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8
Fostering Local Institutions
to Manage the Transition
Achieving national interests in the distribution of economic growth
requires strategies tailored to specific urban areas. Such strategies require,
in turn, institutions capable of carrying them out. Thus a major emphasis
of national policy should be to help create and strengthen such institutions.
There seems to be general agreement across the political spectrum that
strong leadership at the urban level is essential to successful economic
development programs (Committee for Economic Development, 1982;
U.S. Department of Housing and Urban Development, 1980, 19821. Re-
search on urban economic development indicates that one of the most
important elements in the success of such endeavors is the institutional-
ization of leadership, so that it has staying power as well as the political
and technical capacity to capitalize on the competitive advantages and
opportunities of its particular area. This recognizes the fact that urban
development is a long, drawn-out process, with long lead times before
physical changes can be completed. Even longer periods are needed to
bring a broad strategy of economic and community development to the
point at which financial and social returns can be seen. In an important
sense, urban development has no end (Foster and Berger, 19824. Insti-
tutions are therefore needed that transcend the arrangements required for
individual projects.
Although institutions must reflect local conditions, three elements stand
out as important for an effective urban development process. The first is
development of a strong, independent capacity for urban intelligence. The
152
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Fostering Local institutions to Manage the Transition
153
second is sustained public-private leadership and decision-making insti-
tutions that create legitimate processes for making development decisions.
Third is a strong and active independent sector. When all three exist, it
is much more likely that an urban area can use its land, facilities, capital
leverage, and human resources in a manner that advances its development.
BUILDING A CAPACITY FOR URBAN INTELLIGENCE
Given the differences among urban areas described in Chapter 2 and
the complexities of urban development in an advanced economy, each
area needs its own strong research and information capacity that is linked
to its decision-making process. A wide range of information should be
available for strategy making, including economic, social, political-gov-
ernmental, and physical-environmental data (Perloff, 19814. These data
should be collected and analyzed over time to provide the basis for an
urban intelligence system.
The objective of an information system is widespread self-knowledge
of an area by its leaders and its people. Its communities, businesses, and
interest groups need to understand the way in which their economy de-
veloped, how it functions, how it is changing, and how national and
international forces affect its fortunes. From this knowledge an under-
standing can develop of the area's assets, its comparative advantages, its
vulnerabilities, and the opportunities that are most likely to be within
reach.
Most areas have some parts of such an intelligence system, but the
components are scattered among government agencies, businesses, uni-
versities, and nonprofit groups. While the deficiency in strategic infor-
mation can be ameliorated by a special consultant or a civic task force
study, such ad hoc efforts, however thorough, are soon out of date.
Developing a solid base of economic, social, and physical information
about an urban area is a continuing task.
No major city or region now has an institution to monitor the local
economy, to report regularly on its analysis of conditions to forecast ~nr1
to provide advice to policy makers on economic development strategy.
As a result, local economic development activity is characterized by many
projects but relatively little strategic sense of where the area is headed
and whether that is the most desirable direction. To some degree this
confusion is illustrated by the major development projects under way in
the 10 largest U.S. cities during 1982 (Venture, 19821. Some of these
projects have obvious strategic importance by strengthening downtown or
, , _ , _ , _
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Rethinking Urban Policy
satellite service centers. What is impossible to assess is the net effect of
a single city's projects on the structure of the local economy.
This situation suggests the value of a system to monitor such projects
and assess their actual impact on the economy, so that the information
gathered could be used in planning future projects. In conjunction with a
development program, a few key investments in an intelligence system
in strategic locations may help reshape a city's appearance and economy
and initiate a process of growth and adjustment.
Good information is more important for sectoral and labor market plan-
ning in a time of slow growth or structural transformation than in a period
of rapid growth. The great differences among urban areas, based on their
roles in the urban system, suggest that they must become more selective
in the promotion of economic activities rather than continue traditional
boosterism, with its eagerness to accommodate any kind of development.
Most cities, even those command and control centers in which services
have a strong propensity to concentrate, now need to be concerned with
not only how many jobs are created and the number of square feet of
commercial space or the number of housing units built, but also what kind
of jobs and units are being provided, where they are located, and how
they contribute to the long-term future of the city.
Particularly where major shifts in economic functions and structure are
occurring, it can no longer be taken for granted that a city will continue
its historic role in the urban system. In an important sense, the city itself
must be redefined in terms of the functions it can perform best in a
restructured economy (Knight, 1982a).
