AS I SEE IT

Community has own resources for beneficial development

Tom McClanahan’s commentary (10/4, “Inner city shouldn’t be picky about investors”) misses an important point: In real economic development, profit and ownership matter. And in the case of the New Tools District, community profit and community ownership matter.

Instead of asking the city for money, the New Tools initiative will finance its business development through a Community Development Credit Union owned by local residents. This will enable all New Tools District residents to have ownership of the development process, becoming part of an entrepreneurial culture and its profit.

McClanahan uses the word “capital” to mean “money,” writing that “palpable suspicion of outside capital” is one of the “traps that has bedeviled not only poor communities, but poor countries” and has “damaged their community’s ability to attract fresh capital.”

But money is capital to you only if it generates profit for you. No one is suspicious of money. But everyone should perform “due diligence” with money that produces profit for someone else and is therefore capital for that person but only decreases one’s own wealth.

To demystify “capital,” New Tools inventories financial capital as well as human, social, cultural, natural, built and political capital. All are forms of capital already owned by New Tools residents, which can be used by them to produce profit for them.

This asset inventory is long, debunking the conventional wisdom that poor communities have no assets and therefore must rely on outsiders to save them.

Further, consider McClanahan’s example of a Starbucks on Troost Avenue. And note that the example given in a recent meeting by New Tools presenters to The Star editorial board was a Starbucks on Prospect Avenue.

What difference does that make? Well, every successful retail business has three essential cash outflows: wages, cost of goods, and profit. There is one essential inflow: sales.

For any outside-owned retailer that pays wages to local residents but also makes its sales to local residents, the inflow to residents in wages must be less than the outflow from residents in sales because profit must flow out to owners. That’s the Prospect Avenue example. A Starbucks on Troost Avenue can have a different economics. Why?

Because a Starbucks on Troost (an unsurprising dividing line between most of the New Tools District and the rest of the city) has the potential to make most of its sales to customers from west of Troost while employing New Tools residents from east of Troost, creating a net positive cash inflow to New Tools residents.

The New Tools process involves the community doing the “due diligence” necessary to ensure that businesses generate profit for the community rather than accepting just any business.

Finally, and sadly, McClanahan “race-baits,” raising the black versus white boogieman. The New Tools District is the most racially, ethnically and culturally diverse area of the city, and there are already New Tools projects led by blacks, whites, Hispanics, men and women. The basic criterion for any project is community profitability.

For a conservative writer like McClanahan to applaud entrepreneurship and self-reliance but to misunderstand that profit and ownership matter is curious. He should be applauding the fact that New Tools doesn’t ask the City Council to appropriate one dollar to New Tools!

Perhaps McClanahan thinks inner-city residents are incapable of entrepreneurship and therefore “shouldn’t be picky.” We say “enough is enough” for community economic development that ignores community and economics.

Linwood Tauheed is an assistant professor of economics at the University of Missouri Kansas City. He lives in Kansas City.

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