Urban Wire Addressing Inequitable Access to Services as a Market Failure
Reehana Raza, Matthew Eldridge
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At the beginning of the pandemic, schools shifted to remote education, and numerous child care facilities closed their doors. These changes placed considerable stress on many families, particularly Black and Latinx households, who have disproportionately limited access to affordable highspeed broadband, restricting their ability to learn or work remotely, and who are more likely to be essential workers unable to work from home, compounding child care challenges.  

Communities of color in the US have long faced inequitable access to services, including broadband, child care, housing, investment, parks, and many other resources. These inequities are a result of racist and discriminatory policies, such as redlining and unfair hiring practices, that have limited where people of color can live and work. The pandemic often exacerbated these inequities, leading to communities of color feeling the worst of the pandemic’s economic effects. 

In addition to explicitly discriminatory policies, market failures can lead to or compound inequitable access to services. Market failures, such as monopoly power or information asymmetry, can allow certain interests to dictate or dominate the supply of goods, services, or resources, to the detriment of communities. For example, the only grocery store chain in a county could decide not to put its stores in predominately Black or Latinx neighborhoods, creating food deserts. But inequitable outcomes can occur even if markets work effectively. 

Given the pervasiveness of inequity in access to services, resources, and opportunities, both because of discriminatory policies and other market failures, communities of color have been systemically and structurally excluded, experiencing poor economic opportunities and outcomes, including limited access to financing, markedly lower median household wealth, and higher poverty rates.  

Generally, market failures in the US have been addressed by nudging or incentivizing the private sector into action. But addressing inequitable access rooted in discrimination and exacerbated by market failures may require more robust action from government, which is less traditional in the US but more common in other countries. To inform policymakers on addressing these inequities, we looked abroad for insights on effective and equitable policies and practice.  

Three common approaches from international efforts  

COVID-19 recovery funds have created an unprecedented investment in communities and families, offering an opportunity to learn from and replicate what works. The Urban Institute recently completed a series of case studies on international policies and programs that could be adapted by US policymakers to build an inclusive recovery. These case studies identified adaptable lessons for five sectors: child care, affordable housing, public space, highspeed broadband, and local economic development 

The policies examined underscore that other countries’ governments are more willing to intervene with direct support to address market failures that produce inequitable access to services. Conversely, in recent decades, the US government has focused less on direct intervention and more on facilitation of the private sector, addressing many market failures by empowering or incentivizing the private sector to act, typically without recognizing that some failures are inherent to the market system itself.  

But not all government intervention is the same. The right intervention depends on political economy conditions, possible funding sources and structure, the characteristics of the market failure, complementary strengths of key partners (including the private sector), and many others.  

The policies profiled in the briefs help illustrate three approaches a government can pursue to address market failures. 

  • Sustained and predictable funds for services in underserved areas: In Australia, the federal government directs operational grants to child care providers working in historically underserved communities through the Community Child Care Fund. In France, to address the lack of adequate affordable housing, the national government ensures a sustained and predictable level of investment in housing stock through a payroll tax levied on employers 
  • Focused funds to areas or populations who have historically been deprived for particular types of goods and services: Australia’s child care fund includes resources specifically designed to address inequities in Aboriginal communities, and in Canada, small-business investment funding focuses on firms owned by women and people of color, through direct investment in the Women in Technology Venture Fund and the Black Innovation Fund 
  • Information that’s generated, regulated, and accessible for all parties: Governments can minimize the distortion and barriers presented by limited or asymmetric information by standardizing and publicizing information for decisionmaking and accountability. In the German INVEST program, to encourage equity financing for small and new firms, the government certifies companies to signal to private investors (who are given tax-free, nonrefundable grants) that these new firms are eligible. In Wales, the government randomly and regularly checks broadband speed (PDF) to ensure providers are delivering speeds as contracted, particularly to isolated areas, and only pay providers after verification.  

The US can learn from abroad to inform its own inclusive recovery 

President Biden’s commitment to building back better is part of a broader recognition by public leaders at all levels that recovery must be inclusive. Beside the moral imperative to increase equity, improving equity can also enhance market efficiency and result in better outcomes for all. Inequities can be exacerbated by systemic market failures, and although the private sector has a role to play, evidence from abroad suggests the US government can take a larger role than it has traditionally. 

A truly radical shift in government policy is unlikely, but lessons from effective practices abroad demonstrate that carefully designed, focused, and sustainably-funded programs can address inequitable access to services, resources, and opportunities while navigating the constraints of our existing governance and political system. As federal, state, and local governments work toward an inclusive, sustainable recovery, they can challenge conventions, update public priorities, and outline a more robust role for government to ensure equitable access to services and resources for all.

The Urban Institute has the evidence to show what it will take to create a society where everyone has a fair shot at achieving their vision of success. 

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Research Areas Economic mobility and inequality
Tags Economic well-being Racial and ethnic disparities Wealth inequality Racial inequities in economic mobility
Policy Centers Research to Action Lab
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