This requires an in-depth understanding of the history and evolution of
the region and the metropolis, its businesses, labor force, capital plant,
amenities, and cultural and social institutions. Such an inventory of assets
and realistic potential provides an essential base for redefining the area's
future (Perloff, 1982~. It may reveal, for example, that change in the
structures of the old-line industries that dominated the employment patterns
of the region in the past now makes those industries an insecure base for
the future economy. Other parts of the economy, however, such as the
area's cultural, health, and educational institutions, may have substantial
capacity for growth and for attracting other economic activities. It may
also reveal that headquarters and producer services are replacing the pro-
duction of goods in the older industries, thus shifting the occupational
structure without changing the industrial mix significantly. A close ex-
amination of the local economy may identify firms that are particularly
innovative, and even more important, existing or potential linkages among
innovative sectors that can produce demands for other services or man-
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Fostering Local Institutions to Manage the Transition
155
ufactured products (Rees, 19831. Such findings would commend the use
of local resources in different ways than if the analysis concluded that the
same industries and occupations have a bright future if facilities and
production processes are simply modernized. This kind of information
may also help in making decisions about the need for a different mix of
public services, investments in facilities and amenities, and changes in
the location of activities or in the transportation and communications
systems.
Organizing the Intelligence Function
An Urban Council of Economic Advisers
The experiences of cities and metropolitian areas that have made rea-
sonable progress in developing research and information systems suggest
the ingredients of a sound urban intelligence system. At the outset, an
assurance of long-term funding that is not restricted to the interests of
particular sponsors is important in providing both independence and a
consistent effort. A permanent high-quality professional staff with enough
independence from political interference to allow it to develop a reputation
for objective, thorough, and insightful analysis and good channels of
access to government, corporate, and community decision makers can
provide a valuable resource that improves with time. It develops a re-
spected institutional memory, deepening its own and the public's cumu-
lative understanding of what is happening to the area, and becomes a
valued source of in-depth knowledge and judgment about the area, its
economy, and people. Finally, there is a need for a system of publication
and wide dissemination of findings and proposals. Groups such as the
Regional Plan Association (New York), the Metropolitan Fund (Detroit),
and the Greater Washington Research Center suggest different ways of
organizing to perform some of the functions outlined here. In a few cities
a governmental office, such as the planning agency, may be able to provide
a large part of this function. In most cities, however, a government agency
will lack the credibility necessary for the private sector to accept its
findings.
A public-private or independent, nonprofit endeavor may be a more
effective way of organizing the urban intelligence function. Greater co-
operation and sharing of information among government, business, uni-
versities, and volunteer organizations can mutually benefit each participant.
One model that could be tried is an urban modification of the Council
of Economic Advisers. Such a local council, with members appointed by
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Rethinking Urban Policy
the public, private, and independent sectors (see below), could be made
responsible for a regular report on the state of an area's economy. Such
a council could make an annual state-of-the-area report. If supplemented
by the creation of a forum for discussion of the themes of this report, the
council could, over time, have a considerable effect on public and private
economic strategy. The report could be institutionalized, for example, by
an event in which government and business leaders must respond to its
findings. Public-private task forces could be organized to pursue and carry
out its recommendations.
While no single model can fit all cities, the objective is to develop and
maintain an analytical and information group that can speak with authority
on strategic economic development issues and can become a resource on
which government and business can rely for unbiased information, thoughtful
analyses, and evaluations of public and private activities.
Such organizations need a continuous infusion of new ideas, because
what served well in the past may not work under new circumstances. This
suggests a need for some kind of national network, linking individual
urban information systems and various centers of national and international
urban research. One model that might be explored is the Cooperative
Highway Research Program of the Transportation Research Board. It is
a clearinghouse that provides a network of users with technical infor-
mation. Reports could be circulated not only to members of the network,
but also to executive and legislative leaders at each level of government
and to leaders of business and nonprofit orgnizations.
Improving the Quality of Regional and Urban Data
The federal government can assist in the development of the urban
intelligence function in several important ways without intruding directly
into the often delicate and unique local processes of establishing and
maintaining it. The federal government can improve the quality of the
information that is available to such groups, in particular, the quality of
regional and sectoral statistics. The Bureau of Economic Research, the
Census Bureau, the Bureau of Labor Statistics, the Department of Housing
and Urban Development, and the Advisory Commission on Intergovern-
mental Relations, to mention only a few agencies, collect and analyze
various kinds of information essential to public and private decisions at
the regional and local levels (Davis and Wolman, 19811. These data need
to be available for regional analysis in a consolidated and consistent format
that helps tell a more detailed and accurate story about what is occurring
in urban areas (Garnick, 1982; Ingraham, 1982).
