Market-Based Community Economic Development Presented to Knowledgeplex by Robert Weissbourd and Riccardo Bodini, RW Ventures, LLC March 30th, 2005
Origins: From Equity to Equity Civil Rights Empowerment Economic Development: Assets Economic Development: Markets Putting the Economics in Economic Development
Why Markets? To address poverty, create wealth Wealth is created by investing in assets The economic mechanism for investing in assets is the market To create wealth in low income communities, expand market activities to the assets of those communities
Market Failure in Lower Income Communities Connectedness Employment networks Entrepreneurial opportunities Business, real estate investment Expanded products and services Competitive, healthy communities Poverty Productivity Undervalued, underutilized assets Isolation Distressed neighborhoods have undervalued assets, reflecting lack k of specialized market intelligence and poor economic networks Investment is function of profitability, risk and transaction costs Seeing, measuring, access Valuing Market Activity and Opportunity
Overall Framework: Enhancing Markets to Include LICs Community Economic Development Goals Goal: Align Market and CED Interests Set Success Metrics; Evaluate Progress Is There A Market Solution? Choose and Implement CED Strategy Key Levers for Affecting Market Behavior Strategy: Analyze Market Target Market Component Identify Change Levers Products and Activities: Choose operating activities to move levers
Goals: Aligning Markets and Development High Alignment Low Alignment Non-Market No market solution; market is not the appropriate channel Market Intervention Market solution possible if market operations and environment changed through public policy and advocacy Market Redefining Market solution possible if market operations and market environment changed through private activities Market Refining Market solution possible with new information, products or networks Pure Market Market solution possible; market already generates CED outcomes Market Interests CED Goals Adapted from Kahane, Weissbourd and Weiser
Goals: Aligning Markets and Development This step helps determine whether a market based development strategy makes sense, and begins analysis of what level of market activity to focus on High Alignment Low Alignment Non-Market No market solution; market is not the appropriate channel Vital Work but not CII! Market Intervention Market solution possible if market operations and environment changed through public policy and advocacy Change Market Parameters (Using Non- market Mechanisms) Market Redefining Market solution possible if market operations and market environment changed through private activities Change Market Parameters (Using Market Mechanisms) Market Refining Market solution possible with new information, products or networks Make Market Work (Addressing Internal Imperfections) Pure Market Market solution possible; market already generates CED outcomes Market Works: Company profits while providing CED impact. Market Interests CED Goals Adapted from Kahane, Weissbourd and Weiser
Strategies: Identifying Key Levels and Levers of Market Activity Level: Market Environment Institutional Context: Enabling Laws Prescriptive Regulation Entry Barriers Exchange Other Exogenous Influences: Infrastructure Factors/Resources Technology Tastes Production Consumption
Strategies: Identifying Key Levels and Levers of Market Activity Level: Market Operations Exchange Production Functions Levers: Productivity Costs Exchange Functions Levers: Transaction Costs: Finding costs Measurement costs Consumption Functions Levers: Taste Income
Information Resources are the Modern Currency of Wealth Creation % Change Gross Domestic Product % Growth over last 50 years 600% 500% 400% 300% 200% 100% 0% $s lbs Greenspan: Fundamental change in the economy towards intangible assets Information Determines: Who gets seen and served -- specialized market knowledge & customer access Who gets employed -- employment networks What goods and services are produced product and process knowledge and controls, flexible customization, financial risk and transaction cost Value Creation -- Fed Ex (tracking system); Sabre (reservations system)
What do we mean by Enhancing Markets? Changing the conditions of production, exchange or consumption in ways that allow the expansion of market activity to new people or places, or to provide new products.
