The Economics of Dilution vs. Concentration

It is the mission of Baltimore Rising to start a fire. We talk about it all the time. Not the destructive kind. No. Of course not. What we’re talking about is igniting all-inclusive economic growth that will, sooner rather than later, clean up the mess that Baltimore has become over the past 60 years. Those are the 60 years during which the manufacturing sector of the city collapsed and, for one reason or another, one third of our population, mostly from the top down, disappeared. A good many of them abandoned the city for the safer, more prosperous, better educated suburbs.

We could all hang around and wait for some organic economic event – the urban equivalent of striking oil, for example – that stimulates dramatic and self-sustained economic recovery. And that does it without government support. But there are no signs of that happening. Maybe eventually, but we’re interested in helping the current generation of Baltimore’s families. Life is short. Ours is not a mission to save the next generation or the generation after that.

The problem is, even in its current, depleted condition, the economy of Baltimore is large and the money the city government has to spend to turn that economy around is small. Tiny in fact. So how does a city government, itself struggling to remain solvent, ignite economic growth, to set the city’s economy on fire?

The answer is, by doing two things. One is to stop thinking about the un- and under-employed and the city’s vacant properties as negatives. These are real problems. Of course they are, but it’s more productive to think of them as assets that can be used to attract employers and people who will move here, repopulate the city and grow back our property and income tax base.

The other is focus. Take every dollar you’ve got, leverage the hell out of it just short of being reckless and laser-focus it on a handful, literally only a few places in the city where it is likely to do the most good.

By “most good” we mean that the impact of our spending not only creates a great number of jobs directly as a result of that spending, but also indirectly as the effects of that we’ve done multiplies, now organically, without our help, throughout the neighborhoods that we’ve targeted.

Here’s a simple example meant to illustrate the wastefulness of dilution and importance of concentration. It’s an exaggerated to make a point, but not by much.

Boastfully, the President announces that he’s spending a whopping $3 billion dollars to create jobs, but then mumbles “over the next 10 years” hoping we didn’t hear that all-important detail.

$3 billion? Wow, that is impressive until you realize that he’s double-diluting. He’s diluting the $3 billion over time. (Just how old are you or your children going to be 10 years from now?) He’s really talking about spending only $300 million a year – measured against a national economy that produces products and services worth just over $18 trillion a year. That’s $18,000,000,000,000 compared to which $300,000,000. is just chump change.

And then, to make matters worse, it turns out that his program spends the $300 million a year by giving every American $1 each. He’s spread the $300 million all over the country. I’m exaggerating of course, but you get the point. By spreading the $3 billion over time and across the country, the President has reduced its impact – the impact of the $4 that a family of 4 receives – to zero. Zero per family and zero in total. He actually managed to waste $3 billion by diluting the crap out of it. Completely blew it. Zap. All gone. Absorbed by the economy without generating a single job.

If, on he other hand, he had focused that $3 billion – or even just $300 million of it in a given year – on encouraging “growth anchoring development” in carefully selected communities starving for jobs, in communities where everybody who gets paid is going to spend 100% of the money they make… Well then, he would have generated some serious employment, with significant indirect (multiplier) effects, and changed the lives of thousands of families forever.DSC_0011

And that is why dilution wastes precious resources and does nothing to stimulate economic recovery. To succeed in Baltimore, we need to focus, to concentrate every resource we have in precisely those neighborhoods and in support of precisely those employers whose individual and collective activity, although relatively small compared to the total Baltimore economy, will ignite a significant economic recovery. They are the match we keep talking about.

Baltimore doesn’t need a lot of small programs. However well-meaning, spreading our resources around is wasteful. It makes us feel good but, at the end of the day, nothing’s changed. It’s what we’ve been doing for decades and yet the economy of the city continues to decline and certainly hasn’t improved. There’s a reason for that.

We need to get our collective act together and focus, target everything we have on the driest tinder in the urban forest we call home.

 

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