A new breakdown of data on economic sectors, particularly the services,
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Fostering Local Institutions to Manage the Transition
. c"
is needed that is relevant to the analysis of urban economies. Within
metropolitan areas, there is a considerable need to have data organized
by major jurisdiction, including large municipalities. The U.S. Department
of Housing and Urban Development has sponsored some useful research
on developing a system of urban indicators.2 Work on an urban indicators
series should continue, but it should be guided by an interdisciplinary
panel of experts and users. Developing an indicator series will require the
involvement of the agencies that collect data of interest to urban policy
makers and strategists. Among other things, there is a need for reconciling
data bases, improving the definitions used, and developing a common
format for reporting urban data. The first task should be to develop a
consensus on a few statistical series that could help describe major changes
in urban economic conditions. This work should proceed independently
of efforts to devise formulas for the distribution of federal grants.
Reorganization of the way in which economic data are reported, for
example, could help considerably in understanding changes in local eco-
nomic structure. Another problem that needs to be addressed is how data
are aggregated at jurisdictional and metropolitan levels, keeping in mind
that what is adequate for national and state analysis is sometimes virtually
useless in local analysis.
A second form of federal support for local information systems is tech-
nical assistance. Federal agencies already provide a great deal of direct
assistance in interpreting information and establishing local information
systems. Over the last three decades, the federal government has directly
assisted in establishing many local, state, and regional planning and in-
formation agencies and processes.3 One result of the federal planning
requirements and subsidies is the development in many urban areas of
sophisticated and well-used policy information systems that use nationally
collected data, such as the decennial census data, supplemented with local
surveys and other data. The quality of these systems, however, is very
uneven.
I For a survey and analysis of data that are available on the service sectors see Economics
Consulting Service (1981).
2 Much of this work is related to the development of indicators of "distress" for use in targeting
federal assistance programs, with a heavy emphasis on fiscal conditions, poverty levels, physical
deterioration, etc. A bibliography of urban indicator studies can be found in Government Finance
Research Center (1982).
3 These include state and local planning assistance, economic development agencies, urban
development organizations, intergovernmental clearinghouses for federal grant programs, and
coordination processes for many specific grant programs, such as those for transportation and
sewerage systems.
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Support for a National Urban Information Network
Rethinking Urban Policy
Federal comprehensive planning assistance has been terminated. While
it may no longer be necessary to provide federal financial support for local
planning information systems, there is considerable value in some federal
support, in cooperation with private funding sources, for a national net-
work to facilitate the exchange of information and mutual assistance among
local information agencies. While a number of options are available for
providing a national support institution for local economic information
and development activities, the most obvious approach would be to strengthen
the existing organizations of governments, professionals, and officials,
operating through an existing or new consortium but one expanded to
include private sector groups such as the Committee for Economic De-
velopment and the Urban Land Institute.
PUBLIC-PRIVATE LEADERSHIP
There is some possibility that public-private partnership will become
the nostrum for the 1980s that community participation was for the 1960s.
Without claiming too much for it, a close relationship between government
and the corporate community is indeed often a critical factor in the success
of both individual economic development projects and in the ability of a
city or a region to improve its economic position over time (Committee
for Economic Development, 19821. Clearly, a substantial economic de-
velopment effort necessarily requires the use of power and resources by
both sides of the political economy.
Some 15,000 local economic development organizations already exist
in the United States, including public, private, and mixed groups (Levy,
1981~. Very few of these, however, are involved in developing and man-
aging a strategic approach to local economic development. We know
relatively little about those that are, how they operate, and their degrees
of success or failure. The Commission on Private Initiatives (the Verity
Commission), however, has compiled valuable information on partner-
ships. Some institution should maintain and analyze such information,
providing valuable assistance to local efforts.
Strengthening public-private leadership requires two elements:
(1) increasing the involvement of private sector leaders in making long-
term strategic decisions and (2) involving nongovernmental institutions in
carrying out those decisions through specific projects.4 Involvement of
private sector leaders and institutions not only provides more experienced
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Fostering Local Institutions to Manage the Transition
159
Judgment to policy making, but it can also increase the legitimacy of
economic development programs and help develop alternative policies and
alternative ways of approaching problems.
Public-private cooperation cannot be wished into existence, particularly
in making strategic choices. Nor can it be willed into being by legislation.
Of two cities in the same state operating with similiar powers and political
processes, one may have a flourishing process of public-private strategy
making and action, while in the other city the two sectors maintain at best
a mutual sullen disrespect. For strategic partnerships to take root, there
must be a favorable civic culture (Committee for Economic Development,
1982:11~. This usually entails some tradition of civic involvement and
responsibility by corporate executives. It often means a political climate
in which officials and corporate leaders can openly collaborate. The cor-
porate leaders must view the government as competent and as reasonably
honest in its dealings with investors; public officials must see corporate
leadership as public spirited and as a potential ally rather than as a dedicated
adversary. In short, there must be a climate of continuing trust as opposed
to one of transitory need.
