Crime and Development

Crime's Impact on the Viability of Young Urban Small Businesses

Timothy Bates and Alicia Robb

High prevailing levels of crime impact the viability of urban small businesses, and the resulting impacts are not uniformly negative. It is the negative impacts, however, that are most often noted. Conventional wisdom suggests that business activity levels in inner-city minority communities are held back by high levels of crime. People seeking to establish new businesses therefore tend to avoid these communities: the risk of failure is presumably heightened, while the likely degree of success is lowered.

On the specific issue of crime's impact on urban businesses, our search of the social science literature suggests that no empirical link has yet been established between crime levels and firm viability. Evidence supporting the prevailing conventional wisdom consists primarily of assertions without empirical grounding. Our analyses of crime's impact on urban small businesses are based on large, representative samples of firms, drawn from the U.S. Bureau of the Census Characteristics of Business Owners (CBO) database.

Our findings do not coincide with the conventional wisdom. Crime's impact, properly understood, tends to shape the very nature of area businesses, particularly those in fields where face-to-face customer contact is most frequent. In high-crime niches, for example, nonminority white owners are severely underrepresented, while minority and/or immigrant owners are present in abundant numbers. High-crime niches appear to scare away potential business owners, leaving behind firms that are not necessarily disadvantaged by crime, all factors considered.

Crime's impact may certainly be harmful, other factors constant, but the crux of our findings suggest that other factors do not stay constant in high-crime niches of the small business community. Firms operating in this environment are not found to be less viable than otherwise identical owners and firms reporting that crime has no impact on their business viability. High-crime niches, in fact, may be rational choices for some business owners, present and potential, in the narrow sense that firm survival prospects may be superior relative to other urban opportunities.

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