American Economic Association
Ghetto Economic Development: A Survey
Author(s): Bennett Harrison
Source: Journal of Economic Literature, Vol. 12, No. 1 (Mar., 1974), pp. 1-37
Published by: American Economic Association
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GhettoEconomicDevelopment:
A Survey
ByBENNETT HARRISON
Department
of UrbanStudiesand Planning
Massachusetts
Institute
of Technology
Thedevelopment
ofthispaperwassupported
bya grantfrom
theUS. Office
ofEconomicOpportunity
to theProjecton theEconomicsofDiscrimination
at theUniversity
ofMaryland,withwhichtheauthorwasformerly
associated.
Thepaper was completedat M.I T in thesummerof 1973. I am grateful
forcomments
byRobertS Browne,VernonDixon,and severalanonymous
referees
ofthisJournal.Foran earlier,moreabbreviated
surveyofthesubject
and a complementary
bibliography,
see Spratlen[169, 1971].
IN
THE WAKE
of theurbanriotsof the
mid-1960's,manywhiteAmericansdevelopedwhatforthemwas a quite new concernforthe stateof economicunderdevelopmentof the (predominantly
black) ghettosof
our largecities.The prestigiousNationalAdvisoryCommissionon Civil Disordersissued
a "riotreport"in March of 1968 whichconcluded that"enrichment
[oftheghetto]must
be an important
adjunctto integration,
forno
matterhow ambitiousor energeticthe program,fewNegroesnow livingin centralcities
can be quicklyintegrated.In the meantime,
large-scale improvementin the quality of
ghettolifeis essential"[138, National AdvisoryCommissionon CivilDisorders,1968,pp.
22-23]. In May ofthesameyear,SenatorRobert F. Kennedyspoke on the Senate floorin
supportof his "Urban EmploymentOpportunitiesDevelopmentAct of 1967," firstintroducedtheyearbeforeand designedto federallysubsidizethe locationin the ghettoof
corporatebranchplants.Two yearsbefore,in
thewakeoftheWattsrebellion,Kennedyhad
visited the Bedford-Stuyvesant
ghetto of
New York,a visitwhichled directly
Brooklyn,
to thecreationin 1967ofone ofthefirst-and
the largest-of the "communitydevelopment
corporations,"
and to theSpecial ImpactProgramof the U.S. Officeof EconomicOpportunity,stillthe government's
mostimportant
programforthesupportofminority
economic
development.
Government and corporate interest in
ghetto"enrichment"came at a timewhen a
growingnumberofblackpoliticalleaderswere
expressing-or being pressed by their constituentsto express-supportfor(or at least
"interest"in) whathas sometimesbeencalled
the "separatist" approach to improving
minority
well-being.
These pressuresgrewout
ofperceptions
withinone afteranotherminority "community"that improvement
through
in orthodoxlegal and economic
participation
institutions
(oftencalled the "integrationist"
approach)was proceedingtoo slowlyand exclusivelyon the "whiteman's" terms.Some
arguedthatthedevelopment
ofindigenousinstitutions-farfrom representinga retreat
fromintegration-constituted
the mosteffectivepathto integration,
by creatingthematerial basis, a viable economy,withdeveloped
physicaland humancapital,forthe acquisitionof collectivepoliticalpower(seen to be a
prerequisite
forintegration).
Still otherblack
leaderstookthepositionthattheissueofinte-
1
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2
Journalof EconomicLiterature
grationor separationwas irrelevant,
and black politicalleaders.
that"in- black intellectuals
in place" was fullyjustifiedby the The dilemmaposed by theapparenttrade-off
vestment
and
preference
ofmillionsofnonwhites(and many betweenthepursuitsof racial integration
ofthe"black comwhitesas well) for an innercity residential theseparatistdevelopment
location.If the "whiteeconomy"would not
munity"permeatesthe historyof blacks in
develop decent urban communitiesthrough America.
This contrastis reflectedin the varietyof
normalinvestment
channelsand/orto theextentthat white-controlled
investment
in the positionstaken by prominentblack leaders.
ghettowould be unresponsive
to local prefer- For example,the firstnationalblack spokesBooker
manforeconomic"self-development,"
enceswithrespectto thequalitativenatureof
those investments,
local economic develop- T. Washington,advocatedliteral"black capimentwouldhaveto proceedthrough"special"
talism"in thebeliefthatwhiteswould accept
institutionalprocesses created for just this blacksas equals onlyafterthelatterdeveloped
purpose. Finally, some black and brown experienceand expertisein orthodoxbusiness
criticof Washingsocialists advocated community-controlled practice.A contemporary
planneddevelopmentas a consciousattempt ton's small business approach, whose own
to providean institutional
alternative
to com- economic philosophycame to representa
to the growinginterestin black
petitivecapitalism.As the decade nearedits
counterpoint
capitalism,was W. E. B. Du Bois. The eleclose, white,brown,and red individualsand
organizationsemerged whose interestsin
mentsof Du Bois' "socialismwithoutnationghettoeconomicdevelopmenttouchedmany alism" were black separation,mutual coopofthebaseswhichhad beenstakedoutinitially eration,industrialdemocracy(or "workers'
by blacks.
control"),and economicplanning."NegrocoThe relatively
fewprofessional
whiteecono- operativestoreswouldobtaintheirgoodsfrom
mistswho have studiedand writtenon inner Negro producers,which would be supplied
rawmaterialsfromNegrofarmers.
cityeconomicdevelopment
Intermedihavetendedto approachthe subjectfromexperiencesand per- ate stagesof productionsuch as extractive
inspectivesgainedin thestudyofless-developed dustriesand transportation,
wereto be Negro
countries.Their ranks are now being aug- controlled" [98, Henderson and Ledebur,
mentedbytheemergence
ofa growingnumber 1970, p. 33]2. Earl Ofari argues that Du Bois'
of nonwhiteeconomistswho have chosen to
emphasison "cooperation"as opposed to inaddressthis area of inquiry.Indeed, the apdividualisticcompetitionrepresentsa revival
pearancein 1970of TheReviewofBlackPoliti- in AmericaofAfricancommunalism,
a "tradical Economy,whose contentsconsistlargely tion of cooperationin the fieldof economic
(althoughnot exclusively)of papers on the endeavor[which]is outstanding
in Negroculurbanghetto,manifests
theincreasinglevelof
tureseverywhere"[142, Ofari,1970,p. 12].
activityof thisgroup.
Marcus Garvey,the firstimportant20th
centuryadvocate of black nationalismand
I Historicaland CulturalAntecedents'
separatistdevelopment,rejected integration
Whiletheconceptofblack (or "ghetto,"or
withwhitesas infeasible[98, Hendersonand
"minority,"or "urban community")ecoLedebur, 1970,pp. 37-44]. While constantly
nomic developmentmay have been new to
preparingfor an eventualreturnto Africa,
whiteAmerica,it was anythingbut new to
2
' In additionto the referencescited in the text,the
readeris referred
to the papersin Bailey [12, 1971].The
profilesof important
black individualsand organizations
involvedin economicdevelopmentare elaboratedin any
good black historytext.
For examplesof Du Bois' writingon thissubject[cf.
55, Du Bois, 1915; 56, Du Bois, 1903].This concernfor
theimportance
ofdevelopingblackinter-industry
linkages
reappearsfifty-five
yearslateras the centralthemeof an
economic"plan" fortheHarlemghetto;see Vietoriszand
Harrison[205, 1970].
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Harrison:GhettoEconomicDevelopment
3
successfulin developinga networkof small
blacksintheU.S. wereto reorganizetheirown
communities.Paradoxically,Garvey was a
blackbusinessesin severallargeAmericancitstrongadvocateofcapitalism;indeed,he even ies. Their most importantlong-rangeeconomic goal is, however,the creation of a
opposedlabor unions.
naisolated,agricultural-based
geographically
Contemporary
radicalblack socialistssuch
as JamesBoggsfollowDuBois in rejectingany tion in the AmericanSouth. An industrial
systemof privateproperty;black community structurewould emerge gradually over an
controland development
are perceivedas sim- agrarianbase, througha regimeof austere
plypartofa largerworldwidesocialistrevolu- consumptionwith profitsfrom the sale of
a blackrevolutionary agriculturalproductswithinthe Nation, to
tion.In hisManifestofor
and to theMuslimstoresin Northneighbors,
party,Boggsproposeda programconsisting
of
a guaranteedannual income,workercontrol ern cities [137, Muhammad, 1965, pp. 220of industry,mass-producedpublic housing 247].
"on a scale similarto thatof mobilizationfor
Malcolm X became a Muslim in prison.
war," and free medical and transportation Afterhis release in 1952, he became one of
servicesforworkersof all races [26, Boggs, Elijah Muhammad'smost successfulspokes1968; 27, Boggs, 1971]. See also Allen [9,
men,operatingfroma mosquein Harlem.Ultimatelydismissedfromthe movement,and
1969];and Franklinand Resnick[68, 1973].
On theotherhand,Roy Innis,currentNasubsequentlyassassinatedin 1965, Malcolm
black nationaltional Chairmanof the Congressof Racial
was perhapsthemostforceful
Equality,describeshimselfas a Garveyite.He
ist in America.His influenceon youngblack
wouldhavetheblackghettosbecomepolitical intellectualswas profound,and his writings
subdivisionsof the state-instead of "sub- and recordedspeechesare todayin greatdecolonial appendages"of the city-througha
mand [cf. 126, Malcolm X, 1966]. Malcolm
"newsocialcontract"[104,Innis,1969].Innis cameto believethat"theeconomicsystemwas
was an earlyadvocateof communitycontrol exploitative"
and advocatedextremeautarchic
ofschools,believingnotonlyin thefeasibility developmentforthe black community,
based
of raisingthequalityand relevanceof ghetto on a mercantilist
analysisof
educationand politicalconsciousnessthrough
the basic fundamentals:that wheneveryou take
local control,butalso in thepotentialforusing
money[i.e., profits]out of the neighborhoodand
theschoolsas instruments
ofeconomicdeveltheneighborhood
spenditin anotherneighborhood,
opment. "Harlem schools purchase over
in whichyouspenditgetsricherand richer,and the
neighborhoodfromwhichyou take it gets poorer
$100,000,000in goodsand serviceseach year.
and poorer.This createsa ghetto.. . We have to
Aside fromthepoliticalimplications,
commuteachour people the importanceof whereto spend
nitycontrolof Harlem schools could insure
theirdollars [quoted in 64, Epps, 1968,p. 141].3
thatBlack community-owned
firmsbenefited
The programs(and, perhapsmore imporfromtheseexpenditures"
[quotedin 188,Tate,
the attitudes)of BookerT. Washington
tant,
1971,p. 90].
survive
todayin theleadershipof thoseblack
An equally complex (and infinitely
more
organizations
devoted to business developmanis theorganizerofthe"Black
mysterious)
Muslims." The Honorable Elijah Muham3The admonitionto "buy black" has a long history.
Blackchurcheshavealwaysencouragedtheirparishioners
mad's "Twelve-PointProgram for the Deto patronizeblackenterprises
(whilecontinuing
to respect
velopment of the Black Race" and his
the capitalistethic).Endorsementof privatebusinessby
"Three-YearEconomicProgram"set out the the church,and constantpropagandain the black press,
black civic organizations,
and black social clubs,emphanationalisteconomicsof the Nation of Islam
sized "the duty of Negroes to trade with Negroes and
[137, Muhammad, 1965, pp. 169-172 and
[promised]ultimateracial 'salvation'ifthey[would]sup192-199]. The Muslimshave been extremely portracialbusinessenterprises"[142,Ofari,1970,p. 52].
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4
JournalofEconomicLiterature
mentwithinthe contextof social integration ment are both naturaland inevitable,given
and political non-violence.These organiza- the traditionof Africancommunalismwhich
Americanblacks have inherited.Badi Foster
tionsinclude the National Business League
in 1900),the
writes:"Contraryto the thrustof individual(foundedbyWashington
himself,
NationalUrbanLeague,and theNationalAsism, communalismholds that self-centeredsociationfor the Advancementof Colored ness will not provide a just social order
People.
resultingfromantagonisticcooperation"[50,
Dixon and Foster, 1971, p. 13]. In termsof
There may be a psychologicalas well as a
political-economic
explanationfor the con- neoclassicaleconomictheory,communalism
of utilityfunctinuingblack interestin economic develop- involvesthe interdependence
ment. Du Bois wrote: "one feels ever his
tions [8, Alexis, 1973]. "Service to family,
two-ness-an American,a Negro; two souls, clan, community,or nation becomes more
twothoughts,
twounreconciledstrivings;
two than'theburdenofbeingmybrother'skeeper.'
warring
idealsinonedarkbody,whosedogged Servingothersis motivatednot by some abalone keepsit frombeingtornasun- stractcode ofbehavior;ratherone servesothstrength
der" [56, Du Bois, 1903,p. 58].4Many black
ers to serve oneself. Necessity instead of
look upon thecollectivestruggle philanthropymarks the encounterbetween
psychiatrists
forghettodevelopment
and self-determination selfand other"[50, Dixon and Foster,1971,
as a formof grouptherapy[59, Edel, 1972,p.
p. 10]. Black Americansare allegedlypartof
313; 84, Hampden-Turner,
1969].
a culturewhich recognizesand values such
It has been suggestedthat blacks tend to
interdependences.Foster describes this as
rejectthe "ideologyof economicindividual- "empathyas a way of knowing."Subjective
ism" in the beliefthatwhitesin positionsof
(empathetic)and objective (scientific)episin dealing
economicand politicalpower explicitlyuse
tomologiesare employedtogether
thatideology"to dominatepoor people and
with the world. "This union of opposites,"
keep them 'competitively'divided" [84,
saysVernonDixon, "characterizestraditional
Hampden-Turner,1969, p. 83; 154, Reich, thinkingthroughoutAfrica." This tradition
devel1971]. This criticismof economicindividual- allegedlylendsitselfto the community
ism was elaboratedby the (white)directorof
opmentapproachin dealingwithurbanpova major studyof the Los Angelesriots:
erty.5
[t]hepoliciesand programsin Washingtonvis-a-vis
the "Negro problem"throughout
thecountryhave
tendedto stressthetraditionalmodelof individual
success ratherthan to view the problemsof the
groupas a whole. As a result,a patternhas been
encouragedin the Negro communitywhichplaces
a premiumon individualmobilityratherthan on
collectiveconcern. . . the Militants. . . have as
a commondenominatorthe beliefthat individual
mobilityis not the answerand that only through
collectiveconcerncan theNegrosolvehis problems
[40, Cohen, 1970,pp. 19-20].