Differences in Public and Private Perspectives
Each side must understand that its interest cannot be advanced alone
as effectively as it can be with the cooperation or support of the prospective
partner. The recent experience of Cleveland illustrates the importance of
an understanding of mutual interests. The city was brought to the edge of
financial default by open antagonism between the mayor and the corporate
community. A new mayor set out to work with the business and financial
community to improve the city's fiscal and economic position and the
climate for businesses and investment in the city. Both sides found sub-
4 There is not a great deal of systematic analysis of public-private cooperation or of the conditions
on which it depends. The existing literature consists largely of anecdotal materials, case studies,
and exhortation. The richest examples of cooperation tend to be those involving physical de-
velopment projects, although there is a growing body of information about social programs,
particularly those focused on neighborhoods and employment. Useful case studies are found in
Foster and Berger (1982). Several other examples are summarized in Council for Northeast
Economic Action (1980). The development of social action programs through private and non-
profit institutions can be found in Woodson (1981). A wide-ranging discussion of nongovern-
mental initiatives in community programs may be found in the essays and studies in Meyer
(1982).
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Rethinking Urban Policy
stantial benefits in the new arrangement, which has produced a new fi-
nancial plan for the city and a major effort to improve its infrastructure.
A productive relationship also depends on appreciating the substantial
differences of interest and of decision-making processes between govern-
ment and corporate leaders (Foster and Berger, 19821. Public officials
must respond to jurisdictional constituencies and clientele under sanction
of both politics and law. Corporations are usually primarily concerned
with narrower or more specialized groups—stockholders, employees, cus-
tomers, and suppliers in a national or international rather than a local
context. These interests are likely to be sharply focused and clearly un-
derstood by the corporations's officers.5 Public officials are less likely to
have so clear an impression of their mandates or to find them nearly as
stable over time. Government is often encumbered from making quick
decisions by constitutional or statutory requirements for public partici-
pation, by conflict of interest laws, and by requirements for procedural
fairness. Multinational corporations, moreover, have internal strategic
concerns that may be clearly at odds with the civic impulses of their
executives. Increasingly their executives are not homegrown, they serve
relatively short terms of office, and they may spend more time out of
town tending to branches and subsidiaries than they spend at headquarters.
These differences in institutional behavior can lead to misunderstanding
and mistrust of government by business executives accustomed to making
decisions in the corporate context and out of the public eye. The fact that
everything the mayor does is everybody's business, especially that of the
local media, can also be a problem. Businesses frequently fear that adverse
publicity will harm sales. Branch office executives are particularly cautious
about activities that might provoke the concern of their corporate superiors.
The Importance of Stability
Not only must the partners be mutually trusting and regarded as reliable,
but it is also important that the relationship be perceived as stable and
that it directly involve the people who can make binding commitments
for both sectors. In this regard the personality and leadership qualities of
incumbent officials are important to a successful relationship. It is also
useful for each group to be able to endure over time, even though the
specific members change. The most effective partnerships—those con-
s We note, however, the salutary growth of the corporate responsibility movement. An instructive
example is the Minnesota 5 Percent Club, sparked by the practice of the Dayton-Hudson Cor-
poration of donating 5 percent of its pretax earnings to charitable activities.
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Fostering Local Institutions to Manage the Transition 161
sistently used as shining examples—are in cities such as Baltimore and
Pittsburgh, where the same basic business and political leadership structure
has been maintained for over two decades. While mayors have changed,
as have corporate boardrooms, there has been relatively little change in
the composition of the interests represented or in the core group of leaders
(Fo s ler and B erger, 1 9 8 2 ~ .
Finally, it is worth pointing out that it is in such cities that the basic
partnerships have survived changes in government administration and pe-
riods of great urban crisis, such as the riots of the mid-1960s. Most cities
were able to form temporary alliances between public officials and busi-
ness, such as the Urban Coalitions, in the aftermath of the riots, but those
organizations have since dwindled to levels of ineffectiveness; many have
disappeared entirely. It takes more than fear to build a lasting strategic
relationship.
Much of the recent literature emphasizes the importance of private sector
cooperation. That is altogether appropriate, but in the enthusiasm for
private sector participation, it is important to remember that public lead-
ership is normally the catalyst for partnership and is indispensable to its
success. Public leadership usually focuses on the mayor or manager, but
where it has been successful there is a deeper institutional base that includes
planning and economic development agencies. These institutions must
have the resources and leadership to work with private institutions to offer
a vision of a more promising future for the community and the admin-
istrative, fiscal, and legal skills to translate concepts and visions into
development projects, jobs and education programs, and other facilities
or services. In many communities it may be useful to combine planning
and economic development efforts to strengthen the ability of both to
advise the city's leadership and carry out its decisions.
