The 13th Brookings Blum Roundtable will examine the future of work in the developing world: the jobs that will dominate labor markets and the terms of employment; the skills they demand and how those skills will be acquired; and the implications for development and society.

The Roundtable will be guided by three overarching questions: How will the world of work change in the next 15 years, how can workers and companies from developing economies compete, and how can workers’ rights and benefits be maximized? What are the most promising innovations to support skills acquisition and certification, job matching, and talent identification? What policies and investments should governments, corporations, educators, and donors prioritize to prepare for this future?

      

 

 

However, none of these developments has been without controversy in Turkey’s highly polarized politics. For the refugees, fear of backtracking is a constant worry.

That night, as the sound of fighting could be heard in Ankara, Istanbul, and elsewhere with low-flying jets, helicopters, and gunfire reminding Syrians of the horrors of the war they had escaped, many feared the worst. They were among the first to quickly start stockpiling basic necessities. Also familiar must have been the images of people going out on streets as they heeded the elected president’s call to resist the coup. Indeed, the Syrian revolution had started with civilians confronting security forces and many remembered how they were cut down and the revolution descended into one of the most brutal civil wars of our era. On many minds was also the backlash against Syrians in Egypt after the elected Morsi government was deposed in July 2013.

As the night unfolded and the lack of support for the coup became clear, the crowds eventually started winning the streets back. By then Syrian refugees had started participating in the demonstrations, despite other Syrians urging their compatriots via social media and other venues to stay out of Turkey’s internal politics. Many Syrians now also participate in the nightly “democracy vigils” called by the government throughout the country.

So what impact will all this have on the Syrian refugees in Turkey and on the recent European Union deal with Turkey to stem the flow of refugees going to Europe?   

The fact that all political parties in parliament—from the pro-Kurdish People’s Democratic Party to the secular Republican People’s Party and the Nationalist Movement Party—stood at the outset with  President Tayyip Erdogan’s Justice and Development Party (AKP) against the coup signaled, at least for now, a less divisive political discourse in the country. However long that lasts, it remains unlikely to impact political parties on key policy issues, including their differences on Syrian refugees.

The decision to provide work permits with fairly tight restrictions for Syrians is likely to remain unchanged. At any rate, few have taken advantage of it since work permits come with minimum wages and social security payments, which makes the workers more expensive and less desirable to employers. As for the proposal to grant citizenship to up to 300,000 Syrians over a number of years based on skills and other criteria, that too could potentially also endure, but it has engendered much opposition. A lot will depend on how much political capital the government wants to spend on this as opposed to the many other pressing issues in the post-coup period.  

As for the EU deal with Turkey on migrants, whereby Turkey would be granted $7 billion for stemming the flow of migrants to Europe while Turkish citizens would be granted visa-free travel to the EU for up to three months, it was already under strain as human rights groups and others attacked the deal as a betrayal of the right to asylum. Furthermore, Turkey’s government refused to amend its anti-terrorism laws—a precondition for the visa waiver program. The deal would have helped Turkey fund programs to address issues like schooling for Syrian children, but such programs now will likely be delayed. In the meantime, while the EU strongly opposed the coup, it also warned against overreacting and engaging in witch hunts with little judicial restraint. But that is what appears to be happening with thousands removed from their posts and many others detained. To further strain ties, the AKP now threatens to bring back the death penalty even though Turkey has signed the European Convention on Human Rights, which bans capital punishment. The EU was quick to respond: “Let me be very clear,” the union’s foreign policy chief Federica Mogherini said “No country can become an EU member state if it introduces the death penalty.” The death penalty decision, if it comes, promises to be very divisive internally.   

As to the Syrian refugees, they are undoubtedly relieved at the failure of the coup. Their worries now center on how soon Turkey stabilizes. If the economy falters in significant fashion and further political turmoil erupts, their situation in Turkey will only become less certain and more difficult. Also, the fact that some have stepped into the political arena poses further risks especially if the AKP uses the coup to strengthen its majoritarian approach to politics while further curbing legitimate dissent. 

