areas and the impact of domestic out-migration to the suburbs and elsewhere. Again, any examination of this change needs to be aware of changes occurring over the previous decade. Just as major metro areas sustained uncommonly high growth levels in the early 2010s, so too did many of their core counties and cities, partly reflecting “stuck in place” residential patterns of young adults before moving outward in mid-decade.

Yet for core counties, in particular, the pandemic brought a noticeable downward tilt in population growth and domestic out-migration.

Figure 5 displays annual growth patterns for urban core counties and suburban counties within major metropolitan areas.[3] Core county growth for these aggregated counties began dropping noticeably since 2016-17, but for the first time in the decade, registered absolute population declines in 2019-20. As Figure 6 shows, much of this decline is due to an accentuated out-migration, though reduced immigration from abroad and natural increase also contributed to this shift.

Note that, as the pandemic year started, suburban counties saw a noticeable uptick in domestic migration consistent with the “flight from density” explanation. Yet these suburban counties still registered lower overall growth in 2019-20 because of that year’s decreases in both immigration from abroad and natural increase.

Two core counties that are prime examples of pandemic year related flight are Manhattan (New York County) in New York City, and San Francisco County, which is contiguous with the city of San Francisco. As Figure 7 indicates, both of these counties experienced extremely sharp downturns in population growth and rises in out-migration in 2019-20. While lower immigration and natural increase also contributed to each county’s slower growth, larger domestic out-migration was the dominant demographic contributor. Both counties are symbolic of dense core areas, home to large numbers of young people and professionals dependent on public transportation—attributes which have been associated with pandemic-related flight.

When examining 48 core counties in the nation’s major metropolitan areas, 39 showed lower population growth in 2019-20 than in 2018-19, and 31 of these registered their lowest annual population growth of the previous decade (download Tables D and E). While domestic out-migration contributed much to these recent county downturns, in only a few urban cores was the 2019-20 growth decline especially pronounced in comparison to recent years. Among these are Suffolk County, Mass. (where Boston is located), Philadelphia, County, Pa., Alameda County, Calif. (where Oakland is located), Ramsey County, Minn. (where St. Paul is located), Franklin County, Ohio (where Columbus is located), and Orleans Parish, Ls.

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Post-pandemic urban population growth

One of the most highly discussed topics surrounding the COVID-19 pandemic has been its impact on metropolitan and city growth. The predominant focus on migration from cities and large metropolitan areas leaves out the equally important demographic components of immigration from abroad and natural increase.

The recently released census estimates make clear that much of the population slowdown in major metropolitan areas and their densely settled core counties had to do with more deaths, fewer births and a continued downturn in immigration from abroad, as well as from out-migration of existing residents. In fact, much of this out-migration was part of a continued pre-pandemic population dispersal that took place as the nation’s economy picked up in the mid part of the 2010-20 decade, and as jobs and housing became more available in the suburbs and other parts of the country.

This is not to dismiss the impact of pandemic-related domestic migration, as it has made a huge dent in selected cities and urban counties. However, this analysis shows that much of the recent city population losses related to other demographic components.

Immigration is one long-time contributor to population gains, particularly in large metropolitan areas, whose recent downturn was due in part to pre-pandemic federal government restrictions. Declining numbers of births, and especially the spike in the number of deaths, were more directly related to pandemic.

It is difficult to predict how urban populations will fare in the post-pandemic era, say two to five years down the road. It is most likely that natural increase levels will pick up as pandemic-related deaths subside, and couples will resume something closer to pre-pandemic childbearing patterns. It is also possible—and quite likely—that the recent restrictive immigration policies will be reversed, as there becomes a greater awareness of the important role that immigration plays in bolstering the nation’s overall growth, especially among its younger labor force population.

As to domestic migration, there are real questions about how much the mid-2010s dispersal to suburbs and smaller areas will continue, and whether the selective “flight from density” in the past year will become a way of life after cities become safer, and more jobs become available there. There is some likelihood that the latter “flight” could be short lived or even reversed since much of it may have been temporary in nature. This could change as new generations of young people—a traditional source of big city growth—will once again find places like Manhattan and San Francisco attractive. These are questions that cannot yet be answered. But it is important that for analysts and policymakers to recognize that last year’s “flight”, however well publicized, is only one of several elements contributing to recent pandemic-related population changes in the nation’s major metropolitan areas.

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In cities and counties across the country, summer youth employment programs (SYEPs) stand out as some of the largest and most high-profile youth workforce development initiatives around. At least, they did before COVID-19. Like so many other aspects of life, SYEPs were thrown into disarray last year by the social distancing measures that began in March 2020. SYEPs typically place youth ages 14 to 24 in community-based or private sector jobs for 20-25 hours per week for about six weeks in the summer months. But the onset of stay-at-home orders last spring and drastically reduced business activity made a normal SYEP impossible.

As we approach our second summer shaped by the pandemic, we should take the Biden administration’s “build back better” as inspiration and think more broadly about SYEPs as youth development opportunities and critical touchpoints in the lives of young people. This is especially crucial after a year of remote schooling and isolation and when education and labor markets have been so disrupted. As of April, unemployment rates were higher and rising among Black (18.9 percent) and Latino or Hispanic (17.0) teens compared to their white (11.1 percent) peers.

How one SYEP pivoted: Lessons from Boston

Boston, like other cities, faced unprecedented uncertainty last spring just when it would normally be deep in the SYEP planning process and about to ramp up operations. Some cities chose to cancel their SYEPs, while others rapidly adapted their format and/or reduced their enrollment goals. Common adaptations included virtual internships, engaging youth as crisis responders, and relying heavily on online platforms to build a sense of community as well as provide education and training.

Under the leadership of Mayor Marty Walsh (now the U.S. Secretary of Labor), Boston directed an additional $4.1M of CARES Act funding toward the 2020 SYEP, and committed to serving the same number of youth, for the same number of hours, at the same rate of pay.

Among the revised offerings in Boston’s 2020 SYEP were two new tracks:

• Earn and Learn: To boost post-secondary aspirations after a difficult school year, Boston negotiated agreements to enroll 500 youth in college courses to earn credit and certifications such as Google’s IT Support Professional certificate while getting paid for their experiences.
• Virtual Internships:  To help support companies and community-based organizations transition their summer jobs online, Boston partnered with Northeastern University to provide a platform with ready-made projects, collaboration supports, and a quality assurance and management dashboard to engage 500 youth under the guidance of a manager or mentor.

