Market-Based Community Economic Development Presented to J. McDonald Williams Institute By Robert Weissbourd and Riccardo Bodini RW Ventures, LLC October 23 rd, 2006

CONTENTS Applying the Framework: Retail Development Market-Based Community Economic Development Applying the Framework: Urban Financial Markets Discussion

Origins: From “Equity” to … “Equity” Putting the Economics in Economic Development Civil Rights Empowerment Economic Development: Assets Economic Development: Markets

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 Employment networks Entrepreneurial opportunities Business, real estate investment Expanded products and services Competitive, healthy communities Distressed neighborhoods have undervalued assets, reflecting lack of specialized market intelligence and poor economic networksDistressed neighborhoods have undervalued assets, reflecting lack of specialized market intelligence and poor economic networks Investment is function of profitability, risk and transaction costsInvestment is function of profitability, risk and transaction costs “Seeing,” measuring, access  Valuing  Market Activity and Opportunity“Seeing,” measuring, access  Valuing  Market Activity and Opportunity Undervalued, underutilized assetsUndervalued, underutilized assetsPovertyProductivity ConnectednessIsolation

Overall Framework: Enhancing Markets to Include LICs Goal: Align Market and CED Interests Strategy: Analyze Market Analyze Market Target Market Component Target Market Component Identify Change Levers Identify Change Levers Products and Activities: Choose operating activities to move levers Set Success Metrics; Evaluate Progress Community Economic Development Goals Is There A Market Solution? Key Levers for Affecting Market Behavior Choose and Implement CED Strategy

Goals: Aligning Markets and Development Low Alignment High Alignment 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 Non-Market No market solution; market is not the appropriate channel Market Interests CED Goals Adapted from Kahane, Weissbourd and Weiser

Goals: Aligning Markets and Development Low Alignment High Alignment 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 Non-Market No market solution; market is not the appropriate channel Market Interests CED Goals Adapted from Kahane, Weissbourd and Weiser This step helps determine whether a market based development strategy makes sense, and begins analysis of what level of market activity to focus on… Make Market Work (Addressing Internal Imperfections) Change Market Parameters (Using Market Mechanisms) Change Market Parameters (Using Non- market Mechanisms) Vital Work – but not CII! Market Works: Company profits while providing CED impact.

Other Exogenous Influences: InfrastructureFactors/ResourcesTechnologyTastes Institutional Context: Enabling Laws Prescriptive Regulation Entry Barriers Strategies: Identifying Key Levels and Levers of Market Activity Exchange ProductionConsumption Level: Market Environment

Production Functions Levers:ProductivityCosts Exchange Levers: Transaction Costs: Finding costs Measurement costs Exchange Functions Levers:TasteIncome Consumption Functions Strategies: Identifying Key Levels and Levers of Market Activity Level: Market Operations

Information Resources are the Modern Currency of Wealth Creation Who gets seen and served -- specialized market knowledge & customer accessWho gets seen and served -- specialized market knowledge & customer access Who gets employed -- employment networksWho gets employed -- employment networks What goods and services are produced – product and process knowledge and controls, flexible customization, financial risk and transaction costWhat 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)Value Creation -- Fed Ex (tracking system); Sabre (reservations system) Information Determines: % Change Gross Domestic Product % Growth over last 50 years Greenspan: Fundamental change in the economy towards intangible assets

Finance Retail Employment Specialized products, policy More Efficient, Productive, Inclusive Systems Target specific market levels and levers Identify CED goals and relevant markets MainstreamMarkets Prod./Exchange Costs Market Intelligence Training, Transaction Costs Payroll Cards Specialized IC Models Skills Certification, Coordinated Networks A Framework for Enhancing Markets Neighborhood Assets Goals StrategiesActivities Adapted from Living Cities/Brookings

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

Bexar County, Median Income Darker blue shades represent areas with higher median income.

Bexar County, Concentrated Buying Power Darker blue shades represent areas with higher concentrated spending power ($ per sq. mile).

Spending as a Percent of Income 1995 Consumer Expenditure Survey Income Bracket Income is NOT a Good Indicator of Spending Power Source: MetroEdge

1990 census data 0.00% 4.00% 8.00% 12.00% 16.00% 20.00% < $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 Household Income Category % Households in Category CHICAGO SOUTH SHORE South Shore median income = $25,100 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. Central Cities are Diverse as well as Dense Source: MetroEdge

Retail Float for Bexar County

New indicators were more significant than traditional ones in this location model created to predict sales for a grocery chain. Validating a New Approach NOT STATISTICALLY SIGNIFICANT Standardized Coefficients (Beta from LTS Multiple Regression on Sales Per Sq. Ft.) New Data Predicts Sales Performance For Grocery Store Model Source: MetroEdge

Example: Financial Services Goals –Enable IC residents to build ownership assets (by expanding financial and insurance services) Market Operation –Production and Exchange functions Strategy –Reduce producer’s underwriting costs; improve risk assesment Activity –Reduce incompleteness and bias (esp. of credit scores) by including additional information & improving models Example –UIPI, CFSI

Market Snapshot As many as 39 million people, including 11 million unregistered immigrants, are unbanked. Approximately 44.7 million people are underbanked % of all households. The combined un- and underbanked populations may be 40 million households and $1.1 trillion in income. The average underserved household receives $27,500 in income. Assuming the average household spends 1% of income on basic financial services, the overall market is $11 billion. Source: BearingPoint and Visa study (not including last bullet)

35-50 million Americans have thin or no credit files. Many of these consumers are demonstrating responsible financial behavior but aren’t getting credit for it. –Rent –Utility bills Credit bureaus and lenders are beginning to experiment with alternative data and scoring methods. –Experian –PRBC –CircleLending Process Improvements: Alternative Credit Reporting/Scoring – Remittances – Payday loans

When viewed with a “lifetime value” lens, the needs of financial institutions and underbanked customers can be aligned The Credit Path Alternatives Federal Credit Union Financial institution viewCustomer view Investment products High margin lending Fee income Cheap deposits Consumer credit Savings Closing the Gap: Creating Alignment

Market-Based Community Economic Development Presented to J. McDonald Williams Institute By Robert Weissbourd and Riccardo Bodini RW Ventures, LLC October 23 rd, 2006