Jobs and Ownership Are the Answers to Urban Ills : Poverty: We’ve been so concerned with building a social safety net that we failed to build a ladder of genuine economic opportunity.
Now that the search has begun for solutions to our long-festering urban ills, it’s time for policy-makers to talk straight about what is required. We know a great deal about what does not work. But urban policy is sadly adrift when it comes to devising remedies for problems that have been decades in the making.
Among the many remedies that we now know do not work are welfare and social services, in all of their various forms and disguises. We cannot buy our way out of poverty. As George Mason University economist Walter Williams recently pointed out: “The money spent on poverty programs since the 1960s could have bought the entire assets of the Fortune 500 companies and virtually all the U.S. farmlands, and what did it do? The problems still remain and they are even worse.”
The long-term systemic decline in our inner cities can only be corrected with sustained private-sector investment that creates real jobs, develops relevant job skills and fosters broad-based local business ownership. Only in this way can urban policy create hope, strengthen the moral, social and economic fabric of these communities, promote individual responsibility and self-sufficiency and thereby break the cycle of dependency and costly government subsidies. Help is needed--but offered in a way that people can help themselves.
Unless both job and ownership opportunities are channeled into our inner cities, we run the very real risk of creating a permanent underclass among those who feel alienated from the system because they see no way of ever gaining a stake. By encouraging investments and skills development in our distressed urban areas, jobs can be created and, equally important, ownership opportunities can be offered.
The policy challenge lies in devising an incentive for private-sector corporations and lenders to make investments in these areas, to offer skills training and to include inner-city residents as business owners, employees and stockholders. That sizable challenge requires a creativity and commitment that has thus far been most noticeable by its absence.
The building blocks for such a policy prescription can be found in HUD Secretary Jack Kemp’s long-sought proposal for urban enterprise zones. Thirty-six states, including California, already have enterprise-zone programs in operation, typically focused on attracting private investment to distressed areas to create jobs for the most disadvantaged. The badly needed strength of a federal version of enterprise zones has been stymied for years, largely by tax-policy purists opposed to any tinkering with their allegedly “neutral” tax policy.
Our tax policy and our urban policy have been so concerned with building a social safety net that we failed to build a ladder of genuine economic opportunity. Urban and tax policies must be coordinated to enable our inner-city poor to gain an economic foothold, by providing them with the training, the opportunity and the incentive to begin to accumulate a personal net worth with which to gain a stake in a society from which growing numbers of them are now alienated.
The shortcoming of most solutions to date lies in their focus solely on job creation rather than also addressing the growing division in America between a class of property owners and a class of the dispossessed. According to Federal Reserve Board data, the net worth of the top 1% of U.S. households is now greater than that of the bottom 90%.
Recent history brought with it two parallel and equally disturbing phenomena guaranteed to cause problems well into the future. On the one hand, we saw the most significant rise in wealth concentration since the 1920s, with the most affluent 1% of Americans increasing their proportionate share of the nation’s net worth by more than 19% between 1983 and 1989.
On the other hand, from 1976 to 1986, the share of national income flowing to the poorest 10% of U.S. households dropped from 1.1% to 0.9%, a decrease of more than 19% in an already meager standard of living. In 1989, the economy created 18 new billionaires. Meanwhile, the number of Americans receiving food stamps has grown to a record 25.7 million, more than one in 10.
The private sector should not be the scapegoat in this spectacle. The private sector is already engaged and stands ready to do more in any way it can. But business cannot be expected to squander its stockholders’ investment by hiring the unskilled or making loans to people who cannot read or write. To involve the private sector in implementing an urban policy (a policy that must include business if it is to succeed), means must be found to address our policy shortcomings with sound business practices. Two such proposals are under consideration as part of the pending enterprise-zone strategy for repairing urban decay. The first would allow a reduction in the capital-gains tax to the extent that the net proceeds from the sale of a capital asset are reinvested in corporations in which a minimum percentage of the outstanding shares (such as 5%) becomes owned by employees who are residents of state or federal enterprise zones and those considered disadvantaged.
The other proposal would permit a similar reduction in the capital-gains tax for proceeds reinvested in nonprofit entities in which at least 70% of the net investment income is dedicated to programs designed to provide entrepreneurial skills training and capital accumulation opportunities for those residing in urban enterprise zones and those considered disadvantaged.
For example, one proposed “economic empowerment fund” would offer mentoring relationships for inner-city “at risk” youth, provide them with entrepreneurial skills training and enable them to accumulate capital in return for fulfilling agreed-to personal goals, such as graduating from high school and participating in community-service activities.
Such “economic empowerment corporations” and “economic empowerment funds” combine the dignity and the motivation of personal capital accumulation with the advantage of attracting privately provided capital to address the economic needs of the most disadvantaged. Any long-term solution to our longstanding urban ills must attract substantial and sustained private-sector investment leading to real, private-sector jobs, skills development and broad-based local business ownership.
Fiscal constraints hamper any government program to address urban ills. Means must be found to attract private investment into areas where capital does not currently flow. A cut in the capital-gains tax has been mired in political posturing for years, largely over disputes regarding the revenue impact and the beneficiaries of the tax cut. By linking a capital-gains tax cut to new investments that address pressing public needs, these ownership empowerment proposals provide a way to attract private investment into distressed urban areas while also enabling inner-city residents to accumulate capital of their own.
Empowerment, not handouts, must be the policy prescription. To be effective, that empowerment should include ownership, not just jobs. The time is short, the needs great and the fiscal resources slight. Congress and the Administration should move rapidly to embrace ownership empowerment policies while the political opportunity is still ripe.
