Community Economic Development Research Paper

1. The Movement: People Based Economics

Community economic development focuses on distressed or economically disadvantaged communities as zones of action. That is, community economic development has a strong bias toward place. De-pressed geographic and socially bound areas have been left behind by the normal processes of economic change (Goldsmith and Blakely 1992). As Goldsmith and Blakely 1992 show in their analysis of urban American disadvantaged populations reside in areas or regions of considerable wealth. But in many areas wealth is unequally distributed among the people creating conditions of observable poverty and neglect for those people and place that do not share the same economic advantages. These communities are deeply divided with: separate assets; separate opportunities; and are separate physically and socially isolated places within the larger national and international economy. Other scholars in the industrialized world have made similar observations. The basic thesis of community economic development is to address this situation, not entirely by the re-capture or redistribution of wealth from the larger society but through the creation of new wealth within these disadvantaged communities.

As Habersfeld, a leading community economic development practitioner (1981, p. 8) puts it clearly, ‘residents of low income communities want development which promotes their interests.’ Habersfeld describes these interests as the ability to build com-munity capital by: (a) creating productive work for the residents of the distressed neighborhoods in their community or close by; (b) providing local goods and services for the community with local ownership wherever possible; (c) acquiring the same resources as other communities in the city or country with respect to governmental infrastructure that enhances the appearance and livability of the area; (d) generating new wealth through locally based and owned enterprises; (e) reducing the communities’ dependence on external resources such as national and local government programs; and, (f ) providing the residents with the experience and exposure to present themselves at the neighborhood level as equal participants in the larger city and regional politicoeconomic processes (Habersfeld 1981, p. 8).

Thus community economic development is based on a very strong and clear belief structures or a philosophy aimed at a people–location axis. This philosophical position is the basis for a movement that places the community’s social development or social capital formation at the center of the economic process. In this sense it differs from other forms of economic development that focus almost exclusively on the wider economic transactions in the macro-economy and assume that they will affect everyone within the economy. The stress on community or neighborhood as the target for economic development is also unusual because general economic theory does not recognize place or particular groups of people as central variables. In essence, community economic development is a movement based on the concept that the basic resources in poor communities can be enhanced to generate new opportunities and wealth within the community.

2. The Practice Of Community Economic Development

The practice of economic development aims at developing, attracting, and retaining or capturing economic activity for a designated locality. Economic activity equates to increased tax base, jobs, and the resources to pay for civic goods ranging from roads to symphonies or museums. Economic development practice is de-voted to attracting outside capital as the central means of improving the regional or local economy. In fact, incentives (discussed later) are offered as inducements for firms to move from existing locations to new places. This form of economic development assumes that almost all forms of job and tax-generating activity is of benefit to the community that successfully induces it.

Community economic development does not sub-scribe to the above practices of moving or stealing firms from other locations. The reasons for this are simple. First, in most situations when a firm moves it takes with it skilled resources and leave behind unemployed workers in need of jobs. In essence, to produce wealth in one place, another is impoverished. This is not to say that firms should not move for economic reasons such as gaining access to better raw materials, human resources, or customers. However, the premise of community economic development is that net new wealth needs to be generated not merely transferring jobs from one place to another. Second, community economic development presumes that new economic activity needs to fit the human resources in the distress community (Blakely 1994). By fit, we mean that the jobs or the activity will absorb the local population with only minor training or access to locally available raw materials or markets.

Community economic development practice eschews the notion that all jobs are good jobs and that any economic activity is better than none. The reason for this is that too many low income communities have been victimized by corporatist activities that use their territory and resources and that do not benefit the locals. Countless examples can be cited where low income residents were promised jobs in new plants only to see the workforce imported by the new employers. Or in other instances, poor communities have been displaced or entirely destroyed by new shopping malls or plants designed to serve them. A classic case of this type of capital over community is the sad story of Poletown in Detroit which was razed for a new Chrysler auto-plant that was supposed to employee several thousand local people (Wylie 1990). In the end of the plant never produced the anticipated jobs and the community was lost. There are many Poletown illustrations such as the London Docklands and other places around the world, where community life has been sacrificed for economic activity.

