Government Role in Encouraging Inner City Growth

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Topic: Politics & Government
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Abstract

This paper identifies the role that the government has in encouraging inner-city growth and the economics behind such a role. The paper argues that the government has a leadership role, an enabling role, a facilitative role, a fostering role, an encouraging role, a role to nurture a positive image for inner cities, and a role in creating an enabling environment for businesses. The economics behind the government’s role is identified as creating sustainable regions that do not depend on the wealth of other regions through wealth redistribution plans by the government. The paper argues that the multiplier effects of poverty have in the past led to illiteracy, unemployment, poverty, and disease, among other negative things in inner cities. By encouraging growth in such areas, the government would be creating a sustainable solution to the many economic and social challenges that face communities living therein.

Introduction

There are many striking similarities in most inner cities in the United States of America. Such similarities include an aging population, a declining labor force, and an expanding underclass that neither has the skills nor the psychological preparation needed to engage in productive work (Rondinelli, Johnson & Kasarda, 1998). Inner cities are also increasingly registering a replacement of traditional families with single-parent households. Compared to the main city areas, inner cities further register lower technology literacy and use, higher cultural diversity, and higher poverty levels (Rondinelli et al., 1998). The dire situation in inner cities also threatens to affect future generations because as Rondinelli et al. (1998) note, “an alarming number of minority children in cities are growing up in poverty, without skills and with little socialization of preparation for higher education” (p. 97).

The government has a role in all this. As implied by Porter (1995), the government has a role in establishing and/or improve the infrastructure in inner cities in order to attract investors. Consequently, employment opportunities would increase. The government also needs to provide sustainable solutions to poverty, crime, and drug abuse (Porter, 1995). In the past, the government used a social model that provided relief programs that included food stamps, monetary assistance, and housing subsidies. To spur economic growth, the government used piecemeal approaches mainly through issuing preference programs to investors by offering them subsidies (Porter, 1995).

The main shortcoming of such programs, according to Porter (1995), is that the government “treated the inner city as an island isolated from the surrounding economy and subject to its own unique laws of competition” (p. 54). To encourage growth in inner cities, the government has a role not only to address the social situation (i.e., food, housing, schooling, unemployment, crime, and drug abuse) but also to develop a well reasoned-out economic strategy.

Government mandates, inducements, and/or charities, although well-meaning, have been criticized as being artificial since they work on the premise of wealth redistribution (Porter, 1995). A more natural approach to encouraging growth in inner cities would be to create the necessary infrastructure so that inner cities can create their own wealth. According to Porter (1995), inner cities across the US have four advantages that are less common in non-inner city locations. They include: “strategic location, local market demand, integration with regional clusters, and human resources” (p. 57). While the government cannot by itself utilize the foregoing advantages, it can create policies and rules that would make it possible for investors from the private sector to utilize them. According to Porter (1995), the government’s major role in enhancing growth in inner cities is “improving the environment for business” (p.62).

In other words, the government does not necessarily need to provide funding and/or services in terms of social welfare to inner cities. Instead, its role involves opening up the business environment so that more investors can set up businesses and utilize the competitive advantage that inner cities have over the non-innercity regions.

Supporting Porter’s (1995) sentiments, Amirkhanian (2003) indicates that local governments have a major role in encouraging growth in inner cities. According to the author, its government’s role to: provide leadership that is focused; create support systems in the business environment; enable competitiveness in business; foster the creation of a competent workforce; create images that portray inner cities positively; and encourage wealth creation and accumulation by investors and employees in inner cities (Amirkhanian, 2003).

A leadership role

Inner cities are part of the larger country, and if they are deficient in some way, the multiplier effect will be felt elsewhere in the economy (e.g., through high crime rates and redistribution of wealth). The government has a role in showing stakeholders in the private sector that opportunities do, indeed exist in inner cities. One of the ways through which government can offer leadership is by working with the community (e.g., to equip them with the necessary social, entrepreneurial and/or professional skills); institutional leaders (e.g., in the development of strategic courses for training community members); and businesses (e.g., through convening business meetings where business opportunities in specific inner cities are identified) (Amirkhanian, 2003). Interactions between government representatives (e.g., mayors) and community members, institutional representatives, and/or business stakeholders, is indicated as a good way through which each side of the divide learns about the opportunities and/or perceived risks in inner cities.

Leadership also involves opening up to opportunities and revealing the attractive aspects of investing in inner cities. The four competitive advantages, as revealed by Porter (1995), would be a good starting point for the government. Bellinger and Wang (2011), for example, indicate that unrealized retail opportunities are common in most inner cities. Yet, it takes the government’s leadership to create partnerships (e.g., with learning institutions) for specific development opportunities in the retail sector to be uncovered. Being closer to communities, local governments have greater leadership responsibilities than the federal government.