Thereis also a feelingamongsomethatcollectiveapproachesto blackeconomicdevelop4 Vernon Dixon's analysis is more complex. "Twoness" does notcause schizophrenia,
per se. Blacks accept
their dual acculturation.But this so-called "diunital
behavior" is not sanctionedby whiteAmerica. Blacks
internalizethissenseof illegitimacy;
thatis the cause of
trauma[50, Dixon and Foster, 1971,p. 34].
I.
The Ghettoas Colony
Some writersperceivethe relationshipbetweenthe urban ghettoand the mainstream
Americanpoliticaleconomyas one of "internal colonialism."The ghettois describedas a
"less developedcountry"witha severe"balance of payments"deficitand with"foreign"
controlof the most importantlocal political
and economicinstitutions
[cf.185,Tabb, 1970,
ch. 2]. That the ghettois an inherently
open
I FosterassertsthattheAristotelian
trainingofWestern
ifnotimpossibleformostofthem
peoplemakesitdifficult
of whatJungcalled "the interto perceivethepossibility
of opposites."Thus, forexample,whitesare
penetration
allegedlymorelikelythanblacksto treat"the protection
of the individualand his inalienablerights"and "collecand communaldiscipline"as mutually
tiveresponsibility
exclusive, ideologically antagonisticalternatives[50,
Dixon and Foster, 1971,p. 11].
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Harrison:GhettoEconomicDevelopment
economylocatedphysicallywithinthecorpus
it from
ofthe"imperial"powerdistinguishes
thetypicalLDC, but-it is argued-thesedisarerelatively
theunderlytinctions
superficial;
ing institutionalrelationshipsare allegedly
quite similar. Certainly,black leaders of
widelyvaryingideologieshave been intrigued
by the colonial analogy[33, Carmichaeland
Hamilton,1967; 37, Clark, 1965; 38, Cleaver,
1969;46, Cruse,1967;95, Haryou,1964; 104,
Innis, 1969].
The international
systemof colonialisminvolvedthepoliticaland economicexploitation
ofone countrybya (generallysmall)groupof
outsiders,supportedby the militarystrength
of theirhome country.It was the colonists
who wereon foreignsoil, not the colonized.
The subordination
ofthenativeswas oftenformallyrecognizedin treatiesand otherlegal
On its face, the urban ghetto
arrangements.
systemin the U.S. hardlyfitsthis pattern.
Here, "the people who are oppressedwere
themselvesoriginallyoutsiders and are a
numericalminority"[21, Blauner, 1969, p.
395].6 Internalcolonialismhas not involved
thesettlement
oflargenumbersofwhitesinto
black-ownedland (exceptperhapsthroughurban renewal).And whileit is sustainedby a
varietyof institutions,
not all of the relationshipsbetweentheghettoand the"outside"are
explicitly-let alone legally-acknowledged.
It is these differences
in the "colonial" and
"internalcolonial"systemswhichare emphasized by thosewho disparagethe analogy.
But if the two systemsare dissimilar,they
appearto sharea commonprocess.This is the
argumentof Robert Blauner: international
colonialismand "America'sinternalversion"
bothdevelopedthrougha processby whicha
technologicallyand militarilysuperiorand
ideologicallyracistWesterncultureimposed
itselfon non-white,
non-Western
cultures[21,
1969].
The processconsistsoffourmainelements,
accordingto Blauner.The firstis "forced,in6 William Tabb findsa precedentfor this "internal
colonialism"intheslave-procurement
practicesofancient
Egypt,Greece,and Rome [185, Tabb, 1970,pp. 24-25].
5
voluntary
entry."Thisis normallyfollowedby
"a policywhichconstrains,
transforms,
or destroys indigenousvalues, orientations,and
ways of life." This "culturalimperialism"the forcedimpositionof Westernvalues-is
in administrativeorthen institutionalized
gans, as are most of the importantfunctions
of local government,
with the colonizersin
control of this administrativemachinery
(sometimesusing acculturated"natives" as
minorfunctionaries
forthepurposeofdealing
withthelocal "masses"and providingthelatterwithmodelscertifying
thepayoffto cooperative behavior). Finally, the process is
explicitly"racist,"by which Blauner means
in
that "a groupseen as inferioror different
is
termsof alleged biologicalcharacteristics
exploited,controlled,and oppressedsocially
and psychically
bya superordinate
group"[21,
Blauner,1969,p. 396]. The imposedcontact
is perhapsthe mostsubtleaspect of the relationshipbetweenthe urbanghettoand white
America."The powerinherentin therightto
definea relationship,"
writesone Harvardsocial psychologist,
"oftengoes unappreciated"
[84, Hampden-Turner,
1969,p. 64].
While virtuallyall ghettoinstitutions
are
controlledby outsiders,none is morecrucial
to thecolonialmodelthanthepolice.Whether
blackor white(butespeciallyifthelatter),the
to by
city-controlled
police are oftenreferred
ghettoblacksas an "armyof occupation"[cf.
38,Cleaver,1969].Currentpublicinvestments
in "crimecontrol"are seento onlyexacerbate
the problem.
Some critics of the analogy argue that
"loose talk about colonialism"leads directly
to theendorsement
of such inefficient
policies
as "importsubstitution,"
the limitingcase of
whichis economicautarky.The Wohlstetters,
forexample;disparagetheallegedautarkicaspirationsof black economicdevelopmentadvocates,contrasting
their"unreasonableness"
withthe moresensiblestrategyof specializationpursuedby thewhiteethnics.Whiteethnic businesses,theywrite,"all providegoods
and servicesto the larger society and not
merely to their own ethnic groups" [213,
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6
Journalof EconomicLiterature
and Wohlstetter,1969, p. 102].
Wohlstetter
The criticism of autarkic development
seemsmisplaced.Few if any groupsactively
engaged in communityeconomic planning
seek autarky;indeed, most are consciously
seeking "export linkages" and externally
locatedassetsto complement
theirinternalactivities[65, Faux, 1971]. On the otherhand,
the model may indeed,perhapsas its critics
fear,lead itsproponents
to a particular(highly
political) strategyfor ghetto development.
Blaunerpointsas evidenceto thekindsof institutions
whichadvocatesofcommunity
control usually seek to "liberate" before any
others:schools,social services,and thepolice.
Fromtheeconomist'spointof view,theseare
largely"infrastructural"
activities,the direct
controlof which yieldsrelativelyfew direct
privateeconomicbenefits
(at leastin theshort
run).From theperspectiveof the entirecommunity,however,priorcontrolof the infrastructure
is essentialto controlof theprocess
ofsubsequentdevelopment
(as mostorthodox
textson economicdevelopment
in LDC's indicate, albeitin anothercontext).
Some analystsrejectthe"ghettoas colony"
model, but accept the analogy betweenthe
American inner city and the LDC in the
"ThirdWorld."GustavRanis,Directorofthe
Yale Economic Growth Center, perceives
"strikingsimilarities"betweenthe structural
dualism pervadingso many LDC's and the
segmentation
of the Americaneconomyinto
a growing"core" and a ghetto"periphery":
the vastnessof the reservoirof unemployedand
labor in one sector(A); the tendunderemployed
to be constantly
encyforthisreservoir
replenished,
in the short-run,
by migrationracingahead of employmentopportunitiesand, in the longer run,
populationgrowth;the tendencyforthe advanced
sector(B) to employa relativelycapital-intensive
technology-inspiteoftheavailabilityofabundant
suppliesofcheap laborfromsectorA,' theabsence
' Ranis refershere to the classic "factorproportions
problem,"whichis perhapsbest knownto development
economiststhroughEckaus [57, 1955]. The mostrecent
restatement
ofthisexplanationof structural
black unemploymentis Davis [48, 1972].
of sufficient
public sectoraction to providesector
education, and
A with adequate transportation,
healthfacilities. . . finally,the absence of a truly
nationalmarketforcapitalor otherscarceresources
permitting
a moreimpersonalallocationof investment,determined
byrelativeratesofreturn,within
and betweenthe sectors [153, Ranis, 1969, pp.
42-43].
In bothperipheries,
theremedyis intra-sectoral economic development.Ranis believes
that the initialabsence of significant
private
investmentdoes not reveal a corresponding
because
absence of investment
opportunities,
of the presenceof widespreadmarketfailure
(this is an argumentto whichwe will return
later).Ranis drawsupon his priorexperience
as Chief Economistof the U.S. foreignaid
programto observethat,forurbanghettosas
forLDC's:
Pumpingmore outsidemoneyin at the marginis
clearlynot enough;the problemis one of breaking
of the ghettoby
down the enclave characteristic
improving
theconnectivity
betweenthe ghettoand
therestoftheeconomyand enlistingtheprojective
and creativeenergiesoflargenumbersofindividuals
in the growthprocess.[153, Ranis, 1969,p. 53].8
III. The Structureof the GhettoEconomy
Studiesof the structureof underdeveloped
economiestypically
beginwitha sectorbysector descriptionof the most importantelements,to acquaint the reader with what is
usually unfamiliarterrain.We shall do the
same.
Intraghetto
EconomicActivity
inQualitativediscussionsofinfrastructural
vestmentin the ghetto,especiallyin housing
and transportation,
haveexistedforsometime
in the literatureof urban economics[cf. 70,
Frieden,1968; 132, Meyer,Kain, and Wohl,
8 The comparativeanalysisof dualism in developing
and industrialcountriesis the subjectof an interdisciplinary researchproject and graduateseminarat M.I.T.
Ranis' analysisis challengedby Cohen [39, 1969] and
Harris[86, 1972].Franklinand Resnick[68, 1973]argue
thatthe "underdeveloped
country"analogymaybe dangerouslymisleadingby creatingthe illusionthat significant social change is possiblein thesesmall enclavesin
the absenceof revolutionary
changein the widersociety.
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Harrison:GhettoEconomicDevelopment
7
1970;7, Aldrichand Reiss, 1972;29, Brimmer
and Terrell,1971].9Scale ofactivityinall these
Some adstudiesis measuredbyemployment.
ditionalworkhas beendoneon sales,payrolls,
and, in one case profits[97, Heilbrunand Conant, 1972]. Ownershipof commercialand
residentialghettopropertyby residenceor
race of owner is analyzed in the papers by
Howard Aldrichand AlbertReiss and in two
studiesoftheHarlemeconomy[205,Vietorisz
and Harrison,1970; 214, Zweig, 1972].
The CensusBureaunow publishesa regular
seriesof nationalsurveysof minority-owned
businesses,containingdata on number of
firms,gross sales, and employment[cf. 197,
U.S. BureauoftheCensus,1971].The smallest
is, however,
level of geographicidentification
the SMSA. It is impossibleto identifyindividualghettoareasfromtheseCensustables.
Shortlyafterthe firstof the major urban
rebellionsof the 1960's, the Census Bureau
undertookspeciallaborforcecensusesin several ghettoareas. The data on South (largely
chicano)Los Anblack) and East (principally
geles [195, U.S. Bureau of the Census, 1966],
and on the Hough and otherareas of inner
Cleveland [196, U.S. Bureau of the Census,
available
1966],whiletheyhavebeengenerally
fora longtime,haveneverbeenfullyexplored
by economicanalysts.
In November1966,theDepartmentof Labor conducteda surveyof major proportions
(therewere nearly40,000 individualsin the
ghetto space per se is available.
sample) in ten urbanghettoslocated in eight
With respectto ghettocommercial/indus- large cities [199, U.S. Departmentof Labor,
trial structure,the researchrecord is more
survey,con1972]. This Urban employment
complete.Studieshave been publishedon the ductedunderthedirectcontrolofthenLabor
industrymix of ghettoareas in New York
WillardWirtz,produceda quantitaSecretary
[205, Vietoriszand Harrison,1970; 97, Heilin theform
tiveestimateof underemployment,
brun and Conant, 1972], Buffalo[11, Anrate,"
ofwhatWirtzcalleda "subemployment
dreasen, 1971], Rochesterand Newark [48,
which counted as "inadequatelyemployed"
Davis, 1972F, Chicago [5, Aldrich,1973; 6,
(or "underutilized")not onlythosewho were
Aldrichand Reiss, 1970;7, Aldrichand Reiss,
9This is surelyonly a partiallist. Many community
1972; 87, Harrison,1974; 158, Reiss and Algroups have undertakenindustrialinventoriesin their
drich, 1971], Boston [6, Aldrich and Reiss, areas, and occasionallyeven rathercompleteeconomic
studies.A compendiumof these studieswould be
1970; 7, Aldrichand Reiss, 1972; 181,Stone, base
invaluable.At themoment,theyare stillamongthemost
1971],and Washington[6, Aldrichand Reiss, "fugitive"of materials.
1965; 112,Kain and Meyer,1970]. So faras
actualmeasurement
is concerned,housinghas
beenthemostthoroughly
studied[34, Center
for CommunityChange, 1971; 106, James,
1973; 114,Kain and Quigley,1972; 139,NationalCommissionon UrbanProblems,1970;
152,Quigley,1974; 172, Stegman,1972; 177,
Sternlieb,1969; 178, Sternlieband Burchell,
1973]. Transportation
has receivedsome attention[115, Kalachek and Goering, 1970;
145, Ornati, 1969]. Public serviceshave receivedtheleaststudy[131,Mellor,1972; 165,
Schaffer,1973]; more work is underwayon
thissectorat theNew York CityRand Institute, The Urban Institutein Washington,
D.C., and theBedford-Stuyvesant
Restoration
Corporationin Brooklyn,New York.
One especiallyimportant
componentof infrastructure
is space.Accordingto theconventionalwisdom,centralcitieshave virtually
no
usable vacantland. A recentinventory
of urban land availabilities,uses, and restrictions
indicatesthatat least 20% ofthe "buildable"
land in thecentralcitiesoflargemetropolitan
areas remainsvacant [140, Northam,1971].
Moreover,"space" is not confinedto "land"
as such. The opportunity
to createadditional
urban space in the third dimension,e.g.,
throughexploitationof air rights,undergrounddevelopment,
etc.,has barelybeenexplored at all [10, American Public Works
Association,1967; 93, Harrison,1974,Ch. 7;
103,Hoch, 1969].No quantitative
researchon
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8
Journalof EconomicLiterature
overtlyunemployed,but also those involuntarilypart-timeemployedworkers,full-time
workers
paid "povertylevel" wages,and "discouraged" workers.'0There is considerable
evidencethattheconventional
unemployment
rate does not adequately measure slack in
ghettolabormarkets."I
Researchis nowunderway at the New School for Social Research
and theGeorgeWashingtonUniversity
to examine the propertiesof the subemployment
rateas an alternativesocial indicator.
