This Works: Encouraging Economic Growth

Introduction

Economic revitalization of our inner cities, urban areas affected by high levels of unemployment and poverty, is one of the priority challenges for the nation.[2] The challenge and the opportunity are to enable more of our citizens to participate in, and benefit from, the market economy. The goal should be no less than equalizing job, income, and wealth-creation opportunities for inner city residents with those of the region.

The 31 recommendations in this Bulletin provide a blueprint to each mayor on inner city revitalization. The recommendations offer ways in which under-utilized economic resources can be placed back into productive use and help build the city’s tax base. They suggest ways in which growth and increased competitiveness can be achieved while including people traditionally excluded from city growth opportunities.

To improve inner city competitiveness and resident economic health, all sectors of the economy— public, private, and nonprofit—must focus their efforts on this task. Improvements must be made in education, housing, health care, and business conditions. These four pillars of a well-functioning community are each necessary and mutually supportive in spurring sustained inner city economic growth.

While education, housing, and health care benefit from persistent focus by numerous organizations around the country—and much more still needs to be done in each of these areas—business growth is the least understood of our economic development efforts. This Bulletin offers strategies that can help mayors accelerate business and employment growth in inner cities.

As many visionary leaders realize, business vitality is not only important in its own right, but also works to anchor, reinforce, and leverage the success of virtually all other efforts. Job and income opportunities resulting from a strong business base can positively influence educational attainment levels and health outcomes, leading to a virtuous cycle of sustainable economic development. Conversely, without a healthy business base and a sense of economic opportunity, social investments will never truly pay off.

With the publication of “Competitive Advantages of Inner Cities” (Harvard Business Review, May–June 1995), Harvard Business School Professor Michael Porter, founder and CEO of ICIC, transformed the national debate on inner city revitalization. He pointed out that real and sustained economic growth in inner cities will come through business investment and employment growth that are based on competitive advantages of inner cities. Businesses locating in inner cities must have real economic gains, not artificial advantages created by public subsidies. Based on Porter’s theory and ICIC’s subsequent research, many inner cities have competitive advantages that are increasingly valuable in the regional and national economy. While individual inner cities may have some or altogether different competitive advantages than the four discussed below, ICIC research has shown that these four are frequently present in many inner cities:

Strategic Location—Inner cities are at the core of major urban areas, with highways and communication nodes as potent logistical advantages, particularly valuable in an economy relying on just-in-time delivery of goods and services. ICIC’s most recent research also shows that inner city locations are as broadband-enabled as downtown and suburban areas.[3]

Underserved Consumer Markets—Conservative estimates place the annual retail purchasing power of America’s inner cities at $85 billion. In the mid- to late 1990s, retailers in the inner city were meeting less than 75 percent of that demand. While there has been an influx of retailers to inner cities since ICIC’s initial research, these markets are far from being fully served; they continue to represent a large domestic emerging market.

Underutilized Workforce—Inner cities have a large underutilized workforce amid a long-term tight national labor market. More than 54 percent of workforce growth over the next 10 years will come from minority communities, which are heavily concentrated in cities and inner cities.

Opportunities to Leverage Urban Clusters—Inner cities are home to more than 500,000 enterprises ranging the spectrum of industries. Better integrating these companies into the regional markets would increase the growth and efficiency of the regional economy. Inner cities are also home to major academic, medical, and cultural institutions.[4] Colleges and universities alone represent 1,900 institutions in the urban core, many in or near inner cities.[5] Unlike mobile corporations, these institutions are largely guaranteed to stay in their present locations.

Business growth in the inner city and employment growth among inner city residents requires building on these existing or latent competitive advantages. While strengthening the business base of inner cities must be primarily the province of the private sector, governments at all levels have a critical and complementary role to play.

Local governments and mayors specifically can enable business and employment growth by adopting a comprehensive business-based economic strategy. The major components of such a strategy are:

• Forming focused leadership
• Creating a supportive business environment
• Enabling competitive business clusters
• Fostering a competitive inner city workforce
• Creating a positive, yet balanced, image of the inner city
• Encouraging savings and wealth accumulation

The subsequent sections will outline principles and action recommendations for each of these major components. While many mayors may be doing some or most of these activities, the recommendations may help mayors think about (a) how their activities fit within a comprehensive framework and (b) how they can build on their existing initiatives. Importantly, almost all of the recommendations require no new funding and at times very little funding at all. Most of the recommendations suggest ways in which the city can leverage its partnerships with businesses and nonprofits.

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