The role of creating an environment that supports business

Some of the ways that government can create an environment that supports business is by creating and adopting business-friendly policies; providing space and land to investors; providing sources of affordable capital (e.g., through bank loans); establishing the necessary infrastructure in transport and communications; passing business-friendly regulations (e.g., on taxes); and being friendly to business enterprises among other ways (Amirkhanian, 2003). It has been argued that if the government was to pursue a strategy of offering support services to businesses intently, investors would be more willing to take advantage of the competitive advantages that inner cities have to offer (Amirkhanian, 2003).

Crime is a major risk that businesses are afraid of when considering setting up operations in inner cities (Amirkhanian, 2003). Investors also fear that inner-city neighborhoods are not customer-friendly and that street maintenance poses a major challenge in the smooth running of business operations (Amirkhanian, 2003). Notably, the government (especially local governments) can forge partnerships with communities and business people in order to resolve the foregoing identified issues. Crime prevention, for example, can be done through community policing, while problems such as cracked sidewalks or potholes in the roads can be addressed jointly by governments and local communities. Specifically, the government can finance the reconstruction of road and sidewalks, while local communities would be a source of affordable labor during construction.

The role of enabling competitiveness in business

Amirkhanian (2003) cites facilitating the formation of business clusters as one of the viable ways that a government can effectively meet the role of enabling competitiveness in business in the inner cities. The location of companies operating in the same industry in the same geographical region is beneficial since it enables companies to share market intelligence, utilize the same transport networks, and attract and/or utilize specialized suppliers and workforce.

The government comes in because the land is a contentious issue in most inner cities as some state, federal, and regional lay claim to it (Porter, 1995) notes. Consequently, the government needs to reorganize itself and resolve contentious land issues in order to leave enough room for investors. Additionally, the government has the capacity to mobilize communities, allocate different residential areas, and compensate them where need be in an effort to create room for companies in the same cluster. Porter (1995) admits that land and attitudes held by local communities may pose a major challenge in any attempt made at reorganizing (or create space in) inner cities.

As Bellinger and Wang (2011) note, government policy affects regulatory costs and, by extension, the operating costs of business. The cost of market entry in inner cities, just like anywhere else, is also partly affected by such factors as gaining operation approvals and permits or licenses. Considering the lower investor appeal that inner cities have compared to suburban areas, the government should not treat the two areas equally.

Ideally, government intervention should make inner cities worthy investment areas, such that investors would have a reason to choose inner cities as their preferred investment destinations. In other words, investors need to have sufficient reasons to forfeit investment opportunities in more secure suburban areas that have better infrastructure and instead choose to invest in the riskier inner cities. Deliberate government action can create the right conditions and environment, hence encouraging investments subsequent growth in inner cities.

The role of fostering the creation of a competitive workforce

Fostering a competitive workforce starts right from basic education, and the government has been commended for diligently improving K-12 education in inner cities (Amirkhanian, 2003). However, it has been noted that the adult population in inner cities could benefit from some training, especially in relation to getting and keeping jobs (Amirkhanian, 2003). Programs to equip the adult population (i.e., people aged 18 years and above) with skills have been proposed as viable for use by the government. Community colleges and vocational schools are just two of the popular institutions that governments use to equip adults with the necessary skills and knowledge. Where the government cannot sponsor adult education and training on its own, partnerships with private businesses would also help.

Amirkhanian (2003) specifically notes that the government can encourage private sector players to train their employees in order to equip them with the skills and knowledge they may lack, and which are relevant to their jobs. Amirkhanian (2003) further notes that since local government officials usually have control of training and placement funding provided by the federal government, they (local government representatives) can use the leverage provided by such funding to bargain for wage increase for inner-city workers based on set performance goals; fund technical and community colleges while encouraging the adoption of relevant courses that address prevailing skills and knowledge gaps; and link the delivery of business services to funding, in a manner that provides incentives to businesses that defy prevailing fears, risks and/or challenges to set up businesses in inner cities.

The role of creating a positive image of inner cities

While inner cities pose more business challenges to investors compared to their suburban counterparts, the rewards can be higher, especially considering the four competitive advantages that such areas have, as identified by Porter (1995). As Amirkhanian (2003) states, “inner-city economic development will not fully take hold unless people and businesses see opportunities that override the costs of locating in inner cities” (p.12). The government, therefore, has a role in ensuring that inner-city images are improved by investing in crime reduction strategies, rehabilitation programs, education and training, and infrastructure development, among other things that may require government intervention. The government also needs to get the word out about development in inner cities. In other words, the government can assume a marketing role in order to ensure that potential investors get to know about the opportunities that exist in inner cities.