The availabilityof these and newer microdatafileshas permittedthe estimationof
inter-and intra-ghetto
distributions
of employment,
unemployment,
earnings,
non-labor
income,education and trainingexperience,
and many other variables [71, Friedlander,
1972; 79, Gordon, 1971; 88, Harrison,1972,
Chs. 2-4 and AppendixC; 205, Vietoriszand
Harrison, 1970, Ch. 1]. Indeed, the ready
availabilityof theCensus-produced
tapesand
computerswithwhichto studythemmakes
the dearthof quantitative(as distinctfrom
speculative)researchon ghettolabormarkets
that much more remarkable-and remediable.
12
' The conceptof subemployment,
and its administrativehistory,
are discussedin Harrison[88, 1972];Levitan
and Taggart[121, 1973]; and Spring[170, 1972]. Values
of the indexfora numberof ghettoareas are presented
in detail in Harrison[88, 1972, Ch. 3]. The index was
recentlyrecalculatedfor 51 innercity areas, using the
1970 Census Employment
Survey.See Spring,Harrison,
and Vietorisz[171, 1972J.Many of these articles-and
Wirtz'originalmemorandum
to PresidentLyndonJohnson on subemployment-arereproducedin U.S. Senate
[200, 1972,pp. 2276-2339].An alternative,
moreconservative,index has been proposedin Levitan.and Taggart
[121, 1973].
11StanleyFriedlander
reportsthatin a largenumberof
regressi-ons,
ghettounemployment
rateswerestatistically
unrelatedto intercity
variationsin eitherjob growthor
the rate of net employmentdecentralizationacross 16
citiesin a recessionyear(1960) and a yearof expansion
(1966). He is also unableto findany significant
relationship betweenghettounemployment
ratesand the educational attainmentof ghettoresidents[71, Friedlander,
1972].
12 The 1966and 1967Surveys
ofEconomicOpportunity
permitdetailedanalysisof the povertyareas of 100 large
SMSA's (12 identifiable
by name). The 1969 Urban EmploymentSurveycontainshouseholdinterview
data on six
ghettoand two "control"areas. The 1970 Census EmploymentSurveypermitsthestudyof 51 centralcityand
Linkages withthe UrbanEconomy
GustavRanis' perceptionofthefundamental natureof the linkagebetweenthe ghetto
and the restof the urbaneconomyis shared
by many otherstudentsof the subject. Unprincipal"exskilledlaboris thecommunity's
port."Consumer(and somecapital)goodsare
"imported";these are financedout of labor
earnings("exports") and transferpayments
("foreignaid"), especiallypublicwelfare[48,
Davis, 1972; 72, Fusfeld,1973]. The bulk of
thelaborincomeis earnedoutsidetheghetto;
of
JamesHeilbrunestimatesthat four-fifths
theHarlemlaborforcewas employedoutside
the area in 1966 [96, 1970].
of inThe identification
and measurement
terregionalincome flowsis exceedinglydifficult when the regional economies under
studyare as "open" as is theurbanghetto.A
the vartheoreticalscheme for interrelating
ious incomeflowsintoand out of the ghetto
was proposedby RobertS. Browne,Director
of the Black Economic Research Centerin
Harlem [31, 1971; see also 72, Fusfeld,1973,
pp. 41-50]. Thus far,only two attemptsto
estimatesuch flowshave been published.The
firstofthese[131,Mellor,1972]examinesthe
Shaw-Cardozo area of the District of Coofthearea pay
lumbia.It reportsthatresidents
out more in taxes than they"import"in the
formof publicservices.A much moreelaborateand statistically
soundsetof "community
income accounts" has been constructedby
RichardSchaffer
fortwoNew York Cityareas
ofsimilarsize: Bedford-Stuyvesant
(black)and
Borough Park (white) [165, Schaffer,1973].
The authoremploysa varietyof fugitive
data
and
sources(mostlycityagencyprocurement
operationsrecords, and tax data) and an
imaginative
methodology
to produceestimates
ofincomeflows.Whiletheblackghettoshows
a large annual "balance of trade" deficitof
nearly$76 million,the white(predominantly
nine ruralpovertyareas. All were implementedby the
Bureau of the Census,on contractto othergovernment
agencies.OnlytheSEO has beenmuch-studied
byeconomists,and fewofthosepapersfocuson theghettosubsamples.
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Harrison:GhettoEconomicDevelopment
Jewish)area's account was estimatedto be
nearlyin balance (witha deficitof less than
the absolute
$6 million).More importantly,
volumeoftheflowsof incomeintoand out of
(andtherefore
through)thewhitearea greatly
exceedsthevolumeof"black" flows;Borough
Park can more easily affordto indulge its
greater
imports.One majorformof"leakage"
fromBedford-Stuyvesant
which is numeriin BoroughParkconsists
callyinconsequential
of expendituresfor consumptionof illegal
gambling services, especially through the
"numbers" racket (gross "numbers" or
"policy"leakagesforall oftheblackneighborhoods of New York City in 1969 have been
estimated
at $150 million[134,Mitchell,1970,
p. 52]).
A relatedquantitativeplanningtool is the
local multiplier.Again the extreme"openness" ofthesmallghettoeconomymakesestiA uniquestudyoftheHough
mationdifficult.
ghettoin Cleveland,based uponhouseholdexpenditurediaries,producedan estimateofthe
to spendinsideHough"
"marginalpropensity
of $0.13 per dollar of familyexpenditurein
1969 [141, Oakland, Sparrow,and Stettler,
1971].Additionalsurveysdesignedto identify
the locationaloriginsand destinations
of the
inputsto and outputsof Hough-basedbusinessesyieldeda secondprimarydata base; the
twotogether
permitted
theauthorsto estimate
a local multiplier
of 1.02-1.03 ("For a large,
diversified
metropolitan
area, empiricalstudies show the income multiplierto be about
1.8") [184,Tabb, 1969,p. 394]. Varioussimulated developmentpolicies raised the estias highas 1.11.
matedmultiplier
Finally,the previouslycitedstudiesby Aldrich,Reiss,and Michael Zweig on thelocus
ofproperty
ownership
permitinferences
about
theleakageofincomeout oftheblackcommunity.
A fruitful
object of inquirywhichhas not
yetbeen well exploredin a ghettocontextis
thejourneyto work.The onlypublishedstudy
knownto the authorreportsthatin the city
of Philadelphiain 1968,80 percentof all centralcityjobs werelocatedwithin20 minutes'
9
automobilecommutingdistanceof the inner
core [130, McLennan and Seidenstat,1972].
The Urban EmploymentSurveyof 1969 and
the 1970 Census EmploymentSurveypermit
the geographicidentification
of the place of
workof each ghettoresident,
his or hermode
ofcommuting,
thedistancesinvolved,and the
under
costsincurred.Thesedata are currently
studyby studentsat M.I.T.
FormalModels
At least two "micro" and three"macro"
modelsof the ghettoeconomyhave appeared
intheliterature.
The modelsarestillextremely
crude,buttheirrespective
authorsare actively
them.
engagedin refining
1. JamesHeilbrun'smicromodel,which
he describesas "dualistic,"concernsonlythe
business sector [97, Heilbrun and Conant,
1972]. Most whitebusinessmenprefernot to
locatetheirfacilities(or to keepthem)in nonThis preference
reduces
whiteneighborhoods.
thecompetition
forthosewhiteswho do operate in thearea, raisingtheirpotentialreturns.
Such exceptionalreturnsare requiredbythese
employersas a conditionforremainingin the
ghetto.The whiteexcessprofits
are not"competed away" by the entryof black firmsbecause of (principallycapital) market imtheaccessofblackbusinessmen
to
perfections;
loans, insurance,and entrepreneurial
experience is restricted.
The resultis thattheghetto
businesssectoris dividedintoa smallbutprofitable white-ownedenclave and a largerbut
poorer("overcrowded")black-ownedsector.
Heilbrun'sstudyof rates of returnto white
and black businessesin Harlem (based upon
tax records)supportsthe hypothesis;whitein the communityare
owned establishments
larger than black plants (both withinand
It foland moreprofitable.
amongindustries),
lows that:
thefailureofthepresentnonwhitesectorto produce
normal profitsdoes not necessarilyargue for a
policy of laissez-fairein that area. Instead,public
policymightbe used to assistin the consolidation
and enlargement
of existingfirmsto createblackownedunitslargeenoughto surviveand prosperin
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10
JournalofEconomicLiterature
thefaceofcontinuing
retailconsolidation[97, Heilbrunand Conant,1972,p. 281].
2. A numberof economistshave contributed
to thedevelopment
ofmodelsoflabor
marketdualism.'3Individual behavior,economicand even technologicalconstraints
are
assumedto varysignificantly
amongdifferent
labor markets.By acclimatingthemselvesto
"local" conditions,and by developinglifestylessupportiveof these "local" work aras
rangements,
workersfindit psychologically
wellas technicallydifficult
to movefromone
segmentof the economyto another.These
in additionto the
sourcesoffactorimmobility,
well-known
createdby race,sex,
impediments
and class discrimination,
may explaina wide
varietyof phenomena,includinggrosslyunequal incomedistributions
(evenas, forexample, the inter-racialdistributionsof human
capitalbecomelessdisparate[cf.190,Thurow,
1972]);and thesimultaneous
existenceofinflain themacroeconomy
tionand unemployment
[163, Ross and Wachter,1973].
In one versionof the model,based directly
on ghettolabor marketdata, jobs located in
urbanareas are dividedintotwo behaviorally
and technologically
disparatesegmentswithin
whichmobilityis commonbutbetweenwhich
it takesplace infrequently
and onlywithdifficulty[88, Harrison, 1972, Ch. 5],14 The
"core")stratumis dominatedby a "primary
labor market"in which employerspossess a
highdegreeof marketpower,have much of
theirsales "guaranteed"by government
con13 The "classic" statement
is Doeringerand Piore [52,
1971,Chs. 7-8]. David Gordon has reviewedthisliterature[81, 1972]. More recentexamplesmay be foundin
the collectionof paperson "dual labor markets"in the
May, 1973Amer.Econ.Rev.[148,Piore,1973; 156,Reich,
Gordon,and Edwards,1973;207, Vietoriszand Harrison,
1973]; and in Reich, Gordon,and Edwards [155, 1974].
14 A similarversionis presented
in Fusfeld[72, 1973,
Ch. 3]. Paternityin this fieldis ambiguous;as Gordon
says, a numberof scholarsdeveloped dualisticmodels
independently
of one anotherat about the same time.If
the innovatorsmustbe identified,
theywould probably
include Peter Doeringerat Harvard, Michael Piore at
M.I.T., and Daniel Fusfeldand Louis Fermanat Michigan. The "school" ofdual labormarkettheorists
(such as
it is) consistslargelyof the studentsand colleaguesof
thesefoureconomists.
able to generatesuffitracts,and are therefore
cient profitsto be able to pay non-poverty
wages.Theireconomicpowerpermitsthemto
pass at least partof thesecosts along to consumers in the formof higherprices. Their
permitsthem to investin both
profitability
physicaland humancapital,whichin turninof laborwhichtranscreasestheproductivity
Labor
ad infinitum.
latesintoincreasedprofits
effort
is assumedto be an increasingfunction
of wages and benefits.The magnitudeof the
latter induces workersto value these jobs,
whilethe highfixedcostsassociatedwiththe
aforementionedinvestmentsencourage embytheir
ployersto valuestablejob attachment
workers.These factorsconvergeto increase
thatjobs in theprimarylabor
the probability
highmarketwillbe stableas wellas relatively
paying.
The "periphery"of the economycontrasts
in everyrespectwiththe"core." It consistsof
The "secsub-sectors.
at leastfouridentifiable
ondarylabor market"is definedby a class of
technologies
employerswhose labor-intensive
theirability
and lack of marketpowerrestrict
(and theirneed)to payhighwages.Low wages
and the virtualabsence of benefitscombine
withundesirableworkconditionsto discourage stablejob attachmentby the labor force.
Low fixedcosts(due especiallyto low ratesof
in theformof spehumancapitalinvestment
cifictraining)inducea similarlack ofconcern
for stabilityon the part of the employers.
Thesejobs therefore
displaylow pay and high
causes
turnover.Inadequatecapitalformation
whichin turnpreventsthese
low productivity,
firmsfromexpandingand, in the process,acquiringmarketpowerofthekindpossessedby
core firms(and reflected,
forexample,in their
relativelyinelasticproductdemandcurves).'5
The threeothersegmentsof the periphery
consistofactivitieswhich,althoughseemingly
IS In a recentreformulation,
Piore dividesthe primary
labor marketinto "upper" and "lower" tiers,distinguishedprimarily
byjob attachment
(lowerin theformer
thanin the latter)and job control(higherin the former
than in the latter).The "lower tier" consistslargelyof
well-paidblue-collarjobs [149, 1972].
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11
Harrison:GhettoEconomicDevelopment
farremovedfromthe"worldofwork,"are in
factquite similarto work in the secondary
labormarket.Dual markettheoristsspeak of
the "trainingeconomy,"the "welfareeconomy,"and the "irregulareconomy"(or the
"hustle").Individualsin each segmentreceive
poverty-level
incomepaymentsin returnfor
theinvestment
of time.The low levelofthese
payments,the highriskof engagingin some
oftheseendeavors,thebureaucratic
complexities involvedin obtainingthe payments,and
thesocial stigmaoftenattachedto the roleof
petitionerall combineto encourageunstable
behavior.Thus, researchers
have learnedthat
many of the same people tend to be found
movingback and forth,in and out ofthefour
peripheralstrata[30, Brown,1965;71, Friedlander,1972;85,Hannerz,1969; 123,Liebow,
1967; 157,Rein and Miller,1970].Manyhustlersworkperiodically
in low-wagelegaljobs,
moveon and offthewelfarerolls,and are not
infrequently
participantsin one or another
governmenttrainingprogram.Finally, city
school and job placementinstitutions
whose
ostensiblefunctionis to "upgrade"theurban
poor,or,in termsoftheabovemodel,facilitate
intersectoral
mobility,oftenperpetuatepovertyby re-circulating
these individualsand
theirchildrenamongthe segmentsof the periphery.
