revitalizing inner cities--1/6/25

• 0 COMMENTS

Today's selection-- from the Inner City. The Inner City, a book edited by Roger Kemp, tackles the problem of revitalizing America’s urban decay:

“To put an end to widespread immiserization in inner cities, we suggest an alternative model that will generate a significant and stable circular flow of income in the community. This model is designed for a community in which a significant portion of its residents is impoverished and subject to a color bar. The first step in economic transformation of the community is creation of productive activities in the community that effect direct inflows of resources, which will induce expenditure and establishment of additional viable productive activities (within the community). In this model, activities that spawn resource inflows are fundamental to the transformation process since they give rise to earnings that induce strong local consumer demand as well as establishment of enterprises to satisfy this demand. In this respect, two significant barriers must be considered: a) racial barriers (color bar); and b) skill barriers. These barriers may be causally linked in the sense that the former affects the latter. However, the latter may be overcome by endowing inner-city labor and entrepreneurs with skills specific to activities undertaken. But racial barriers are enduring and problematic. Thus, in this model, the resource inflow is effected by awarding procurement contracts (from government) to qualified inner-city entrepreneurs. (The procedure for qualification of entrepreneurs is given later in this essay.) In short, given the significance of resource inflows, in order to avoid this barrier—encountered regularly in the private sector by racial minorities—long-term contracts between qualified inner city entrepreneurs and the government are deemed necessary to generate significant and stable inflows. Such contracts are fundamental to diffusion of labor market opportunities to inner cities to foster socioeconomic development.

“In this conceptual scheme, the inner-city economy is bifurcated into a basic and a nonbasic sector, where the basic sector includes procurement industries and provision of medical services. The latter is included in this sector because it gives rise to a significant inflow of resources to the inner city. The nonbasic sector satisfies inner-city (internal) demand. In the basic sector, entrepreneurs earn a return from provision of contractual services to public institutions—federal, state and local government. The nonbasic sector is adaptive. Initially, it arises primarily to satisfy household demand induced by income earned in the basic sector; but subsequently, it satisfies demand induced by earnings from basic as well as nonbasic activities. To be viable, the latter activity must supply qualitatively adequate goods and services, at competitive prices, to inner-city households.

“Necessary conditions for efficient supply of goods to households and services to institutions are: qualified inner-city entrepreneurs, skilled inner-city labor and availability of adequate debt capital to entrepreneurs. Skill endowment of labor comprises: a) general training for job readiness, which involves development of behavioral traits (discipline, punctuality, etc.) appropriate to gainful employment; and b) acquisition of skills specific to sectoral activities. Job training and skill formation serves both sectors, hence the direction of the arrows. Entrepreneurial development encompasses endowment of general skills as well as organizational, managerial and technical skills specific to activities satisfying institutional and household demand. This development of entrepreneurs requires provision of managerial, organizational and technical courses to the entrepreneurs. The content of courses is determined by the specific activities in which entrepreneurs will be involved and by a survey of the entrepreneurs. Data from the survey will be analyzed to uncover entrepreneurial and other requisite skills in which they are deficient. The loan program provides debt capital to entrepreneurs. This program is quite nontraditional in approach. For example, harsh financial experiences suffered in the past by entrepreneurs, such as bankruptcies, etc., will not be considered in the same manner as is done traditionally by banks in determination of eligibility of entrepreneurs for loans: Subsequent to course completion, a five-year entrepreneurial extension service will be established to give counsel and guidance to entrepreneurs engaged in sectoral activities. Entrepreneurial development as shown by arrows in the diagram serve the basic as well as the nonbasic sector. In this model, successful course completion and participation in the extension program are prerequisites to ownership of a sponsored enterprise (an enterprise formally included in the basic or nonbasic sector) and eligibility to participate in the debt capital program. Gainful employment of labor by entrepreneurs to supply goods and services will establish a circular flow of income and will enhance the standard of living of the community.