The role of encouraging wealth creation

Most of the challenges facing inner cities today have a direct correlation with the poverty therein (Amirkhanian, 2003; Porter, 1995). Crime, poor health, and illiteracy are often a direct consequence of poverty. Illiterate people rarely get well-paying jobs, and as such, the cycle of poverty continues. The government, however, has a role that goes beyond meeting the basic needs of its citizenry. By extension, a government has the mandate to create sustainable communities. Creating wealth, therefore, needs to start from basics through educating people and preparing them for the job market. The foregoing would ensure that investors who set up businesses in inner cities can utilize the same workforce and, by doing so, empower their employees economically. Amirkhanian (2003) argues that bridging the gap of unemployment should be the starting point in wealth creation.

So far, this paper has indicated the direct roles that the government has in encouraging inner-city growth. However, there are other indirect roles that it has. Freeman (2007), for example, indicates that unhealthy eating habits, as evident in the fast-food industry, are indirectly caused by government subsidies on products such as fats, sugar, and animal feeds. The producers and marketers of fast food also benefit from tax breaks. The fast-food issue is just an illustration of how government subsidies when used for the wrong economic reason, can cause worse economic effects.

For example, the disease incidence in inner cities, where fast food is commonly consumed due to its affordability, is quite high. Government assistance, especially in feeding programs in schools, is, according to Freeman (2007), another inadequate intervention. The author notes that the government spends “ninety percent of its budget on ground pork, ground beef, eggs, and whole-milk cheeses instead of fruits, vegetables, and other healthy foods” (p. 2244). Again, the foregoing quotation is an illustration of misguided government intervention. As a guardian and protector of the citizenry’s welfare, the government, through its various interventions, has a role to be a role model to young people. If, for example, a healthy diet is necessary for bringing up a healthier population, the government should demonstrate the same by providing healthy diets in schools. It can also put in place policies that end food oppression.

According to Freeman (2007), food oppression partly results from government policy and/or interests, where fast food companies have received incentives to operate in inner cities, and in return (though in informal exchanges), they offer financial support to the government.

The economics behind the government’s role in encouraging inner-city growth is rather straightforward. Any part of the economy that is underperforming its potential economically has negative consequences on the larger economy. Specifically, and as indicated by Porter (1995), the government redistributes wealth created by other better-performing regions of the economy to the under-performing inner cities. The foregoing creates dependency, especially since past government spending on social welfare did not create sustainable business models.

It can also be argued that prosperity in inner cities would put an end to some of the inequalities currently observed therein. For example, fast food popularity is partly because it is affordable (Bellinger & Wang, 2011; Freeman, 2007). Growth in inner cities, however, would create employment opportunities that would empower communities economically. Consequently, it would be expected that they would make better food choices, and as such, the disease burden resulting from poor eating habits would decline significantly.

Bellinger and Wang (2011) also indicate that the retail gap that is common in small cities make it harder for communities therein to access fresh produce. Through the above-identified government roles, it is possible that investors would be willing to set up grocery stores, especially if the demand for such fresh produce (as envisaged in the paragraph above) is high. Notably, without adequate demand for fresh produce, a grocery store would not be economically viable.

Economically, investing in K-12 education and in adult education (e.g., vocational schools) does not have immediate benefits, but it does in the long term. Through education, people are able to acquire the knowledge and skills needed to make positive contributions to the economy. Their contributions are rewarded with money (and/or other incentives), and this enhances their economic well-being and spending power. An increased spending power means that they will demand specific goods and services (e.g., fresh grocery produce), and as a result, the multiplier effect will be felt elsewhere in the economy. Such demands may lead to more investments in grocery stores, thus creating more demand from the farmers, and creating jobs in the entire supply chain. Such jobs could be in the transport sector, and in stores where people would be employed to manage inventory, and attend to customers, among other things.

Conclusion

Overall, the government’s role in encouraging inner-city development should be founded on a good analysis of the external and internal environments that inner cities face. Through such an analysis, the government can then identify inner cities’ strengths, risks, challenges, and opportunities. Consequently, the government can encourage investments which can utilize prevailing opportunities and strengths, while obtaining help (i.e., from federal or local funding, communities and/or businesses) to manage existing risks and challenges.

References

Amirkhanian, A. (2003). This works: encouraging economic growth. Civic Bulletin, 33, 1-19. Web.

Bellinger, W., & Wang, J. (2011). Poverty, place or race: causes of the retail gap in smaller U.S. cities. The Review of Black Political Economy, 38, 253-270. Web.

Freeman, A. (2007). Fast food: oppression through poor nutrition. California Law Review, 2221-2259. Web.

Porter, M.A. (1995). The competitive advantage of the inner city. Harvard Business. 54-71. Web.

Rondinelli, D., Johnson, J., & Kasarda, J.D. (1998). The changing forces of urban economic development: globalization and city competitiveness. Cityspace: A journal of Policy Development and Research, 3(3), 71-105. Web.