Ghettoworkerscomprisea significant
(althoughnotnecessarily
an overwhelming)
share
of all urban "secondaryworkers."On the
other hand, a much larger proportionof
ghettoresidentsprobablyworkin thesecondary labor marketthan is truefornon-ghetto
residents.As is the case with povertyitself,
wherethe majorityof the poor are not black
but the incidenceof povertyis much higher
among blacks than among whites,the majorityof the "peripheral"labor forceprobablylivesoutsidetheghetto,buttheincidence
of peripheralparticipationis probablymuch
higherwithinthe ghettothan elsewhere.
Researchon manyaspectsof the model is
beingconductedat M.I.T. and theNew School
for Social Research. Workersare studying
intra- and inter-sectoral"job" (i.e., industry-occupation)mobility,the institutional
interfacesbetweenlow-wageworkand other
"peripheral"activities,and the relationship
betweenjob statusand "job control."Comparative studies of dualism at home and
abroadhavebeenundertaken
by Harvardand
MIT economists,workingcooperatively
with
other social scientists[cf. 51, Doeringer,
1973].
3. Daniel Fusfeld proposes a macro
model of the ghettoeconomyand its relation
to theoutside,accordingto whichthewelfare
system-far from raising the well-beingof
ghettoresidents-servesto stabilizetheghetto
by subsidizinglow-wageemployersand the
absenteeownersof ghettoproperty.The area
a place
is describedas a "residualsubsystem,
where society maintains its outcasts.
. .
. In
thiscontext,thewelfaresystemor otherforms
of incomemaintenanceare not solutions,but
ameliorativedevices" [72, Fusfeld, 1973, p.
58].
Welfarepayments[preserve]theghettoitself...
For example, [they] enable a larger numberof
familyunitsto subsistat the povertylevel. These
familyunits add to the demand for slum housing. . . . The netresultis a largerghettoarea and
a largeroutflowof [income]intothehandsofslumlords. By contrast,if therewere no welfarepaymentsthefamiliesnow receivingthemwouldeither
perishor double up withrelatedpersonsintoeven
largerfamilyunits.The demandforslum housing
wouldbe smaller,and theghettosthemselves
would
be reducedin size [72, Fusfeld,1973,pp. 86-87].
This is the ultimatecontradictionin the
model. So long as transferincomeis insufficientto eliminatepoverty-so longas it is too
low to permittheformation
and maintenance
of stable families-it only servesto stabilize
and preservethe ghettoqua povertyarea by
forcingghettoresidentsto accept low-wage
("secondary") jobs or enterthe "hustle" in
orderto accumulategrossearningssufficient
to make ends meet."Whateverthe level,the
function
ofwelfarepaymentsin thesocial systemas a wholeis to preservetheurbanghetto
and itssupplyoflow wagelabor" [72,Fusfeld,
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12
Journalof EconomicLiterature
tivity.Wage growthin thepublicsectoris explained by the need of public employersto
competewith the privateleading sectorfor
skilledlabor,but it is not (by assumption;actuallythedata do notexistwithwhichto test
this) accompaniedby proportionateproductivitygrowth.As a result,the costs of public
formlegislation . . . would freezea large supservicesriseovertime(thisis essentiallyWilplyof low wage workersinto-the[secondary] liamBaumol'sexplanationoftheurban"fiscal
labormarketand solidifya hardcore of pov- crisis") [16, 1967]. Acquisitionof specified
a necessary
constitutes
ertyinto the Americansocial and economic educationalcredentials
moand sufficient
conditionforinter-sectoral
system"[72, Fusfeld,1973,p. 90].
4. Finally,at themostabstractlevel,the bility(my own researchinvalidatesthe asbut not the general
literature
containsseveralunbalancedgrowth sumptionof sufficiency
modelswhichembodymanyof thestructural principlethatthe practiceof "credentialism"
disequilibriacontainedin the more "micro"- by employersis capable of creatinglabor imoriented models reviewed above.16 Frank mobilities)[89, Harrison,1972].Givenan iniDavis specifiesa modelin which"core" prod- tial imbalance in sectoral wages (and,
in the expectedreturnsto educaucts are increasinglysubjected to oligopoly therefore,
access
pricing,but core firms'demandfor"periph- tionalself-investment)
and differential
ofthe
eral" laboris highlyincomeinelastic,withthe to thecapitalmarkets,thestratification
resultthatperipheralwagesdo notriseas the
economy "mightbe expectedto persistfor
economyexpands and the "termsof trade" generations"[3, Albin, 1971, p. 141n].A rebetweenthe peripheryand the core steadily vised versionof the Albin model is currently
worsen(notehowthisrelatesto theLDC analbeingdeveloped.
ogyof Ranis) [48, 1972]. The presenceof imIV Alternative
Approachesto GhettoDevelperfectcompetitionin the whiteeconomyis
opment
at the root of the problem.Davis perceives
similarexplosivedisequilibriain the relationPublic and private programs aimed at
ship betweenthe agriculturaland industrial developingthe economyof the urban ghetto
sectorsof the American economy,and bediffersignificantly
along severaldimensions,
tweenthe richcountriesof the West and the especiallycontroland power.Ronald Bailey
poor countriesof the Third World.
and otherblack economistsdraw an opera5. The sameprincipleis treatedmorefor- tional distinctionbetweenthe strategiesof
mallyby PeterAlbinin a seriesof papers[2,
"blackcapitalism,"bywhichtheymeanatom1970; 3, 1971]. In this unbalanced growth istic enterprisedevelopmentunder convenmodel, the urbaneconomyis dividedinto a
tionalcapitalistinstitutions
(especiallyprivate
leadingsectorconsistingof those privatein- ownership and profit maximization),and
dustriesand governmentagencies in which ''community economic development," by
and a laggingsectorwhich whichis meantthe supportof groupsof prowagesare growing,
includes privateindustrieswith zero (or leducersor consumersactingcollectively,
with
thargic) productivityand (therefore)wage
social benefitand institutional
change more
growth.The growthof wages in the private important
thanpriobjectivesofdevelopment
leadingsectoris facilitatedby risingproduc- vate profit[12, Bailey, 1971,p. 12].17
1973,p. 87]. The actual flowof welfarepayments,writesFusfeld,willgenerally"be setat
the level whichenables law and orderto be
maintained
ofsobytheordinaryinstruments
cial control" (this is also a main themeof
Pivenand Cloward [150, 1971]). Thus, "the
apparentbenefits[of] the currentwelfarere-
16 For Myrdaliananalyses of unbalanced growth,in
termsof the positivefeedbackmechanismsof systems
theoryapplied to the dual labor market model, see
Vietoriszand Harrison[207, 1973]and Fusfeld[72, 1973,
pp. 50-53].
17 With respectto the latter,
More politicaland economicpowerforpoor minoritiesas classesor groupsis themaingoal . . . The use
of thispoweris twofold-to choose whetheror not
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Harrison:GhettoEconomicDevelopment
ThomasVietoriszand I have arguedthat
"communityeconomic development" involves.
and not merelyincreasingper
institution-building,
capitaincome.Specifically,
we envisagethecreation
of a numberof "inside jobs," acquisitionby the
of assets both inside and outside the
community
ghetto,a substantialexpansion of existingblack
businesses(particularly
throughcooperativeforms
of ownership),the large-scaletransferof ghetto
property
to ghettoresidentsand/orthecommunity
qua community,
emphasison the provisionof prevocationaland skilltrainingwithintheseghettoenand local controlofinfrastructure
suchas
terprises,
schools,police, and healthfacilities.This kind of
"local control"is, of course, already enjoyed by
most suburban communitieswhose populations
[may not be] nearlyso large as those of Harlem,
Roxbury,or Watts [206, Vietoriszand Harrison,
1971,pp. 29-30].
To be sure, these theoreticaldistinctions
becomeblurredin practice;actual operating
programscannot be so neatly categorized.
in thispaper "blackcapitalism"
Nevertheless,
will
and "community
economicdevelopment"
be treatedas alternative
policyapproaches,at
least in principle.
Two otherstrategiesare discerniblein the
literatureand in the actual eventsof the last
eightyears.A numberof large corporations
were induced to open branch plants in the
ghetto.Some oftheseare whollyownedbythe
whitecorporations,
whileothersare jointventures.In somecases, "turnkey"arrangements
have been made, accordingto whichownership of the plant would eventuallybe transferredto eithera communitygroup or an
individualblack capitalistafter"take-off"is
achieved. This strategy,which implies still
other institutionalpatternsof control and
belowas "corpopower,willbe characterized
rate locationin the ghetto."
Finally,the federalgovernment
operatesa
number of public sector programsin the
ghetto.The largestand best-knownof these
to integratewithothergroups(and if so, on what
forjobs,
terms)and to obtainthesame opportunities
housing,and so forththatothersenjoy,whetherthe
minorityperson integratesor not [19, Bergsman,
1971,p. 310].
13
bytheNixonAdminis(now beingterminated
tration)is "Model Cities,"thecreationof the
DemonstrationCities and MetropolitanDevelopmentAct of 1966 (Public Law No. 89754). Through this legislation, Congress
createda programto provide(more or less)
to
fundsto citygovernments,
non-categorical
be appliedto "breakingthepovertycycle" in
The
"modelneighborhoods."
(locally-defined)
grants,whichare issuedaftersuccessfulprocessingof an applicationto the U.S. DepartmentofHousingand UrbanDevelopment,are
then administeredby a "city demonstration
agency,"an armofcityhall whichis supposed
to act as the planninginstitutionfor the
Economic developmentis one of a
ghetto."8
numberof activitiessupportedby Model Cities.
Black Capitalism
A programoffederalsupportforblackbusihas beenjustifiedon several
nessdevelopment
bases, the firstbeing the matterof simple
groupshave
equity.Blacksand otherminority
excludedfromownerbeendisproportionately
ship of businesses,even within their own
neighborhoods[185, Tabb, 1970, Ch. 2; 12,
Bailey, 1971; 22, Blausteinand Faux, 1972,
pp. 77-87]. A 1964 study of North Philadelphiafoundovera thirdof theblack busiand barbernessmenengagedin hairdressing
ofthe
ing [185,Tabb, 1970,p. 45]. Four-fifths
in Harlem in the
black-ownedestablishments
winterof 1967-1968had fewerthanfouremployees,comparedwithonly a littleover 50
percentofthewhitebusinesses[205,Vietorisz
and Harrison,1970,p. 39]. Whitebusinesses
in the Harlem ghettoare also significantly
more profitablethan black businesses,as revealed by a studyof tax recordsin 1968 [97,
Heilbrunand Conant, 1972]. The black merchantsin Buffalo'scentralghettoare signifinewlocal political
important
18 The CDA is one ofthree
economic
createdin the 1960's to implement
institutions
ActionAgency
policy.The othertwoare theCommunity
-the local servicebureauforOfficeof EconomicOpportunityprogramsin health,education,welfare,etc.-and
DevelopmentCorporation,whichwillbe
theCommunity
closelyexaminedlaterin thispaper.
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14
JournalofEconomicLiterature
cantlysmallerand poorerthantheirnational
counterparts
[48, Davis, 1972,pp. 43, 61]. A
program of black capitalism would give
minority
entrepreneurs
"a biggerpiece of the
action."
Improvement
of consumerwelfarein the
ghettois anotherobjectiveoftheadvocatesof
blackcapitalism.Larger,moreefficiently
operated businesseswould (it is hoped) resultin
relativelylower pricesand higherqualityof
merchandise.An econometricstudy of the
popular hypothesis that "the poor pay
more"-focusingon the same area (Harlem)
wheretheoriginalstudyof thatquestionwas
made in the early 1960's [32, Caplovitz,
1963]-found that the ghettoand "outside"
retailpricesofmanyproductswerenotsignifiaftercontrollingfor size of
cantlydifferent,
establishment
[4, Alcaly, 1968].
Finally,it is hopedthatexpandedminority
will contribute
to thepolitientrepreneurship
cal stability
ofthecity.Absenteeand/orwhite
ownershipof thegreatmajorityof businesses
in theblackghetto(over80 percent,according
to one nationalsurvey)is a major source of
politicaldisquietin theseareas [158,Reissand
Aldrich,1971].ConflictswithJewish,Italian,
and otherwhitemerchantsoccur frequently
[185, Tabb, 1970, pp. 40-42]. The Kerner
Commissionspeculatedthat absenteewhite
ownership"undoubtedlycontributesto the
conclusionamong Negroes that theyare exploitedbywhitesociety"[138,NationalAdvisoryCommissionon Civil Disorders,1968,p.
274].19
Black capitalismhas beenoffered
as a strategy formeetingtheseobjectivesof equityin
ownership,increasedconsumerwelfare,and
greaterpoliticalstability.In the absence of
significant
privatecorporateassistanceto minoritventrepreneurs.
the Kennedyand John19 Thereis no questionthatthedegreeofabsenteeownershipin theblack community
exceedsthatobtainingin
otherethnicenclaves.Glazerand Moynihan,forexample,
reportthat"the incomeof ChinesefromChinese-owned
businessis,inproportion
to theirnumbers,
forty-five
times
as great as the income of Negroes fromNegro-owned
business"[76, 1963,p. 34].
son Administrations
graduallyintroduceda
number of relativelysmall-scale programs,
operatedby such agencies as SBA and the
OfficeofEconomicOpportunity.
Low interest
Federal loans with modest equity requirementswereprovideddirectlyor throughprivate banks with governmentguarantees.
Retiredexecutiveswere recruitedat Federal
expense to deliver technical assistance to
minority
businessmen.
And largegovernment
contractors,especially in the defense and
space industries,
were "jawboned" into "setfor
tingaside" a smallnumberofsub-contracts
minority
businesses.
in 1969,
Immediately
afterhis inauguration
President Nixon established an Office of
MinorityBusinessEnterprisein the Departmentof Commerce,which,in turn,createda
newinstitution:
theMinorityEnterprise
Small
Business InvestmentCompany (MESBIC).
MESBIC's are generallyoperatedbylarge,establishedwhitefirms,
capableofputtingup the
initialcapital contribution
and of providing
administrative
support.The functionofMESBIC's is to supplyventurecapital and long
termfinancing
to smallbusinessmen,
through
purchaseof stock or securitiesissued by the
latter. SBA then "leverages" this initial
"front-end"capital. The MESBIC Program
has been widelycriticizedforits high minimum capitalizationrequirements,
its preference for fundingonly relativelysmall black
businesses,and itsprohibition
againstthesupport of cooperatives[100, Hetzel, 1971; 22,
Blausteinand Faux, 1972, Chs. 8, 10; 162,
Rosenbloomand Shank, 1970].
In termsof absolutelevels of activity,the
OMBE programhas indeedincreasedthe input of capital into the black businesssector.
