P R O F E S S I O N A L . . . C O N T R O L L E R S
How to Keep a Poor Neighborhood Poor © 2000
by Adrian W. Hollander, C.P.A., CISA,
CIA, CBA, CFSA,
President of COMPLUS Inc. – Professional Controllers
Can you see the
humor in these observations, or does it hurt too much?
There are three ways to keep a “poor” neighborhood poor:
·
Encourage
retail (product sales to consumers) business development
·
Buy from
strangers
·
Sell to friends
In Chicago,
especially, we can see how this happens.
Consider Englewood, Woodlawn, Cabrini Green, “the projects,” etc. Each has a high population of “low income”
families. Many of these families are
supported principally by “welfare” payments.
Luxurious lifestyles are generally out of reach. There are virtually no businesses thriving
in these neighborhoods (except possibly for illegal drug trafficking—by the
way, that’s a “retail” business). What few “legitimate” businesses there are
(pharmacies, grocery stores, clothing stores, car repair shops, etc.) sell
products to local residents at (generally high) retail prices. Most of the business owners and many of
their employees probably don’t live in the neighborhood themselves. The residents, who can, shop elsewhere.
Money comes into the neighborhood through a “garden hose” and drains through a
“sewer pipe.” Government is a
significant source of revenue (welfare payments) in a “poor” neighborhood. Virtually all of the goods a “poor” family
buys are manufactured outside the neighborhood (cost ordinarily 60-90% of the
selling price). The largest shares of
other business operating costs are paid to vendors, employees and business
owners who don’t reside in the neighborhood.
Most of what a “poor” family buys is subject to sales tax (in Chicago,
now 8-3/4%). There is virtually nothing
left for a “low income” family to invest in the neighborhood. Savings (if any) are depleted to support a
high cost (though subsistence) lifestyle.
Savings are also a disqualifier for welfare. “The system” makes “things” (cars, TV’s, stereos, designer
clothes, etc.), besides being status symbols, more valuable than money. Adults in “low income” families often are
poorly educated and tend to make poor economic choices, besides (if not
required by “the system” to do so).
Local governments
encourage retail businesses because a significant share of revenues for local
governments comes from sales tax revenues.
Welfare payments increase dependency of the population on
government. The incentive systems are
very strong for governments at all levels to continue the “problem” rather than
solving it.
Without “manufacturing” businesses to employ local residents and sell goods
away from the neighborhood, community income and wealth are depleted quickly.
Encouraging retail spending, whether local or elsewhere just drains wealth from
a neighborhood as fast as it comes in.
About 90 cents (or more) of a dollar spent in a local “retail” store
leaves the community as soon as it is spent.
Buying from merchants outside the neighborhood exports the whole
dollar. If money paid to residents of a
Chicago neighborhood is spent in the suburbs, not only is there absolutely no
opportunity for any economic multiplier, but the sales tax revenue is gone,
too. The banks are certainly no
help. Just try to get a loan to open a
business in a “disadvantaged” neighborhood.
Even local service businesses that sell to local residents are not much
help because of the payroll tax and income tax bites that deplete the money
exchanged by at least 20% with each transaction. Local businesses that sell to “outsiders” are the ones that bring
wealth to a community.
To summarize—keep a community poor by:
·
Encouraging
retail business development. It’s the
“sewer pipe” to drain income and wealth from a community.
·
Buying from
strangers—Send money out of the community even faster.
·
Selling to
friends—Let the government systematically deplete your wealth with taxes.
Welfare is just a
“garden hose” source for incoming money.
Selling products and services to strangers is a “fire hose” by
comparison. Spending on locally produced
products and services rather than for “outside” retail products shrinks the
“sewer pipe.” Compare the foregoing
commentary to local “redevelopment” plans.
Does any of this “problem” seem familiar to you?
send e-mail to: AHollan700@aol.com