Data collected from an end-of-summer survey showed that participants in both tracks had positive experiences relative to the control group (youth who were not randomly selected to participate in the program). Most of the youth in the control group did not find a job and among those who did, most were engaged in informal work such as baby sitting. In comparison, SYEP participants had a structured placement with either an employer or a community college, were engaged for more hours per week, and gave their job experiences a higher satisfaction rating at the end of the summer.

As described further below, based on this initial success, the city of Boston and the state of Massachusetts plan to incorporate these program models moving forward.

Virtual internships build skills similar to in-person jobs while increasing both flexibility and equity

Boston discovered that virtual internships offered the opportunity for greater project-based learning during which students could gain knowledge and skills by working during the summer to investigate and respond to a real-world, engaging, and complex question/problem/challenge under the direction of a supervisor. As a result, participants indicated that virtual internships were better matches with their career interests than in-person job offerings. Moreover, they were equally or more likely to report developing work habits and soft skills compared to those in in-person jobs such as handing in assignments on time, asking for directions when things are unclear, working in teams, and not getting upset when others corrected their mistakes.

Virtual internships can reduce geographic and time constraints that previously were barriers to participation for youth living in low-income neighborhoods or those with extracurricular and/or caregiving activities. Moreover, using an online platform as the work environment equips youth with the technology skills needed to bridge the digital divide and better prepare them for the workplace of the future, which is likely to maintain some virtual component.

State and local leaders are intrigued by the potential of virtual internships to provide both increased flexibility and equity as well as greater integration with academic learning. During the 2020-21 school year, Boston experimented with a year-round virtual internship program integrating both academic and employment-based skills. Massachusetts is also piloting a virtual internship program to provide greater access to employment opportunities with private sector employers for academic credit during the school year.

Learn and Earn programs increase post-secondary access and aspirations  

Most Learn and Earn participants (88%) completed their courses, and 78% passed their courses for credit. Learn and Earn youth were also more likely to report that their college coaches helped with career and education goal setting and by the end of the summer were 10 percentage points more likely to say they were planning to enroll in a four year college compared to the control group. They also showed increased levels of self-regulation, self-efficacy beliefs, and intrinsic interest, which significantly predict future academic performance.

The success of the Learn and Earn program has had far-reaching implications for the workforce development landscape in Boston. As a conditional cash transfer program, it provides income to young people contingent upon their participation in educational activities. It thus addresses two key obstacles that have hampered post-secondary transitions for low-income youth. The first is eliminating or drastically reducing the financial opportunity costs associated with pursuing education so that teens did not have to choose between getting a job or going to school. Secondly, by providing a college coach who acted as a mentor and tutor, the program helped address potential problems that could have derailed their coursework.

Based on the experiences of this past summer, workforce development planers in Boston are exploring the idea of expanding conditional cash transfer models, including learn and earn, for the city’s portfolio of youth programs funded through the federal Workforce Innovation and Opportunity Act (WIOA).

How can cities use SYEP to build back better for youth?

SYEPs hold tremendous potential—multiple studies in different cities found that they have positive effects. In Boston alone, the city’s partnership with Northeastern University has produced evidence that the city’s summer jobs program improves a range of academic, behavioral, and employment outcomes, with greater impacts for youth of color and a benefit-to-cost ratio of more than 2-to-1.

But they are complex endeavors to organize, and it is easier to focus on the headline figure of the number of youth placed rather than the operational, program design, and performance details that assure quality.

We should take the positive results as a challenge to clarify what we want out of these programs and to raise a corollary question: Do they have the funding, design, and execution to fully reach their stated goals? If not, we are missing out on a tremendous opportunity to engage with young people at a moment in their lives when they are both receptive and vulnerable.

Below are keys issues to focus on:

• Learn more about how to teach and assess soft skills—these skills are absolutely vital to future success in the labor market.
• Prioritize strategies that ensure every young person has an engaged supervisor or mentor—we know from the field of youth development that positive, supportive relationships with adults are as important as any other element of program design.
• Test how to use project-based learning, either in-person or virtually, that could be used widely by both schools and nonprofits as a form of work-based learning not limited to the summer.
• Use SYEPS to explore the potential of conditional cash transfer programs to promote greater economic mobility by increasing incentives and support for education, training, and employment-related activities.

This is a moment for action and investment. In the past year, young people have experienced unprecedented disruptions in their education and in the job market. American Rescue Plan funds are flowing soon to states and localities including $350 billion in flexible dollars of which some portion could be directed toward youth programs. Another $22 billion will go to local education agencies to be targeted for afterschool, summer, and extended learning time activities. Using even a relatively small allocation of these dollars, state and local leaders can build a more holistic youth workforce development system that can be sustained beyond the current crisis to better set young people up for success in life and work.

      

The COVID-19 crisis has put thousands of small businesses, from high-growth startups to Main Street employers, out of business. Importantly, the economic impacts of COVID-19 have not been equal. Minority-owned businesses and very small businesses are disproportionately concentrated in the industries most heavily impacted by the COVID-19 crisis such as restaurants, retail stores, and personal services. As a result, encouraging entrepreneurship, making it more equitable, and improving access to the financial resources needed to start and maintain a business must be a priority for policymakers as the economy recovers.

While a significant amount of attention has rightfully gone to the $350 billion in flexible funding provided to states, counties, cities, and tribes in the $1.9 trillion American Rescue Plan (ARP), this historic bill also contains an important separate investment aimed at supporting entrepreneurs and small businesses. The ARP’s reauthorization and expansion of the State Small Business Credit Initiative (SSBCI) can not only bolster business creation, but also rectify many of the longstanding entrepreneurship inequalities that exist by race, gender, and place in the United States. SSBCI provides $10 billion to states and tribal governments, providing them flexibility to design a portfolio of small business financing programs that meets the unique needs of local entrepreneurs and considers the conditions of local capital markets. Different than prior federal small business policies focused on relief, such as the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program, SSBCI will enhance recovery by providing states and tribes more flexible, patient capital to spur an inclusive entrepreneurship-fueled rebound.

SSBCI incentivizes capital access across the small business spectrum

Originally established by the Small Business Jobs Act of 2010 in the wake of the Great Recession, SSBCI provided $1.5 billion in federal funds at that time to states to restore small business lending and investing activity by sharing in financial risk. Recognizing that small businesses are a vital part of the U.S. economy and that different types of small businesses have different financing needs, SSBCI supported a range of eligible state programs: capital access, collateral support, loan participation and loan guarantee programs for credit support, and state-sponsored venture capital programs for equity support.

