The Rise of the Urban Entrepreneur

Furthermore, research reveals a substantial capacity for entrepreneurship in inner cities. However, most legitimate inner-city entrepreneurship is now invested in the provision of social services, for which there is strong local demand. Boston's inner city, for example, hosts a remarkable number of social-services providers as well as social, fraternal, and religious organizations. Behind the creation of those organizations is a cadre of minority entrepreneurs who have responded to the local demand for social services and to funding opportunities provided by government, foundations, and private-sector sponsors. The challenge is to redirect some of that entrepreneurial talent toward the building of for-profit businesses and wealth creation.

Another potential human-resource advantage of the inner city is the growing pool of highly trained and experienced minority managers available today. About 4,000 African American and almost 2,000 Hispanic students graduated from M.B.A. programs last year, compared with just a handful two decades ago. More and more minority M.B.A.s are gaining work experience in highly regarded companies. To date, few of those talented people have started or acquired businesses at all, much less businesses in the inner city. But many of them have developed the skills, network, capital base, and confidence that will allow them to join or found entrepreneurial companies. In addition, many young people still attending or just leaving business school are attracted to entrepreneurship and to community involvement. They are eager to apply their talent and training to economic development. A new pool of founders and managers of inner-city businesses, then, is poised for action.

The businesses that are present and that remain in inner cities invariably draw on one or more of the four competitive advantages described above. That suggests that substantial numbers of new inner-city jobs could be created if public policies were to shift from providing subsidies to businesses and welfare to residents to developing and reinforcing the economic advantages of the inner city.

Overcoming Inner-City Disadvantages
The economic potential of the inner city will be realized when companies leverage the competitive advantages and when the disadvantages are confronted directly. Most of the disadvantages of locating businesses in the inner city can be eliminated, moderated, or overcome.

Land. A large percentage of companies moving out of the inner city would stay but can't for lack of space. Inner cities lack adequate parcels of land for construction and expansion. For instance, Rebuild L.A. estimates that only 9 of 200 vacant or underutilized lots in South Central Los Angeles are larger than one acre. Wal-Mart requires four to six acres to build a new store. Even when land is available in the inner city, it's often broken into small, unusable lots. The development of Jeffery Plaza, a shopping center on Chicago's South Side, required eight years and substantial government involvement to assemble 21 contiguous parcels. Even after they're assembled, inner-city sites often require expensive demolition and environmental cleanup. Private developers and banks tend to avoid sites with even a hint of environmental problems, because of punitive liability laws.

Building costs. The price of building in the inner city is significantly higher than the price of building in the suburbs because of complex logistics, restrictive zoning and architectural codes, permits, inspections, community group negotiation, and government-required union contracts and minority set-asides. Equally if not more damaging to inner-city development is the uncertainty that regulations create for potential investors. Developers in Boston, Los Angeles, and Chicago all expressed frustration at the three-to-five-year regulatory process required to obtain the necessary approvals to expand, build, or improve their facilities. Cities need to dismantle regulatory and bureaucratic mazes if they hope to compete with suburban locations.

Other nonwage costs. Many inner cities have high costs for utilities, workers' compensation, health care, property insurance, unemployment and liability insurance, real estate and other taxes, Occupational Safety and Health Act compliance, neighborhood hiring requirements, and "linkage" payments. One manufacturing company in Boston's inner city operates a comparable plant in upstate New York. The Boston plant's expenses are 50% higher for family medical insurance, 55% higher for workers' compensation, 67% higher for electricity, 166% higher for unemployment insurance, and 340% higher for water.

Because they have a greater proportion of residents dependent on welfare, Medicaid, and other social programs than the suburbs do, many inner cities must spend more and thus charge higher taxes. But the costs cities incur are often exacerbated by the same factors that drive up building costs: entrenched unions and inefficient bureaucracies.

Security. Crime is a real deterrent to doing business in the inner city, but the perception of crime is greater than the reality. Crime against property raises costs. For example, the Shops at Church Square, an inner-city strip shopping center in Cleveland, spends $2 per square foot more than a comparable suburban center because it has a full-time security guard, more lighting, and continuous cleaning. Its overall costs are thus raised by more than 20%. Crime against employees and customers discourages people from working in and visiting inner-city establishments and restricts their hours of operation.

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