       

 

 

It seems that terrorism and political violence are becoming more prevalent and intense. They have been, however, long brewing and have affected many countries around the world. In the 1980s, my home country, Peru, suffered immensely from terrorism: The badly called “Shining Path” organization, with its communist ideology and ruthless tactics, terrorized first rural communities and then large cities with deadly bombs in crowded places and assassinations of official and civil society leaders.

A few years ago, Phil Keefer, lead economist at the World Bank, and I edited two books on what we perceived to be the main security threats of our time: terrorism and drug trafficking. We thought that the answers had to come from research, and we tried to gather the best available evidence and arguments to understand the links between these security threats and economic development.

After the myriad of recent terrorist attacks—in Istanbul, Munich, Nice, Bagdad, Brussels, and Paris, to name a few—we found it important to recap lessons learned. These lessons are not just academic: Understanding the root causes of terrorism can lead to policies for prevention and for reducing the severity of attacks. To defeat terrorism, a policy strategy should include three components: intelligence, integration, and development.

Intelligence. A terrorist attack is relatively easy to conduct. Modern societies offer many exposed and vulnerable targets: an airport, a crowded celebration by the beach, a bus station at peak hours, or a restaurant full of expats. And the potential weapons are too many to count: a squadron of suicide bombers, a big truck ramming through the streets, two or three comrades armed with semi-automatic guns. It is impossible to protect all flanks, and some of the measures taken to prevent the previous terrorist attacks are, well, frankly silly. For a strategy to have any chance against terrorism, it should be based on intelligence. Intelligence implies understanding the motivations, leadership structure, and modus operandi of terrorist organizations, and developing a plan that can anticipate and adapt to their constantly morphing operations. Importantly, the ideological dimension should not be ignored because it explains the extremes to which terrorists are willing to arrive: A suicide attack requires a person who has muted both his basic survival instinct and all sense of natural compassion for others. It was radical communism in the 1970s and 1980s; it is a perverted and fanatical misrepresentation of Islam nowadays. An intelligence strategy that targets the sources of terrorism, both the perpetrators and the social movements that underlie them, should be the first component of the campaign against terror.

Integration. Foreigners living in the U.S. like to make fun of Hollywood movies and the social rituals that Americans go through each year: Halloween and Thanksgiving are in many respects more popular than Christmas. Yet, thanks to these cultural norms along with widespread economic opportunities and equality under the law, the U.S. has mostly succeeded in what many countries, including some European ones, have failed: the integration of people of different ethnic, religious, and cultural backgrounds. The U.S. is no paradise of integration, but the social melting pot does work for immigrants: Within a generation or two, Mexican Americans, Italian Americans, Iranian Americans, and so forth are just Americans, with a single national identity and, at least by law, the same rights and obligations. In some European countries, in contrast, many immigrants feel like second-class citizens. There is little that can inflame more hatred than the feeling of being excluded, and a misguided search for a sense of belonging can be the trigger that incites religious, ethnic, and ideological radicalization. This may explain why France has suffered more from terrorist acts perpetrated by their own residents than the U.S. or U.K., that paradoxically are substantially more engaged in the war against ISIS and al-Qaeda. Social integration—especially of immigrants—through explicit and targeted programs from education at an early age to immigration and citizenship reforms is a key component in the fight against terrorism.       

Development. One of the puzzles in the evidence on terrorism is that while it tends to be led (and sometimes even perpetrated) by well-off and educated people, it represents the complaints and grievances of the disenfranchised, the poor, and the unemployed. The hundreds of thousands of unemployed and discouraged young men in places as diverse as Afghanistan, Somalia, South Africa, and Brazil are the potential armies of common and political violence. In South Africa and Brazil, lacking an overriding communal ideology, this violence is expressed in robberies, homicides, and common crime. In Afghanistan, Iraq, and Syria, the violence is mostly political, taking the shape or at least the cover of religious fundamentalism. Somehow in Somalia, violence has adopted both criminal and political expressions: We worry about Somali pirates as much as we do about Somali jihadists. (On the link between vulnerable youth and violence, it is telling that the name of the main terrorist organization in Somalia, al-Shabaab, means literally “The Youth”) But there is hope. A couple of decades ago, thousands of unemployed young people joined terrorist organizations in Cambodia, Colombia, and Peru, when these countries were fragile. Since their economies started growing and providing employment, these armies for criminal and political violence have started to fade away. Investing in development, conducting economic reforms, and providing (yes, equal) opportunities is the third component of a winning strategy against terrorism.