SSBCI-supported lending programs work with mission lenders such as community development finance institutions (CDFIs) and community banks to address the systemic market needs of socially and economically disadvantaged individuals. Venture capital (VC) programs work with non-profit venture development organizations (VDOs) and private investors to mitigate capital access challenges for high-growth startups resulting from the extreme geographic concentration of the venture capital industry.

A 2016 evaluation of SSBCI prepared by the Center for Regional Economic Competitiveness and Cromwell Schmisseur LLC (note: Eric Cromwell and Dan Schmisseur are the founders and owners of Cromwell Schmisseur LLC) found that through 2015, states expended $1.04 billion of the available $1.5 billion in funding, thereby leveraging nearly $8.4 billion in new lending and investing. Importantly, the evaluation found that SSBCI expanded entrepreneur and small business financing programs that addressed local objectives, and also found that Treasury’s role providing technical assistance helped build capacity for business financing at the state level. In other words, a well-executed SSBCI program has the potential to jump-start entrepreneurship in communities across the U.S. while addressing local economic needs.

How states, territories, tribes, and cities can take advantage of this once-in-a-generation opportunity

ARP reauthorizes SSBCI with a significantly larger $10 billion appropriation. The program allocates $6.5 billion to states by formula, disbursed in three separate payments, with a minimum total allocation of $56.2 million for each state. From there, the program will allocate an additional $1.5 billion to states to support small businesses owned and controlled by disadvantaged individuals, a set-aside that didn’t exist in the original SSBCI program. States that demonstrate “robust support” (as defined by the Secretary of the Treasury) for disadvantaged individuals will then be eligible for an incentive program that will provide a total of $1 billion in additional support to qualifying states by increasing the second-third and last-third funding allocations.

In parallel, the program has dedicated $500 million to help Native American tribal governments support entrepreneurship and business development through their own lending and venture capital programs. Finally, the program provides $500 million for technical assistance to support very small businesses and businesses owned and controlled by disadvantaged individuals. States and tribes have until September 30, 2030 to distribute all of their SSBCI money to entrepreneurs and small businesses (though the funding is distributed in thirds and states must allocate 80% of their first two distributions within three years of receiving them). This longer time horizon distinguishes SSBCI from other sources of state and local funding in ARP, which must be spent within two years.

The SSBCI is a federal-state partnership (or in the case of tribes, a federal-tribal partnership) where a state agency is designated to participate in the program and implement approved program strategies. States signaled their intent to participate in the program in May, while tribes are being given until July 30, 2021 to decide whether to participate. State officials are now turning their attention to program design decisions in preparation for the release of the application forms in June, with the state application deadline set as December 11, 2021.

To make the most of the unique opportunity provided by SSBCI to improve capital accessibility and address market inequalities, we outline three considerations for state and tribal decisionmakers:

1. Establish a team and draw on expertise from past SSBCI officials

State administrative leaders should establish a team that has responsibility for reviewing information, engaging with diverse stakeholders, developing the framework for a conceptual program portfolio, and making recommendations to state policymakers for SSBCI funding allocation decisions. State teams should be headed by senior officials such as the state secretary of commerce, with support from the governor. States should aim to hire program managers with commercial lending or investment experience, as well as employ a group of dedicated compliance officers. Wherever possible, states should draw on officials, employees, and contractors who were involved in the original SSBCI program and reach out to peers in other states for mutual information sharing. The objective should be to lead a collaborative and transparent planning process for assessing small business needs, engaging partner organizations, and marketing programs to private sector participants.

On the lending side, large financial institutions, community banks, credit unions, and community development financial institutions (CDFIs) can provide a realistic assessment of demand for capital across the full small business spectrum. Entrepreneurship support organizations, chambers of commerce, and community-based small business groups can organize and translate feedback from small business owners themselves. To ensure planning processes are inclusive, state officials should prioritize outreach to minority-serving small business organizations, and use their technical assistance resources to compensate them for their advice and planning support.

On the venture capital side, most states have existing venture development organizations with either statewide or regional service areas. These economic development partners were integral to the success of the original SSBCI program in both lending and venture capital programs and should be included in the design and implementation decisions for the relaunched initiative. Larger states with population and economic clusters spread across multiple areas are best served by strategies that build local investment capacity, like the Ben Franklin Technology Partners in Pennsylvania or JumpStart, Rev1 Ventures, and CincyTech in Ohio. In smaller or less populated states, engaging with venture development organizations with a statewide mandate and service area is a smart strategy. For example, state-supported entities such as i2E in Oklahoma, TEDCO in Maryland, and Connecticut Innovations have a proven track record of investing in and providing technical assistance to entrepreneurs statewide. Again, states should ensure this outreach is inclusive of Black- and brown-led venture funds, accelerators, and incubators in addition to those entities that led SSBCI strategies a decade ago.

2. Split funding between lending and VC based on state (or tribal) capacity and business needs

In the prior iteration of the program, most states allocated funds to both lending and investment programs, but some allocated all of their SSBCI funding to either lending programs (19 states) or venture capital programs (5 states). With the significant increase in funding provided to each state, we expect states to allocate funds to both lending and investment programs, and in doing so balance the need to move significant amounts of capital quickly, inclusively, and via channels that satisfy Treasury’s expectations that each $1 of state-funded support should leverage $10 of private capital.

A reasonable starting point for states might be to consider an equal capital allocation split between lending and investment programs, with adjustments made during the collaborative review and planning process. For states that implemented only one type of program during SSBCI, it will be important to carefully review program experiments from other states and access credible information and technical assistance.

During the program design and application phase of SSBCI, there are two important types of capacity to analyze and understand. The first is administrative capacity, where the planning team evaluates existing small business financing programs and personnel—including programs funded by SSBCI between 2010 and 2017—to better understand where the state does and does not have program management expertise. For this analysis, state agencies, state supported quasi-governmental entities, and other partner organizations like CDFIs should be recognized for their contributions and program management capabilities related to statewide economic development.

The second type is investment capacity, where the supply and demand of both credit and equity-based investment in the state should be evaluated before program design decisions are made. States should conduct a detailed and candid market analysis that includes reviewing data from independent national sources, gathering information from regional venture development and support organizations, and inviting private lenders and investors to comment on financing gaps and proposed solutions. Again, building a diverse advisory process will ensure that programs reflect on-the-ground market realities.

3. Develop more lender and entrepreneur capacity, with a focus on disadvantaged groups

In the original SSBCI program, states varied widely in how quickly they were able to deploy capital. In the reauthorized program, getting money to small business efficiently and effectively will be critical to accelerating an inclusive national economic recovery. As mentioned previously, Treasury is providing funding in three tranches, and states must transfer or obligate at least 80% of the first tranche of transferred funding to unlock the subsequent funding transfer.

