Initiative for a Competitive Inner City Forum-Focus on Inner City Economies

Spotlight: The Inner City Policy Unit

Inner City Economies: Distinct in Analysis, Distinct for Federal Policy

The Summit’s opening session set the framework for the overall event. Dr. Michael E. Porter, ICIC’s CEO and Founder, set the agenda by arguing that inner city economies, while closely linked to the growth and vitality of the regions and metropolitan areas that they belong to, merit distinct and targeted analysis and policy making to account for their unique assets and challenges. Bruce Katz, Director of the Metropolitan Policy program at the Brookings Institution then outlined the “Blueprint for American Prosperity,” advocating that the health of the US economy hinges on the economic strength of America’s metropolitan areas, the areas in which two-thirds of the US population lives and three-quarters of the US’s gross domestic product is created.

Both presenters situated the discussion within the context of the federal policies and programs most critical to America’s urban areas.

Dr. Michael Porter

Dr. Porter began by reminding the audience about the troubling and complicated macroeconomic situation in US financial markets. He also reminded the audience of the importance of the presidential election; the election of 2008 was the first national election since 1952 without an incumbent, and represented a real opportunity to make inroads and move beyond the failed narratives of both parties. Porter explained that ICIC and Brookings have formed a partnership with the very specific goal of having a concrete, actionable, deeply thought-out federal policy agenda for inner cities ready to present to the new administration in the spring.

Porter asked the audience to consider why the US actually needs to have a federal policy that focuses on inner cities. Even in times when the national economy does well, there are chronic deficits in inner city performance. The 100 largest inner cities as of 2000 consisted of 0.1% of US land area; 8% of US population; 19% of US poverty; and 32% of US Minority poverty. Obviously, poverty is more prevalent in inner cities. It is not, however, intractable. Porter posited that the US needs not only a national economic policy, but an economic policy focused on regions and metropolitan areas.

The national economy is a collection of regional economies, Porter reminded the audience. Many of the advantages and strengths and weaknesses that affect economic growth are actually contained and controlled at the metropolitan level. Metropolitan or regional growth helps inner cities. If metropolitan areas are healthy, that health makes an impact on the economically distressed census tracks contiguous within the urban area. The inner city does better in a rapidly growing metropolitan area, but a gap remains; metropolitan growth accounts for only about 30% of inner city growth.

How do we determine priorities for what really needs to be done? How should we change skills training as it impacts distressed communities? How do we change and improve in other policy buckets? Healthy regional economies are necessary but not sufficient. Federal policies can and should strengthen the inherent competitive advantages of the inner city: strategic location; underutilized workforce; unmet demand; and linkage to regional growth clusters

Four policy areas are of clear and unambiguous impact on inner cities and their economies: workforce training, infrastructure, capital access, and cluster development.

Wages are lower in inner cities than in the rest of the US for all demographic groups. For each 1% growth in central city job creation, there is a 0.9% decline in central city poverty. Between 1998 and 2006, the 100 largest inner cities added 10,000 jobs while their regions added over 6 million. Inner city growth in business formation also lags in the region. Workers with a high school degree or less have seen their wages essentially stagnate since the 1970s; most of the gains have gone to workers with higher education. Workforce training has a huge impact on the wages of workers without a college degree. Within the next 20 years, 40 percent of the US workforce will be African-American and Hispanic, yet only about 13 percent of Hispanics and 18 percent of African-Americans have a bachelor's degree. There are huge racial and ethnic disparities in education, Porter said, which affects not just an individual ability to compete, but the country's ability to compete.

Porter then moved on to discuss inner city infrastructure investments. Transportation and logistics used to be the most concentrated cluster in inner cities in America, but have dropped to the ninth-ranked cluster. The inner city has lost position in clusters that used to be really critical clusters for inner city locations. Inner city infrastructure has also improved more slowly than rural infrastructure. Porter suggested that the US should base its investments on economic impact rather than politics.

He also recommended that the federal government look at inner city infrastructure investments as not just isolated to the inner city. Instead, they affect the efficiency of the overall region's infrastructure.

In terms of capital flow, Porter reiterated the need for business investment in inner cities. Many of the capital projects and federal capital programs that relate to inner cities are not focused on business; they tend to be heavily focused on real estate. Although real estate can affect business success, the US needs a policy more focused on funds that invest in business.

Porter also suggested that federal policy must be leveraged to benefit multiple clusters. The largest inner city clusters are in local health, local commercial services, and local hospitality. Anchor clusters are in construction, transportation and knowledge creation and education; and there is emerging strength in inner cities in entertainment, hospitality, and tourism.

The question that remains is how to craft federal programs and incentives that will encourage regions to focus their attention on these clusters. Porter ended by encouraging investments to revitalize and improve some of these clusters. The opportunity is now, he said, and the need is great to understand what inner city policies look like.