How to Grow the Wealth of Poor Neighborhoods From the Bottom Up
November 26, 2019
A new report spells out how to move from the top-down, grant-based model for community development to a more localized, entrepreneurial approach.
Revitalizing distressed communities is one of the biggest and most intractable problems in America today. Whereas concentrated poverty has long been a problem in urban centers and parts of the rural South, today it has spread into the suburbs and across many more parts of the country. Regional inequality has deepened and the middle class has declined.
In a new report titled “Towards a New System of Community Wealth,” researchers Ross Baird, Bruce Katz (currently my colleague at Drexel University in Philadelphia, where I hold the yearlong Philadelphia Fellowship), Jihae Lee, and Daniel Palmer lay out a potential solution. They define community wealth as “a broad-based effort to build equity for low-income residents,” which could unlock “hundreds of billions in market and civic capital” to revitalized struggling places across America.
The report—a collaboration of Drexel University’s Nowak Metro Finance Lab, the investment platform Blueprint Local, and L.A. Mayor Eric Garcetti’s Accelerator for America—notes that concentrated distress did not just happen, but is the result of a long history of class and racial division, and policies both underfunded and ill-advised.
As a result, today, black entrepreneurs are much less likely than white entrepreneurs to receive venture financing or small business loans, and when they do, the amount ends up being lower. Black-owned businesses average much less revenue than their white counterparts—$58,000 versus $546,000. This is not just bad for distressed communities; it hurts the whole economy. Baird, Katz, and their co-authors cite another study that found the U.S. economy would have 1 million additional businesses and 9.5 million more jobs if minority entrepreneurs started enterprises at a rate similar to white entrepreneurs.
Solving such deep-seated inequity will require shifting from an older model of community development to the new paradigm of community wealth-building, the authors write. The old model was characterized by top-down federal programs that often overlooked both neighborhood problems and neighborhood assets. This approach has traditionally focused on housing, and de-emphasized economic development. Programs and initiatives were often narrow and in silos, and there was insufficient funding to build sustainable institutions and address problems holistically.
Katz, Baird, Lee, and Palmer say effective community wealth-building rests on four pillars:
- Growing individual assets in distressed places. Upgrading workforce skills can enable local residents to buy homes and invest in their own businesses.
- Growing collective neighborhood-based assets. Strengthening local institutions will “create, capture and deploy value for local priorities and purposes,” as the report puts it.
- Improving access to private capital. Communities should look to attract investors with social purpose, fair and transparent terms, the willingness to make a long-term commitment, and reasonable expectations about financial returns on their investment.
- Enhancing inclusion. Ensuring that all residents have the opportunity to participate in the economy and share in the wealth that is created.
Community wealth-building is not just the province of government. In fact, the most productive actors are universities, medical centers, and other anchor institutions; local investors; and neighborhood and civic organizations. In his 2018 book The New Localism, co-authored with the late Jeremy Nowak, Katz argued that bottom-up efforts have been key to rebuilding cities across America and the world.
“Towards a New System of Community Wealth” argues that the new federal Opportunity Zone legislation can help spur positive change. As Katz wrote in an email to me: “Opportunity Zones emphasize equity investment as opposed to direct federal subsidies and debt financing; their projects are broadly interdisciplinary as opposed to project focussed; and they require investors to take a long-term investment posture of a minimum of ten years to realize the maximum tax benefits of the programs.”
Opportunity Zones are not automatically a good thing, of course. Recent news reports have exposed abuses of the program. Because they incentivize large-scale investors and developers, opportunity zones run the same old risk of displacing local businesses with chains and corporations. Making the Opportunity Zone legislation work for poor neighborhoods will require tight regulatory guidance and restrictions. As economist Tim Bartik has argued, we need a combined national and local commitment to place-based policies. We already know these work—to enhance workers’ skills; support and nurture local entrepreneurship; provide services to small and medium-sized businesses; and invest in neighborhood assets such as schools and parks, and public safety and other critical public services.
Read the full article here.