Accordingto a progressreportreleasedbythe
agency in 1972, total governmentgrants,
loans, and guaranteesrose fromabout $200
millionin 1969 to over $430 millionin fiscal
1971.The dollarvalueofgovernment
procurementcontractsforminority-owned
businesses
rose from$8.8 millionin 1969 to $66 million
in 1971 (directprocurementfromthe fed-
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Harrison:GhettoEconomicDevelopment
eralgovernment
rose by a factorof 10) [143,
Office
of MinorityBusinessEnterprise,1972,
p. 9].
The procurement
(or "set-aside")program
is especiallyimportant.The Small Business
Administration
acts as the primecontractor
forgoodsand servicesto be deliveredto other
government
agencies.SBA thensubcontracts
minority
firmsto "deliverthe goods," or else
requestsa privatecorporatecontractor
to participate,withthelatterin turnsubcontracting
to a minorityenterprise.Governmentpurchases of goods and servicesare now such a
shareofGNP ($58 billionin 1971)
significant
thatthisprogramprovidesgreatpotentialfor
ghettodevelopment.
SBA rules for awarding
Unfortunately,
minorityset-asidesubcontractsexclude participationby such collectiveentitiesas communitydevelopmentcorporations(whichwe
shallstudyin a moment).Some criticscharge
that "this policy . . . can have the effectof
promotingthe interestsof wealthyminority
businessmenwhile excludingpoor minority
groups"[146, Perry,1973,p. 12].
OMBE has also had its conservative
critics
as well.AndrewBrimmer,
forexample,argues
thatinvestment
in theghettois inefficient,
and
therefore
sociallywasteful,given the "unfavorableeconomicclimate,"particularly
with
respectto crime,(the low marginalefficiency
of investment
in such areas also leads Robert
Crandalland Duncan MacRae to recommend
against capital subsidiesfor the ghetto[44,
Crandall and MacRae, 1971]). Moreover,
writesBrimmer,
ghettodevelopment
is infeasible as wellas inadvisabledue to "thehighcost
and unavailability
ofadequate land area" [29,
Brimmerand Terrell,1971,p. 306].
In rebuttal,
othereconomistshaveappealed
to the alleged ubiquityof marketfailureas
vitiatinginferencesabout the marginalefficiencyof"inside"versus"outside"investment
[188, Tate, 1971] and SectionV below. The
"unfavorable
economicclimate"oftheghetto,
it can be argued,is itselflargelya resultofthe
in theeconomicbase of the
under-investment
15
in the local economy
ghetto.Improvements
will improvethe "climate."
Similarly,to the extent that "economic
crime"is at all relatedto povertyand social
disorganization,investmentswhich increase
ghettoeconomicwelfarewillreducethenecessity and motivationfor at least part of the
crimewhich-Brimmerquite accuratelyobfor ghettobusiserves-makes it so difficult
nessmento surviveeconomically[78,Gordon,
1971].
Finally,as reportedearlier,recentstudies
contradict Brimmer's contentionthat the
stockofland/spacein theinnercityis already
fullyutilized.
As an alternativeto public(or private)asBrimmer
sistanceto minorityentrepreneurs,
advocates expanded human capital development programs.Well educated and trained
black workers"will be attractedto thehigher
expectedreturnsand the greaterjob security
in firmsoperatingin the nationaleconomy"
[29,Brimmerand Terrell,1971,p. 293]. While
it is desirableto be "attracted,"the central
questionis whetherthese"upgraded"workers
wouldbe hired.Much recenteconometricresearchon thereturnsto ghettohumancapital
does not supportan optimisticforecast.20
The Locationof CorporateBranchPlantsin
the Ghetto
A smallnumberofmajorcorporations
have
since 1966with,and a fewSenaexperimented
tors and Congressmenhave encouragedfederal supportof,the locationof branchplants
withinthe urbanghetto.These branch-plantof 1966-1970 were expected
ing investments
20 Examplesof econometric
studieswhichhave discovered low to insignificant
absoluteand relativereturnsto
in black human capital are Bluestone[25,
investments
forthcoming];
Harrison[88, 1972; 89, 1972]; U.S. Congress [198, 1972]; Michelson[133, 1969]; Schiller[166,
1972];and Wachteland Betsey[209, 1972].The hypothesis thateducationreducesblack-whiteinequalityis challengedin Jencks[107, 1972] and Weiss [210, 1970]. At
leastone blackeconomistbelievesthatthelatentfunction
of the federalmanpowertrainingprograms"is to reduce
the costs of welfareby gettingNegroes on low-paying
and totalwages
jobs, ratherthanto raisetheproductivity
of the black community"[48, Davis, 1972, p. 105].
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16
Journalof EconomicLiterature
to producebenefitsforthe ghetto,as well as
profitsto the investor.Jobs and earned incomes would be created,both directlyand
(throughpurchasesof locallyproducedintermediateproductsor services)indirectly.
New
plantswould stimulatethe sales of adjacent
small businessessuch as coffeeshops. The
facilitieswould permitthe companiesto engage in the trainingof both "line workers"
and-perhaps more importantin the long
run-new managers. Through so-called
"turnkey"
programs,
accordingto whichcompaniesset up subsidiariesintendedto be spun
offfor eventual ownershipby community
groups,the ghettowould eventuallyacquire
and thecapitalstockitself.
controloverprofits
In 1967, severalU.S. Senators,led by the
lateRobertF. Kennedy,introduced
legislation
designedto subsidizewhitecorporatebranchplanting [116, Kennedy, 1969]. Although
never reported out of committee, the
"Kennedy Plan" continuesto receivewidespread attentionby advocates of innercity
economicdevelopment.
The Plan wouldhave
providedinvestment
tax credits,accelerated
depreciationallowances,wage subsidies,and
trainingallowances,subjectto a firm'smeetingcertainconditionswithrespectto thehiring of local, i.e., ghetto,residents.
These "branch-planting"
efforts
have been
studiedextensively
[41, Cohn, 1971; 42, The
ConferenceBoard, 1971; 120, Levitan,Mangum and Taggart, 1970; 22, Blausteinand
Faux, 1972,Ch. 8; 65, Faux, 1971; 168,Skala,
1969]. Many plantshave closed down,while
otherswere(evenbefore1970) operatingwith
substantialexcesscapacity.This appearsto be
trueespeciallyforthe turnkeyoperations.
Past effortsof state governments
and regionalcouncilsto affectthe inter-regional
location of industrythroughpublic incentives
have notalwaysproducedtheintendedresult.
Indeed, it is oftenthe firmsoperatingclosest
to the marginand whichare therefore
often
the least desirableto an area whichare the
mostresponsiveto such incentives[65, Faux,
1971,p. 38; 122,Lewis, 1968,p. 44; 120,Levi-
tan, Mangumand Taggart,1970,p. 64; 179,
Stoberand Falk, 1969]. A simulatedbenefitcost analysisof the KennedyPlan concludes
that:"the firmsmostlikelyto respondwould
be thoseforwhomthe subsidieswould make
the greatest difference. . . low-margin firms
producingstandardizedproducts in highly
competitivemarkets,paying relativelylow
wages" [183, Tabb, 1972,p. 51]. In orderto
attract"better"firmsto theprogram,thegovernmentwill(writesTabb) have to changethe
factors,suchas inadequatepublicservicesand
excessivecongestion,whichmakecentralcity
locations so expensive.The Kennedy Plan
in
made no provisionfor public investment
urbaninfrastructure.
analysisleads to theconTabb's benefit-cost
clusionthat,even withan averagewage in a
"Kennedy plant" of only $3,000 (so that,
whilethePlan mightreduceghettounemployment, it would not by assumptionreduce
"workingpoverty"),programcosts would be
two and one halftimesthe net returns[183,
1972]. Anotherevaluation,by Garrity,concluded that 99 percentof Americanprivate
wouldnotbe able to survivein the
enterprises
ghetto [75, 1968].21
Barry Bluestoneargues that the branchplantingstrategyremovesproject selection
Moreover,
fromthecontrolofthecommunity.
sincethe "prevailingwage" in ghettoareas is
2' Many of Garrity'sassumptionsabout the probable
operatingcharacteristicsof ghetto-basedwhite-owned
plantsnow appearto have beeninvalid.Garrityassumed
thatghettolaborwouldbe 7.5 percentless productive,
50
percentmoreunstable,200 percentas expensiveto hire,
and 800 percentas expensiveto trainas the"usual" labor
of the participating
firms.In fact,privatecorporations
withinvolvements
in theghetto(includingthecompanies
in theJobOpportunities
participating
in theBusinessSectorProgramto trainthe"hard-coreunemployed")report
generallyfavorablelabor performance.
Most findtheir
ghettoand non-ghetto
employeesto be "indistinguishable" in termsof productivity,
absenteeism,
turnover,
and
learningrates[43, The ConferenceBoard, 1969; 42, The
Conference
Board, 1971,vol. 1,Ch. 5; 13,Banfield,1969].
Moreover,thereis evidencethatany correlationbetween
tenureand race or quit ratesand race disappearswhen
the relationship
betweenquits/tenure
and wagesis introducedintomultivariate
regressions
[179,Stoikovand Raimon, 1968].
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Harrison:GhettoEconomicDevelopment
17
tion of the program'sbudget has been allocatedto activitiesthatcould be classifiedas
e.g.,the
"operationaleconomicdevelopment,"
creationand supportofnewprivateand public
of the housing
enterprisesor reconstruction
stock.Indeed,the inabilityto generatemuch
constructionor rehabilitationbusiness for
minoritycontractorshas been one of Model
Cities' most notablefailures.Instead,Model
concernedwiththedelivery
Citiesis primarily
ofservicesand combiningdirectpublicservice
employmentwith manpowertraining.Even
withrespectto the latter,onlyabout 20 percent of the regular salaried Model-Citiesfundedworkersin the Springof 1971 were
agencies,acemployedin development-related
cording to an unpublishedHUD-commissioned study by the National Civil Service
The Model CitiesProgram
League.
TitleI oftheDemonstration
The Model CitiesProgramhas greatpotenCitiesand MetropolitanDevelopmentAct of 1966 author- tial,especiallyforlocal economicdevelopment
ized the U.S. Departmentof Housing and
[144, Olken, 1972; 65, Faux, 1971]. But the
Urban Developmentto undertakea "Model
realizationofthispotentialwillrequiremajor
Cities Program" which would concentrate changes, including a Presidentialmandate
public and privateresourcesin a compre- whichhas thusfarnotbeenextended(indeed,
hensive attack on the social, economic, PresidentNixonhas nowdecidedto terminate
and physicalproblemsof slum and blighted theprogramaltogether).Even theadministrain
neighborhoods.
The 150 citiesparticipating
tively "easier" employmentobjectives of
the program receive one year "planning Model Citieshavebeenseriouslysubverted
by
grants"to cover80 percentofthecostofplan- manylocal mayorsand citycouncils.Both in
1969 (whentheprogramwas just underway),
ning comprehensiveprogramsto raise substantiallythe levels of housing,education, and again in 1971 (by whichtimeit was emhealth and medical treatment,employment ploying some 25,000 people across the
and job training,income,and social services country),fewerthanhalfof the salariedjobs
in the"modelneighborhood"
(thisis a specific in the programhad been allocated by local
geographictargetarea definedby each city officialsto residentsof the targetinnercity
makingapplicationto HUD, accordingto the areas,in violationofbothlegislativeand (fedgeneralcriteriathatit be "largelyresidential" eral) administrative
intentions[92, Harrison,
and that"a substantialportionmustbe hard- 1973; 90, Harrison,1974]. At stake was an
core slumswitha highconcentration
of low- income flowof over $200 milliona year in
incomefamilies").Whenplans are completed wages,salaries,and benefits.
The citieswhich
and approved,citiesbecomeeligiblefora pan- allocatedthesmallestshareoftheirModel Citand HUD "supple- ies jobs to ghettoresidentswerethosewhose
oplyoffederalgrant-in-aid
mentalgrants"to carryout theirprograms. pesonnelsystemsextensively
used educational
because
of
its
gocial
service
Perhaps
origins credentialsand policerecordsas screeningdeafter
Cities
from
the vices(evenforunskilledjobs), thosewithpow(Model
did,
all, emerge
action"
a
"community
experience),only frac- erfulmayors(as measuredby theirveto auseldom above the legal minimum wage,
branch-plantingprograms weaken the
strengthof union-negotiatednon-poverty
firms
wagefloorsby encouragingmulti-plant
to shiftpart of theirproductionto the lowwage areas [24, 1971]. A studyof corporate
busiprograms,
conductedfortheprestigious
ness consultingfirmof McKinsey and Co.,
confirms
thatthebranch-plant
approach"has
enabledcompaniesto setlowerwagescalesfor
thedisadvantaged
withoutmeetingobjections
fromunionnegotiatorswho, at least to date,
havebeen willingto exemptseparatedoperationsfromunionscales" [41, Cohn, 1971,p.
if nothingelse, call for
153]. These findings,
cautionand detailedplanningin thedesignof
branch-planting
programs.
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18
Journalof EconomicLiterature
thorityand numberof termsin office),and
thosewhichwereleastconfronted
withactual
or latent"black power" (as measuredby the
leveland growthof theblack population,and
whether
or notthecityhad experienced
a civil
disorderin the summerof 1967). Moreover,
itwasfoundthattargetarea residents
received
about $1,500$1,900 per year less in salaries
than non-neighborhood
residents,afterconforage,race,sex,education,civilservtrolling
ice coverage,occupation,and municipalor
non-profit
agency.
As withtheCommunity
ActionProgramof
OEO, Model Cities did providea vehiclefor
local politicalorganizing,
and has produceda
streamof capable,articulateminority
leaders
and technicians.Nevertheless,
on balance,observershave foundlittleaccomplishment,
or
interestin shoringup the program.Efforts
to
datehave producedlittlereal economicdevelopmentin the innercity.