Observations 1.0 Markets are inherently scaling mechanisms: that s the Power of Markets Markets move on their margins Markets can expand with respect to either people or products Use policies and subsidies to leverage the market, not supplant it
A Framework for Moving Markets Goals Strategies Activities Mainstream Markets Identify CED goals and relevant markets Finance Retail Employment Target specific market levels and levers Prod./Exchange Costs Market Intelligence Training, Transaction Costs Specialized products, policy Payroll Cards Specialized IC Models Coordinated Programs, Networks More Efficient, Productive, Inclusive Systems Neighborhood Assets Adapted from Living Cities/Brookings
Change Levers to Enhance Markets Levers Activities Examples Production Functions Productivity Costs Exchange Functions Risk assessment / measurement costs Transaction costs Acquisition Consumption Functions Income Taste New Products New Processes New Information New Information Improved Networks Market Intermediaries Education Debit Cards CAD-CAM CAM Credit Scoring Micro-Segmentation ATMs Demand Aggregation Financial Literacy Training Green Marketing
Example: Retail Goal: Commercial Development Market Operation: Exchange function Strategy: Reduce retailers finding costs Activity: Develop better data and models to reveal demand and improve market access in IC neighborhoods Example: MetroEdge
Standard Indicator of Buying Power Boston MSA, Median Income Darker blue shades represent areas with higher median income. Conventional methods of market analysis tend to underestimate the potential of the inner-city. A good example is the common focus on median income as an indicator of buying power. Source: MetroEdge
New Indicator Shows Potential Boston MSA, Concentrated Buying Power Darker shades represent areas with higher concentrated spending power ($ per mile). Despite a lower median income, the inner city has significant buying power. Source: MetroEdge
Income is NOT a Good Indicator of Spending Power 300% Spending as a Percent of Income 252% 200% 100% 140% 109% 87% 83% 66% 0% <$10K $10-20K $20-30K $40-50K $50-70K $70K+ Income Bracket 1995 Consumer Expenditure Survey Source: MetroEdge
Central Cities are Diverse as well as Dense 20.00% 16.00% 12.00% South Shore median income = $25,100 CHICAGO SOUTH SHORE 8.00% 4.00% < $5000 $10,000 to $12,499 $15,000 to $17,499 $20,000 to $22,499 $25,000 to $27,499 $30,000 to $32,499 $35,000 to $37,499 $40,000 to $42,499 $45,000 to $47,499 $50,000 to $54,999 $60,000 to $74,999 $100,000 to $124,999 > $150,000 0.00% Household Income Category 1990 census data South Shore has a lower proportion of the very wealthy and a higher proportion of the very poor, but its solid middle class looks much like anywhere else in the city. Source: MetroEdge % Households in Category
Enhancing Model for National Retailer Building Activity Permits Renovation Lending Inner City Trade Area, 1995-97 190 50% 180 Permits per 1000 Housing Units 170 160 150 140 130 120 110 40% 30% 20% 10% 21% 29% 41% 100 1993 1994 1995 1996 1997 1998 0% Housing Units Loan Volume ($) Loans (#) The rate of building permit activity in the trade area has been higher than in the city over the last 6 years, and has seen a general upward trend. Looking at renovation activity can also be important for understanding the purchasing power related to home improvement, furnishings and other household items. Source: City of Chicago, Shorebank Analysis Source: MetroEdge
Validating a New Approach New Data Predicts Sales Performance For Grocery Store Model Avg Credit Balance Median Housing Value Percent Using Credit Products Concentrated Buying Power Population Density Per Capita Exp on Dry Cleaning Private Co Data Median household Income Percent Home Ownership Percent African American NOT STATISTICALLY SIGNIFICANT NOT STATISTICALLY SIGNIFICANT NOT STATISTICALLY SIGNIFICANT 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 Standardized Coefficients (Beta from LTS Multiple Regression on Sales Per Sq. Ft.) New indicators were more significant than traditional ones in this location model created to predict sales for a grocery chain. Source: MetroEdge
Example: Financial Services Goals: Enable IC residents to build ownership assets (by expanding financial and insurance services) Market Operation: Exchange function Strategy: Reduce producer s measurement costs Activity: Reduce incompleteness and bias (esp. of credit scores) by including additional information & improving models Example: Pay Rent, Build Credit; Pattern Recognition
Discussion This is Work in Progress: it needs testing, application, discussion -- your input! Is this framework useful to your work? What markets seem most important to your development goals? What market barriers, levers and activities affect your work? What neighborhood factors, or factors otherwise in your control, seem most significant to market functioning? What else would you need to know in order to apply this approach in your neighborhood? Please contact us: RW Ventures, LLC 1843 N Dayton Street Chicago, IL 60614 Phone: 312-664-4613 www.rw-ventures.com bob@weissbourd.com riccardo@rw-ventures.com
Market-Based Community Economic Development Presented to Knowledgeplex by Robert Weissbourd and Riccardo Bodini, RW Ventures, LLC March 30th, 2005