What Is Economic Inclusion – And Why Is This Concept So Important for Baltimore?

This first chapter of Collectively We Rise: The Business Case for Economic Inclusion in Baltimore provides a full definition of economic inclusion and discusses its relevance to Baltimore City and surrounding region.

What Is Economic Inclusion – And Why Is This Concept So Important for Baltimore?

The fundamental importance of economic inclusion to the economic health and vitality of Baltimore is being recognized and embraced by residents, civic leaders, businesses, and institutions across the city and region. For example, the 2015 report of the Baltimore Metropolitan Council’s Opportunity Collaborative emphasized the need to address the region’s structural barriers and its growing economic and social disparities, calling those disparities “a central challenge to the long-term sustainability and health of the greater Baltimore region.

Full Report and Appendices

A variety of businesses, anchor institutions, community organizations, and public officials are re-doubling their efforts to use their resources and influence to foster greater economic opportunity for those that have been denied such opportunities in the past.

As an example, in recent years, Baltimore Gas and Electric (BGE) has dramatically increased its utilization of suppliers who are minority-owned, women-owned, or service-disabled veteran-owned businesses. In 2009, only 10% of BGE’s spending went to such “diverse” suppliers, but by 2016, through intentional efforts on BGE’s part, the portion of spending to those suppliers of goods and services had risen to 27%. BGE’s 2016 spending with diverse suppliers included $75 million spent with Maryland-based firms and $43 million with Baltimore City businesses. According to Calvin G. Butler, Jr., Chief Executive Officer of BGE, the utility was able to boost its use of these diverse firms without increasing the costs of the purchased goods and services. Moreover, Mr. Butler reports that, over its last four years, BGE has achieved its highest quality ratings relative to financial performance, reliability of services, and customer satisfaction.

This effort and many others like it have achieved some very promising results. But the challenge now is on how to take those efforts to even greater scale.

Defining Economic Inclusion

“Economic inclusion” refers to sets of policies and practices adopted by businesses, government, and other community and regional institutions to create equity of opportunity for all members of society, so they can participate in all facets of the economic life of their community—as employers, entrepreneurs, employees, and customers. The goal is to ensure that individuals from all social, ethnic, and racial backgrounds and income levels can have the chance both to fully participate in the economy and to reap the benefits.

Efforts to promote economic inclusion are designed to address historic patterns of disinvestment and discrimination and to eliminate barriers to opportunity. These barriers have arisen from past and current practices and policies by individuals, businesses, and institutions that reflect intrinsic bias and/or reinforce negative, unfair stereotypes.

In many cases, the individuals, businesses, and institutions engaging in biased behavior may be unaware of their biases and how they affect their actions and decision-making. Whether intentionally or not, those practices and policies deny persons of color and other impacted groups an “even playing field” for pursuing economic advancement and a better quality of life. For example, if all the current employees of a business are white, and the business seeks new employees largely through the professional and social networks of its existing employees, the odds are that very few persons of color will have the opportunity to obtain employment at that company.

Economic inclusion efforts can include many strategies and activities, often focusing on improving access to education and employment for individuals who are unemployed or underemployed. To foster real economic progress, however, such individuals need to be able to access not just any job, but “good jobs”—those providing family-sustaining wages and benefits and offering career advancement. Accordingly, economic inclusion efforts particularly focus on expanding the supply of good jobs and career ladders. In addition, economic inclusion efforts can involve fostering entrepreneurial opportunities and promoting access to capital and markets for people of color, women, and/or individuals with disabilities interested in starting their own businesses. The efforts might also include making improvements in infrastructure and services in poorer neighborhoods to make those communities more appealing and improve the quality of life there.

To understand why such economic inclusion efforts are relevant to Baltimore, it’s crucial to examine some of the practices, policies, and trends that have negatively impacted residents and neighborhoods of Baltimore over many decades.

The Historic Roots of Poverty in Baltimore

Patterns of poverty in Baltimore are the cumulative result of a variety of policies, practices, and trends fostering discrimination and/or disinvestment for over a century, including:

• Red-lining: In 1910, Baltimore promulgated the nation’s first racial zoning law,vi and its exclusionary impact continued until the 1960s, as banks and other financial institutions refused to lend in neighborhoods that public officials (both federal and local) identified as having “undesirable racial concentrations.” These practices made it extremely difficult for neighborhoods of color to attract investment. In addition, the redlining practices (which also included deed restrictions and covenants by builders) meant that African Americans and other people of color were denied opportunities for homeownership and wealth-building.

