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Places, People, Policies

An agenda for America's urban poor

11.1.00

Predictably, this year's American presidential campaign focuses on issues of economic concern to the middle class. Perhaps the Republicans aim at a slightly wealthier clientele than the Democrats--Bush sells to drivers of Ford Explorers, Gore to those who own GMC Jimmies--but the basic principle is the same: the two candidates vie with one another in offering free drugs, better retirement packages, more efficient schools, or just more money to Americans near the middle of the income distribution.

Unsurprising though that is, it is hard not to wish that someone actually cared about the poorest Americans. We live in an era of unprecedented wealth and productivity, but 34.5 million Americans lived below the poverty level in 1998--900,000 more than in 1990. Many of these poorest Americans are crammed into the country's largest cities. The poverty rate hovers around 13 percent of the population nationally, but the poverty rates of New York City, Los Angeles, and Chicago are all close to 20 percent. In Cleveland, Detroit, Miami, and New Orleans, around 30 percent of the population lives in poverty. The poor in these cities are all disproportionately minorities, and lack of income is only one small measure of the suffering felt by the urban disadvantaged. If the government bears any responsibility for schools, safety, or health, then it is failing miserably in the heart of America's greatest cities.

Charles Murray's Losing Ground
[buy this book]

My first wish is that urban problems would actually garner some attention in the election campaign, and in America's public-policy discourse. But attention from the government, if unleavened with intelligence, can hurt rather than help high-poverty areas. Cities are still recovering from the ill-conceived housing projects of the 1950s and 1960s, which tore apart functioning neighborhoods and replaced them with inhuman, Corbusier-inspired high-rises. While I don't accept the hypothesis propounded by Charles Murray in Losing Ground--that the social breakdown in the cities came about solely because of the welfare state--I do think that giving more money to mothers who stay single relative to mothers who wed is a potentially pernicious policy. We need both some political focus on the inner cities and a serious debate that will move us toward socioeconomic policies that actually help the poor.

To begin, we need to take stock. Many federal policies affect the lives of the urban poor. Naturally, welfare (Aid to Families with Dependent Children) is one major policy instrument that relates to poverty. The current welfare-to-work program represents a major shift in that policy. Housing programs, which include both traditional public housing and Section VIII housing vouchers (which provide some choice in housing location by giving recipients rent money that is paid directly to landlords), both represent tools against poverty. Police, prisons, and the court system all matter deeply to the urban poor. (Of course, although the legal system in principle keeps the streets safe, many members of the urban underclass have less positive interactions with that system.) A fourth major area of policy that affects inner-city populations is education. Fifth, recent initiatives such as employment zones and enterprise zones are intended to encourage private job-creating businesses to locate in cities. Finally, of critical importance to residents of the inner cities are the set of policies--from zoning to the home-mortgage interest deduction--that influence the location decisions of their wealthier neighbors.

In examining all of these policies relative to their effects on the inner-city poor, we must ask two crucial questions.

  • First, should policies focus on improving the place, or the lives of the people who currently live in the place? For example, building public housing in a neighborhood is a classic place-based strategy. By contrast, housing vouchers that allow recipients to move anywhere are people-based policy instruments.

  • Second, should policies aim at alleviating the poverty of the current adult poor population, or should we focus mainly on building the human capital--including the health and educational levels--of children born into poverty?

The answers to these questions tend to be linked, in the sense that pro-child advocates are generally more oriented toward people-based policies, because human capital is more easily cultivated in the young. Place-based strategies, on the other hand, tend to focus on increasing local job-market opportunities, thus having more direct effect on adults.

 

Place-based strategies are usually a mistake, and money is better spent on the young than on the old. Before trying to make my own case, however, I acknowledge that there is a case for place-based strategies and that there can be good reasons for focusing on adults--beyond the cynical observation that such strategies are popular because we have place-based politicians and because adults vote.