EconomicDevelopment
Community
As itbecameclearthatthepovertyprogram
itselfwould not providea vehiclefor "selfdetermination,"
manycommunityorganizers
mechbeganto searchfora new institutional
anism.Interestin economicdevelopment
had
created local supportfor the kinds of programsjustreviewed.Butthesecouldnot-and
had not been intendedto-promote "local
control" either;thus the search continued
[146,Perry,1973].The vehiclewhichemerged
fromthisexperienceis the community
developmentcorporation.22
22 In December1966,SenatorRobertF. Kennedysaid,
ofthenewTitle 1-D ("Special ImpactProgram")amendmentto the Economic OpportunityAct which he and
SenatorJacobJavitswereco-sponsoring:
The measureof the success of this or any other
programwill be the extentto which it helps the
ghettoto becomea community-afunctioning
unit,
its people actingtogetheron mattersof mutualconcern,withthe powerand the resourcesto affectthe
conditionsoftheirown lives.Therefore,
theheartof
the program,I believe,should be the creationof
CDC's. . . A criticalelementin thestructure,
financial or otherwise,
ofthesecorporations
shouldbe the
Communitydevelopmentcorporationsengage in a wide varietyof projects.The BedRestorationCorporationin
ford-Stuyvesant
in at least fortyBrooklynhas investments
threeseparatebusinesses,severalhousingprofromtheNew York
grams,and commitments
fora $100 millionmortbankingcommunity
gage pool forghettohome buyers[65, Faux,
1971, p. 6]. Restorationhas also renovated
nearly 1,500 privatehomes throughthe employmentof 900 unskilledyouths,and constructed a series of "superblocks" in the
middleof the ghetto:blocksclosed to traffic,
whose housing has been rehabilitated,and
which have been providedwith trees,new
lighting,and playgrounds[108, Johnson,
recently
purchasedthe
1971,p. 1].Restoration
air rightsabove a Brooklynday care center,
in thisloand is constructing
new apartments
cation.
The Harlem CommonwealthCouncil, a
CDC locatedin theHarlemarea ofNew York
City,has assetsof morethan$15 million,includingan officebuilding,a factorymanufacturingwood, metal,and plastic interiorsfor
an officeequipmentand furnisupermarkets,
ture company,a data processingfacility,a
a contractconstruction
company,a
foundry,
fulland dominantparticipationby the residentsof
the community
concerned.
Quotedin Blausteinand Faux [22, 1972,p. 116].Theoretical supportforthe new institution
(on groundsthatno
existingcapitalistinstitution(s)
could performthe necessaryfunctions)was providedin a seriesof studiesby the
Harvard Programon Technologyand Society[161, Rosenbloomand Marris, 1969]. The creationof a legallycharteredCDC is hardlya sufficient
conditionforghetto
development.More fundamentalis continuouspolitical
organizationof the blocks in the ghetto.Most of the
CDC's which have enjoyed a measure of success in
launchingeconomicdevelopment
projectshavebeenable
to do so byvirtueofhavingcreateda solidbase ofpolitical
support withinthe community,in order to presenta
strongunitedfrontto outsideagencies.For a reviewof
the experiencesof the movementthrough1972, see the
Special CDC issueof the ReviewofBlack PoliticalEconomy[159, 1973].Additionalcase studiesare presentedin
Blausteinand Faux [22, 1972];Faux [65, 1971];The ConferenceBoard [42, 1971];Stein[173, 1973; 174,1973; 175,
1973; 176, 1973].
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Harrison:GhettoEconomicDevelopment
and a sewing/hi-fidelity
pharmacy,
store[175,
Stein,1973].
Not all of the CDC's are black. The East
Boston CDC was organized in 1971 in a
predominantly
Italian, white working-class
community,
arounda continuing
over
struggle
resistance
to theexpansionofa nearbyairport.
EBCDC is currentlyengaged in housing
rehabilitation
and theplannedredevelopment
ofpartof theBostonwaterfront
forcommercial and industrialuse [125, MacPhee, 1972,
pp. 19-22].The DenverCDC operatesin four
largelyMexican-American
of
neighborhoods
thatcity,whereit is engagedin themanufacture of upholsteredfurniture,
toys,and the
operation of supermarketsand restaurant
franchises[36, Centerfor CommunityEconomicDevelopment,1969,pp. 65-66].
The Organization
of DirectlyProductive
Activities
(DPA)23
CDC's have provideda varietyof aids to
existingghettobusinesses.The HarlemCommonwealthCouncil providesloans to local
pharmacieswhose owners are penalized by
delays in the processingof Medicaid forms.
Restorationassistslocal contractors
in obtaining bonding,so that theymay competefor
those largercontractswhich requiresuch a
guarantee.In Detroit,theInner-City
Business
ImprovementForum providestechnicalassistance (especially managerial training)to
privateentrepreneurs
and operatesan emergencyrevolvingfundforsmall loans.
The possibilities
for"exporting"goods and
services to nearby institutionalconsumers
have also been studied [205, Vietoriszand
Harrison, 1970, Ch. 4]. Schools, hospitals,
churches,and officebuildingsconsumelarge
23 Developmenteconomistsoftendistinguish
between
investment
ininfrastructure
(or "social overheadcapital")
and investmentin directlyproductiveactivities[102,
Hirschman,1958,Ch. 5]. In theurbancontext,thehousing,transportation,
and publicserviceprogramsofregular
cityagencies(includingModel Cities)mightbe considered
SOC, whereasthedevelopment
ofnewstoresand factories
represents
investment
in DPA.
19
quantitiesof paper and metalproducts,photographyand repair services,etc. Successful CDC-sponsored (i.e., ghetto-ownedand
staffed)shoppingcenters,such as Progress
Plaza in NorthPhiladelphia,are oftenlocated
on the"border"in orderto be able to "export"
residents.
sales to non-ghetto
are generallytoo
Existingghettoenterprises
smalland inefficient
to be able to fillsuchcontractspunctuallyand at reasonablycompetitive cost. One proposed solution is the
of existingbusinessesintonetreorganization
These are
worksof "affiliated
independents."
a formof limitedproducers'cooperative,in
and operated
which independently-owned
businessesengagein joint purchasingof merand thepoolingof
chandise,jointadvertising,
otheroverheadcosts.Between1946and 1972,
in theretail
the(white)affiliated
independents
groceryindustryincreasedtheirshare of all
retailstoresfrom23 to 33 percent;theirshare
of total retail grocerysales rose duringthe
same period from 29 to 44 percent [151,
Progressive
Grocer,1973,p. 100].This success
seemsto have beenbuilton a combinationof
theeconomiesof large-scalepurchasingcharacteristicof the chain stores,and the high
motivationand flexibleadaptation to local
conditionscharacteristic
of the independent
entrepreneur.
CDC's are also creatingtotallynew ventures. Restorationis developinga series of
facilities,
whichitwillsell
largemanufacturing
to the employeesand/orlocal investorsonce
the firstof theseventheybecomeprofitable;
turesis a modularhousingfactory.The East
Los Angeles CommunityUnion, a chicano
CDC, hireda formermattressindustryproductionworkerto managea new CDC mattressfactory;"mattresses
werechosenbecause
of complaintsfromwelfaremothersthatthe
WelfareDept. madethempurchasefromlarge
downtownstores cheap mattressesthat did
not last morethana fewmonths"[65, Faux,
1971,p. 81]. The Hough Area Development
Corporationhas constructeda mixed-zoning
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Journalof EconomicLiterature
20
project,the Martin Luther King, Jr.Plaza,
oflow-incomeelevatedtownhouses
consisting
built over a shoppingmall. In Seattle,the
UnitedInner City DevelopmentFoundation
is buildingan industrialparkforlargeservice
and lightindustrialfacilities,inenterprises
cluding a community-ownedconstruction
company(anotherghettoindustrial
parkis unin Chicago).
derconstruction
The CDC's, especiallythosein ruralareas,
are also experimenting
withcooperatives,in
such fieldsas pharmaceuticals,
furniture
productionand sales,fishcanningand grocering
(at boththe wholesaleand retaillevels).One
currentmanufacturing
projectinvolvesCrawfordEnterprises,
a community-owned,
cooperativelyoperatedfactoryin Crawfordville,
Georgia, which produces modular housing
and is now integrating
forwardintotheacquisitionofrealestate[147,Phemister
and Hildebrand,1970-71,pp. 200-202].
The initial Harlem development"plan"
proposedan enterprise
developmentstrategy
based upon the exploitationof linkageeffects
[205,Vietoriszand Harrison,1970,Ch. 3]. On
theassumptionthateconomiesofscale in productionno longerconstitutethemainbarrier
to freeentry,havingbeen replacedin relative
importanceby scale economiesin advertising
and dealerships,theplannersrecommended
a
strategyof beginningwiththe controlof the
local distributionsystem (especially retail
stores),graduallyintegrating
backwardinto
wholesalingand manufacture
of at leastsome
of the itemssold in thosestores[135, Modigliani, 1958]. This strategymotivatedsuch
time-phased
development
sequencesas: cooperativesupermarkets
and affiliation
ofexisting
ActionCommittee,
whosemostrecentventure
is the purchaseof cattlefarmsto supplyits
urbanfood stores).
Among the most attractiveDPA-type investmentsbeing consideredby a nurhberof
CDC's are thoseinvolvingtheprocessingand
The original
communicationof information.
at
Harlem DevelopmentProject investigated
leasttwopossibleareas forcommunity
investmoniment:an electronicdata processing/bed
toring service for local hospitals,and the
operationofone or morelocal cable television
franchises
[205,Vietoriszand Harrison,1970,
Ch. 5]. The latterhas become the object of
increasedattentionin the United States. In
1970, a PresidentialCommissionheaded by
ProfessorEdward S. Mason of Harvard, a
prominentsenior developmenteconomist,
recommendedthatat least some of the cable
franchises
rapidlybeingcreatedby municipal
governments
across the countrybe reserved
for communitygroups.In 1972, the Urban
Instituteinaugurated
a Cable TelevisionInformationCenter,with supportfromthe Ford
Foundation,and a more specializedproject
concernedwiththe applicationof cable systems to communityeconomic development
[189,Tate, 1972];thelatterwas recently
spunoffas an independentblack firm:the Cablecommunications
ResourceCenterin Washington.
ProjectSelectionCriteria
A fundamental
issue in the community
developmentmovement-and in its technical
literature-concernsthe trade-offbetween
commercialprofitsand communitybenefits.
No singlesubject more clearlydistinguishes
grocers
food canning
contracts with
thisapproachto innercitydevelopment
from
farmco-ops in otherregions;and stationery thosediscussedearlierthanthe avowed comand officeequipmentsupplies("sheltered"by
mitmentof most CDC leaders to give high
stateand citygovernment
procurement
con- priorityto such "external"outputsas mantracts)
printingand metalworking
[205, powertraining,
consumereducation,improveVietoriszand Harrison,1970,Chs. 4-5]. Some
mentof the ghettoenvironment,
reductionof
plannedlinkeddevelopmenthas in factbeen
anomie(especiallyamongyoungblack men),
in Harlem(by HCC) and in South and consolidationof political"clout" in the
,undertaken
Los Angeles(bytheWattsLabor Community community's
relationswithcityhall,thestate
-
-
-
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Harrison:GhettoEconomicDevelopment
house,thefederalbureaucracy,
and theprivate
sector[65, Faux, 1971, pp. 48-55]. At one
extreme,the objective of developmentprogramming
has been describedby an English
development
economist,Dudley Seers,as the
implicitmaximizationof a weightedaverage
of communitybenefits,subject to the constraintof financialsolvency, i.e., that the
project(s) break even. More realistically,
CDC's speakoftradingoffprofits
forcommunitywelfare;so thatprofits
becomeone ofseveral targetvariablesin the CDC's implicit
objectivefunction.
One of the mostconsequentialof all forms
of"marketfailure"arisesfromthe"jointness"
in therelationship
betweenthe productionof
outputand the provisionof on-the-jobmanpowertraining.It was Pigou who firstdeveloped the now well-knowntheorem that
decentralized
marketswillinvestsuboptimally
in activitiesgeneratingexternaleconomies.
The implicationsof this particularexternality-the indivisibility
betweenproduction
and training-havebeen virtuallyignoredby
humancapitaltheorists,
who assumethatdecentralizedmarketsare capable of allocating
traininginvestments
efficiently,
by "optimally
taxing"workers(throughdiscountedwages)
forthe "specifictraining"theyreceiveon the
job. In fact,thisis not possible,at least with
neoclassicalproductionfunctions;
theindivisibilityprecludesuniqueallocationof costsbetweenthe joint products[58, Eckaus, 1963;
127, Marris,1969,pp. 22-23].
In community development programs,
politicalconsiderations
oftenforceattention
to
thetraining"product,"and implicitvaluesare
assigned to the "production"of a trained
ghettolaborforce,equippedto deal withmoderntechnology.
Thisdemandbyghettoleaders
has become more insistentas evaluationsof
conventionalprivateand public sectormanpowertrainingprogramshave shownthatthe
jobs forwhichghettodwellersare trainedin
theseprogramstendto resembletheverysame
unskilled,low-wagejobs which the trainees
(or theirpeers)heldin thepast [88, Harrison,
21
1972; 166,Schiller,1972].The HarlemDevelopmentProject team spoke oftenof "greenhouse industries": community-ownedor
commercial,and
sponsored manufacturing,
serviceenterprisesselectedas much for the
natureand extentof the on-the-jobtraining
they,are capable of providingas fortheproduct and profitsthey would generate [205,
Vietorisz and Harrison, 1970, pp. 67-68,
82-87]. To the extentthatthe productionof
externalbenefitsof any kind costs foregone
profits,
subsidiesare necessaryin a decentralized capitalisteconomy.24
in selecting
one difficulty
Methodologically,
ghettodevelopment
projectslies in thecombinationof quantitativeand qualitativeobjectives,and anotherin the externalities-both
convex, e.g., consumptioninterdependences,
and econoand nonconvex,e.g., indivisibilities
projects
mies of scale-that link different
together.An operationalsolutionto the second problemhas been employedby developmentplannersforseveralyears;it is the use
of a complexof interrelated
activitiesas the
unitofprojectplanning.This unitis variously
referredto as an "industrialcomplex" or
"cluster,"an "activitycomplex,"a "module,"
or simplya "project" [105, Isard, Schooler,
and Vietorisz,1959; 202, Vietorisz,1968; 20,
Bergsman, Greenston, and Healy, 1972].
Workis presently
underwayto attackthefirst
problemthroughthe design of integerprogrammingmodels with ordinal preference
functionsand iterativeman-machineinteraction [203, Vietorisz,1970].
FinancingGhettoDevelopment
Preciseaccountsofthetotalresources(public and private)investedin the CDC move24 Publiclysubsidizedghettodevelopment
would not
constituteany significantdeparture from traditional
Americanpractice;in thenineteenth
century,
transfers
of
publiccapitaland land to the privaterailroadsto stimulate economicdevelopment"ran to almost 1 percentof
grossnationalproductduringone ten-year
period."In the
fouryearsfollowingWorldWar II, the U.S. transferred
nearly$14 billionto WesternEuropeangovernments
and
privatecorporations[65, Faux, 1971,p. 100].
