ESG Investing

Cities in Rust Belt States May Offer Opportunities for Investors


As the income gap between the world’s poorest and wealthiest continues to grow, efforts to narrow it have become a key focus for nonprofits and individuals looking for ways to deploy capital in order to encourage human flourishing. Identifying potential opportunities for success, these groups have begun turning their attention to the particular issues at play in Rust Belt states and post-industrial cities.

Rust Belt States and the Geography of Inequality

Uneven access to education and opportunity are primary hurdles to sustainable and equitable growth. Geography has become an increasingly important factor in the availability of these two keys to success.

As America shifted from a manufacturing to a service economy over the past half-century, many midsized cities have struggled to adjust to the change. Former manufacturing hubs have been particularly hard hit. Since these cities are concentrated in the Great Lakes region, the area has gained the moniker “The Rust Belt.”

Municipalities like Gary, Indiana, and Dayton, Ohio, have struggled to attract or retain high-earning young workers. In turn, this makes it difficult to retain restaurants, shops, and other amenities that cater to young professionals. The loss of these amenities hurts the region in two ways: First, associated service jobs are lost. Second, a lack of things to do and places to go could further discourage talented professionals from staying in or moving to the area.

Perhaps it comes as no surprise that, on the whole, residents of this area (and residents of the Deep South) have fewer opportunities for economic mobility compared to their peers elsewhere. Further research by Harvard University indicates that every year a child from a low-income home spends in a “better” county (i.e., one where poverty is less concentrated) income in adulthood increases by 0.5%.

In major cities, meanwhile, population booms have resulted in high rent burdens for working families. Unaffordable housing and skyrocketing living costs can make it difficult for families to succeed even in cities where economic mobility is more possible.

The Importance of Equitable Growth

This Catch-22 highlights the need for equitable growth. If the aim is to cultivate a prosperous society, it’s important that growth reach all workers. Providing a stable, living wage is an unequivocally powerful tool in lifting people out of poverty and improving their health and quality of life. And considering that growing inequality may hurt overall economic growth and stability, equitable growth may also be a boon to society as a whole.

One way for investors to help this happen is to put money into the development of America’s economically neglected midsized cities, especially those that are not in proximity to a thriving, heavily populated city.

Investing in these cities could help lower two barriers to equitable economic growth in America by creating opportunities for current residents and by attracting talented workers who might be struggling with the high costs of living in larger cities.

The Work Already Being Done

A growing number of efforts are aimed at doing just that. Entrepreneurship for All, for example, is an accelerator that helps start-ups in midsized cities. In October 2017, the organization announced plans to expand into more than 50 American cities, with the goal of creating 10,000 businesses and 25,000 jobs.

Redevelopment projects and investments in the biomedical industry in Cleveland, Ohio, have been credited with helping the city reverse a trend of depopulation, according to the New York Times.

Another example is the Southern Cities for Economic Inclusion, a cohort of seven cities working with the Annie E. Casey Foundation and PolicyLink to create policies and programs that improve economic equity for low-income communities and communities of color. Capital Impact Partners is doing similar work in cities like Detroit, where it recently announced a new $5 million program to provide support and education to minority real estate developers.

Impact investors who want to foster opportunities for working people may want to look for prospective investments in America’s midsized cities. Not only could such investments help individual residents and the overall economy, but given lower operating costs and the potential for significant growth, there may be ample financial benefits, as well.

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