A sound military and police strategy is undoubtedly important to counter terrorism. However, it’s not sufficient in the long run. If we want to defeat terrorism permanently and completely, we need to tackle it comprehensively, using political and military intelligence, social integration, and economic development.

For more, please see Keefer, Philip and Norman Loayza, Editors. Terrorism, Economic Development, and Political Openness. Cambridge University Press. 2008.

       

 

 

Even before the conflict, Syria’s private land administration was not particularly effective. According to rough prewar estimates by the Ministry of Local Government, only about 50 percent of land in Syria was officially registered. Another 40 percent had boundaries demarcated but had not yet been registered. The multiple land registries were paper-based and often not properly stored. Plans for automation and simplification of registration procedures were interrupted by the conflict. 

Popular practices at times undermined the accuracy of the land registries and weakened the security of land tenure. Land passed through inheritance was not always subdivided among heirs and registered accordingly. Married couples did not routinely register land titles jointly, denying many married women the advantages of joint ownership. Informal tenure arrangements—mostly community-type arrangements in rural areas—functioned in parallel to the formal system. Government programs involving expropriation of private land for housing and security purposes were not necessarily fair, particularly in terms of compensation, creating a group of aggrieved former owners. 

Security of tenure has been further weakened by the conflict. Paper land registries have reportedly been damaged or destroyed. Falsification of land documents, leading to fraudulent land transactions, is allegedly common in areas of fighting. Refugees and displaced persons, particularly those in female-headed households, may have difficulty providing evidence to support ownership or other land tenure rights. And there are increasing rumors that the homes and land of displaced persons are being used to resettle local or foreign fighters. 

The recent changes to the legal framework are affecting land tenure security of the displaced in the following ways.  First, security clearance is now required for all transactions in private land. Regime security services must approve sales and purchases of land through the Ministry of Interior. Many displaced persons would be unwilling to seek permission from the Ministry of Interior to conduct land transactions for fear of identifying themselves as displaced, which may lead to them being labeled as anti-regime. And government forces are alleged to be involved in the confiscation of property belonging to the displaced.

Second, the Ministry of Local Development has the power to suspend private land transactions in conflict-affected areas.  In such instances, the official land registry would be frozen and new transactions would instead be registered in a supplemental daily record of transactions. This means recording in institutions inside government-controlled territory any transactions in private land located outside of government control. It remains unclear what legal and procedural protections would be afforded displaced land owners. Anyone objecting to the authenticity of an entry in the record would need to file an appeal in a local court, again presumably in government-controlled territory. 

There is a legitimate state interest in suspending land transactions in areas of conflict. For example, to prevent transactions conducted through fraud or duress. Similar action was taken by the Colombian government to protect the land of its displaced. However, in the Syrian, context suspending such transactions also opens the possibility for manipulation of land records to the detriment of displaced persons viewed as supporters of opposition forces, with the displaced having little practical recourse to challenge the results.

Third, full legal validity is being extended beyond the paper-based land registries to include digitized copies. Digitizing paper land records could be an effective protection against damage or destruction.  Providing a digital backup of the paper registries can protect against loss of land records and provide evidence of land rights in a post-conflict setting. But the current paper registries are not completely accurate. 

Again, this raises the question as to how the land tenure rights of displaced persons would be handled in the process.  Anyone wishing to challenge the accuracy of the new digital record would need to do so at a local court where the records are held within a period of roughly five years, which may not be possible or practical for displaced persons.  Digitization of inaccurate paper land records further puts rights at risk and would complicate any post-conflict land restitution process.

Together these measures and the obstacles they create could form a basis for de facto expropriation of land of displaced persons through de jure means. One need only look at Bosnia and Croatia, where conflict-era legislation on property was used to disenfranchise the displaced in an attempt to cement ethnic/confessional displacement and resettlement. 

Having been the property law coordinator at the Office of the High Representative in Sarajevo for several years after the signing of the Dayton Peace Agreement, I can personally attest to the difficulties of untangling the knot of land tenure in the post-conflict setting—as well as its importance, given the links to physical return of refugees and the internally displaced and the social and economic consequences of access to land and housing. 