The federal government has historically been an important force in
encouraging the creation of planning and economic development agencies
and processes. To a considerable extent, federal planning assistance was
the seed corn for these agencies. Direct federal support is no longer a
necessity in most large cities, but continued encouragement of well-thought-
out development plans as a requirement for federal support of projects
remains an important way of encouraging the development of local insti-
tutional capacity.
The Autonomy of the Urban Area
Another important ingredient in an effective public-private relationship
is the autonomy and power of the city in the urban system. Autonomy
involves the ability to make decisions that are binding and the ability to
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Rethinking Urban Policy
commit resources whether money, time, or talent to agreed-on activ-
ities. It implies accessibility to other resources and power centers. These
include banks, state governments, federal agencies, other firms, the media,
and local institutions and organizations such as neighborhood associations.
This kind of autonomy for both partners is most likely to be present in
the command and control centers.6
Other places, however, have made remarkable economic transforma-
tions. Lowell, Massachusetts; Stamford, Connecticut; and Akron, Ohio,
need careful study to identify the factors and processes that made their
changes in function possible. This is particularly important because the
urban areas that will have the greatest difficulty in coping with change
are not command and control centers.
Autonomy appears most likely to be absent on one or both sides of the
potential partnership in subordinate centers, particularly those specializing
in manufacturing. Government centers also tend to have a weak and
diffused corporate sector because they house few national corporate head-
quarters and rely more heavily on consumer-oriented smaller businesses
and some business services. The more fruitful partnerships appear to be
based on a relatively equal division of power, with a strong mayor or
manager often a key actor. There do not seem to be many outstanding
examples of cooperation in cities with reputations of either business or
political machine domination.7
Models for Partnership
There is no standard model for the formation of strategic partnerships,
only clues in the experiences of a few cities. Pittsburgh, Baltimore, Dallas,
and Denver illustrate how such partnerships have evolved and suggest
both the range of organizational arrangements and the limitations on policy
involvements of such partnerships in the formulation of economic devel-
opment strategy.
Pittsburgh's Allegheny Conference is one of the oldest corporate com-
munity leadership organizations in the country. It developed from the
realization by a relatively close-knit group of corporate and banking ex-
6 The case studies of public-private cooperation used by the Committee for Economic Devel-
opment in its study of partnerships were chosen for their effectiveness. All were command and
control centers (Foster and Berger, 1982).
7 Strong political machines do not, however, preclude such arrangements. Where the business
community is also strong and independent of the machine itself, the ability of the partners to
cooperate may actually be enhanced. See the case studies of Pittsburgh and Chicago in Foster.
and Berger (1982).
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163
ecutives that major reinvestments by their companies in Pittsburgh were
essential to both the city and to the future of their own headquarters
functions. The conference developed a plan for the redevelopment of the
"Golden Triangle" and participated in rebuilding this important part of
the central business district. The combined power of major international
corporations, regional banks, foundations, state and local governments,
and federal urban renewal and transportation funding set a pattern that
many other cities have tried to emulate (Steinman and Tarr, 19821.
Baltimore has followed a similar pattern of cooperation. Although its
corporate community is neither as cohesive nor as autonomous as that of
Pittsburgh, Baltimore has had strong financial institutions and a large
number of community-oriented business leaders. The Greater Baltimore
Committee had its origins in the work of a more broadly based civic
organization, the Citizens' Planning and Housing Association. Much of
its success can be attributed to a talented executive director and a series
of mayors with whom excellent working relationships were maintained.
It was able to develop a consensus plan for the private development of
Charles Center, which has served as the keystone for much of the rest of
Baltimore's urban reinvestment program. The city government has taken
the principal leadership role in the revitalization of the city, with the
Greater Baltimore Committee lending support and some of its members
playing key roles, either in government or as developers and financiers
of other projects, such as the Inner Harbor (Lyall, 19821.
A quite different model for cooperation in the formulation of long-term
strategy is represented by the Goals of Dallas program. Initiated in 1964
by Mayor Erik Jonsson, it has involved over 100,000 people from many
parts of the community in identifying problems, issues, and objectives for
the development of Dallas. A policies plan as opposed to a land use plan,
the goals program has provided a corporate and governmental agenda for
developing the infrastructure system, the higher-education system, and
other elements (such as the international airport) to help Dallas become
a "prototypical post-industrial city" (Claggett, 1982~. While Goals of
Dallas has been a showcase for partnership, another, less publicized in-
stitution has been of great importance in the development of the Dallas
economy. The Dallas Citizens Council, consisting of the chief executive
officers of the major corporations located in the city, has been a means
of reaching consensus within the corporate leadership on major community
issues (Claggett, 19824.