1999 photograph looking northeast on Chicago's Cabrini–Green housing project, one of many urban renewal efforts

“An approach to development of minority entrepreneurship, similar to that suggested in this model, has been successfully undertaken by an alliance of public agencies, including the Port Authority of NY and NJ, and by private firms—The Regional Alliance for Small Contractors. This Alliance was established in response to formidable barriers to participation in construction (in the NY-NJ subregion) by enterprises owned by minorities and women. The Alliance offers technical assistance, loan programs and information on business opportunities to enhance performance of these contractors in the construction industry. Technical assistance encompasses practical classroom instruction to enable contractors to compete successfully for larger contracts from the Port Authority. Course instruction is given at the basic, intermediate and advanced levels in courses such as bidding strategies, contract law, contract administration, construction management, financial management, and so on. Courses are taught by executives of member-firms of the Alliance as well as by procurement officers of public agencies.

“The Alliance has resulted in a significant increase in the dollar volume of contracts awarded to minority proprietors who successfully completed courses relative to a control group of minority contractors. For example, in 1991, a sample of 27 participating minority contractors were awarded $1.48 million in prime contracts and $1.64 million in subcontracts (as Port Authority contractors), whereas the control group (30 contractors) won no prime contracts and received $.82 million in subcontracts. Furthermore, in 1992, a sample of 27 participating minority contractors won $5.20 million in contracts, of which $1.56 million were prime contracts and $3.64 million subcontracts, while the control group won only $.41 million, of which $75,000 were prime contracts and $335,000 were subcontracts.

“In the model, the vector of viable nonbasic activities (inner-city serving) is obtained from an inner-city household expenditure survey, for analysis of household expenditure patterns, to determine commodities and commodity groups that may be profitably supplied, over time, at competitive prices, to households with different characteristics (age composition, education of head of household, etc.) and income levels.

“Implicit in the basic-nonbasic sectoral division of the inner-city economy is a causal link. The basic sector is considered the prime mover of the economy; indeed, it determines the economic health of the community. Hence, it is important that the government play a role in creation of this sector and of programs for provision of debt capital to entrepreneurs to undertake these activities. Two points should be noted in regard to basic activities. First, the basic sector primarily supplies services for which demand is cyclically stable and for which production is relatively labor intensive as well as skill intensive. Cyclical stability implies that innercity basic income and employment are not subject to extreme swings. In short, the policy objective is a mix of basic activities that are not highly sensitive to cyclical fluctuations. That is, a significant part of the mix of procurement contracts must be made up of contracts for which the dollar volume is not cyclically sensitive. This provides ballast to the inflow of resources and thus gives a stable multiplier over time. Increasing the employment of minorities has implications for countercyclical policy, macro and monetary, particularly with respect to downward adjustment of the unemployment target (back to an aggregate unemployment rate of 5 percent or less) of policy makers. Second, basic activities serve a market whose level, to inner-city entrepreneurs, is set by political decisions. Given the assumption that policy-makers are favorably disposed to inner-city development and to long-term contractual arrangements between government (or quasi public agencies) and inner-city entrepreneurs, the dollar volume of basic activities is determined by the effective skill capacity of entrepreneurs and labor, and the availability of debt capital. The larger is the dollar volume of basic activities; the greater is inducement to establish nonbasic activities. And, the larger are: a) the proportion of basic sector labor income spent on goods and services, and b) the proportion of the wage bill in total costs of nonbasic activities; the larger is the nonbasic sector.

“Day-care services are actually part of nonbasic activities, but given their significance to households in which both spouses are employed, they assume considerable importance. Management and staff in this activity are trained in a manner similar to that for other activities.

“By way of example, assume inner-city entrepreneurs secure annual procurement contracts of $20,000,000, of which 60 percent pays wages and salaries (net of taxes) to inner-city labor. This $12,000,000 represents annual household income (from the basic sector). In addition, assume households spend 50 cents of every dollar of income (propensity to consume) on goods and services supplied by the nonbasic sector. That is, households spend $6,000,000 of income locally on goods and services generating internal (inner-city) sales revenue of $6,000,000. Furthermore, assume every dollar of sales revenue creates 70 cents of income (local income created per dollar of sales) in the nonbasic sector. That is, $4,200,000 of sales revenue pays wages and salaries to inner-city labor (employed in the nonbasic sector) and, given the propensity to consume, households spend $2,100,000 of this income on goods and services (supplied internally), of which 70 percent or $1,470,000, pays wages and salaries to inner-city labor.”

author:	Thomas D. Boston, Catherine Ross, Roger Kemp
title:	The Inner City: Urban Poverty and Economic Development in the Next Century
publisher:	Routledge
pages:	145-149