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22
JournalofEconomicLiterature
mentare simplynot available but scattered
recordsimplythatthe totalis stillverymodest.
Since 1967,manyCDC's have beenfunded
bytheSpecial ImpactProgramof OEO (currentlybeingtransferred
to OMBE). CumulativeSpecial Impactgrantsto 23 urbanand 20
ruralCDC's amountedto $132.5 millionby
theendofFiscal 1973[35,CenterforCommunityEconomicDevelopment,1973,pp. 4-5].
Althoughsome CDC's have developedcontractswithoutsidewhitecorporations,
which
providea sourceoftechnicalassistance,occasional loans and most importantly
procurementcontracts,
nevertheless,
mostcontinueto
relyprimarilyon assistancefromthe federal
government
(and, to some extent,fromfoundations). Certainlythe Special Impact and
CommunityAction programsof OEO, togetherwithHUD's Model CitiesProgram,are
theghetto'sprincipalsourcesofequitycapital.
Other federal agencies, especially OMBE,
debtratherthanequity
strongly
preferto offer
financing.
This has forcedmanyCDC's to acquire seriouslyexcessive debt-equityratios
whichhamperstheirabilityto growthrough
reinvestment
of surplus [65, Faux, 1971, p.
86].
Even thegrantstendto be "tied" in thatthe
grantingagencyusuallyreservesthe rightto
approveor disapproveeach individualinvestmentproject.CDC's are generallynotpermitted to use public funds to investin assets
located outsidethe ghetto,even thoughsuch
locationsmay be preferable.And SBA and
OMBE regulationsprohibitthe supportof
cooperatives[65, Faux, 1971,p. 95].
An important
potentialsourceofincomefor
ghettodevelopment
projectsmaybe local government.City halls could allocate a shareof
theirprocurement
contractsto ghettoenterprises,perhapsforegoing
competitive
bidding,
under appropriatecircumstances,
and could
place at leastsomeof theirfinancialaccounts
in banks willingto investin the ghettoeconomy [128, McLaurin, 1968; 129, McLaurin
and Tyson,1969].In New York City,forex-
dollar annual example, "witha half-billion
penditureforpurchasesand small contracts,
a set-aside of roughly 10 percent of this
amountcould provide. . . an estimated50
million dollars" for ghettobusinesses[129,
McLaurin and Tyson, 1969,p. 133].
Recognitionof the limitsof existingprogramsled a groupof Senators,Congressmen,
lawyersand blackleaders(notablyRoy Innis)
to meetin the springand summerof 1968 to
draftlegislation-theCommunitySelf-DeterminationAct-designed to createan entirely
new structureto financeghettodevelopment:
The bill providedforfederalcharteringof CDC's
and CommunityDevelopmentBanks;creationof a
nationwideCommunityDevelopmentBank as a
authorization
offasecondaryfinancing
institution;
vorabletax statusforCDC's as well as "turnkey"
tax incentivesfor cooperatingoutside businesses;
and managerialand technicalassistancemoneyfor
CDC's throughthe SBA [65, Faux, 1971,p. 114].
Althoughthebillreceivedsupportfrompolitibroad
ciansassociatedwithan extraordinarily
range of ideological views, it languishedin
committeefortwo years,nevereven coming
up fora vote [22, Blausteinand Faux, 1972,
Ch. 4].
A revisedbill,theCommunity
Corporation
preparedbythe
Act of 1970,was subsequently
on EmployStaffof theSenateSubcommittee
ment,Manpowerand Poverty.Many of the
defectsof the originalbill (such as a prohibition against CDC investmentsoutside the
thenew
ghetto)werecorrected.Nevertheless,
legislationhas not faredany betterthan the
old. The Center for CommunityEconomic
Development is currentlypreparingmodel
developlegislationfora nationalcommunity
mentbankingsystem[47, Daniels, 1973].
One potentialsourceoffinancing
forghetto
developmentwhichhas not been exploredis
revenue-sharing.Because CDC's represent
probablythe mostpowerlessof a mayor'sor
governor'sconstituenciesand because the
forpublic
competitionamong constituencies
revenuesis so great,CDC's are unlikelyto be
able to capturesignificant
fundsfromgeneral
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Harrison:GhettoEconomicDevelopment
revenue-sharing.
The prospectswithregardto
specialmanpower
and community
development
revenue-sharing
are a littlebetter,sincethese
fundsare restricted
to federally-specified
uses,
therebyreducingthe potentialcompetition
amongconstituencies.
Some PoliticalConsiderations
The toneofthisdescriptionof thecommunity economic developmentmovementhas
beenoptimistic,
at least,theauthor's
reflecting
senseoftheexhuberanceand dynamism
ofthe
CDC's have survived-and their
participants.
numbershavegrown-in thefaceofenormous
obstacles,and havewona smallbutsignificant
numberof victoriesover recalcitrant
bureaucrats, private capitalists(black as well as
ofsocial change,and local instiwhite)fearful
tutionssuch as cityhalls and some labor unions which feel threatenedby that potential
of the poor.
empowerment
it would be wise to use cauNevertheless,
tionin forecasting
continuedexpansionofthe
activitiesof CDC's. Radical economists,at
least,recognizethattheattemptto createtruly
alternative
institutional
approachesto theorganizationofproduction,
existingside byside
with conventionalcapitalistmodes of social
and economicorganization,
createsa powerful
contradiction
which"thesystem"maybe willing to permitonlyup to some criticalthreshhold [24, Bluestone,1971]. As theybecome
more successful-as they achieve "critical
mass,"or "take-off
intosustainedgrowth,"or
simply"a lifeof theirown"-will CDC's be
allowedto survive?Theiralmosttotaldependence on outside political and financialsupport-a situationwhich the povertyof the
ghettowillcontinueto imposeon themforat
least the next ten to twentyyears-makes
themhighlyvulnerableto such a threat.
This analysis,in turn,suggeststhatthecontinuedexistenceof the CDC movementwill
dependcruciallyon theabilityofitsadvocates
and participants
to organizepoliticallyoutside
of theghetto.By winninglocal, regional,and
stateelections(as well as seatsin thenational
23
legislature),and by effective
lobbyingin the
administrative
agenciesof thefederalgovernment(throughtheforging
ofpoliticalalliances
withotherworkingclassgroups),advocatesof
communityeconomic developmentmay be
able to createthepoliticalconditionsforconwithalternative
tinuedexperimentation
paths
to innercitydevelopment.At least theycan
hope to use theirinfluenceto protectwhat
alreadyexists.
V GhettoDevelopmentvs. GhettoDispersal25
of
Proposalsto investin theredevelopment
theinnercityhavebeendismissedbya number
Deof scholarsas wasteful"ghetto-gilding."
velopmentis represented
as a retreatfromthe
long-term"national objective" of full racial
integration.
Accordingto JohnF. Kain, for
example,the "developers". . .
seem to have concludedthatresidentialintegration
is eitherimpossibleor willtaketoo long.Theycontendthattheproblemsof theurbanNegroare currentand real.. . . Proposalsto patchup theghetto
and makeit a betterplace to liveand to createjobs
there are heard with increasingfrequency[109,
Kain, 1968,p. 242].
Kain opposes "ghetto-gilding."For one
thing,he argues,itwouldreducepoliticalpressure for and interestin integration.
For another,the capital absorptioncapacityof the
ghettois fartoo small to permitsufficient
internaljob developmentto make a difference.
Finally, "ghetto improvementand particularlyjob-creationprogramsmightwell have
as theirprincipalresultincreasedmigration
of
SouthernNegros to Northernmetropolitan
areas . . . greatly aggrevating the problems"
[113, Kain and Persky, 1969, pp. 38-39].
Thus, "thereis no alternativebut vastlyincreased suburbanizationof Negro populations,ifwe are to avoid unnecessary
economic
waste and growingpolitical conflict"[109,
Kain, 1968, p. 243]. Programsto implement
the suburbanizationof ghettodwellers-re25 This subjectreceivesa farmoreextensive
treatment
in Harrison[93, 1974,Chs. 4-5; von Furstenberg,
Horowitz,and Harrison[208, 1974,pt. I].
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24
Journalof EconomicLiterature
versecommuting,
open housing,and suchare referred
to by Kain as "ghettodispersal."
Whethersuch a thingas "the nationalobevenexistsmaywellbe
jectiveofintegration"
doubted,giventhe overwhelmingly
negative
popularresponseto such franklymodestactivities
as schoolbusing.1970 Censusdata indicate at best no decrease in residential
segregationin Americancities. Attemptsto
open suburbanhousingto blacks have been
unofficially
thwartedas much by public officials as by iratewhitecitizens[88, Harrison,
1972,pp. 162-170]. These uglyfactsdo not
imply that continued segregationmust or
shouldbe tolerated.Theydo indicatethatintegrationwillcarrywithit a highsocial cost,so
thatsome mix of development-dispersal
policies is probablyoptimal. The "there is no
choice but dispersal"argument,callingas it
does fora "cornersolution,"impliesan estimateof the social costs of integration
which
is surelytoo low.26
The argumentthatinvestment
in the inner
citywill lead to improvements
which,when
signalledto Southernblacks,willinducecounter-productive
migration,
has beenchallenged
on two counts.First,empiricalstudies(summarizedin Harrison[93, 1974,Ch. 4]) indicate
thecomplexity
of themigrationdecision.Rein unemployment
gionaldifferences
and wage
rates,housingand social service,e.g.,welfare,
in inavailabilities
are undoubtedly
arguments
dividuals' migration-decision
functions.But
theirinter-relationship
is notsimple.To select
but two examples,South-Northblack migra26 PeterLabrie emphasizesthe importance
of a voluntarycomponentof residentialsegregation.Even if discriminationin housingwere completelyeliminated,he
conjectures,the voluntarydispersalof theblack population would not fit
intothepatternofcompleteintegration
usedin the
quantitativeanalysisof Kain, a patternin which
black and whitehouseholdsare distributed
equally
throughout
themetropolitan
area. As longas blacks
remaina distinctethnicminority
witha distinctset
of religious,fraternal,
and commercialinstitutions,
theywill [wantto] retaina distinctlocationalbase
fortheseinstitutions.
This has beentrueofall American ethnicminorities,includingJewsand Italians
[119, 1970,p. 17].
tion has continuedsince 1947, at least until
em1970, even thoughboth nonagricultural
ploymentand per capita incomehave grown
morerapidlyin the Souththanin the North.
And between1960 and 1965,81 percentofall
netmigrationto urbanareas wentto just nine
rateswhich
places; thesehad unemployment
(during that period) were about 8 percent
rates
higherthan the averageunemployment
in the 141 otherurbanlabormarketareas delineatedby the U.S. Departmentof Labor.
Second, researchershave learned-quite in
oppositionto the conventionalwisdom-that
South-Northblack migrantstend to be relaforcitylife.They display
tivelywell-prepared
higheraverageeducationand skills,and are
generallyyoungerthanthosewhomtheyleave
1970,p. 76]. Their
behind[211, Wertheimer,
socioeconomicstatushas actuallybeen found
to exceed the averagein the destinationcity
as well [124, Long, 1973; 186, Taeuber and
Taeuber, 1965]. Finally,
As forthe crimeand delinquencyso regularlyattributedto the newcomers,what evidencethereis
pointstheotherway:it takessome timein thecity
forthe migrantto catch up withthe old residents
[193, Tilly, 1968,p. 49].
by
wisdomwas reinforced
The conventional
a widely publicized computer simulation
with
model[67,Forrester,1969].Experiments
policies of centralcity low-incomehousing
and job developmentgeneratedforecastsof
further
declinein economicwelfarein thecity,
due to thepositivefeedbackofincreasedimmigrationwhich overloadedthe absorptivecapacityofthemodelcity.This forecasthas been
to
shownby criticsto be directlyattributable
an assumedhighelasticityof migrationwith
respectto urbandevelopment[74, Garn and
Wilson, 1970]. The empiricalstudies from
whichsuchelasticities
mightbe derivedareyet
to be conducted.
Anotherargumentagainstghettodevelopment concerns the "suburbanization"and
"skill mis-match"hypotheses.Development
would attractnew migrantsto theverysite-
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Harrison:GhettoEconomicDevelopment
the centralcity-out of which jobs are allegedlymoving with increasingfrequency,
leavingbehinda mix of jobs dominatedby
thosewithhighskillrequirements
[110,Kain,
1968;111,Kain, 1968; 113,Kain and Persky,
1969;136,Moynihan,1968; 54, Downs, 1968;
194,U.S. AdvisoryCommissionon Intergovernmental
Relations,1968,p. 58]. A reviewof
thisliteratureand more recentbut still unpublishedstudiesof the decentralization
phenomenon,preparedfor the Urban Institute,
indicatethatthenetchangesin centralcityvs.
suburbanemployment
are attributablemore
to cyclicalemployment
variationsin stationaryplantsthanto a literalrelocationofplants
fromthe core [93, Harrison,1974]. Patterns
also varyenormouslyacross industrieswith
manyservices,especiallygovernment,
displayforcorelocations.Age
inga strongpropensity
or densityof the cityand the "stage" of the
nationalbusinesscycleare important
explanatoryvariables;mostcentralcitiesexperienced
substantialjob growth between 1964 and
1969.Neitherjob norresidential
decentralization are stronglyrelatedto the racial mix of
thecentralcitypopulation(povertyand fiscal
conditionsare far more powerfuldeterminants).And accordingto theserecentfindings,
thereis no quantitative(as opposed to anecdotal)evidenceofa "skillmis-match."
Indeed,
what evidenceexistssupportsforecaststhat
cut theotherway;centralcitiesare becoming
increasingly
service-oriented,
and servicesare
the most "non-skilled-intensive"
of all industrial/commercial
sectors.
That "open housing"receivesmuch more
attentionby the advocates of dispersalthan
programsto attackdiscrimination
in employmentsuggeststhatthesescholarsperceivethe
suburbsas characterized
bya tightlabormarket in whichnewlysuburbanizedblacks will
be able to find(better)jobs ifonlytheycan get
to them.Data that would permitsystematic
comparisonsbetweensuburbanand innercity
black workersare very scarce. Moreover,
"suburbanresidence"is too crudea "control"
forproximity
to suburbanjobs. Definitivere-
25
search would have to take actual homesitejobsitedistances,thesuburbantransportation
mix,and the access of whitescompetingfor
thesesuburbanjobs intoaccount.
