Economic Inclusion Requires a Renewed Focus on Inner Cities

Written by Kim Zeuli, ICIC

We cautiously celebrate the revival of many of our nation’s cities at ICIC. While we appreciate the economic opportunities associated with vibrant downtowns, hipster enclaves and high-tech corridors, we also know that within inner cities, 3 out of 10 people still live in poverty. In U.S. cities with over 75,000 people, 328 (75%) have inner cities—contiguous, distressed urban areas with high poverty and unemployment rates and low income levels. These inner cities account for 15% of U.S. unemployment, nearly one-quarter of U.S. poverty, and over one-third of minority poverty.

Inner cities seem to be left behind during periods of economic growth and are disproportionately impacted by recessions. But inner cities also are areas of opportunity. They are competitive places to do business, offering strategic locations near major transportation hubs, an underutilized workforce and underserved markets.

Inner cities should be integrated into regional economic development strategies to ensure that they benefit from regional growth. Inner cities also require their own tailored economic development strategies in order to provide job opportunities in the most economically distressed parts of cities. In order to connect inner city residents to economic opportunity, cities need to leverage private sector investment to engage three key levers for growth.

Improve the Local Business Environment. Investing in infrastructure and workforce development may seem obvious, but it is essential. Too frequently, inner city neighborhoods are bypassed as cities and developers focus their attention on mature or “hot” markets. City leaders can direct resources and offer the right incentives to make sure inner city infrastructure is developed.

Anchor institutions—such as hospitals, universities, corporations and sports teams – that pursue community engagement and investment strategies can have a significant impact in inner cities. Some 925 colleges and universities, or roughly one in eight, are based in the inner city. About 350 hospitals also call the inner city home.

The economic power and influence of anchors should not be understated. It has been twelve years since ICIC developed the anchor institution strategic framework with Dr. Michael Porter of Harvard Business School as a way to think about how large anchor institutions can create beneficial impact in their host communities. Since the publication of Leveraging Colleges and Universities for Urban Economic Revitalization in 2002, ICIC has been at the forefront of developing the theoretical underpinning of a shared value framework.  The framework explores the mutually beneficial roles anchor institutions can play in their communities to expand economic opportunities while also delivering value to the institution.

Implement a Cluster-Based Growth Strategy. Understanding existing and emerging clusters within a city is important to develop effective economic development strategies that connect inner city residents to economic opportunity. Clusters are geographically concentrated groups of interconnected companies and associated institutions in a particular field such as biotech in Boston or energy in Houston. Clusters can be differentiated by economic sector (e.g., food or manufacturing) and by the markets they serve. Traded clusters compete to serve national and international markets (e.g., automotive and transportation and logistics). Local clusters serve local markets and are not directly exposed to regional competition (e.g., local health services and local retail). Local clusters are growing more rapidly in inner cities than in the rest of metropolitan areas, suggesting they may have some competitive advantages in inner cities.

Cluster-based growth strategies should be closely connected to small business support initiatives. Most cities lack a unifying strategy for small business growth, which diminishes the impact of cluster strategies. Small business support often is an uncoordinated set of programs developed by a disparate set of private and public organizations. Cluster strategies should be used to inform and help align small business support initiatives.

Support the Growth of Small Businesses in Inner Cities.  As cities search for ways to create new job opportunities, existing businesses hold the key to growth, especially in the inner city. ICIC’s Inner City 100 and Inner City Capital Connections programs have been identifying fast-growing private companies based in America’s inner cities since 1999. We have engaged more than 10,000 companies across the U.S. and have honored firms who are among some of today’s most creative entrepreneurs: Coyote Logistics, Happy Family, Numi Organic Tea, Pandora, Pinnacle Technical Resources and TerraCycle. On average, Inner City 100 firms have $21.4 million in annual revenue, 106 full-time employees and an annual growth rate of 48%. They have created more than 73,000 new jobs over the past 15 years.

Over two decades of research on high-growth firms in the inner city, ICIC has learned what inner city businesses need to succeed: (1) access to capital; (2) business and management education; and (3) firm recognition and access to business networks and contracting opportunities. Cities vary in their capacity to support small businesses across all three drivers.

Because poverty and unemployment are concentrated in inner cities, economic growth strategies that target inner cities allow for a wholesale approach to increasing economic opportunities for the residents that need it the most. The three strategies highlighted above will help cities unlock the competitive advantages of their inner cities.

This blog post is written in response to the May 12, 2014 Meeting of the Minds and Living Cities #urbanopportunity group blogging event, which asks, “How could cities better connect all their residents to economic opportunity?”  See other responses here.