Primed for Profit : Inner Cities May Have Inherent Advantages for Growth

The title of Harvard Business School professor Michael Porter’s latest work, “The Competitive Advantage of the Inner City,” tells you that reality is different from conventional thinking.

Porter, author of “The Competitive Advantage of Nations” and other books on business strategy, sees decaying inner cities as America’s most pressing problem. Yet, he says, the inner cities also harbor great potential thanks to their location near downtowns and hubs of transportation; their market demand--low income but populous and typically younger than suburban communities, and human resources--not cheap labor but people eager to work at moderate wage jobs that demand less formal education.

But the emphasis must shift to wealth creation rather than social work, he says. “We must stop trying to cure the inner city’s problems by perpetually increasing social investment and hoping economic activity will follow,” Porter writes.

Rather than semi-charity programs, Porter advises major companies to place orders with inner city businesses and to encourage training for specific purposes.

Clotee McAfee agrees. “Social programs have maintained poor people but not built lives,” she says. “I believe that if the government would put money into businesses, that would be more effective than welfare checks. Most people want to do something.”

McAfee, 41, is founder and owner of Deljah Simone, a small South-Central Los Angeles apparel firm where 25 employees are busy turning out school uniforms these days. It will be a $1-million sales year for the firm.

But McAfee’s dreams are larger than the first million. She hopes soon to move her company into a larger building. Then she hopes to introduce inner city youngsters to computerized manufacturing technology and train them for careers in the garment trades.

Financing for the equipment will come from an anticipated loan from Latino Resource, a Santa Monica philanthropic organization. McAfee, a longtime dress designer, started Deljah Simone--named for her daughter--three years ago with an order for uniforms from Southern California Gas and a loan from Rebuild Los Angeles.

In addition, Southern California Edison is studying the feasibility of her idea for a garment industry incubator in which inner city designers and pattern makers could set up businesses.

McAfee exemplifies Porter’s model of businesses that help the inner city with training for specific jobs and competitive products that serve local and outside markets.

Deljah Simone’s school uniforms, which allow youngsters to have five styling changes a week for under $300 a year, are more than an economy for inner city parents. “With uniforms, the kids concentrate on schoolwork, not fighting each other,” says McAfee.

But philanthropy and corporate gestures go only so far in the tough garment business, where orders are short-term and financing scarce. A change in industry patterns is needed, says McAfee.

“If I’m to invest in computerized machines at $52,000 apiece, I need the big apparel firms and retailers to give me longer term orders or assurance of business next year and the year after,” she says. The Riordan Administration has a task force working with industry to achieve just such changes.

Then there’s the illegal competition--phantom companies employing illegal workers, such as Thai slave laborers in El Monte. “The people are illegal, there are no taxes, there is no business,” says McAfee. Yet such firms turn out garments and retailers buy them, swearing that they don’t know where merchandise comes from.

U.S. Labor Secretary Robert Reich wants more government inspectors to curb such abuses, giving legal entrepreneurs a fair chance to compete. And McAfee is confident of competing. With the ability to fill orders quickly and change styles rapidly, local manufacturers can hold their own even at wages higher than developing countries’, she says. And the added payoff is social: giving youngsters not only jobs, but careers in a trade.

So apparel, furniture and similar industries have a ripple effect, giving unskilled workers a way into society while generating shipping, advertising and financing throughout the region.

An example is Cisco Bros., a Los Angeles furniture maker employing about 100 workers. A City Hall business team recently helped Cisco move into a larger factory, found state tax credits for the company plus a mortgage loan from the Small Business Administration.

As a result of such government efforts, the region retains a vibrant business that supplies fashion furniture to showrooms across the country.

Public, private and nonprofit agencies don’t always work so well in Los Angeles, says Porter, adding, “The problem often is governance.” He charges that Los Angeles County and City agencies and private groups often contend for credit. “They need to cooperate more to help business,” he says.

Porter recognizes the disadvantages of the inner city--crime rates that frighten employers and workers alike; building costs that reflect historic zoning restrictions and union contracts and paradoxically higher costs for insurance and workers comp than more affluent suburbs.

So inner cities have problems, which haven’t been solved by good intentions or tax money. And now, with government budgets getting tighter, more turning to business for social solutions is inevitable. The result could well be a more self-confident “inner city” than most current images would have you believe.

For example, McAfee notes that inner-city residents spend “billions” each years on Nike, Reebok and other athletic equipment. “I’m going to write those companies and ask them to invest in our communities, let them put some work in here,” she says--displaying a shrewd understanding of what competitive advantage is all about.