In Denver, corporate and development interests formed the Denver
Partnership, which has produced a development plan for a major sector
of the central business district. The partnership has worked closely with
local government and has also developed ties with residential communities
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Rethinking Urban Policy
that are located adjacent to the commercial development area to ensure
that the negative spillover effects of commercial district revitalization are
ameliorated or even produce instead beneficial effects. The Denver ex-
perience is interesting since it started with a more sophisticated under-
standing of the need to reach agreement with many groups in producing
a successful development program with broad community support. It also
shows some promise of being clearly oriented to a vision of the future
economy of Denver and the other centers of economic activity in the
Denver region, based on the operating characteristics of the economic role
of a major regional center.
THE INDEPENDENT SECTOR
In earlier chapters we pointed out that the nonprofit organizations the
so-called independent sector have been one of the fastest growing parts
of urban economies. This is a greatly varied sector, ranging from major
educational and health organizations, philanthropic organizations, and re-
search institutes, to storefront service centers, community organizations,
and volunteer groups. In many cities the independent sector funds or
operates a large share of the complex of libraries, theaters, museums,
health facilities, and cultural centers and programs that are increasingly
important in the economic development strategies of urban areas as well
as in enrichments to community life (Salamon, 19831. In addition, non-
profit institutions often serve as catalysts for bringing public and private
sectors together through specially created mediating organizations. They
provide a means of conducting experimental, high-risk urban development
and service programs that could not be supported by government or op-
erated as profit-making enterprises but are necessary precursors of major
changes in other institutions and programs.
Seed Capital for Transition
Our focus is on that part of the independent sector often referred to as
philanthropy: foundations and grant-making institutions. These institutions
are often significant sources of the capital necessary for many urban
projects and for support of the operations of other nonprofit organizations.
The central economic advantage of philanthropic investments is that they
do not require an economic return to the investor. This allows them to be
an almost exclusive source, other than a few government grants, for high-
risk activities. Foundation funding can also be blended with private sector
capital and government funding to reduce risks.
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165
This seed capital can be especially important in dealing with the eco-
nomic transformation of communities. Neither government nor employers
provide much transitional support for families, as distinguished from sup-
port for the worker in the family. While the worker may receive unem-
ployment benefits, counseling, and retraining from government or industry
programs, the burden of providing family counseling or crisis centers
tends to be left to others, such as churches and organizations supported
by individual and institutional philanthropy. Yet these services may be
almost as important in overall transition strategy as job retraining and
unemployment benefits. Programs to mobilize parents and neighbors can
have great impact on programs designed to keep young people in school,
to enhance the strength of educational programs, or to revitalize a neigh-
borhood. Particularly in the most deprived areas of our cities, such self-
help programs often need some stimulus and some capital. Both are often
provided by local or national foundations and corporate gifts. Such initial
funding is important even when public funds may be available for the
day-to-day operation of such groups.
As important as independent sector capital is, there is no realistic like-
lihood that it can supplant public support for mediating nonprofit insti-
tutions (Salamon and Abramson, 19821. What it can do best is provide a
base, in addition to public funds or patronage, for the existence of such
groups. Philanthropy also has much greater latitude to experiment and-
which is important to fail. The expectation that philanthropy should
replace public funding for many community programs undermines one of
the most valuable contributions that philanthropic institutions can make:
the ability to experiment, to seed new enterprises and ideas. To the extent
that this source of capital is siphoned off to support operating expenses
of established day care centers, community improvement organizations,
health clinics, and job training programs, less money is available to in-
troduce new ideas or create new ventures that may prove to be more
effective ways of tackling urban problems. It is also important to remember
that federal funds have been major sources of support for many nonprofit
organizations and have in fact helped stimulate the growth of the inde-
pendent sector as an alternative to the public sector as the sole provider
of many urban services (Salamon, 19831.
The Catalytic Role
Not only can nonprofit institutions often provide the neutral ground on
which government and corporate leadership can meet and negotiate but
private grant makers may also occasionally provide the initial earnest
money needed to make the other two sectors take a matter seriously.
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Rethinking Urban Policy
Programs such as the Kettering Foundation's Negotiated Investment Strat-
egies suggest one way in which the independent sector can aggressively
play a catalytic role in urban economic development. Such programs as
the Bedford-Stuyvesant project in New York City, funded by the Ford
Foundation, offer other examples of how the investment and catalytic
powers of the independent sector can materially affect urban life and
economics. There are many less well known and far less expensive ex-
amples, such as the Local Incentive Support Corporation, supported by
foundations and businesses to fund local development corporations. An-
other example is the work of the Greater Cleveland Foundation with the
Rand Corporation and the Urban Institute to analyze local economic and
infrastructure problems. In Washington, D.C., the Greater Washington
Research Center was able to assemble a distinguished panel of business
and community leaders to examine the long-range fiscal issues of the
region's local governments.