Community-based economic development practice rejects the notion that a community must be destroyed to be saved. Rather the goal of community economic development is to forge new economic activity out of the assets in the distressed community. Harvard Business Professor Michael Porter in a seminal article in the Harvard Business Review argues that inner city low income areas are indeed capable of generating their own new wealth (Porter, in Boston and Ross 1995). Porter argues that ‘… inner cities occupy what should be some of the most valuable locations in their respective regions, near congested high cost areas, major business centers, entertainment complexes, transportation infrastructure, and communication nodes. As a result, inner cities can offer a competitive edge … (Porter, in Boston, p. 305). Porter’s thesis is consistent in many respect with other community economic development scholars prospective on distressed communities. However, not all of them share his enthusiasm for expanding the basic supplier industries such as food processing and local serving firms. Friendly community economic development scholars suggest that Porter’s assessment is too glib. Professor David Sawicki, one of the most knowledgeable scholars in the field of economic development says, ‘What the policy debate does not need is yet another model of urban redevelopment that raises unrealistic expectations about what can be accomplished and which directs potentially productive players (young, black, business school graduates) into private sector initiated activities without real roots in the inner city.’ (Sawicki and Moody 1995, p. 75.)

The real issue is how the ghetto or any low income community possesses a sufficient resource base for any form of economic development. Michael Teitz, a leading policy scholar, who is sympathetic to locally based economic development suggests that neighbor-hoods or even larger communities within a city are not relevant units to focus on for development purposes. He argues that, ‘… neighborhoods by their very nature are problematic as a target for economic development strategy, insofar as the strategy is intended to generate economic activity and employment directly within their boundaries.’ (Teitz 1989, p. 112.)

So clearly, the advocates of community based economic development practice have to provide tangible evidence that the locus of such development can be targeted at the distressed community level. My own assessment is that the notion of community targeting can be too drawn too finely. What every disadvantaged community must be able to do, is to connect itself with the growing sector of the larger regional economy. Community economic development practice then is to find ways to increase the value added productive capacity of the under-performing communities and their residents. This requires, as I suggest, in my book Planning Local Economic Development (Blakely, 1994) strategies that build long term institutional capacity with low income neighborhoods through instruments like Community Development Corporations to help guide the local community resources so that they can play a role in the wider economy. My perspective is shared by Avis Vidal (1992), the leading community development scholar, who suggests that these institutional vehicles build the human social capital that can link distressed areas by forging the necessary combination of political and economic links to the larger region.

3. The Tools Of Community Economic Development

Economic development is almost always described by laypersons and even some professionals in term of the tools. For example, tax reductions or low cost land incentives, a tool of economic development, is frequently called the economic development strategy for a city or region. Clearly, these tools are very visible. But the tool means very little without a more compete and well refined strategy. In community economic development the tools are aimed at dealing with the underlying pathology of the people and the place. There are three types of tools used to deal with community economic revitalization. These are: (a) locality development—improvements in the physical character and appearance of low income areas; (b) human capital formation—increasing the skill levels and capacity of low income individuals to gain employment or start businesses to serve their com-munities; and, (c) finally, social capital or capacity building—building new institutions and/organizations that increase the political and economic institutional capacity of the community to develop and manage its own resources.

3.1 Locality Development Tools

Distressed communities are not attractive places. There are very observable conditions in disadvantaged areas in which the community lacks a viable economic base. The signs of this include boarded up storefronts, deteriorating public infrastructure such as streets and sidewalks, and visible criminal activity. These are the symptoms of the problems. But much like human disease, the symptoms must be arrested before a full effort can be launched to eradicate the problems. Another observable condition is idleness. Working age men and women are on the street during employment hours with no ‘place’ to go, or economic activity to attach them to the larger community. Again, this situation is symptomatic of closed factories or a lack of employment opportunities in the area.

Community economic development strategies at-tempt to deal with both the perceived, that is observable, as well as the real underlying situation. At one level, there are a host of community economic development tools aimed at dealing with the physical appearance of distressed areas. Some of these are well known, such as commercial facade improvement and community or neighborhood commercial revitalization projects. These programs use a variety of local initiatives aimed at bringing about physical revitalization of dilapidated building stock. Some projects do no more than provide paint and offer small loans for owner repairs and rehabilitation of their premises. Government agencies or services in the area attempt to re-do their facades to look less institutional, in character, thereby appearing safer, more lively and wholesome to passersby. More recently, new strategies called business or neighborhood improvement districts are being employed to reach the same ends. In these programs local merchants and sometimes residents agree on a small tax assessment as dedicated fund to do civic improvements and provide enhanced police services to the neighborhood. This tool is employed in communities of all economic strata. Improvement siatricts are now being touted as a new approach to ghetto physical revitalization. One of the major attributes of this approach is the degree of business and citizen involvement that it stimulates. This approach works where there is still a cadre of active local merchants with the resources to help get the activity started and with the energy to maintain it. In some communities the improvement district pro-gram is merged with community policing which incorporate the local residents as well as the merchants.