       

 

 

To be sure, there is no single factor that explains why we risk undoing globalization, which has shaped much of our lives in recent decades. Yet, there are many factors that explain pieces of the puzzle. The global economy is almost a decade into the worst economic recovery since the Great Depression, and there is no end in sight. A record high number of people have been forcibly displaced across borders, and more may be on their way as conflict and terrorism escalates. Together, these alone leave little mystery on why protectionist reflexes are triggered in many countries. Add the growing disappointment with conventional international mechanisms, which have profoundly failed to solve the most prominent problems of our time, and we get the recipe for nationalism: Aren’t foreigners stealing jobs by migrating and Chinese doing the same via free trade?

Much ink has been spilled against such premises of rising nationalism. But a curious observation remains to be explained: Why do nationalist arguments tend to resonate with old people? Take the recent case of Brexit. Only a quarter of youth (ages 18-24) voted for the “leave” camp. In comparison, six out of ten old people (ages 65+) wanted to leave. The youth were quick to announce the stark contrast in social media and clarify their position! So, what is it that the old know about globalization that the young fail to see?

In a recent study, my colleagues Richard Chisik and Dhimitri Qirjo and I tried to explain how demographic aging—an increase in the share of old people in the country—could shift the economic policy preferences in an economy. Because nationalist sentiments often involve objections to free trade and migration, we paid particular attention to those policies. We came up with three interesting results that may help us understand how aging and nationalism are linked.

First, an aging population becomes more dependent on imports. To see this, note that the old consume more services like long-term care and the young consume more goods like smartphones. Therefore, the higher the share of old people in the population, the higher the demand for services, which cannot be imported, and the lower the demand for goods that can be imported. As a result, more firms find it lucrative to get into the services business when demand pushes the price of services up. Some firms may cease producing goods and become service providers, and others move overseas where demand for goods like smartphones remains large. The economy then relies on imported rather than domestically produced goods.

Technically speaking, aging has a firm delocation effect, or movement of firms and their resulting employment from one country to another, and this happens even if producing in other countries is not dirt cheap. By itself, delocation is not necessarily a bad thing for the aging society: The economy would be producing more services because it would be consuming more of them. The problem is that industries like those producing smartphones are often more innovative than non-tradable services like long-term care and restaurants. As a result, the aging country would potentially lose income in the long-term as its workers would miss an opportunity to become more productive.

Second, when aging occurs, more firms move overseas if trade barriers are low. When firms can freely ship back their products after moving overseas, moving closer to a larger overseas market becomes more appealing as the home market is not lost. If, however, the aging country imposes egregiously high tariffs on imports, smartphone producers might rethink their relocation decisions.

Third, nationalists may have a point about free trade at first glance, but more in-depth analysis proves otherwise. From the nationalist point of view, erecting barriers at the border, be it made of concrete or import tariffs, may appear to make sense economically. However, this logic is terribly shortsighted: It is based on a static view of a world where actions cause no reactions. More specifically, it fails to recognize that when one country erects barriers its partners will do the same in response. In the end, a trade war may be triggered, only to be accompanied by a rising wave of protectionism, which would hurt the aging country more than the partner. Yes, some firms would come back home, but the losses from paying more for imports and earning less from exports are much greater than these gains. In comparison, allowing in young immigrants provides a better mechanism to mitigate the firm delocation effect as it will aggravate no reaction from trade partners.

Altogether, it is interesting to see that rising nationalism might have deep roots in demography. Going forward, more effort needs to be devoted to understanding the relationship between the two. Demographic factors will not disappear, and they may lead to shortsighted moves in the absence of countervailing measures. For now, however, we should find ways to steer nations away from disastrous unilateralism. One message needs to be communicated clearly: One may wish to jump the queue while others wait, but when everybody does so, nobody gets to eat the cake.

       

 

 

Little gains, huge costs for savers

In Ivory Coast, only one out of eight savers opts to put their savings in a bank or a financial institution. This is half of the African average and a third of the levels observed in low-income countries. There is clearly a lack of trust in the relationship between Ivorian savers and their banks, which partly broke down during the 10-year political crisis that only ended in 2011. It has also been weakened by the failure of several public banks that had to be closed down, restructured, or privatized in recent years. As expected, it will take some time to rebuild this trust.