Place-based strategies can have real advantages, primarily because of what economists now call "neighborhood effects"--outcomes that are very much a function of the people who live nearby. Recent research has convincingly documented that these effects exist, so place-based strategies have appeal because they suggest that by improving the lot of a few people in a disadvantaged area, the lot of other residents will similarly be bettered. A second reason for using place-based strategies to implement some government policies, such as public safety, is that the point is to do something within a particular locale. The case for focusing on adults here is obvious: we all hope that no one in our society is past redemption.

But place-based policies suffer from several major problems. The biggest pitfall is their tendency to attract the poor to (or repel the rich from) areas of high poverty. Classic public-housing programs that made housing units available only in high-poverty areas are one such disastrous policy. And cities can tip from wealth to poverty because of government policies that take from the rich and give to the poor, because the rich will flee--thus increasing the poverty of an already poor area. If neighborhood effects do occur, then increasing the concentration of poverty is a potentially very damaging consequence of a policy. Place-neutral, people-based policies will always avoid this problem.

The second problem occurs even when a given policy attracts everyone, not just the poor. An enterprise zone, for example, may temporarily increase local employment. This will cause some families to stay in a poor area instead of moving. But moving might have been the best thing the family could have done, especially for its children. The recent federal Moving to Opportunity experiment has convincingly documented how important moving to low-poverty neighborhoods can be for poorer children, even when these moves don't help adults. Thus when government policies act against the exit option, they may have real costs, particularly for poorer children.

A third problem with place-based strategies is that they generally cause real-estate values in an area to rise. When this happens, the landlords, not their tenants, get the benefits of the program. Recent research on place-based programs has begun to show that such programs can significantly raise housing costs in the affected areas. Basic urban economics would lead us to expect exactly that--and if most poorer people are renters, this increase may cause them to be worse off than they were before.

The case for focusing on children is also based on research that suggests that neighborhood effects are more important for them than for adults. For example, my work with David Cutler (professor of economics) on segregation has found that ghettoes produce strongly negative economic and other effects on younger African Americans, but less of an effect on older people. The pathbreaking work on neighborhood effects by Lawrence Katz (professor of economics), Jeffrey Kling (assistant professor at Princeton), and Jeffrey Liebman (assistant professor of public policy) has shown that switching to low-poverty neighborhoods tends to have sizable effects on health outcomes and behavioral problems for children, but not on labor-market outcomes for adults (although there is some evidence that adults are happier to be living in low-poverty areas). More generally, policies directed at children have effects that are reaped over a longer time period.

 

Where does this relatively abstract discussion lead me in terms of concrete policy recommendations? First, all government-provided public housing should be sold off and replaced with vouchers that allow residents to move freely. Nationally, the administration of public housing is generally a disaster, and vouchers offer potential benefits in terms of administrative costs.

Second, and most important, I advocate moving toward school vouchers that operate on a statewide, or even nationwide, scale. As recent research by Shattuck professor of government Paul Peterson and others has shown, vouchers and charter schools appear to increase school quality even if they are very limited in number or in the amount of financial aid the vouchers represent. International evidence also supports the positive effect of vouchers. But I think the most important effect of school vouchers on the inner cities will be to break the link between place of residence and school quality. Many non-poor individuals flee the cities to get good schools for their children. Vouchers can end that flight and help cities remain mixed-income communities.

Third, the government should create employment incentives that are person-based rather than placed-based. The earned-income tax credit has been a very successful person-based strategy. In contrast, no one has been able to show strong positive effects for either enterprise zones or empowerment zones.

The one place-based policy that seems crucial is improving public safety everywhere. Although safe streets are generally a local rather than a national responsibility, there is still room for federal intervention. In particular, I would urge federal subsidies to create incentives for local police forces to insure that crime is reduced everywhere--not just where the rich live--and to reduce complaints from citizens about police brutality. Proper administration will require nationally run victimization surveys, rather than local reporting, to monitor local police jurisdictions.

Fundamentally, of course, more important than any refined academic debate about the distinction between person- and place-based policies is simply taking the first step: realizing that we are too rich a country to continue ignoring our poorest citizens and the shameful conditions that still exist in our greatest cities.

Professor of economics Edward L. Glaeser teaches courses on cities and urban economics. This year he is a visiting fellow at the Brookings Institution.