Physical based planning is a heavy component of many of the more recent tools like the enterprise and empowerment zones. The zone notion aims directly at targeting the place–people link in community economic development. No matter which name is used the basic notion is to provide government tax relief and other incentives to fix up or reclaim inner city or distressed are a land and buildings for re-use as business venues. Under most of these programs new businesses that employ local residents receive tax breaks or very low interest loans to use or expand an underutilized site. In addition to these tax incentives a firm locating in the targeted zone will receive special tax relief for every local worker hired.

There is some evidence that these strategies work under certain conditions. For example, New York City has seen a resurgence of many low income areas in dying neighborhoods using a combination of tough police actions to deter any forms of low level street crime and an aggressive clean-up and fix up programs. The New York approach has been widely imitated across the United States in major cities with generally good results. However, some critics complain that the problems do not go away, but are merely shifted to even poorer neighborhoods in the city. Homeless advocates claim these programs have made the plight of the homeless even less tolerable since they target the homelessness and offer no alternatives for the vulnerable homeless populations.

3.2 Human Capital Formation

One of the most important companion tools for community economic development is employment development. Job creation is critical. As a result, a wide variety of approaches have been devised to improve the skill base of distress community residents. These approaches range from basic skills and English language training to job interviewing skills and even new business advice. Community-based job training programs run the gambit from those that provide specific training conducted on the employer’s site to pre-employment counseling and support services. (Fitzgerald 1999).

Job training does not presume that there are, or will be, enough jobs available or suitable for the residents of low income areas. One reason for this is the very high level of ex-offenders among the population. Another is that too many of the best jobs are too far away or the skills requirements too high for the local workforce. Nonetheless it can be argued that in-creasing the work effort in low income communities, especially moving low income people off welfare is as important to reduce the cycle of dependency. As Lawrence Mead, the architect of welfare to work argues, ‘increasing the work effort of dependent populations leads to greater sense of personal worth, a reduction in idleness and crime.’ (Mead 1989).

One means of combating the loss of jobs in a community is to help start more local high quality businesses that can serve the community. Low income areas have many of the same service needs as high income areas. Therefore, it makes sense to assist low income residents to start new locally serving businesses. Timothy Bates, a leading small business scholar, suggests that one road to economic revitalization is for more of the low income residents to form new businesses that they own and operate (Bates 1995). This notion is clearly incorporated in the numerous minority ownership programs of the Small Business Administration. Nonetheless, few successful American minorities own or operate businesses in the ghetto (Bates 1995). The notion is that the minority owned and operated business will tend to select staff of color from the community where the firm is located in much higher proportion than their Caucasian counterparts operating in the same locale. Still another reason for promoting minority business ownership in low incomes areas is to create wealth in the distressed community. Real wealth can translate into investments in the same area and new job formation for future generations.

3.3 Social Capital Development

Social skills are the root of economic capacity. It is clear that most economic gains are made through some form of collective action. This can be as simple as joining a club or organization composed of other successful people to forming a corporation. While this seems obvious, it has been overlooked in much recent scholarship. Low income communities are not only bereft of jobs and businesses, they seldom have any organizations. The clearest illustration of this is to examine the town entry signs in small towns across the United States. In well-to-do prosperous communities the city limit sign is accompanied by a larger welcome sign with the names of significant community business and professional organizations such as the Rotary, Lions, Kiwians, Future Farmers, and the Chambers of Commerce as well as similar organizations. These organizations are the bedrock for firm or professional entry into the community. In low income areas of a city or poor small towns there are few or no organizations, other than the church. Unfortunately, the social network necessary to develop and carry an idea to fruition is not present. As a result, one of the latest movements in community economic development is to assist distressed communities build internal networks that can work as systems of mutual assistance within the community.

