The Nexus of Asset Building and Community Economic Development
Let's take a step back and distill what we now know about asset building and community economic development.
Our economy is in constant change. Inevitably, growth and decline occur; some places and people benefit, while others take it on the chin. We can't stop most of these changes. But, through thoughtful asset-building and community economic development policies and programs, we can seize opportunities where they exist and provide humane but efficient transitional help to those being left behind.
Asset policies encourage entrepreneurialism, build confidence and a longer financial perspective, and promote savings, investment, homeownership, additional education and training, and new business start-ups. These are good things that not only are compatible with job creation and income growth but are vital parts of the development dynamic. Connecting asset building to community renewal corrects a fatal flaw in many programs and policies: insufficient focus on expanding opportunities for those left behind or falling behind. We need policies and programs that embody the values of entrepreneurial initiative, individual responsibility, and community – policies and programs that spur individual ascension and community renewal. We also need programs targeted to people and places that require the most help and that build in ways to bolster resident confidence, competence, connections, and capital.
Promising Ideas, Tools, and Programs to Build Assets and Renew Communities
There are multiple opportunities for action in economically distressed places. Here are several promising practices and policies.
Homeownership has a huge impact on a local economy. Along with good schools and low crime rates, nothing captures the middle-class psyche more than stable home sales. IDA down payment-savings programs, housing counseling, and other affordable housing programs are powerful tools for building assets and revitalizing struggling areas. In places with business closings and downsized firms, antiforeclosure programs can protect the foremost asset employees own: their home. This is all the more important when you realize that a person's home assets, once sold, will play a major part in capitalizing some of a household's retirement portfolio. People also use a "second" on their home mortgage to get cash for all sorts of worthy and not-so-worthy goals, ranging from seed capital for a business venture to payment of an emergency expense to financing credit card debt.
Financial literacy and competence are the best prevention against being conned. Many Americans get in terrible fixes when contending with monthly payments, credit cards, payday lenders, and debt, debt, debt. Programs that promote awareness of money management and facility with financial tools help people avoid these threats and protect their growing assets.
Credit cleaning is a necessary “start over" step for bankrupt or overly leveraged households. No one can be a positive contributor to the local community economy when drowning in debt. A variety of nonprofit counseling organizations help households to get into the “black" and reenter the mainstream financial system.
Community-based development organizations play a vital role in strengthening local development capacity. They provide leadership development, mediation services, financial literacy courses, affordable housing development and ownership programs, upgrading and professionalizing business-retention programs, foreclosure counseling, emergency loans, and more. As the ADD research demonstrated, community development organizations form partnerships with financial institutions that work.
New markets are another resource. Many poor communities boast larger populations than more affluent areas. This, along with the absence of many retail services, creates unique opportunities for private investment. Active and significantly sized asset programs are another indicator that a community is open for business. Many new market sites are characterized by a large, new immigrant presence. They are ideal places to reach out to the “unbanked” so that newcomers are not caught up by the “debt trap" created by predatory lending and easy credit.
Seed capital is critical for starting any business, but it is very hard to get, even for the entrepreneur with a formidable business concept. Private venture capitalists rarely provide seed capital, and so-called “small business angels" want a respectable rate of return. Nonprofit and governmental funders seldom provide anything but debt capital. What if a business idea does not have a great upside potential for outside equity investors but could give the entrepreneur the kind of autonomy and income she has always wished for? What if a would-be business owner comes from a background devoid of well-heeled friends, family, and associations? This is where IDAs fit in. An IDA could be the vehicle for mobilizing the seed capital an entrepreneur needs.
The Community Reinvestment Act is a regulatory tool for getting depository institutions to meet not only the safety and soundness needs of their customers but also their credit needs. Banks and other regulated depository institutions are now experimenting with IDAs and other asset strategies as a strategy for fulfilling the Act's requirements.
Entrepreneurship development is happening in communities, regions, and states across the nation. Regardless of size or sophistication, regions are implementing strategies for growing and sustaining new small businesses. From these experiences, communities are learning to
• Start with youth entrepreneurship programs in the public schools.
• Conduct an audit of the region's entrepreneurial support infrastructure; make it more accessible, seamless, customer-friendly, and effective.
• Create networks for entrepreneurs to get to know each other and discover new contacts.
• Advertise management education, training, and technical-assistance programs.
• Try to attract successful, middle-aged former residents to relocate their businesses.
Employee ownership has become an alternative ownership structure for businesses. Today, about three thousand companies in the United States are majority employee-owned. Employee ownership can be a strategy for saving jobs, increasing productivity, and improving employee pay, benefits, security, and "say” in company decision making. The primary barrier to employee ownership is not financial but informational. Most lenders are wary of nonconventional ownership structures and unfamiliar with incentives. And most workers and employers have little exposure to the concept. This is a ripe area for outreach and education, especially for companies undergoing succession difficulties because of poor planning by business owners.
-  National Center for Employee Ownership, nceo.org. (Retrieved on May 22, 2007.) As of 2004, there were about 11,500 Employee Stock Ownership Plans covering about 10 million participants.