The decision of the Kansas City Association of Trusts and Foundations
in the late 1 960s to concentrate philanthropic resources on the development
of medical education and services in the metropolitan area has had an
important and lasting effect on the local economy. Several local foun-
dations have been the moving forces behind changes in public school
administration, curriculum, and programs. The Mott Foundation in Flint,
Michigan, has devoted substantial resources over a long period to the
improvement of community services and education, including the devel-
opment of community schools. Each of these programs has focused at-
tention on an important problem, and the initial foundation investment
has had a strong multiplier effect, attracting other funds.
The Need for Cooperation
From the perspective of urban economic development strategy, how-
ever7 one of the difficulties with private philanthropy is that it often is
independent almost to the point of being oblivious to the cumulative and
supplementary effect of its investments. In many communities this in-
dependence arises from the fragmented nature of philanthropy. Philan-
thropic resources reside not only in the few large foundations with substantial
staffs of specialists who can review programs for their probable effect but
also in the trust departments of banks and in the hands of family members
administering relatively small charitable trusts within very strict limitations
set by their founders. Even relatively unrestricted philanthropic efforts of
a community are highly fragmented. Rivalry among the givers is, unfor-
tunately, not infrequent.
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167
Where cooperation has been possible, however, the effectiveness of
philanthropy in a community has been considerably enhanced. Community
foundations have been established in a large number of cities, making
possible the consolidation of the decision-making process for investments,
if not the actual funds available for distribution. Particularly during periods
of economic hardship or transition, the focusing of philanthropic capital
would be desirable. An added advantage of the community foundation is
that it provides a legitimate and convenient conduit for corporate donations
that protects both the giver and the beneficiary from a variety of problems.
Community foundations can often attract strong community leaders to
their boards, and they can usually afford permanent professional staff,
making their programs less subject to idiosyncratic choice by a single
director or trustee. Developing some process for coordinating the activities
of the independent sector should be a high priority for urban areas. Whether
through a community foundation or some other medium, focusing phi-
lanthropic resources can be a powerful tool for a strategy of economic
development.
Developing Institutions
In our discussion of managing the transition to a new kind of economy,
we have repeatedly stressed the importance of staying power. While trusts
are distinguished by their continuity, they are frequently afflicted by an
equally distinguishing ingredient a lack of direction or constancy. A
laudable interest in experimentation can sometimes be transmuted into an
almost random search for innovation. While a number of foundations have
begun to fashion annual or longer-range programs to guide their grant
making, these are often stated in such general terms as to be virtually
meaningless. Program emphasis changes with fads, in order to stay current.
This kind of serendipity often produces start-up grants and no follow-
through. There is often too little appreciation of the fragility of many
kinds of urban activities and the need to distinguish between programs
that are single shots, those that should be expected to generate new sources
of support, and those that are worthwhile but require a continuing com-
mitment for support. The proliferation of foundations, exceeded only by
the growth in applications for support, understandably makes such insti-
tutions cautious in making long-term commitments. It is hard to quarrel
with the seed-money thesis in most instances.
There are, however, exceptions that should be recognized, particularly
in the development of urban institutions. The urban intelligence system
discussed above illustrates the point. Such systems need to be professional,
continuing, and independent to play the role suggested for them. But it
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168 Rethinking Urban Policy
is almost impossible for an institution to continue if it is independent of
its sponsors. If it performs well it is almost certain to alienate some of
its public or private sponsors, either in diagnoses of economic problems,
evaluations of past policies, or forecasts of future conditions. Both con-
tinuity and independence could be enhanced by continued, reliable support
from local foundations as the only disinterested source of support. There
is, moreover, a value to local philanthropic institutions themselves in the
intelligence system because the information and analyses it produces can
be employed in making grant policies.
Small business and community development corporations are another
example of institutions that may need continuing support for a longer
period than some foundations consider. It takes time to be effective,
especially when seeking to change deeply ingrained patterns of economic
or social behavior. Ineffectiveness is virtually guaranteed when staff and
board energy is almost completely devoted to institutional survival. All
of this speaks to greater selectivity in the first instance, based on a clearer
sense of what is strategically important, then a commitment of sufficient
resources to make a difference instead of a splash.
LESSONS FROM EXPERIENCE
The experiences of public-private partnerships, philanthropy, and the
independent sector suggest that public-private leadership in devising eco-
nomic development strategy can be direct or indirect, depending on the
civic culture of the city or region. Strategies can be the initiatives of a
power elite, if it has a traditional base of legitimacy in the community.