• Urban renewal and highway construction projects: During the 1950s, 1960s, and 1970s urban renewal and highway construction projects sliced already struggling Baltimore neighborhoods into pieces, further eroding their viability. From 1951 to 1971, an estimated 80 to 90 percent of the families displaced in Baltimore to build new highways, schools, and housing were African-American.

• De-industrialization and the loss of manufacturing jobs: The 1970s and 1980s saw manufacturing jobs moving to the South, and subsequently overseas, for cheaper labor costs. The decline of decent blue-collar jobs in Baltimore meant that lower-skilled Baltimore workers had worse employment prospects than prior generations.

• Insufficient investment in the public school system: Over decades, funding for the Baltimore City public school system failed to meet growing needs, leading to aging facilities and inadequate educational programming and rigor. This translated into many students going through that system who did not get the educational and vocational preparation required to successfully compete in the new economy. A recent report by the Baltimore Workforce Funders Collaborative, Baltimore’s Promise, and Job Opportunities Task Force found that one in five young people ages 16 to 24 in the Baltimore City are disconnected from work and school. This includes about 18,000 young people.

• Suburban job growth and declining city population: Since 1990, the six suburbs of the Baltimore metropolitan area added more than 315,000 jobs and 538,000 residents, reaching totals of 963,062 jobs and 2,184,222 residents. In Baltimore City, on the other hand, employment has fallen from 430,974 jobs in 1990 to 335,218 in 2016, while the city’s population has fallen from nearly 1 million in 1950 to 614,666 as of the last census. Baltimore employment is showing some signs of a rebound. Over the last six years, for example, the city has added over 17,000 jobs. However, 83.4% of new jobs over the next 10 years are expected to be created in the suburbs.

• Changes in criminal sentencing policies and the “criminalization of poverty”: In the 1980s and 1990s, changes in criminal sentencing policies led to vastly increased rates of incarceration, disproportionately impacting individuals of color. Moreover, after completing their sentences, these formerly incarcerated individuals face ongoing barriers to obtaining and sustaining employment due to their criminal records, exacerbating the adverse economic effects on their families. For families of those who have been incarcerated, the resulting short and long-term loss of household income has a profound and lasting impact.

According to a recent report by the Job Opportunities Task Force (JOTF), Maryland’s laws and legal practices also work against the interests of the state’s poor in a variety of other ways, through such things as cash bail requirements, civil asset forfeitures, driver’s license suspensions for nonpayment of fines, and the use of arrest to collect debt.

These policies and practices either unnecessarily penalize the poor, or lead individuals to be unnecessarily arrested, charged with a crime, or imprisoned because they are poor and therefore unable to satisfy the demands of the law. These policies and practices also disproportionately impact people of color.

• Subprime markets and predatory financing practices: In a modern variation on red-lining, some financial institutions continued to engage in systematic discriminatory practices by steering minority borrowers in Baltimore into subprime markets and high-cost loans and charging them excessive fees.xiv Such practices were particularly prevalent in the years leading up to the Great Recession, which started in 2007 with the U.S. subprime mortgage crisis.

The Fallout from Disinvestment and Discriminatory Practices

Each of these negative forces have tended to disproportionately impact, time and time again, the same neighborhoods of color in Baltimore. This situation is cogently described in Emily Badger’s April 29, 2015 article (Workblog, The Washington Post):

“It’s no great surprise that Baltimore’s deeply troubled neighborhoods today are many of the same ones that were deemed ‘undesirable’ 75 years ago … Researchers at Virginia Commonwealth University’s Center on Society and Health have found that Baltimore neighborhoods that were redlined in the 1930s still have lower rates of homeownership and college attainment and higher rates of poverty and segregation today—as well as worse health outcomes… We don’t acknowledge that people who are poor were denied the chance to build wealth. And we don’t acknowledge that the problems we attribute to poor neighborhoods reflect generations of decisions made by people who have never lived there [i.e., in those neighborhoods].”

The cumulative impact of these discriminatory practices and policies that have fostered disinvestment can also be seen in citywide statistics that show profound economic disparities by race and ethnicity in Baltimore City, and “make the case” for inclusive economic growth. The following shows 2014 data for Baltimore City from PolicyLink’s National Equity Atlas for economic measures that help to define an individual’s or household’s quality of life:

• Concentrations of high poverty: 13.1% of Baltimore City’s African-American residents, and 7.3% of its Latino residents, live in high-poverty neighborhoods, whereas only 3.2% of its white residents live in such neighborhoods.

• Education levels: By 2020, 47% of all jobs in Baltimore City will require at least an associate’s degree. In 2014, 59% of the city’s white U.S.-born residents possessed at least an associate’s degree, but only 18% of the city’s African-American U.S.-born residents did so. Among the city’s Latino population in 2014, 46% of those that were U.S.-born had an associate’s degree or higher certification, but only 20% of those who were immigrants.