However, it will not be enough for states to simply rely on their existing networks of lenders, investors, and entrepreneurs. Historically, both lenders and recipients of funding, particularly venture capital funding, have been overwhelmingly white and male. And when minority groups are involved with entrepreneurship, they tend to be disproportionally concentrated in so-called ‘Main Street entrepreneurship’, and less involved with higher growth tech and advanced sector firms. As a result, absent concerted state-level efforts, this new round of funding could inadvertently reinforce existing structural inequalities in the U.S. entrepreneurial system rather than begin to ameliorate them.

As noted above, ARP sets aside $2.5 billion in SSBCI funding for disadvantaged communities, and $500 million for tribes. If managed correctly, this funding has the potential to begin changing the biased nature of capital access in the United States. However, funding alone will not be sufficient. Federal, state, and tribal leaders will need to develop new lending and entrepreneurial support capacity for both high-growth and Main Street small businesses in order to take full advantage.

One recommendation is for Treasury to be creative and flexible with how the department allocates the $500 million in SSBCI technical assistance funding. For example, there would be great value in allowing technical assistance funding to help states and tribes develop new lending and investment capacity. On the lending side, Treasury could direct this funding in ways that help stand up new CDFIs and community banks. On the equity investment side, technical assistance funding could be used to provide legal, accounting and financial advisory services to very small investment management businesses so that they can apply to states to manage SSBCI funds, with the goal of spurring more women- and minority-led investment funds. Across the board, Treasury should encourage states to use technical assistance dollars to bolster funding into small business development center networks and other entrepreneur development resources that provide legal, accounting, and financial advisory services to very small businesses.

For their part, states and tribes could leverage a portion of the $350 billion in flexible funding contained in the ARP to put toward small business development centers, incubators and accelerators, and other entrepreneurial support. Indeed, recent guidance by Treasury makes it clear that “technical assistance, counseling, or other services to assist with business planning needs” are an acceptable use of that funding if put toward “businesses with less capacity to weather financial hardship, such as the smallest businesses, those with less access to credit, or those serving disadvantaged communities”—the exact businesses targeted by SSBCI. In Cincinnati, for example, Mayor John Cranley has proposed a $4 million investment to support the Cincinnati Minority Business Collaborative, a collection of local business development organizations invested in minority business growth, using the city’s federal relief funding.

Knowledge capture and information sharing must be a priority for the federal government 

In addition to partnering with states and tribes to get capital to entrepreneurs, Treasury should also capture information and best practices from this new phase of SSBCI. While the federal government did play that role during the original SSBCI program, it can take several additional steps to provide even stronger support for states and tribes in these areas.

First, Treasury should update its collection of best practices reports to reflect developments that have occurred since their publication in 2015. While many principles will remain the same, they could be revised to incorporate important lessons learned and best practice illustrations from states during the second half of the last decade, as well as during the COVID-19 pandemic recession. These reports could be an invaluable resource for tribal governments and programs designed to support underserved communities. As a result, any updates should solicit input from tribal leaders, Native American economic development experts, and lenders and community organizations supporting underserved groups. Once updated, Treasury should proactively distribute these best practices to states, tribes, lenders, investors, and community organizations.

In addition to maintaining state-level best practices for planning and implementation, Treasury should conduct both an interim report on the status of SSBCI in several years, as well as a final evaluation sometime between 2031 and 2033. The original SSBCI program ran until 2017, but because its evaluation report was published in 2016 using 2015 data, we don’t know the full extent of the program’s job and investment creation, particularly on the high growth venture capital side and for underrepresented groups. A program evaluation timed a full decade or more out, with robust demographic data by race, gender, place, and other important characteristics about who benefitted from the program, will allow policymakers to get a fuller sense of the economic effects of the reauthorized SSBCI program.

Like many other components of the American Rescue Plan, the SSBCI reauthorization represents a historic investment. However, the details of its implementation will be as important to its success as the sheer size of the investment. The federal government, states, and tribes have a shared interest not only in making sure that this money gets to entrepreneurs efficiently, but also in ensuring that entrepreneurs are prepared to leverage this new funding. If implemented smartly, SSBCI will be a critical part of a broader collection of programs designed to remake the nation’s economic geography and bring long-excluded groups more fully into its entrepreneurial ecosystem.

      

Last month, Brookings Metro detailed the American Rescue Plan’s (ARP) appropriation of $350 billion in extremely flexible state, local, and tribal COVID-19 recovery funds. This unprecedented amount ensures that many of these governments will have abundant resources to deploy for addressing their biggest problems.

Given those resources, now is the time for states, localities, and tribes to think big and act creatively on some of their hardest issues, whether it be closing opportunity gaps in job creation; supporting minority-owned businesses in underserved communities; advancing digital equity; empowering local real estate ownership in disadvantaged neighborhoods; expanding Medicaid; or boosting regional growth.

Among such projects, a major new initiative in Indiana offers a compelling—and transferable—example of how to leverage ARP funds to make a big move on a tough issue.

Indiana—like dozens of states—has struggled for years with both a serious job quality challenge and a deepening regional growth problem, characterized by uneven growth across the state’s communities (see Figure 1).

As discussed in a recent Brookings Metro report, Indiana needs to revitalize its drifting statewide advanced-industries sector and ensure that communities around the state participate in that revitalization. At present, smaller communities are too often not participating fully; instead, many of the state’s regions—often anchored by manufacturing-intensive cities such as Gary, South Bend, Fort Wayne, and Terre Haute—have seen their slow or negative growth fall even more during the pandemic.

So, what is Indiana’s highly transferable response?

In brief, state lawmakers are leveraging a major portion of the state’s ARP funding to tackle regional inclusion at a truly meaningful scale through a $500 million grant program supporting 10 regions across the state.

This new program is informed by various Indiana precedents, beginning with the Lilly Endowment’s Strategic Community Advancement Initiatives, which have operated since 2007, and the state’s 2015 Regional Cities Initiative. These initiatives converged with the ideas in Brookings’s report and in Gov. Eric Holcomb’s State of the State address this January, when he proposed a Next Level Regional Recovery program aimed at helping Indiana regions “develop strategies designed to improve quality of place, advance industry sector development, and grow workforce development initiatives.”

Initially, the Next Level grant program was funded at $150 million. By the time the budget deal was finalized in mid-April, the program had been renamed the Regional Economic Acceleration and Development Initiative (READI), and its budget boosted to $500 million—all of it funded by ARP.

