In Forefront this week, journalist Tanveer Ali turns to Halsey Street in Newark, N.J., where local entrepreneurs are bringing life back to the once-decaying retail strip that birthed the Macy’s Thanksgiving Day Parade. The idea that urban entrepreneurship can serve driver of economic recovery isn’t new. But now policymakers, philanthropists, venture capitalists and even pop stars have jumped on bandwagon. Ali explores the question that an ever-more-influential segment of urban economists have tried answering for over a decade: Can for-profit enterprise raise all boats in cities?
Omar Sharif Townes is one of those entrepreneurs drawn to Halsey Street by the new commerce. There, in a storefront next to The Coffee Cave, he operates a second location for his popular Cut Creaters barbershop. “I saw growth back here and I saw a new community,” Townes said. A decade ago, he never would have predicted the move. “It was a desert [then]. There were no businesses here,” he said.
Townes’ story illustrates a phenomenon that an increasingly influential segment of urban economists have worked to prove for more than a decade — that for-profit enterprise is an efficient tool for generating wealth in urban cores. As economist Michael Porter wrote in “The Competitive Advantage of the Inner City,” an influential 1995 Harvard Business Review article: “A sustainable economic base can be created in the inner city, but only as it has been created elsewhere: through private, for-profit initiatives and investment based on economic self-interest and genuine advantage.”
In the decade that followed the appearance of Porter’s article, his words were credited with influencing the design of important public policy (including President Bill Clinton’s 2000 New Markets and Community Renewal legislation, which created tax incentives for businesses operating in distressed neighborhoods and expanded empowerment zones, creating more incentives for businesses in urban cores). Still today, Porter’s non-profit think tank, the Initiative for a Competitive Inner City (ICIC), compiles data on urban-based companies and promotes public policy to encourage more private investment in these areas. But even with its emphasis on economic return, ICIC believes a multiple bottom-line approach is essential to growing urban businesses, especially in today’s post-recession America. “I would hope that some day it would be possible to approach supporting inner-city businesses with a purely profit-based mindset,” said Mary Kay Leonard, ICIC president and CEO, in a recent interview.
Indeed, in many respects, simply setting up a business is a risky proposition. Fewer than half of all businesses established in 2010 remained in business a year later, according to the U.S. Census Bureau. And in the majority-black neighborhoods that comprise much of urban America, the challenges are particular and steep, thanks in large part to scars left by redlining. A 2010 report published by the Minority Business Development Agency concluded that black-owned companies have an average revenue level that’s one-sixth than that of the average of white-owned companies. Also noted in the MBDA report: Minority business owners make just 3.7 percent of all pitches to potential angel investors.
Yet despite the hurdles, entrepreneurship is an attractive avenue to earning money in distressed urban environments where there simply aren’t many other clear avenues toward employment. And for many of these entrepreneurs, rewards are plentiful. In 2011, a study done by Porter’s group found that when compared to non-urban areas, cities boast a higher proportion of businesses that earn more than $100,000.
“If you look at the concept of risk, risk is something that people often misunderstand,” said Magnus Greaves, who runs the 100 Urban Entrepreneurs program, a nationwide initiative aimed at early-stage business owners in American cities. “If you are from a tough community and had a tough go of it, starting a company isn’t a scary proposition. If you have all this mentorship and guidance, you aren’t going to have as much risk.”
Whether considering all this from the vantage of Halsey Street or Wall Street, it’s obvious that urban entrepreneurs are critical to building stronger economies. The more support they receive, the less risky investments in their communities will seem. But right now, the big question is: Can betting on this class of people who are taking on economic risk be the way to deliver positive social impact to traditionally disadvantaged urban communities? Furthermore, how intertwined are the goals of making a profit and promoting social change in these neighborhoods? Must those goals be treated differently?