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In developing countries and emerging market economies, the remote rural population is often the poorest of the poor. Some countries, for example China and Brazil, have nevertheless made successful efforts to bring electricity even to remote areas, and to improve access to all-weather roads. But in developing countries in particular, rural subsistence farmers have typically lived outside the market economy, and still have limited access to electricity, paved roads, clean water or basic health services. As noted above, successful efforts are being made in some countries to make grants for services conditional on keeping children in school. Cheaper and more flexible ways of remitting migrants earnings can also help raise their extended families out of poverty. Inclusive Growth in those countries will entail strong efforts to provide better health, transport and educational facilities for those rural populations.

3.6. Acting spatially to foster policy complementarities: cities matter for Inclusive Growth Economic and social inequalities have a spatial dimension. As discussed in Chapter 1, income inequality within cities has been rising faster than inequality within countries, essentially due to the skills distribution gap, which is wider in cities. Inequalities among large regions within a country result mainly from differences in growth rates and the typical policy response is to search for ways of unlocking the untapped growth potential of lagging regions. OECD research points to the potential of a place-based approach to turning around under-performing regional economies (OECD, 2011c and OECD 2014c). In addition, cities, especially large metropolitan areas, have higher costs of living, particularly because of housing and transport, which lower the purchasing power of low-income groups, forcing them to live in areas with limited access to public transport and job opportunities.

Designing policies to target spatial inequalities requires policymakers to consider the trade-offs and complementarities involved in both the objectives they aim to target and the channels through which they do so. Addressing income inequalities may encompass both traditional transfers to households – targeting people -- and mechanisms aimed at ensuring equity in the provision of public goods and services – targeting places (Figure 3.7). Similarly, policies with the objective of strengthening equal opportunities may be focused directly on households or individuals (economy-wide employment and education policies, for example) or they may involve regional or local development strategies designed to tap the sources of potential growth in specific localities. On average, OECD governments spend about as much on public services with a distinct spatial component as they do on cash benefits and transfers to households.

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Source: OECD Purely “people-based” policies – based on personal circumstances and independent of location – can efficiently target resources to poor households, but more is needed to deliver a holistic and

sustainable shift towards more Inclusive Growth. In particular:

 Better access to basic public services, such as education, health and public safety is fundamental to more Inclusive Growth, and the provision of public services has an intrinsic place-based character. Amenities in cities are rarely distributed evenly, resulting in higher housing prices and rents in areas with good public services, particularly schools. Poor-quality services (especially in education and training) may mean that individuals in economically distressed places are ill-equipped to pursue opportunities elsewhere or to generate new activities where they are.

 Mobility can help address supply and demand mismatches in the labour market, but people may be reluctant or unable to move. Mobility costs include not only transportation and the costs of changing residences but also the possible loss of family links, social networks and other forms of social capital, which are particularly important for people suffering from multiple deprivations.

Networks can be important in reducing reliance on services such as child care and elderly care, thus enabling carers—often women—to work.

 Better design of social housing can help integrate low-income households in the wider community. Some recent work suggests that not only the quantity and quality but also the design of social housing can have a significant effect both on the well-being of residents and on the impact of social housing on surrounding communities. Integration of affordable housing in functioning street networks, for example, appears to be much more promising than the creation of large, physically segregated estates (Box 3.11).

Knowledge of local conditions can help policy makers to identify potential synergies among

competing objectives and to manage the trade-offs between them that may arise. For example:

 Policies that improve access to education and training, transport and other essential services can serve equity objectives, while also supporting growth in a particular place, and they require an understanding of local conditions. For example, policies aimed at improving the supply of affordable housing need to be co-ordinated with transport planning, service provision and labour-market interventions in order to minimise the risk that such policies will result in the creation of ghettoes.

 Active labour market policies (ALMPs) can facilitate a better match of jobs with skills, thus lowering unemployment and making a strong contribution to social equality. Yet, ALMPs still need a place-based dimension. Policies concerned with improving information about labourmarket conditions, or with improving targets for matching, training or subsidising employers are more effective when designed at the regional or local levels, since information about local conditions is crucial to success (Froy and Giguère, 2010).

 Green growth policies can contribute to more Inclusive Growth in urban areas. Some urban green growth policies have much potential for fostering employment and innovation (OECD, 2013g). For instance, integrating land-use, transport and economic development planning can contribute to outcomes that are greener (increasing reliance on public transport), more equitable (improving access to labour markets for disadvantaged areas) and more efficient (reducing congestion, commuting times, etc.).

Box 3.11 Spatial segregation with metropolitan areas

Socio-economic inequality in urban areas is generally associated with strong residential segregation with the low income populations concentrated in disadvantaged neighbourhoods. In developing countries, migration into poor cities from an even poorer rural hinterland has led to the formation of slums. Slums have been almost eradicated in advanced economies but deprived neighbourhoods have become a major issue in many metropolitan areas in advanced economies, including in the wealthiest cities. In many cases, this is also related to social exclusion of certain ethnic minorities. Poor people living in deprived neighbourhoods typically have poor urban amenities and limited access to public transport and other essential public goods and services. Labour market exclusion can become intergenerational, affecting a wide range of factors including health outcomes – a fact recently demonstrated dramatically in a map showing the variation in life expectancies associated with living adjacent to different metro stops in London (James, 2012).