Figure 1: Ivorians do save money but not in their financial institutions

Source: http://datatopics.worldbank.org/financialinclusion/

However, the low propensity of Ivorians to save in their financial institutions can be interpreted as a simple portfolio choice. They are favoring other opportunities that offer higher rates of returns. Indeed, opening and managing a bank account is costly and does not include many benefits. The normal travel time to a bank or ATM is long because the density of the banking infrastructure is low with less than two bank branches and about five ATMs per 100,000 adults, while the average in Africa is four and 5.3 respectively. Then, most banking transactions are slow and costly, as, for example, it takes three times longer to cash a check in Ivory Coast than in France. Moreover, customers have to pay excessive commissions since non-interest income represents more than 60 percent of banks’ revenues in Ivory Coast, compared to only 40 percent in Morocco and South Africa.

Faced with excessive costs for their banking transactions, Ivorians turned to mobile phone operators. Like in other parts of Africa, Ivory Coast has experienced a mobile money revolution. There are now more adults with mobile money accounts (24.3 percent) than with bank accounts (15 percent). In fact, Ivory Coast has the fifth highest rate of mobile money accounts in the world behind Kenya (58 percent), Somalia (37 percent), Uganda (35 percent), and Tanzania (32 percent). These mobile accounts facilitate payments and transfers of funds, but they do not give credits, which is one of the main functions of a financial system.

Closing the gap between savers and banks

If Ivory Coast wants to develop a performing and inclusive financial system, its leaders should encourage banks, including microcredit institutions, to build stronger relationships with their customers. Banks can reduce their transaction costs through innovation and partnerships. For example, they could build small and mobile branches in less population dense areas in combination with microfinance institutions or diversify their distribution network through the inclusion of non-banking agents. Such expansion was achieved in Kenya, Tanzania, and Brazil. Concurrently, local banks should also take more advantage of the information and communications technology revolution. They are already doing it, but they still lag behind their competitors in East Africa or Nigeria where banking has increasingly become possible through a simple application in their customers’ smart phones. Finally, creating stronger relationships also means that Ivorian banks will have to be more innovative by introducing new financial products, such as leasing and factoring, which are better adapted to the limited resources of their clientele.

The second option would be to transform non-banking financial institutions into banks, for example, by allowing them to create credit. This transformation has already begun in Kenya for mobile operators. In 2013, the operator Safaricom introduced a (micro) credit facility in partnership with a bank (M-Shwari), which currently serves more than 10 million customers. Microfinance institutions could be allowed to deliver debt and credit cards to their customers.

Needless to say, these two options will require flexible but prudent regulation: flexible regulations because of the emergence of M-Pesa and other financial innovations in East Africa; prudent regulations because there is a need for close monitoring and supervision to avoid excessive risks by financial institutions. Engaging the clients of banks through better financial information and education has also proved to be a good means of improving both the efficiency and accountability of the system. The balance between innovation and prudence will have to be stricken by Ivorians and as well as regional leaders within the West African Economic and Monetary Union if they want to advance their financial system toward economic emergence.

       

 

 

Public and private sector leaders currently face the daunting task of identifying the path to achieving the United Nation’s 17 Sustainable Development Goals (SDGs or Global Goals) within 14 years. Financing is arguably one of the most important pieces of this complex puzzle. In the last 15 years, a number of innovative financing mechanisms, which address the volume of finance, the effectiveness, or both, have been designed and implemented. Results-based financing (RBF) arrangements, in which governments or donors pay service providers contingent on outputs or outcomes, are one of the fastest growing types of innovative financing.

Social impact bonds (SIBs) and related development impact bonds (DIBs) combine RBF and impact investing (investing that seeks both a social and a financial return). In an impact bond, an outcome funder (a government in the case of SIBs and a third party such as a donor agency or foundation in the case of DIBs) repays private investors with a return contingent upon the achievement of agreed upon outcomes (see Figure 1). Since the first one was established in 2010, 62 SIBs have been implemented across 14 high-income countries seeking to achieve a multitude of social outcomes. To date, there are two DIBs contracted in middle-income countries: one focusing on girls’ education in Rajasthan, India and the other to improve agricultural productivity in the Amazon rainforest of Peru. In addition to these contracted impact bonds, there are at least 60 initiatives in high-income countries and about 30 in low- and middle-income countries that are in feasibility or design stages.  