A fewstudieswhichattemptto draw such
comparisons have neverthelessbeen published,(althoughnone overcomesthe previouslystatedobjections).One analysisofwhite
and nonwhiteresidentsof the twelvelargest
threeresidential
SMSA's in 1966distinguishes
locations:centralcitypovertyareas, the nonpovertycentralcity,and the suburbanring
[88, Harrison,1972, Ch. 4]. Three measures
ofindividualadultmale economicwelfareare
specified:weeklyearnings,annual unemployment,and currentsocioeconomicstatus (an
ordinalindex whose values rangebetween0
and 96). The values of the whiteindicators
improvewithdistancefromthecore;
generally
moreover,the white interpersonaldistributions for,the threevariablesare statistically
distinct.Amongthenonwhitemen,however,
averagevaluesof theindicatorsare highlyinsensitiveto residentiallocation,and the distributions themselves overlap. Moreover,
econometricmodels of the returnsto education reveal that the schedulesof returnsare
to black(butnot
highlyinsensitive
themselves
location-forwomenas well
white)residential
as formen. Duran Bell and BernardFrieden
confirmmany of these findingsfor the 100
largestSMSA's [18, Bell, 1974; 69, Frieden,
1972].
To a greatextent,thedichotomythatsome
in the urban
have posed betweeninvestment
ghetto and dispersal of ghetto residentsto
"outside" areas (especiallythe suburbs)is a
false one. There exista numberof potential
linkagesbetweengeneralurban development
and inner city developmentprojects. These
economicand politicalcomplementarities
furtherreduce the dangerthat ghettodevelopment will become a fruitlessexercise in
autarky.For example,it has been suggested
thatlocal governments
subcontractCDC's to
hireghettoresidentsto produceand distribute
variouspublicserviceswithinthecommunity
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26
JournalofEconomicLiterature
[66, Faux, 1972]. Even more consequential-both in termsof the numbersinvolved
and the implicationsforracial integrationwouldbe therecruiting
of ghettoresidentsfor
federal,state,and local jobs located outside
theghetto.Jobsin thissectorhavebeenfound
to be far superiorto the privatesectorjobs
whichghettodwellersnow hold or aspireto,
cyclical
intermsofrelativewagesand benefits,
and cenmodestskillrequirements,
stability,
tralplace orientation
[18, Bell, 1974;94, Harrison and Osterman, 1974]. A panel of
economistsincludingWilliam Fellner,John
KennethGalbraith,Robert A. Gordon,and
the author have recommendedlarge-scale
public serviceemploymentto a U.S. Senate
non-inflacommittee
as a directand relatively
tionarymethodfor absorbingthe disadvantaged into the "primarylabor market"[200,
U.S. Senate,1972,pp. 1519-1618].Bluestone
capable
perceivessuch a policyas potentially
of bringingmuchneeded upwardpressureto
bear on privatesectorwagesforghettodwelldemandfor
ers,by increasing.thecompetitive
theirservices[23, 1972].
in People vs.Investment
in Place
Investment
In the spatiallycompetitive
worldof many
early mathematicalmodels of urban form,
thereare no compellingreasonsfor "investment in place." Investmentsin people-in
theirhumancapital,in augmenting
theirpurpayments,in
chasingpowerthroughtransfer
subsidizing(e.g.,throughthefederalhighway
system)theirmovementto the suburbs-are
in suchmodelsto improveeconomic
sufficient
welfare.Indeed, just as consumersare assumedto havefreedom
of"movement"among
competingproducersin the spacelesstheory
of competition,
so theyare assumedin mainstreamspatialtheoryto have the freedomto
movetheirresidencesfromone urbanjurisdictionto anotherin searchoftheoptimalcombinationofpublicservicesand taxes,givingrise
to a kindofneo-Smithian
"theoremof theinvisiblefoot"[192,Tiebout,1956].Sinceexternalities are consigned to footnotesin the
neoclassical paradigm,neighborhoodeffects
are largelyignored.27
Other economistsargue,by contrast,that
are ubiquitousin urbanareas [cf.
externalities
101, Hirsch,1973]. We have had occasion to
describesome of these factorselsewherein
indivisibilities,
this paper. Interdependences,
thresholdeffects,and nonlinearitiesabound
[204, Vietorisz,1959; 201, Vietorisz,1968;
182, Struyk, 1972]. Especially important
sources of marketfailureare the prisoners'
dilemmaswhich permeateland transactions
and physical renewal decisions [49, Davis,
1970; 59, Edel, 1972; 61, Edel, 1972]. Under
these circumstances, revealed preference
breaksdown entirely;it is no longerpossible
to inferthatany expostspatialpatternofeconomic activity,e.g., householdlocation,reflectsa Pareto optimal outcome of a large
number of decentralizedoptimizingdecisions (households tradingoffaccess to the
urban core for the amenityof greateropen
space).
In particular,increasesin incomeno longer
necessarilylead to improvedaccess (to jobs,
housing,open space, or the centralbusiness
district),especiallywhenthe irregularavailain
bilityof transportlinksand discrimination
capital,housing,education,and labormarkets
are accountedfor.Thus, we cannot assume
thattransfer
paymentsto thepoor (or forthat
matter,to anyone else) will unambiguously
This creimprovements.
lead to neighborhood
in place."
ates one rationalefor"investment
A secondrationaledependson an important
aspectofwelfareeconomicsconcerning"pubmarketswill
lic goods." Private,decentralized
"fail" to produceadequatequantitiesof those
goods and servicestheconsumptionof which
inis at least partlycollective(and therefore
27 Recently,spatial locationmodelshave begunto apwhichattemptto accountsystematipear in theliterature
cally for congestioncosts-a major urban externality
-and such neighborhoodeffectsas the sensitivityof
householdlocationto thelocal racialmixand theinterrelationshipsamongpropertyvalues in adjacent areas. On
thelatter[cf. 114,Kain and Quigley,1972; 152,Quigley,
1974].
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Harrison:GhettoEconomicDevelopment
divisible).28
As the post-industrial
economy
grows,the demandforcollectivelyproduced
or consumedgoods and servicesgrows,both
and relatively
absolutely
[73,Galbraith,1958].
Moreover,to the extentthat environmental
can be relatedto the chronicexdegradation
cesscapacityassociatedwiththeprivateownershipand use of durablegoods,thistrendin
thepublic/private
good "mix" mayhaveto be
deliberatleyaccelerated [63, England and
Bluestone,1971].
The upshotis thatincreasesin theincomes
ofthepoor througha "negativeincometax"
orevena ''guaranteedannualincome"willnot
induceprivateproducersto adequatelyexpand
the provisionsof education,housing,health,
environmental
transportation,
qualitycontrol,
manpowertraining,or other "quasi-public"
goods and services.If the interneighborhood
of such servicesis not "equal,"
distribution
i.e.,ifthepercapitadistribution
is notroughly
rectangular,
thentheonlycompletely
effective
in place"-public
policywill be "investment
in thephysicaland humancapital
investment
of theneighborhoods
whichhave been shortchangedby the operationsof the market.
ValueJudgments
about Ghetto"Turf"
"What to do about theghetto"depends,to
an extentseldom appreciatedby economists
concernedprimarilywith the rathernarrow
on attitudesabout city
questionof efficiency,
living.The criticsofdevelopment
treattheinnercityas a temporary
stagingarea,occupied
by low-incomemigrantsand to be abandoned
by themas they"adjust" to middle-classurban life[110,Kain, 1968; 118, Kristol,1972].
28 The definitive
paper on marketfailureis stillBator
[14, 1972]. For a simplified
discussionof thesubject,see
Bator [15, 1960].A completetheoreticalanalysisof nonconvexityin urbaneconomicswould be a valuableadditionto theliterature,
giventheapparentubiquityofsuch
phenomena.Perhapsit is the memoryof Tjalling Koopmans' identification
of the extentto whichneoclassical
equilibriumand welfaretheoremsdepend upon the assumptionof convexitythat has at least subconsciously
deterredneoclassicalmathematicaleconomistsfromexploringthesequestionsin the detail theydeserve[117,
Koopmans, 1957,Essay One].
27
Advocates of developmenttend to attach a
different
value to innercity"turf."
We understand
also thattheurbansetting,
throughout history,
has been theenergizerof mankind,the
cradle of change. It is therethat blacks,too, will
have to findtheirsolutions.We cannot go offto
conducta masqueradeof changein newlycreated
littleruralcenters[104, Innis, 1969,p. 53].
The former
administrators
ofOEO's Special
Impact Programintroduceanotherelement
into the debate:
. . . the cost-effectives
argue that the functionof
to assimilationintosuburtheghettois a transition
ban life.. . . The social utilitarianshold thatthe
blacks now occupy primeland in our innercities
be reclaimedand rebuilt,and
whichwillultimately
that large numbersof blacks should remainand
benefitfromthe rebuilding[82, Green and Faux,
1969,p. 22].
Urbanplannersand sociologistshaveidentifiedthesenseofcommunity
(anotherexternality) as an importantvalue, especiallyamong
low-incomeurbanites.
Poorerfamiliesare moreconstrainedby the shortage of suburbanhousingat pricestheycan afford,
but manywould be reluctantto leave in any case.
Recent researchand relocationexperiencein lowincomeneighborhoods
demonstrates
clearlythata
highproportionof the people livingtherewantto
stay nearbyin order to keep up their ties with
friends,
relatives,organizations,
churches,and with
a styleof life that can hardlybe foundin newer
suburbs[70, Frieden,1968,p. 201].
The pointwas mademostsuccinctly
byPaul
Samuelson, in a 1958 commentaryon the
Tiebout"invisiblefoot"theorem.Concerning
the "freedom"to moveout ofone's neighborhood to finda bettertax/publicgoods mix,
Samuelson wrote: "People want to improve
theircommunity,
not abdicatefromit" [164,
1958,p. 337].
VI. Some ConcludingThoughtson Research
Sincewe have had occasionto referin passing to a numberof ongoingresearchprojects
in thisfieldtheseclosingcommentson future
researchwill be brief.
Examinationof the applicabilityof the in-
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All use subject to JSTOR Terms and Conditions
28
Journalof EconomicLiterature
sightsandtechniquesofdevelopment
planning
to urban economic developmentconstitutes
one importantarea for futureresearch.We
mustexpandand operationalizethetechnical
conceptsoflinkageand SOC-DPA sequences.
Effort
shouldbe addressedto thedevelopment
of planning models with multiple partly
qualitativeobjectives,indivisibleconstraints,
and sequencingrequirements.
The engineering-economics
interfacehas
become an importantpart of public policy
analysisin such fieldsas environmental
pollutionand waterresourcesresearch.A similar
thrustin urban and ghetto developmental
analysisseems called for.Engineersand architectsare already designingnew "threedimensional"(butnotnecessarily"high-rise")
urban structuresfor exploitinghigh density
space, but with one exception[103, Hoch,
1969],theeconomicsliterature
givesno attention to the subject.Urban economistsgenerally agree that a single engineeringinnovation-the internal-combustionenginehas had a greaterinfluence
on urbanformthan
in modemhistory.
anyotherdevelopment
Cooperative engineering-economicsresearch
wouldtherefore
seemto be sensibleifonlyfor
its value in forecasting
futurechangesof this
type.
It should be clear fromPart III that our
knowledgeofthestructure
oftheghettoeconthin.Relianceon published
omyis extremely
data sourceswillnotquicklyremedythisdeficiency(althoughas indicatedearlier,existing
published data have been underutilized).
Economistsand other social scientistswill
have to engagein farmoreprimarydata gatheringthanhas been theirwontup untilnow.
The elaborationand extensionof Schaffer's
"community
incomeaccounts"is an especially
important
task.Incomeflows,multipliers,
and
input-outputrelationshipsare indispensible
tools, the developmentof which providesa
rich and excitingresearchagenda,especially
forgraduatestudents.
This reviewhas stressedproductionin its
analysisofghettoeconomicdevelopment.
Lit-
tle attentionhas been givento the consumptionside (somematerialon thissubjectis containedin Bell [17, 1971]). We need to know
muchmoreabout presentand possibleghetto
purchasingbehavior.For example,howdo the
community-oriented
developmentstrategies
affectthe attitudesof that communitywith
regardto privateversuscollectiveconsumption?To whatextentmightqualityof service
substitute
forlowerprices,i.e.,productiveeffifunctionsof ghetto
ciency,in the preference
consumers?
havebeen
Now thatsomeghettoenterprises
and areproducinggoodsand servestablished,
ices, what are the obstaclesto theirexport?
How are theybeing receivedby their"outside" (presumablywhite) customers?What
undertaketo further
policiescan government
promoteghettoexports(and does theinternational trade literatureshed any lighton this
matter)?
Certainlywe need to know much more
aboutthepoliticaleconomyoftheghetto:who
fromtheexistenceofa segregated
benefits
pool
disoflow-wagelabor?How are thosebenefits
tributedamongthe variousgroupsoperating
in the urbaneconomy?Do proposedpolicies
(such as incomemaintenance)"really"help?
If not,underwhat circumstances
mightthey
be made moreeffective?
Finally,we need to undertakemuch more
researchon the significance
and plasticityof
theconceptsof "community"and "neighborhood." RobertYin and othersat M.I.T. and
theN.Y.C. Rand Institute
arecurrently
studying this question.Indeed, the whole area of
sub-municipalpolitical activityis an area
whereeconomistscould usefullyjoin political
scientistsin developingresearchprojects.
Althoughit has probablybeen the political
"relevance"oftheseissueswhichhas attracted
the attentionof those relativelyfew economistswho devotesubstantialtimeto thestudy
of the urban ghetto,the long-termpayoffto
expanded researchwill go far beyond"simply"contributing
to important
mattersofpublic policy.In the urbanfield,it is impossible
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All use subject to JSTOR Terms and Conditions
Harrison:GhettoEconomicDevelopment
and selectivity
of
to ignorethe superficiality
muchof neoclassicaleconomic theory.Studentsofurbanphenomenahaveno choiceultimately but to confront the enormously
challengingtask of developingtheorywhich
and other
embodiesstructuralnonconvexity
moves
"marketfailures,"in whichexternality
fromthe footnoteto centerstage,and where
of
theconsequencesof any givendistribution
incomeand powerfeedback directlyintothe
resourceallocationprocess.Moreover,itis imperativethattheseeconomicmodelsbe "embedded" in well-definedsocial institutions.
Thesechallengessuggestto me thatthemajor
in economictheoryin the
new developments
yearsahead maywell emergefromtheparent
fieldofurbanpoliticaleconomyand fromone
ofitsmostexcitingsub-fields:
thestudyofthe
urbanghetto.
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