The Dallas Morning News
In this dialogue, a scholar from Dallas and an economic consultant from Chicago share their insights about a powerful new approach to the problems of neglected inner-city neighborhoods.
Robert Weissbourd: Traditionally, we've had a culture in this country where doing good and making money were separate things. Legally, they had to be kept separate. Corporations couldn't engage in charitable activities, and people who wanted to do good weren't supposed to make any money doing it. That culture is finally shifting a little, and now we talk about trying to align business and development interests. What works best for everybody is if people can make money while accomplishing what were once framed as purely social objectives.
Marcus Martin: You're widely regarded as one of this country's experts on what's referred to as "market-driven economic development." But market mechanisms aren't perfect. The fact that anyone who buys stocks can make money by investing in companies that are undervalued shows that the market is not always efficient and does not always correct itself. In fact, some would argue that disinvestment in urban communities is a classic example of market failure. So what are we talking about here?
Weissbourd: Fundamentally, it's just this: If we want to develop assets and create wealth for people, for all kinds of people, and for companies that invest in communities, we need to pay attention to the mechanisms by which the assets get converted to wealth. In this country, in this economy, those are markets.
Martin: You used the word community. I work for the Foundation for Community Empowerment and its research arm, the J. McDonald Williams Institute, and all our work is based on the idea that meaningful change must be place-based. The place we focus on is South Dallas. And although it's tempting – given the needs of other low-income communities across the city – to try to work in several places at once, we think we would actually be less effective that way. How does that apply to your work as a consultant to cities across the country?
Weissbourd: In business, everything is a niche market. Value comes out of deep knowledge of particular people and places – which is exactly what's generally lacking in inner-city communities. That led me and lots of others to start focusing on developing specialized knowledge and tools for inner cities – just as you do at the Williams Institute.
Martin: But if you look at the population density and the expenditures – the amount of money people report actually spending – some of those ZIP codes move up into the top 25 percent in terms of potential market opportunity. I think you've got a name for that kind of place-based analysis: "clinical economics.
Weissbourd: I didn't actually invent the phrase; I just liked it a lot. The guy who coined it, Jeffrey Sachs, was making the point that in medicine, for instance, the people with the expertise go treat patients, they go learn on the ground. But, for whatever reason, in the field of economics there's a huge gap between the knowledge and the practice. So we have these theoretical economics based on complex models that you literally cannot apply to a neighborhood.
Martin: Well, we're still talking at a fairly theoretical level here. What kind of results have you actually seen in the communities where you've applied a market-based approach?
Weissbourd: The classic example in the finance area is ShoreBank's lending to real estate entrepreneurs and rehabbers. ShoreBank is a Chicago bank holding company that began by doing housing and venture capital and community development as well as conventional banking in targeted areas on the south side of Chicago. I spent nearly a decade working there, and we had a special product designed for local people living in low-income neighborhoods who wanted to buy and fix up small buildings.
It let them get much higher loan-to-value on the buildings, it was a different structure for underwriting. It has created an industry – I mean dozens of millionaires in the neighborhoods – while totally rehabbing a huge percentage of the housing. For ShoreBank, it had the lowest loss rates of any of the bank's portfolios. It became so profitable that all the banks are now chasing after it, competing for these borrowers.
Martin: Traditionally, we've looked to government to solve the problems of distressed, inner-city neighborhoods. That has created something of a backlash in a lot of places, based partly on the perception that those approaches haven't worked. Clearly, what you've described is a different model. But does that mean there's no role for government, or that government bears no responsibility?
Weissbourd: The fact is, there are no free markets. There are no markets, period, without the government-created infrastructure. You need commercial law, you need the infrastructure from which markets run, from the Internet to the highway. So the government is always inherently shaping markets, and it can shape them in ways that work for some people and not others. It routinely does that by deciding whom to give subsidies to or where the tax breaks go. So it's perfectly legitimate to try to use the political process in a way that enables markets to work unhindered when they can, and to addresses market gaps and imperfections and barriers when markets fail.