Figure 1: Basic impact bond mechanics

Impact bonds, and other RBF mechanisms, require the measurement of outcomes and create an incentive for the service provider to deliver results. Both aspects encourage the service provider to improve performance management and, ultimately, the quality of the service. Because governments or donors only pay if results are achieved, funding is not wasted on unsuccessful programs. Furthermore, the guarantee of value can encourage governments or donors to explore new, potentially high-impact interventions, instead of continuing to fund low-impact programs.

Impact bonds may also have other positive spillover effects on development. For example, the involvement of private intermediaries and investors may also help grease the wheels of new government contracting systems or provide a way for the business sector to engage in a social issue.

However, despite the enormous potential of impact bonds, there are also some considerable limitations and challenges associated with their implementation. Three criteria are necessary to even consider the use of an impact bond:

1. The ability of the funder to pay for outcomes rather than inputs
2. Sufficient evidence that a given intervention and service provider will be able to deliver a stated outcome for an investor to take the risk of engaging
3. Meaningful outcomes (i.e., related to the SDG indicators) that can be measured within a time frame suitable to both investors and outcome funders

In addition to these three critical criteria, the ability for the key stakeholders to collaborate with one another has enormous implications for getting an impact bond off the ground. These factors contribute to the complexity and high transaction costs associated with impact bonds (relative to traditional input-based financing). Given these constraints, impact bonds are suited to areas where service providers need flexibility and where risk factors discourage direct funding but are minor enough to attract impact investors.

Thus far, these criteria have limited impact bonds to particular subsectors, regions, and investor types and have restricted their scale (both monetarily and in terms of beneficiary numbers). Impact bonds have been developed in fields with complex service inputs and simple outcomes, and for services that cater to particularly underserved or marginalized populations. The scale of impact bonds has been limited—the majority serve fewer than 2,000 individuals, and the largest reaches less than 16,000. Investors have been limited to philanthropic or impact investors rather than commercial investors. However, all impact bonds thus far have supported interventions that have at least some evidence of effectiveness.

Given trends in the global impact bond market, what role do impact bonds have in fulfilling the financing needs to achieving the SDGs, in particular in developing countries?

Impact bonds are likely to be improve effectiveness of financing rather than increasing volume. They also serve an important role in financing mid-scale interventions with some evidence of effectiveness. While they may not be best suited to large-scale financing of social services, they have the potential to affect large-scale systemic shifts in how governments and service providers think about service provision because they build cultures of monitoring and evaluation, encourage investments in prevention, and incentivize collaboration, all of which are essential to achieving the SDGs.

       

 

 

Meanwhile, in many countries in Latin America, a region long known for high levels of inequality and populist politics, the middle class is growing, extreme poverty has been all but eliminated, and the distribution of income has become more equal. And politics is borderline boring, although it remains unpredictable in a few countries. The most recent presidential elections in the region ushered in a center-right, fiscally conservative businessman in Argentina, and a Princeton and Oxford educated former finance minister and banker in Peru.

The comparison between markers of optimism and well-being in each context is particularly stark. The poor in Latin America are much more likely to believe that hard work will get them ahead than are the poor in the U.S., and the difference in the scores of the poor and the rich is significantly smaller in Latin America than it is in the U.S. (See Figure 1) The poor in Latin America are also much less likely to experience stress the previous day than are the poor in the U.S., another important indicator of well-being. 

Source: Gallup World Poll

Equally remarkable, the poor cohorts in the U.S. who are most optimistic about their futures are those who were marginalized or discriminated against in the past. Poor blacks are three times more likely to score a point higher on an 11 point future optimism scale than are poor whites, while poor Hispanics are one and a half times more likely. Poor blacks are also half as likely (.52) to report stress the previous day than are poor whites. These same cohorts are more likely to support moderate political candidates, while support for Trump is highest among poor and middle income whites.