Or it may be necessary or desirable to pursue a consensus strategy through
a more broadly based process. Elite-centered systems have been effective
in dealing with redevelopment of central business districts and thus in
moving the diversified service centers in which such partnerships are
located toward a more rapid adjustment to a service-centered economy.
The private development organizations that have represented corporate
leadership have worked well in tandem with public development agencies.
Development, largely that involving land investments, is an area of public
policy that is congenial to large corporations, which are concerned often
for their own facilities or for other land uses that are of interest to them
such as hotels and convention centers. The use of public condemnation
powers and the availability of public financing for infrastructure, land,
and leveraged loans provides an atmosphere of clear mutual advantage
for both partners.
The advantages of the elite-centered approach to economic development
strategy are less clear when neighborhood revitalization or employment
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Fostering Local Institutions to Manage the Transition
169
issues are involved. While some corporations have been actively involved
in neighborhood revitalization and job training programs, specially created
hybrid organizations are often needed to actually carry out these programs.
This simply reflects the fact that not all corporate interests converge in
all areas of public policy. Also, unlike development projects, neighbor-
hood and labor market programs often involve more conflicting interests
than are represented in the classic partnerships for downtown development.
Unions, community organizations, minority groups, churches, and small
businesses must frequently have strong representation. In these areas of
public policy, specially tailored groups are often critical to give the pro-
gram legitimacy as well as the necessary constituencies.
The strategic concern is to equip the state or local government and the
catalysts whether they are foundations, leadership coalitions, or spe-
cially created local development corporations with the ability to foster
the appropriate matches. These matches may consist of direct involvement
of individual corporations, as in the Jobs for Delaware Youth program,
which is developing a secondary education program related to specific
jobs in cooperation with the public school system. Such a strategy may
mean working with a major corporation, such as the Control Data Cor-
poration subsidiary, City Venture Corporation, which has developed a major
emphasis on urban facilities, jobs, and entrepreneurship through its direct
activities and its profit-oriented technical assistance to small inner-city
businesses.
What is important is a regular process for continuous dialogue between
the government, corporate, and independent sectors. This process can be
used to develop and test strategies and to undertake or initiate specific
tactical actions. These might include setting up and providing seed capital
for a community development corporation, creating a capital pool for
home or commercial improvement loans, or developing a youth employ-
ment program.
Strong consideration should also be given in an overall economic de-
velopment strategy to the use of the private and independent sectors in
improving the delivery of public services. Corporate leadership can be
especially useful in advising local government on fiscal issues, in sup-
porting bond issues for the maintenance or construction of facilities, and
in providing advice on management systems. The key problem is to involve
the corporate community in such issues before they become crises that
threaten both the fiscal capacity of local governments and private invest-
ments.
At another level it is useful to identify those services that might be
provided more economically through contracts with established firms or
by encouraging the creation of private and nonprofit neighborhood firms
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Rethinking Urban Policy
to provide services under contract to the city. The government, in con-
sultation with the private sector and other interests, should identify those
functions that could usefully become private ones (Committee for Eco-
nomic Development, 1982; Savas, 19821.
In addition to simply turning services over to private enterprise, urban
areas should examine the possibilities of improving some services through
ending public monopolies in such areas as public transportation, hospitals,
refuse collection, and even some aspects of public safety. By creating
competitive service systems, whether through profit-making firms or com-
peting public or nonprofit entities, people can have more choices, and
some market discipline can be introduced into local public services (Kold-
erie, 19821.
SUMMARY
The creation of local institutions to manage the transition of urban
economies can follow no standard format. Local civic cultures, interjur-
isdictional politics, and the composition of leadership in the private and
independent sectors are all important factors. Many of the nation's com-
mand and control centers already have well-established, public-private
leadership systems. Some have long experience in urban development
issues. These need little federal or state support beyond general encour-
agement and improvements in information systems.
Where a good base for cooperation does not exist, as seems likely in
many of the subordinate centers, a more active state or federal role may
be appropriate in fostering the formation of public-private partnerships.
State government in particular may be helpful in enlisting the cooperation
of state-headquartered corporations, banks, and utilities in encouraging
branch managers to become involved in urban development strategies.
The state also may be helpful through its planning and economic devel-
opment agencies in providing technical assistance to local governments
who may be hard pressed to hold up their half of a partnership or to
participate effectively in it. The independent sector can also play a sig-
nificant role in helping to establish community leadership organizations
and acting as a catalyst to bring other sectors together.
Federal support through provisions of leverage capital and infrastructure
funds is often the indispensable ingredient in making a partnership possible
in resource-scarce communities. Federal encouragement of long-term co-
operation as a condition of various funding programs also could be helpful,
and active federal participation is needed in the development of better
information systems.
Representative terms from entire chapter:
local institutions