Forming social capital is sometimes called capacity building among foundations and government agencies. It is a very old notion going at least back as far as the US Department of Agriculture Cooperative Assistance Programs, which started just prior to the Great Depression of the 1920s and 1930s. The basic idea is to help the low income community develop institutional skills similar to the advantaged com-munities. In most instances this entails the formation of a community development corporation or CDC. The CDC acts as an umbrella agency that organizes local business, assist neighborhoods in social and community services, and helps start community revitalization efforts. The role of CDCs in community economic development is well documented elsewhere. (Vidal 1992). The fundamental idea is to create the CDC, along with a network of other organizations to create a social base for collective action among the disenfranchised in low income residents. This is not an easy task. Lack of trust, envy, and a general sense of apathy must be overcome to trigger community social capital formation.

4. Government Community Economic Development Program

Government programs in community economic development go back to at least the early industrial era. Tenement and poverty area clearance and clean up schemes have been part of national, state, and local level to transform low income areas. The most well recognized community or neighborhood level pro-grams were launched with Jane Adams at Hull House in Chicago at the turn of the twentieth century. The aim of Hull House, later called the Settlement House Programs, was to provide professional interventions in a community in a way that assisted the community leaders in helping themselves. As this idea was refined new programs emerged to accomplish many of the same goals. In England, Local Housing Councils took on similar roles with the low income workers.

Similarly, throughout Europe and particularly in Scandinavia programs were designed in the 1930s to eradicate the worst slum conditions. All of these programs have very similar components. Usually they provide some basic services for the low income such as housing or home repairs. Additional services are organized by group or community workers to assist the residents form self-help devices. These devices range from buying, farming, or business cooperatives to help poor communities meet basic needs for local control and ownership. Today cooperatives have grown into major institutions from this community economic development base. In the United States and throughout Europe, cooperatives operate banks, insurance companies, health services, and even telephone and electric power companies.

Another aspect of government programming has been the designation of special distressed neighbor-hood or community economic zones. The earliest of these in the United States were community action councils in designated poor neighborhoods in the 1960s. These community action councils were part of the War on Poverty. The concept was that targeting these areas for special government assistance would stimulate business relocations to them and thus in-crease local employment and capital formation. The most recent incarnation of these zones is called, e.g., enterprise or empowerment. The theory is that altering the tax breaks and employment incentives the area will become attractive for business relocations and expansions. Similar programs have been proposed and adopted in the United Kingdom, Australia, and several Asian countries including China with varying impacts. Green (1991) and several other scholars have questioned the validity of this approach. His work shows that special tax measures are seldom a reason for a firm to change location. In reality there are many factors, chief among them is the quality of nearby human resources (Blakely 1994).

Small and minority and low income business formation has been an important component of virtually all community economic development initiatives. More recently, government program efforts in this area have borrowed from the Bangladesh and the Basque Region of Spain experiences of group lending strategies called micro-lending. This approach blends both social capital and business formation into a single approach. The micro-loans programs provide small seed capital to a group of borrowers who may enter in different enterprises or may even use their small loan (US $100–US $5000) capital to buy clothes for work. The requirement is pledge and guarantee repayment as a group. The group component creates the social capital that is so frequently missing in other efforts. The group members learn to trust and rely on one another for other networks and to use one another’s expertise as needed via bartering arrangements. This approach has had very good results in most of the places that it has been introduced. Another variant of this is the host of government programs that aim at community banking and other capital retention programs. Community Development Banks have been formed with the specific intent and mandate to help create new businesses in low income areas. These banks have government direct support through special underwriting or loans and some funding from traditional banks as part of a government requirement for licensing.

The efforts described above do not represent all government efforts in the field of community economic development. In some cases, government programs have community economic development as a secondary or lower consideration. Further, new government programs are spawned to meet new circumstances such as welfare reform. The range or type of programs described above represents a classical typology rather than an exhaustive list. This type of program is seen in most of the industrialized world in one or more of these forms.

5. Summary

Community economic development is a distinct movement. It is part of local economic development; however, it has three distinctly different goals. First, it is based on the concept that there is a link between the conditions of distressed places and those of the people in them. That is, it is important to deal with the social as well as the physical conditions of a place to successfully introduce new economic options and opportunities. Second, it adheres firmly to the notion that interventions in the community or territory must build new capacity or institutional vehicles that have political skills and economic ability to deal effectively with the wider region. Finally, effective community economic development rests on the building of internal–indigenous resources of the local people— through increasing their skills and their capacity to generate their own economic wealth.

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