Striking It Rich in the Inner City

November 14, 1994|By NEAL R. PEIRCE

Boston -- It's tough to recall the last time an economist as sought-after as Michael E. Porter took up the cause of America's inner cities.

But it's happening this year. Porter is the 47-year-old Harvard Business School author of ''The Competitive Advantage of Nations'' and the widely hailed ''cluster'' theory of global economic growth. Multinationals and governments look to him for counsel. Wall Street respects him for his grasp of markets.

So when a Michael Porter decides to look homeward, to Boston and other U.S. inner cities, and then pronounces them ripe territory for entrepreneurial expansion, he gets attention.

Last spring Mr. Porter persuaded 25 Harvard Business School students to undertake field-study projects providing hard-headed business research and counsel on how to expand small firms operating in Boston's ghettos and barrios.

This fall, the MBA student battalions are again fanning out across inner-city Boston. The idea has spread to Columbia University's Business School, and is planned to begin shortly at MIT's Sloan School. Replicas of the effort are likely in Chicago, Oakland and Washington. To push and formalize the effort, a Porter associate, Whitney Tilson, has opened a new nationally focused organization -- Initiative for a Competitive City -- headquartered in Brooklyn.

They next want to recruit an ethnically diverse group of top graduates and alumni of top business schools -- maybe 50 in all, across the country -- to commit themselves to two-year, full-time stints working directly with inner-city businesses. One of the advisers' roles will be to forge direct links between the entrepreneurs and the business schools' broad networks of key business contacts, training and access to capital.

Why would anyone believe capitalism is poised to thrive in afflicted inner cities? Mr. Porter's reasoning starts with the old real-estate saw -- location, location and location. Inner cities sit near downtowns and high-rent areas, astride transportation routes, on communications nodes. They're in the midst of heavy business and hospital service activity, tourist and entertainment centers.

And examples of sterling success, even in tough neighborhoods, abound. The fresh produce market a stone's throw from Boston's Faneuil Hall, for example, has created a dense, highly successful concentration of processors, caterers, truckers, wholesalers and other suppliers, close to highways and Logan Airport, within walking distance of workers in inner-city neighborhoods.

Brooklyn's MetroTech center, located a single subway stop from Wall Street and capitalizing on superb telecommunications infrastructure, has created a thriving back-office center for New York's financial-service firms.

Next come the inner cities' internal markets. Residents' average incomes may be low, but population is concentrated and has big cumulative purchasing power -- money too often lost to the area when residents shop elsewhere. Smart local retailers can snare the home dollars first.

A next advantage: from distinctive food tastes to skin and beauty-care products to ethnically related entertainment, there are big market niches among African-Americans, Hispanics and Asians just waiting for smart minority entrepreneurs to exploit. Fresh examples: CareFlorida (a Miami-based, Latino-owned HMO), Detroit's Universal Casket ($3 million yearly sales, focusing on black-owned funeral homes), and the 23-store, San Antonio-based Handy Andy Supermarket chain, serving the Latino market.

The surface has barely been scratched, according to Mr. Porter, in minority-oriented retailing start-ups in such fields as food, clothing, toys, pharmacies and restaurants. What inner cities need most, he argues, aren't just mom-and-pop operations but ''professionally managed major businesses employing the latest in technology, marketing and management techniques.''

All that demands high business skills -- but are they available to the inner city? The answer from Mr. Porter and his friend, president Ron Homer of the black-owned Commerce Bank of Boston, is an emphatic ''yes.'' Starting in the '60s, they note, many talented young African-Americans went to work for prestige firms -- the Citibanks, Fords, Hewlett-Packards, IBMs of America. Those who stayed in the inner city tended to spurn business and instead get into social services or specialized studies (''living off the pathology of the community,'' in Mr. Homer's words).

But now there's a pool of over 4,000 minority MBAs, often trained at America's top business schools, veterans of service with major corporations. Many have the skills, confidence and connections to start entrepreneurial companies. On top of that, says Mr. Porter, the last decade has brought a change of attitude among minority business-school students -- away from a quick kill on Wall Street, toward returning economic activity to neighborhoods with which they feel ethnic solidarity.

The way to make all this work, argues Mr. Porter, isn't the old formula of soft government loans, subsidies and support for uncompetitive firms -- an almost sure path to business failure. To encourage banks to make and maintain good loans to minority entrepreneurs, for example, he'd have government offer a one-time payment simply to cover their high transaction costs on a small minority-business loan -- but not insure the bank against bad judgment on the loan itself.

That's fresh language for the inner cities. Mr. Porter's mission is to prove it can work.

Neal R. Peirce writes a column on state and urban affairs.

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