Where more disadvantaged people are concentrated in one place, problems of relative exclusion can be compounded by an absence of positive social networks and low aspirations among the populations. OECD work has shown that social support networks – an important dimension of inclusiveness - tend to be weaker among the most disadvantaged social groups, including the poor and the less educated. A survey conducted by Gallup World Poll found that on average for OECD countries, about 93% of people with tertiary education report having someone to count on, but only about 84% of people with below an ‘upper secondary’ education have someone to count on (Figure 3.8) (OECD 2013h). A similar pattern applies between upper and lower income quintiles. While only 73% of respondents in the bottom income quintile report having someone to count on in case of need, the proportion increases progressively with income. On the whole, the residents in distressed neighbourhoods tend to have poorer social networks which can be crucial to employment prospects.

Figure 3.8 In OECD and BRIICS countries, the low educated and the poor have weaker social support

–  –  –

Note: Social connections vary substantially across OECD countries. They are measured by the perceived social network support in case of need.

Source: OECD calculations based on Gallup World Poll Yet although intra-urban segregation often creates enormous challenges in specific neighbourhoods, neighbourhood-level policy interventions have a mixed track record, at best (see, e.g., Cheshire et al. (2008);

Mayer et al., 2013; Faggio, 2014). The designation of special zones at the intra-urban scale too easily leads to displacement of activity or to very different treatment of individuals and households whose conditions are in fact quite similar. Thus, while place-based approaches that reflect the conditions of cities are regions are often required, interventions at very small territorial scales need to avoid creating spatial distortions and focus on overcoming spatial segregation via instruments that improve access to opportunity and integrate distressed

neighbourhoods into the wider social and economic environment.

The problem of intra-urban spatial segregation is closely linked to that of affordable housing, because many affordable housing policies – particularly the direct public provision of social housing on a large scale – can have the effect of addressing one symptom of exclusion (lack of adequate and affordable housing) while aggravating another (the spatial concentration of the poor). Critics have long tended to link the provision of social housing to the clustering of “social bads” like crime and delinquency in cities, and this has often prompted local resistance to the provision of social housing. However, failure to provide affordable housing can block low-income people out of urban labour markets and cut them off from other urban amenities and opportunities. Fortunately, more nuanced research suggests that better design can help improve both the supply of social housing and its social impact. In many countries, post-war housing estates tended to be designed so that they were, physically, rather inward looking: the aim was to create a sense of community but the result was often to reduce spatial interlinkages with the surrounding city. Moreover, they often created over-complex, and as a result, under-used spaces, which were then populated by, e.g., large groups of unsupervised children and teenagers. This pattern of activity, and the segregation of residents, is not nearly as pronounced in non-estate street networks (Hillier, 2012; and Al Sayed and Hanna, 2013).

These issues are even more acute in fast-urbanising middle-income and developing countries.

Settlement and urban patterns are still changing fast in those countries, so decisions made today can have lasting consequences. Of particular importance is the strengthening of land rights, which are often informal and poorly protected, and the related question of informal settlements which spring up on the fringes of many such cities, often with undesirable social, economic and even environmental consequences.

Sometimes, though, goals compete with, rather than complement, one another. Cities and regions must recognise and manage the trade-offs that may arise among policy objectives, and effective coordination of different sectoral policies is important. It is often impossible for national-level policy makers to predict and manage policy trade-offs; local knowledge is often critical to understanding conflicts that may arise, and thus cities often provide the best setting for successful complementary policies. Uncoordinated efforts to address inequality and exclusion may lead to poor or even perverse results. For


 Attracting skilled workers and increasing the share of knowledge-based activities in urban economies might improve labour markets prospects for the high skilled, but this further increases wage difference between low- and high-skilled workers and drives intra-urban inequality. Urban policy makers should also attempt to upgrade the skills of the local low skilled workforce.

 Regenerating a neighbourhood may improve opportunities for business and homeowners, but it may also push up rents and displace the disadvantaged. To ensure affordable housing options for low-income households within rapidly transforming neighbourhoods, housing policies, which are often “people-based”, must take the spatial inequality more seriously and co-ordinate with urban development policies.

 New eco-neighbourhoods have been open to criticism for an excessively isolated approach (lack of contacts with the existing city) and the effects of gentrification that often go hand-in-hand with their inclusion in the city (Kamal-Chaoui and Plouin, 2012). To ensure that a green growth policy in the building sector contributes to greater social balance, greening policies should focus on social housing, and care should be taken to ensure that energy retrofit projects of neighbourhoods do not penalise residents‟ access to housing.

The “competitive cities” paradigm that prevailed in many places prior to the crisis needs to be rethought. In the past, growth- and competitiveness-oriented urban policies focused above all on the need to create business-friendly conditions to attract footloose investors in a globalising world of mobile capital.

While cities clearly need to attract financial and human capital – productive firms and highly skilled people – this paradigm often failed to combine attractive conditions for investment and an improved quality of life in a place.

The competitive cities paradigm may also have often favoured the well-off over the disadvantaged. At the very least, the distributional consequences of growth strategies were given little consideration and in many places there was a tendency (often for political reasons) to favour highly visible investments in physical infrastructure and discrete “development projects” rather than investments in human capital, essential services and quality housing. Policy makers should focus more seriously on integrated strategies for cities, rather than about discrete interventions that address the needs of specific constituencies.

Integrated, place-based approaches also give cities sufficient freedom and flexibility to adopt and implement packages that reflect their particular conditions and needs. Even where policy frameworks are set by national governments (e.g., active labour market policies), cities need the freedom to implement them in ways that reflect local needs and meet local strategic objectives agreed on in partnership. A focus on locally flexible policy-management frameworks would provide local city agencies, including branches of national governments, with a greater say in how interventions are designed, budgets are managed, performance targets are set and activities are outsourced, all within the limits set by accountability requirements (OECD 2009b, Froy et al. 2011). Initiatives to address skills mismatch, including through training of low income populations and ethnic minorities, can also be better addressed at the urban scale (OECD, 2009a) (Box 3.12).

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