Now, the Indiana Economic Development Corporation (IEDC) is awarding up to $50 million per region to 10 regions across the state. These grants will support the implementation of strategies focused on enhancing regions’ innovation ecosystems, entrepreneurship supports, talent attraction and development, and quality of life.

The program is being kept quite simple, in a way that should enable relatively easy adoption by other states. Counties, cities, and towns can apply for $50,000 planning grants for their regions by midsummer. By the fall, each region must convene its stakeholders to develop a strategic development plan articulating a vision and plan for investment. And by year’s end, funding decisions will be finalized.

To be sure, greater specificity about preferred uses of the program’s dollars might have been helpful to some regions (although others will likely appreciate the flexibility). With that said, the program guidance is admirably clear that it will fund not just physical assets, but also nonphysical initiatives such as talent development programs, public-private partnerships, workforce efforts, innovation voucher projects, and small business supports.

Other states might make adjustments or add their own enhancements should they follow a similar strategy of large-scale grants to support regional revitalization. READI’s rapid planning period and required 4:1 funding match (including a required 1:1 match from local government funding and a recommended 3:1 match from private and philanthropic sources) could prove challenging for some regions, especially smaller and more distressed areas most in need of community revitalization aid.

How states interpret the newly released Treasury Department guidance on the use of ARP funds will have important implications too, such as determining which industries and communities have faced negative economic impacts due to the COVID-19 pandemic, as well as deciding whether relief funds can be used as match money. States will also need to design program milestones and funding matches that make sense for their communities. Likewise, state support for shared learning and peer exchange could help communities identify promising practices and improve implementation.

For all that, though, Indiana’s READI program impressively takes advantage of the opportunity the American Rescue Plan has given to states and cities. By applying the flexible federal largesse into a strong vision, Indiana has gone big on one of the toughest challenges states face—and raised hopes for the next decade.

      

The rapid emergence and explosive growth of the Chinese middle class is one of the world’s most stunning developments. At the heart of this story is Shanghai. Nowhere in China has this new socioeconomic force been more transformative — and more intriguing — than in this pace-setting city.

The dynamism and diversity of middle-class Shanghai challenges the caricature of the People’s Republic of China as a burgeoning hegemon with a Communist apparatus set on disseminating its singular ideology and development model. China today, as exemplified and led by Shanghai, is also a crucible of change driven by a growing middle class.

Historically, Shanghai is known for its fascinating contradictions. As China’s most Westernized city prior to the Communist revolution in 1949, Shanghai has long served as a “laboratory” for evaluating the impact of transnational forces and the interaction between culture and politics, state and society, and East and West.

Shanghai was not only the cradle of China’s modernization, but was also the birthplace of the Chinese adaptation of communism.

Shanghai’s distinct entrepreneurial spirit and cultural identity (known as haipai culture) quickly gained prominence after Deng Xiaoping’s economic reform and opening up took root in the 1980s and 1990s.

Many of the important changes that have taken place over recent decades — the establishment of a stock market, foreign investment, the rise of private firms, land leasing, property booms, and expansion of higher education — either began in Shanghai or have otherwise affected this born-again city in a deep and enduring way.

These developments have contributed to the birth and growth of a new socioeconomic stratum, the members of which enjoy a middle-class lifestyle with private property, cars, accumulated financial assets, and the financial freedom to travel overseas and educate their children abroad.

In 2018, over 5 million households in Shanghai shared this lifestyle and could be considered middle-class families, constituting 91 percent of the total registered households of the city. According to a 2019 report by the People’s Bank of China, almost all registered families in Shanghai owned residential property.

The average value of household assets among Shanghai residents was 8.07 million yuan (US$1.2 million), with a significant number of families owning two or three properties.

The rapid expansion of the middle class has gradually extended beyond Shanghai and other megacities like Beijing, Guangzhou, and Shenzhen. According to McKinsey, by 2022, the proportion of China’s middle class that resides in these four megacities is expected to be only 16 percent of the country’s total middle class, a drop from 40 percent in 2002.

Overall, the middle class has increased from 15 percent of the country’s population in 2001 to 29 percent in 2020, with forecasts estimating it will reach 41 percent of the population in 2030 (numbering roughly 600 million people).

On the education front, Shanghai is home to an outsized population of foreign-educated returnees in reform-era China. In 2009, for example, more than a quarter of the country’s foreign-educated returnees chose to live and work in Shanghai.

Shanghai’s pioneering role in middle-class development and foreign engagement has become a metaphor for China’s drive to join the “global club” — a symbol of China’s coming of age in the 21st century. The question, however, is how the outside world will assess the impact and implications of this transformation.

The pervasive view in Washington about middle-class development in China is no longer one of hope for positive change but rather one of fear that this development may undermine American supremacy and security. Many believe that America’s long-standing engagement policy towards China has failed on two major grounds.

First, China’s global integration has retained much of what Chinese Communist Party leaders call “socialism with Chinese characteristics” or what critics describe as “state capitalism.”

And second, the premise that American-Chinese cultural and educational exchanges would make China more democratic has turned out just the opposite. Members of the middle class have often been seen as political allies rather than challengers to authoritarian rule.

But these two pessimistic views overlook the complexities and contradictions of China’s ongoing transformation.

Underlying the first pessimistic perspective is a concern that Chinese state capitalism has not only restricted market access for foreign and domestic private firms, but it has also promoted state-owned enterprises through unfair economic practices.

But one can also reasonably argue that Shanghai’s reemergence as an economic powerhouse and cosmopolitan city is first and foremost the result of market reform and opening up, along with factors such as the city’s distinct entrepreneurial and inclusive culture.

Shanghai’s pioneering experiments and major economic initiatives — most notably its stock market, land leases for commercial use, acceptance of foreign joint ventures and wholly foreign-owned enterprises, opening of banking and insurance business to private and foreign financial institutions, and dominance of e-commerce among its private firms — all reflect a remarkable departure from communist or socialist economic practices.

Two parallel and paradoxical evaluations can also be made regarding the political stance of Shanghai’s middle class. China’s nascent middle class tends to emphasize the status quo and is risk-averse in political views and behavior, but this may be only a transitory phase.

The nationwide criticism of the government response to the tragic death of Dr. Li Wenliang, a whistle-blower who exposed the coronavirus at the outset of the outbreak, displayed in part the middle class’ intriguing political role. In this case, Chinese citizens succeeded in pressuring authorities to change course from official vilification to valorization of Dr. Li.

In the past few years, both Chinese nationalism and anti-American sentiment have skyrocketed. But this is largely a reaction not only to Washington hawks who have labelled China as a “whole-of-society threat,” but also to a new McCarthyism targeting Chinese and Chinese-American scientists, as well as growing anti-Asian hate crimes and racism in the U.S.