• Unemployment: Below are the comparative unemployment rates for working-age residents of Baltimore City in 2014: Importantly, these unemployment disparities persist even when controlling for education levels. For example, the unemployment rate for the city’s white residents who only possessed a high school diploma was 11.9%, whereas for African-American residents it was 17.2%. For those with some college or an associate’s degree, the differences were smaller (10.1% unemployment for whites versus 11.5% unemployment for African Americans), but they increase again when looking at those with a bachelor’s degree or higher educational certification (2.7% unemployment for whites versus 6.5% for African Americans).

• Median wages: The 2014 median hourly wage for white workers in Baltimore City was $25, for African-American workers it was $18, and for Latino workers it was $14. As with the unemployment statistics, the differences among groups persist even when controlling for education levels. For example, for full-time workers possessing just a high school diploma, the 2014 median hourly wage was $18 for whites and $15 for African Americans. For those workers with some college or an associate’s degree, the median hourly wage for whites was $20 and for African Americans it was $18 (for the latter, the same median hourly wage of whites with just a high school diploma). For workers with a bachelor’s degree or higher, the median hourly wage for whites was $29 and for African Americans it was $25.

Strengths to Build On

Despite the successive waves of discriminatory practices and policies, Baltimore’s residents of color have shown amazing resilience and perseverance in the face of adversity. One example is the growth in the number of minority-owned businesses in Baltimore. During the height of the Great Recession, the number of African-American businesses in Baltimore City actually grew by more than 60%, from 14,644 businesses in 2007 to 23,600 in 2012.

During this same period, community, faith-based, and political leadership pushed for economic inclusion efforts to address the systemic barriers experienced by Baltimore’s persons of color. Central to these calls for action was the belief that residents and other neighborhood stakeholders must have a strong voice in defining the focus and overseeing the implementation of those efforts, rather than continuing to have key decisions made by individuals from outside those communities.

The community voice and demands for action, further elevated by the 2015 uprising following the death of Freddie Gray, have prompted a variety of entities in Baltimore to look for additional ways to leverage their economic resources to create broader community benefit. Among them are Baltimore’s anchor institutions. The city of Baltimore is home to 18 healthcare and higher education institutions that are some of the region’s largest employers. In fact, Baltimore’s anchor institutions include nine of the 10 largest employers in the city, and collectively employ 90,000 individuals.

These institutions also spend billions annually on goods and services. As we will detail later in this report, many of these anchor institutions are actively using their hiring and purchasing power and influence to promote greater economic inclusion and increased opportunities for Baltimore’s residents of color.

Baltimore also has a variety of public and private development projects and initiatives planned or underway that ca serve as vehicles to promote economic inclusion. Overall, Baltimore is experiencing billions of dollars in recent and planned investment, including:

    1. • An estimated $816 million in new investment occurred in Baltimore’s downtown between 2014 and 2016, with another $1 billion in investment under construction and $769 million more in the planning stages.
    1. • Major reinvestment projects are planned or underway in East Baltimore, Uplands, and Port Covington, which together represent billions of dollars in additional investment.
    1. • The City of Baltimore is making a heavy investment in schools and in fixing old infrastructure. Under the $535 million first phase of the 21st Century Schools Initiative, the City is committed to the construction and/or major redevelopment of 11 public schools. The City is also investing $2.5 billion in its aging sewer system to improve water quality.

These development projects and physical improvement efforts offer myriad opportunities to pursue economic inclusion objectives through the jobs that are being created and the goods and services being purchased.

To support those economic inclusion efforts, Baltimore also has a strong cohort of workforce development providers and small business development programs. For example, a recent inventory of workforce development services in Baltimore found that there are 49 public and nonprofit workforce development organizations serving city residents. Collectively, these organizations assist nearly 30,000 adults and youth a year, and provide adult education, general job readiness training, and specialized hard skills training across 34 vocational and industry sectors. In addition, over the past four years, Baltimore stakeholders have created over 30 new business development programs, incubators, financing vehicles, and other tools to respond to small business needs and to facilitate their growth.

Read Chapter 2: Why Should Baltimore Businesses and Anchor Institutions Care About Promoting Economic Inclusion? (All Chapters Are Available in the Full Report)

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The section above is from “Chapter 1: What is Economic Inclusion – And Why Is This Concept So Important for Baltimore ?”of Collectively We Rise: The Business Case for Economic Inclusion in Baltimore.  The full report incorporates any necessary sources and footnotes.

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