America’s Forgotten Economic Challenge

As the economy recovers, too many distressed areas will once again get left behind

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Tim Boyle / Bloomberg via Getty Images

Job seekers stand in a line at the 12th Annual Diversity Employment Day Career Fair in Chicago, Illinois, on Wednesday, March 21, 2012

The U.S. economy, many believe, is turning a corner. Maybe so, but for much of the country, what lies around the corner is a dead end. In far too many places, high levels of unemployment still exist, and joblessness has been the norm for years. Unless we try something different, these places will once again be left behind as more prosperous areas recover.

In over 200 metropolitan and micropolitan areas, the jobs crisis dominates everyday life, but these communities were experiencing high levels of unemployment long before the Great Recession. They are “distressed areas,” which we define as areas where the unemployment rate has been at least two percentage points higher than the national average for at least five years — in some places, for over 20 years.

In distressed areas, such as, Yakima, Wash., Rockford, Ill., and Danville, Va., government aid provides nearly one-third of residents’ incomes, compared to 17% nationwide. Upwards of 40% of the population in these areas lives on $30,000 a year or less, and the workforces there have low educational-achievement rates, with more than half possessing just a high-school degree or less. Most jobs are in low-end service industries, especially prisons, casinos, nursing homes, and retail. Such jobs offer few chances for upward mobility or skill enhancement.

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One approach that might bring about job growth is to expand access to startup capital for small businesses. Distressed areas lack the capacity to support new businesses, and existing businesses are unlikely to expand into distressed areas. While local financing might exist, the costs of borrowing, paperwork, and administration associated with loan-making at these institutions are often a serious obstacle for small enterprises. We need an alternative — a simplified and standardized loan process.

Here is where a new partnership between public and private interests could make a real difference. We could develop regional national investment banks. These banks would make funds available to local financial institutions that could then make loans for new ventures with the full understanding that they are risky. The reward would be providing new jobs for enterprising individuals and the workforces they hire — think of them as “revitalization loans.” This is similar to the rationale behind the government’s backing of standardized 30-year mortgages to make them profitable; the difference is that instead of encouraging homeownership, we would be encouraging job creation and economic growth.

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What kind of local enterprises might be started? The businesses could range from niche industries (coffee shops, small specialized stores, landscaping) to small manufacturing units (green industries or specialized metal-making companies). The revitalization loans would capitalize on individuals who are unemployed but have untapped capabilities, as well as knowledge of what their communities need and will support. The loans would be provided with the understanding that they can be paid back slowly and with relatively low interest rates, thereby ensuring that the new companies have the financial flexibility they need to develop and promote their businesses.

Some small businesses will default on their loans. However, the potential rewards — successful new enterprises, higher levels of employment — far outweigh the added risk. Losses would be small compared to the cost of doing nothing. The cost is also small compared to the current loan guarantees provided for renewable energy projects. Because the source of funding is national, not local, risk is spread rather than concentrated in one bank.

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Small enterprises require more flexibility to adjust to changing market conditions than typical banking arrangements allow. Regional investment banks could extend or revise repayment plans and could provide more credit guarantees to local banks — that way, if a business needs more funds so that it can continue to operate, the local bank can provide those funds. Some of the new businesses will likely be innovative; others may teach their workers new skills that they would not acquire otherwise. But access to credit for small enterprises would represent a critical movement forward and institutional change to support distressed areas where new businesses might thrive. It is a model that all Americans and their elected representatives should be able to get behind.

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Louis A. Ferleger is a Professor of History at Boston University and Jacob M. Magid is an economics master’s degree candidate.

1 comments
Whatanotion
Whatanotion like.author.displayName 1 Like

Geesh is it just me or does it seem that the Military industrial complex that gave us GE and Chrysler and Ford and Northrop-Grumman etc, in the scales that it did just doesn't understand itself?   That includes you (Ayn Randish) sons and daughters of Generals out there.   Capitalism is a theory.  It is a kind of socialism;  but don't say that near a Republican or your likely to get 2nd amendmented right into your grave.  

The ethics of the medical care industry is right up there with shock absorber salesman.  Waiting tables is great and should be in everyone's resume'.  So should policeman and Nurse and Teacher  be on everyone's resume'.   Adam Smith's corollary  warning to the hat pin efficiency model for highly efficient capitalism has been completely ignored.    Basically I believe it means that:  ANY repetitive job that can become routine will eventually make you stupid  regarding the cares of others.   This goes for:   Doctors and Attorneys and Judges and Cops and Nurses and Engineers.  

It's Game Over for the USA as a market for capitalism.  The pickings are too thin for it to remain the target of everyone.  WE have reached the mirror inverse identical end of Karl Marx's empty reward for the dismantling of capitalism.  We have taken capitalism to the point where no one can afford it or even want to participate in it.    Hence globalization of and for more markets.

When was the last time you bumped into a public official serving lunch at a school?  A cop?  A doctor?    I submit; that has to happen regularly for about ten years before children again have reason to respect the educated elders otherwise they are simply elitists who aren't worth a handshake,  see Adam Smith corollary above.