The Chinese middle-class views of America, however, are neither homogeneous nor fixed.

These nationalistic sentiments coincide with cosmopolitan perspectives and strong concern for climate change, public health, food safety and nuclear nonproliferation, as well as middle-class values such as the protection of property rights, entrepreneurship, government transparency and accountability, and taxpayer rights. These goals are very much in accordance with American interests and values.

Washington should neither underestimate the role and strength of the Chinese middle class nor ostracize and alienate this force with policies that push it towards jingoistic nationalism, to the detriment of both countries and the global community.

      

Employers across America’s largest metro areas added nearly 453,000 workers to their payrolls in March. This marked the largest monthly addition to job totals in the nation’s 191 largest metro areas since October, and is a sign that a steady recovery from the pandemic recession is underway as vaccination rates increase, stimulus checks flow to households, and businesses reopen.

March’s jobs uptick continues an upward trend in employment in 2021 after employment gains slowed down at the end of 2020. Large metro area economies added 321,500 jobs in January and 371,000 jobs in February. However, even with the increasingly bright labor market outlook, many metro area economies—particularly those dominated by the hardest-hit industries—still have a long way to go to fully recover.

Job totals in most metro areas remain well below their pre-pandemic baseline 

Even with last month’s increase, total nonfarm employment in the largest metro areas remains more than 7.5 million jobs (or 6.4%) short of pre-pandemic levels from February 2020. Very large metro areas (those with populations of at least 1 million) remain most affected, with employment close to 7% below pre-pandemic levels, compared to job deficits closer to 5% in midsized (250,000 to 499,999 population) and large (500,000 to 999,999 population) metro areas.

Figure 1 visualizes the percent change in employment from February 2020 to March 2021 across the 191 largest metro areas. Tourism hubs such as New York, Las Vegas, Orlando, Fla., Honolulu, and Atlantic City, N.J. are among the metro areas where jobs remained more than 10% below pre-pandemic levels in March. Meanwhile, many metro areas across the South and in Utah are close to recovery, with jobs less than 2% below pre-pandemic levels. Five large and midsized metro areas exceeded pre-pandemic levels of total employment in March: Boise City, Idaho; Lakeland, Fla.; Ogden, Utah; Provo-Orem, Utah; and Waco, Texas.

Leisure and hospitality added the most jobs in March, but remains farthest below its pre-pandemic employment level

While most major economic sectors added jobs in March 2021, leisure and hospitality—the sector that has borne the brunt of pandemic-induced job loss—posted the strongest gains, adding 325,000 jobs nationally. Leisure and hospitality alone accounted for more than one-third of net job gains over the month.

Even so, the largest metro areas had 2.7 million fewer leisure and hospitality jobs in March than one year before. Declines in leisure and hospitality jobs still make up nearly 40% of total job losses since the start of the pandemic. With COVID-19 continuing to limit events and travel, regions that rely heavily on entertainment, recreation, accommodations, and food service sectors remain farthest below their pre-pandemic employment levels. Metro areas in which job losses in these sectors account for more than two-thirds of all job loss include major tourism hubs such as Las Vegas, Myrtle Beach, S.C., Nashville, Tenn., and Tampa-St. Petersburg, Fla.

To be sure, many other sectors contributed to March job gains, indicating that recovery is broader than Americans simply returning to restaurants and travel. Mining, logging, and construction businesses hired 145,000 new workers, while the professional and business services sector added another 120,700 employees (see Figure 3).

Even with sustained progress, complete jobs recovery may be months or years away

Although March job gains were relatively broad-based, 30 of the 191 metro areas failed to add jobs at all that month. Florida’s Ocala and Pensacola metro areas posted nearly 0.5% drops in employment, while New Orleans and Baton Rouge in Louisiana lost 900 and 600 jobs, respectively—marking their second monthly declines this year.

As this inconsistent progress suggests, the road toward a full labor market recovery in metro areas may be a long and complicated one. Figure 4 shows a scenario in which the 191 metro areas replicate their total March employment gains (453,000 jobs) in future months. Even at that robust growth rate, it would still take an estimated 18 months (until September 2022) to return to pre-pandemic job levels.

Of course, individual metro areas are recovering at different rates. If each replicated its own March job gains in future months, 71 metro areas would reach their pre-pandemic job levels within the year. Another 45 would take between one and two years to recover. A further 40 would take more than two years to recover. And the 30 metro areas that failed to add jobs in March will need to start doing so before they can project how long a full recovery might take.

Metro area economies aren’t out of the woods yet 

The upcoming April 2021 jobs report may point to a further acceleration of job gains as vaccination rates continue to rise, COVID-19 cases continue to fall, and more people safely return to work. But the differential impacts of the crisis across sectors and places—particularly, the devastating effects of the pandemic on leisure and hospitality businesses, workers, and regional hubs—suggest the potential for a protracted recovery period in many U.S. metro area economies.

      

In this challenging environment for bilateral relations, American policymakers must not lose sight of the expansive dynamism and diversity in present-day China. The caricature of the People’s Republic of China as a monolithic Communist apparatus set on exporting its ideology and development model is subject to intellectual debate. The middle class in Shanghai, China’s most cosmopolitan city, can be a potential force for reshaping U.S.-China engagement, as evidenced by the realms of higher education, avant-garde art, architecture, and the legal profession in the city. It’s under this framework that John L. Thornton China Center Director Cheng Li has written his latest book, “Middle Class Shanghai: Reshaping U.S.-China Engagement.”

On May 14, the John L. Thornton China Center at Brookings hosted Li for a presentation on the findings from his new book, followed by a panel discussion with leading academics who examined the characteristics and implications of China’s burgeoning middle class for the country and the world.

Viewers submitted questions via email to events@brookings.edu or on Twitter using #USChina.

      

مع اقتراب الذكرى السنوية العاشرة للربيع العربي، يتمّ إيلاء الكثير من الانتباه، وهذا أمر محقّ، إلى مسار الحوكمة الأوسع لمنطقة الشرق الأوسط وشمال أفريقيا على مدى العقد الماضي.

ولا تبدو الأوضاع مشجّعة، باستثناء لافت هو تونس. فصحيح أنّ الأتوقراطيين قد ولّوا، ولكن حلّ مكان الكثير من التوقّعات الرنّانة التي برزت في تلك الآونة ترسيخُ النخب المتجذّرة للحكم السلطوي. وقد شهدت الدول الأكثر حظّاً تغييرات شكلية لا أكثر في المسائل الأساسية كالديمقراطية والشفافية وحكم القانون. أما الدول الأقل حظّاً، فقد عانت قمعاً محلّياً عنيفاً وانتهاكات فاضحة لحقوق الإنسان. أمّا الدول غير المحظوظة فعلاً، فقد غرقت في الفوضى والحرب الأهلية.