Life satisfaction and hope and markers of ill-being such as stress play an important role in determining objective outcomes. Individuals who are optimistic and believe in their futures are much more likely to invest in them. As a result they have better outcomes in the health, labor market, and income arenas. Yet making those investments also requires having the capacity to do so, and the high levels of stress typically experienced by the poor—related to circumstances beyond their control—lead to very short-term time horizons and even cognitive difficulties in planning ahead.

These differences in markers of optimism and stress also show up in objective health indicators. Mortality rates in the U.S. are being driven up by preventable deaths, due to suicide and opioid and drug addiction—clear signs of desperation—among middle-aged, uneducated whites. In contrast, mortality rates for both blacks and Hispanics have continued to fall, narrowing the gaps with whites. In Latin America, meanwhile, infant and child mortality have fallen markedly in recent decades, and life expectancy levels are as high as or higher than the U.S. level in the last 79 years.

What explains these differences? In the U.S. structural economic trends driven by globalization are shaped by geography, inequality, and the nature of the social safety net. The worst pockets of desperation associated with the hollowing out of the middle class are in previous manufacturing hubs in the middle of the country. These are typically small towns, which are left a wasteland if a key industry pulls out or relocates, as there is usually no alternative form of stable employment. Due to both climate and distance in these areas, residents are dispersed and have to drive to go anywhere, contributing to social isolation—another driver of ill-being.

In contrast, many cities tend to attract a range of firms and complementary institutions, such as universities and the arts, as Richard Florida describes in his work on “the creative class,” making them less vulnerable to the presence of one company. And residents are more likely to interact with each other on a regular basis, by walking the streets or taking public transport.  In recent research, financial expert Tuugi Chuluun and I find that these same places tend to have higher levels of life satisfaction. They also have lower levels of mortality than do the isolated towns in the heartland, as economist Raj Chetty and colleagues recently found.

Inequality also plays a role. The U.S. has had the steepest increase in inequality of all countries in the Organization for Economic Co-operation and Development in recent decades, and the gaps between those at the top of the distribution and the rest are notable compared to those in the other countries, with the possible exception of the U.K. This gap between the very wealthy and the rest holds across traditional income based measures such as the Gini coefficient, CEO pay compared to other workers in firms, and indicators of access to top quality education from the preschool level to college. U.S. fiscal policy in recent decades has not done much to mitigate these trends and may have exacerbated them. The social welfare system in the U.S. also plays a role. Assistance is difficult to get and often comes in stigmatizing (and ineffective) forms, such as food stamps. Cash assistance for the poor, such as Temporary Assistance for Needy Families, or TANF, has been decreasing significantly over the past decade, and particularly so in Republican states.

In Latin America, in contrast, macro and fiscal reforms have generally benefited the poor and have been complemented by conditional cash transfer programs (CCTs). CCTs provide the poor with non-marginal amounts of cash assistance, conditional on households sending their children to school and taking them to regular health appointments. The basic presumption is that poor individuals are best positioned to choose how to spend their own income—and must be able to do so if they are to exit poverty— combined with a commitment to pulling them into society rather than stigmatizing them. As economist Nora Lustig and her co-authors document in their “Commitment to Equity” index, this combination of policies has results in major strides in reducing poverty across the region and decreases in inequality in at least five of the major Latin American economies.

But what is to be done about the tattered American dream? The underlying structural economic trends are as malleable as tectonic plates. Yet the markers of desperation are frightening enough that they are beginning to shift public attention from debilitating ideological divides to the deep social ills facing the U.S. today. That might provide some attention to the plight of those left behind. One part of the solution, meanwhile, is to reorient our social welfare system away from one that stigmatizes the poor and steers them farther behind psychologically. We should instead move toward more integrating programs, ranging from the provision of better vocational education to making college more accessible to low-income individuals to more broadly available preschool. Many of these are discussed in detail in the Brookings Social Mobility Memos. The key challenge will be bringing them into the spotlight of public debate.

Reducing inequality is difficult, making it even more unattractive for politicians to take on. Yet it is doable. And it is an area where Latin America can provide some important lessons. The region surely has its own challenges, but in this instance we could learn some lessons from our much more optimistic Southern neighbors.