REAL INNER CITY SOLUTION: EDUCATION CHOICE, THE

Despite years of efforts, billions of dollars, constant redevelopment projects and endless declarations of downtown revitalizations, decaying inner cities remain one of America's most pressing social and economic problems. For the past nine years, Harvard Business School professor Michael Porter has endeavored to help solve the inner city problem by making the case for businesses to set up operations in inner cities. This will not just provide opportunities to these communities, Porter has argued, but provide growth and profit potential to those businesses that exploit the inner city's competitive advantages:

* centralized business locations near hubs of major transportation;

* tremendous market demand (five times the retail spending power per square mile as in the suburbs);

* access to a vast work force (not cheap labor but people eager to work at moderate wage jobs* that require less formal education);

* less competition (since so many businesses have abandoned them);

* lower real estate costs;

* the availability of economic incentives provided by federal, state and local governments (e.g. enterprise zones, favorable tax treatment, job training programs, streamlined regulatory requirements).

Porter has always recognized inner cities' disadvantages too: the perception (and still too often the reality) of a lack of safety; building costs that reflect historic zoning restrictions and union contracts; higher insurance and workman's compensation costs. But he also always has maintained that the opportunities for profit are vast, if businesses approach the urban marketplace as a unique environment requiring a tailored strategy, and if government policies shift from favoring social spending to promoting wealth creation.

More recently Michael Porter has been promoting another, and newer, competitive advantage of inner cities: easy and affordable access to broadband telephone and Internet services. In a recent report, Porter singled out access to broadband Internet service as a key reason why some inner-city firms are thriving. Telemarketers, delivery operators and Internet service providers, among others, he writes, have found such access to be crucial to their operations.

In fact, some inner-city firms make money by supplying Internet access to nearby rural or suburban areas. One of these is Access US, a St. Louis firm that provides dial-up, DSL and wireless Internet access, as well as Web hosting services. Another is Ikano Communications, which provides Internet access across the US and Canada from central Salt Lake City, Utah.

Economic Benefits of School Choice

But what if the path to urban revitalization is not first to attract businesses, but first to attract people to populate inner cities (whom businesses will then follow) ? That would mean cities would again have to become family-friendly. How might this be accomplished?

According to Lewis Andrews, executive director of the Yankee Institute for Public Policy, the answer is educational choice. His reasoning is as follows:

The idea of giving parents control over what schools their children attend, including private and parochial institutions, is increasingly viewed as a way to improve publicly funded education, especially in US cities. But there is also growing evidence to suggest that widespread adoption of what is typically called school choice would have a dramatic economic benefit as well: the revitalization of inner cities.

How so?

In spite of a 75% increase in inflation-adjusted wages over the past 30 years, the average family with two working parents actually has less discretionary income than the traditional family with a single-wage earner had a generation ago (source: Amelia Warren Tyagi and Elizabeth Warren, The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke, 2003).

As a result, 1.6 million Americans will file for bankruptcy this year, while 9 million families are in credit counseling. Home foreclosures, credit card defaults and car foreclosures are all at record levels.

Contrary to common belief, these statistics are not the result of too many undisciplined trips to the mall, buying the latest designer clothes or electronic games for the kids, writes Andrews. Again citing Warren, he notes that apart from higher premiums for health insurance and the costs of a second car (for two working spouses), the biggest squeeze on middle-class families comes from high mortgage payments for housing in towns with desirable public schools.

Young parents, you see, buy houses with just three thoughts in mind: schools, schools and schools. The problem is that in real dollars, they are paying 70% more than their parents paid for a house. Giving all parents a taxpayer-funded school voucher they could spend at any school, public or private, Warren believes, would relieve parents from the terrible choice of leaving their kids in lousy schools or bankrupting themselves to escape those schools.

The intriguing complement of freeing parents from the need to buy high-priced real estate in suburbs with above-average public schools is the creation of powerful incentives to revitalize decaying cities and, in the process, retard urban sprawl. Andrews cites Duke University economist Thomas Nechyba to the effect that using choice to sever the link between school quality and residential location would encourage many middle-class families to purchase and renovate homes in blighted urban areas.