وبعيداً عن النقاش العام حول التغيير الديمقراطي، يجري كفاح طويل الأمد مع محاولة الكثير من دول منطقة الشرق الأوسط وشمال أفريقيا العمل على إصلاح مؤسّساتها العامة وتحديثها لجعلها أكثر فعالية وكفاءة واستجابة، وهذه أجندة أقلّ إثارة للجدل لكنّها ليست أقلّ إلحاحاً.

تضمّ منطقة الشرق الأوسط وشمال أفريقيا بعضاً من أكبر القطاعات العامة في العالم، لكنّ غالباً ما تكون نوعية الخدمة التي تقدّمها رديئة، إذ تأتي مرتبة المنطقة بعد الكثير من المناطق في العالم (باستثناء جنوب آسيا وأفريقيا جنوب الصحراء) في المؤشرات العالمية لفعالية الحكومة ونوعية التنظيمات والسيطرة على الفساد. والمقلق أكثر أنّها واحدة من المناطق القليلة في العالم التي تراجعت مرتبتها في هذه المؤشّرات على مدى العقد المنصرم.

وقد اكتشفت حكومات منطقة الشرق الأوسط وشمال أفريقيا في خلال جائحة فيروس كورونا المستجدّ الأهمّية الشديدة للمؤسّسات الحكومية. ففي البداية، من خلال مزيج من الحظّ والمهارة، تمكّنت دول المنطقة من إبقاء معدّلات الإصابة والوفاة فيها أدنى بكثير من المناطق التي أصيبت بشدّة في أوروبا وأمريكا الشمالية وأمريكا الجنوبية.

وشهدت المنطقة حالات متعدّدة من التنسيق الفعّال في السياسات بين هيكليات بيروقراطية متصارعة أحياناً. واستفادت عدة دول من استثمارات وخبرات سابقة في مجال الحوكمة الإلكترونية والحوكمة المتحرّكة لمعالجة تحديات مثل تعقّب المخالطين والتعلّم عن بعد. وعلى الرغم من القيود المالية الضاغطة، بادرت الحكومات إلى اعتماد إجراءات مالية ونقدية غير مسبوقة للتخفيف على الأقل من بعض التداعيات الاقتصادية للجائحة على شرائح المجتمع الضعيفة.

بيد أنّ الحاجة واضحة وملحّة لإجراء إصلاحات مؤسّساتية أوسع تتخطّى إلى حدّ بعيد تلك المعتمَدة للاستجابة لجائحة فيروس كورونا المستجد. فكما برهنت الاحتجاجات الواسعة النطاق التي اندلعت في العام 2019، يتضاءل استعداد “الشارع العربي” بالقبول بنوعية تقديم الخدمات غير المتوازية أو المعاملة التفضيلية التي تلقاها الشركات الكبيرة ذات المعارف، وأصبح أكثر إدراكاً للفساد والمحسوبية على أشكالها.

لقد سلّطت جائحة فيروس كورونا المستجدّ الضوء على الحاجة إلى مؤسّسات مرنة ومستجيبة يمكنها التكيّف مع الظروف المتغيّرة والتنسيق لوضع سياسات معقّدة. في الوقت عينه، بيّن التقلّب الذي شهدته مؤخراً أسواق النفط والتحويلات المالية من الخارج بوضوح أنّه ينبغي على المنطقة تنويع مصادر عائداتها بشكل طارئ وجعْل نفقاتها الحكومية أكثر فعالية.

وتحديات القطاع العام التي تواجهها المنطقة على مدى العقد القادم واضحة وهائلة على حدّ سواء. فمن أجل استيعاب الضغوط الديمغرافية الجارية أصلاً، سينبغي على الحكومات أن توسّع نطاق الخدمات التي تقدّمها لمواطنيها ونوعيّتها في الوقت عينه، مع التركيز بشكلٍ خاص على المناطق المتأخّرة والمجتمعات المحرومة.

وعلى الحكومات تعليم الجيل القادم على المنافسة في اقتصاد عالميّ متغيّر، وعليها أن تشكّل وجهة جذّابة لرؤوس الأموال، فتؤمّن بيئة الأعمال التي ستسهّل الاستثمار الأجنبي والمحلّي. وعليها كذلك أن توسّع نطاق أنظمة الرعاية الصحّية الشحيحة التمويل لتطال بشكل أفضل المناطق والسكّان المهملين. وعليها أيضاً أن تكون سريعة بما فيه الكفاية للاستجابة لمجموعة من التهديدات المتداخلة، من التغيّر المناخي وشحّ المياه إلى تحوّلات سوق الطاقة العالمية. وستتطلّب هذه التهديدات استجابة متكاملة ومستدامة ومتنوّعة على كامل نطاق الحكومة.

ومن بين كل التحديات التي ينبغي على حكومات منطقة الشرق الأوسط وشمال أفريقيا مواجهتها، لعلّ التحدّي الأكثر شحناً بالسياسة هو واقع أنّ عقدها الاجتماعي التقليدي، الذي يبادل الرضوخ السياسي بوظائف في القطاع العام، هو في نهاية المطاف صفقة فاوستية. فالمشكلة في العقد الاجتماعي القائم ليس حصراً غياب استدامته المالية، علماً أنّ هذا التهديد حقيقي وسيتفاقم مع مرور الوقت.

والمشكلة أنّ هذه الصفقة تقوّض من حكم أهل الكفاءة وتعوّق إنشاء القطاعات العامة ذات الأداء العالي التي ستكون ضرورة لمعالجة المشاكل الاقتصادية والاجتماعية الأكثر إلحاحاً في المنطقة. وتنشئ هذه الصفقة أيضاً محفّزات خاطئة تقوّض الأهداف المهمّة الأخرى، على غرار تنويع اليد العاملة.

وفي عملية تجميع أجريناها مؤخراً لدراسات حالات معمقة تحت عنوان “إصلاح القطاع العام في منطقة الشرق الأوسط وشمال أفريقيا: دروس تجارب لمنطقة في حالة تحوّل” (Public Sector Reform in the Middle East and North Africa: Lessons of Experience for a Region in Transition)، نلقي نظرة عن كثب إلى أمثلة لافتة عن إصلاح القطاع العام في منطقة الشرق الأوسط وشمال أفريقيا من العقدين المنصرمين.

ويمنح تقييمنا الأمل لمستقبل المنطقة عبر تبيان أنّ التغيير التحويلي ممكن. وسيكون هذا التغيير لازماً بالفعل. فقد تجتاح الاندفاعةُ الثورية التي أطلقها الربيع العربي منذ عقد من الزمن وأصداؤها التي برزت مؤخّراً في العام 2019 المنطقةَ من جديد بعد أن تتوقّف إجراءات الإقفال وتحاول الاقتصادات تحريك عجلاتها من جديد ويصبح واضحاً النطاقُ الكامل للضرر الذي لحق بالوظائف وسبل كسب العيش بفعل جائحة فيروس كورونا المستجدّ. وحتّى إن لم تتبلور هذه الضغوط، حري بالحكومات أن تستفيد من الفرصة التي أتاحتها الجائحة لتحقيق تغيير جذري.

ومع أنّ الحكومات العربية غالباً ما تنظر إلى الخارج بحثاً عن أفكار للإصلاح، نرى أنّ المنطقة تزخر بالتجارب التي ينبغي على الممارسين أخذها بعين الاعتبار. وقد لا تتماشى تماماً مع المعرفة والممارسة العالميتين لكنّها لا تختلف عنهما بالكامل. فعلى قدر ما تختلف الدول في منطقة الشرق الأوسط وشمال أفريقيا، لا تختلف هذه التجارب إلّا في بعض النواحي وغالباً ما يكون هذا الاختلاف بالمستويات وليس بالنوع.

ستكون الدروس المستقاة من هذه التجربة، أجيّدة كانت أم سيّئة، قيّمة للغاية للجيل المقبل من الإصلاحيين العرب في شروعهم في مهمّتهم الحاسمة التي تقضي بالحرص على أن تكون حكوماتهم وقطاعاتهم العامة قادرة على الاستجابة للتحديات التنموية البارزة، المعروفة وغير المعروفة، التي سيُطلب منهم معالجتها في العقد القادم.

      

As we approach the tenth anniversary of the Arab Spring, much attention is rightly being given to the broader governance trajectory of the Middle East and North Africa (MENA) region over the last decade.

With the notable exception of Tunisia, the story is hardly encouraging. The aging autocrats are gone, but many of the heady expectations of that time have given way to the consolidation of authoritarian rule by entrenched elites. The luckiest countries have witnessed merely cosmetic changes on key issues of democracy, transparency and rule of law. The less fortunate have witnessed brutal domestic crackdowns and flagrant human rights abuses. And the truly unlucky have descended into chaos and civil war.

Beyond the public debate over democratic change, another long-standing struggle is taking place as many MENA countries work to reform and modernize state institutions to make them more efficient, effective and responsive – an agenda that is less controversial but no less urgent.

The MENA region is home to some of the largest public sectors in the world, yet the quality of service delivery is often poor. The region trails most other parts of the world (with the exception of South Asia and sub-Saharan Africa) on global indices for government effectiveness, quality of regulation and control of corruption. Even more troubling, it is one of the few places in the world that has actually lost ground on these indices over the past decade.

During the Covid-19 pandemic, MENA governments have rediscovered the critical importance of government institutions. Initially, through a combination of luck and skill, regional countries were able to keep their mortality and morbidity rates well below those of hard-hit regions in Europe, North America and Latin America.

The region witnessed many instances of effective policy coordination across traditionally conflicting bureaucratic structures; several countries also built on earlier investments and expertise in e-governance and m-governance to address challenges such as contact tracing and distance learning. Despite pressing financial constraints, governments were quick to adopt unprecedented fiscal and monetary measures to mitigate at least some of the pandemic’s economic impact on the vulnerable segments of society.

Yet the need for broader institutional reforms that go well beyond those adopted in response to the Covid-19 pandemic is immediate and palpable. As the large-scale protests of 2019 demonstrated, ‘the Arab Street’ is becoming less willing to accept the uneven quality of service delivery, or the preferential treatment of large and well-connected firms. Corruption and cronyism are increasingly being recognized and called out for what they are.

The Covid-19 pandemic has underscored the need for flexible, responsive institutions that can adapt to changing circumstances and coordinate complex policies. At the same time, the recent volatility in oil markets and external remittances has made clear that the region must urgently diversify revenue sources and make government expenditures more efficient.

The public sector challenges confronting the region over the next decade are both clear and massive. To cope with the demographic pressures that are already underway, governments will need simultaneously to expand the scope and quality of services that they provide to their citizens, paying particular attention to lagging regions and under-served communities.

They will need to educate the next generation to compete in a changing global economy. They will need to serve as an attractive destination for capital, providing the business environment that will facilitate foreign and domestic investment. They will need to extend their under-funded healthcare systems to serve neglected regions and populations better. And they will need to be agile enough to respond to a host of cross-cutting threats – from climate change and water scarcity, to global energy market transitions – that will require an integrated, nuanced and sustained response across the whole of government.

Of all the challenges that MENA governments must confront, perhaps the most politically fraught is the reality that their traditional social contract, which trades political acquiescence for public sector jobs, is ultimately a Faustian bargain. The problem with the existing social contract is not merely its lack of fiscal sustainability – although that threat is real and will only get worse with time.

The problem is that this bargain undermines meritocracy and hinders the creation of the sort of high-performing public sectors that will be necessary to address the region’s most pressing economic and social problems. It also creates perverse incentives that undermine other critical objectives, such as labour force diversification.

In a recent collection of in-depth case studies, Public Sector Reform in the Middle East and North Africa: Lessons of Experience for a Region in Transition, we take a deep look at notable examples of public sector reform in the MENA region from the past two decades.

Our assessment provides hope for the region’s future by illustrating that transformative change is possible. And change will be needed. The revolutionary impulse unleashed by the Arab Spring a decade ago and its more recent echoes in 2019 may again sweep through the region once the lockdowns are lifted, economies attempt to restart and the full scale of damage to jobs and livelihoods caused by Covid-19 becomes clear. And even if such pressures do not materialize, governments would be wise to not let the opportunity for disruptive change presented by the pandemic to slip by untapped.

While it is common for Arab governments to look elsewhere for reform ideas, we believe that there is a wealth of experience within the region that practitioners should consider. It may not align perfectly with global knowledge and practice, but neither is it wholly distinct. To the extent that MENA countries differ, it is only in certain areas, and often more by degree than in kind.

The lessons from this experience, both good and bad, will be of great value to the next generation of Arab reformers as they embark on the critical task of ensuring that their governments and public sectors can respond to the pronounced development challenges, both known and unknown, that they will be asked to address during the coming decade.