[Comment] The poverty of American cities and French suburbs

From The Christian Science Monitor

Big-government solutions pull poor people in, and push employers out.

By Patrick Chisholm | csmonitor.com

A hurricane exposes the poverty of America's inner cities, and the champions of big government make political hay out of it. Riots lay bare the underclass in Paris's suburbs, and the French are astounded that such a thing could exist in their country.
Bill Clinton, John Kerry, John Edwards, and others seized on the New Orleans issue to blame the Bush administration for causing or exacerbating that city's poverty. This took an amazing amount of chutzpah, considering that New Orleans and Louisiana are longtime strongholds of their own political party.

In fact, Democrats have long controlled almost all of America's inner cities. The Brookings Institution recently ranked the 50 largest cities in the United States according to their concentrations of poverty. A quick check reveals that the 10 cities with the highest concentrations of poverty have Democratic mayors, with the exception of New York City (whose Republican mayor is something of an anomaly in a Democratic-dominated city). By contrast, the few Republican big-city mayors hail mainly from cities with the least concentration of poverty.

This tells us that there is something terribly wrong with the statist policies that Democrats, and to an increasing extent Republicans, favor. The tragedy of the riots in France, where similar policies prevail, illustrates the same point.

Big-government solutions pull poorer people into certain areas, and deepen their poverty once they are there.

Inner cities are not "natural" locations for poverty. France's situation is instructive: Its high concentrations of poverty are mainly in the outer suburbs rather than the inner city.

The areas of high concentration of poverty are determined largely by the location of subsidized housing. The federal decision long ago to locate subsidized housing projects in America's inner cities prompted many lower-income people to relocate there or to stay there.

A similar thing happened in France decades ago, when authorities decided to erect its subsidized housing projects in the outer suburbs of Paris. They were a magnet for poor immigrants, and they are where many of the rioting youth now live. Unemployment is as high as 50 percent in some neighborhoods.

Subsidized housing areas, be they in the cities or suburbs, in theory should lead to more jobs for the residents of those areas. Labor-intensive businesses in search of low-skilled, low-wage labor should be flocking there, rather than moving their operations to third-world countries.

Moreover, in America, poor inner-city residents are relatively close to downtown business districts, so they should have short commutes and an abundance of potential employers to choose from.

So why is there so much unemployment in America's inner cities and in France's suburbs? It is largely because onerous government regulations dissuade employers from offering jobs to low-skilled people.

Probably the biggest barrier to job creation for the low-skilled is the minimum wage. This problem is most pronounced in France, where the national minimum wage is about $9 per hour. It is a no-brainer why unemployment among rioting Muslim youths is so high: French employers do not consider their skills valuable enough to justify paying them $9 per hour. Not helping the situation are the country's rigid labor laws, which make businesses even more reluctant to hire.

There is a similar phenomenon in America. Minimum wages within cities tend to be significantly higher than the national minimum wage of $5.15 per hour. New Orleans' minimum wage is $6.15. But many city residents do not possess the skills to produce $6.15 worth of goods or services per hour, resulting in much higher-than-average unemployment there.

And New Orleans' higher minimum wage makes it a less attractive place to locate a labor-intensive business. Why not instead set up shop outside the city, where the minimum wage is a dollar lower?

Just getting permission to set up a business in New Orleans, as in most big cities, is typically immensely difficult. The resulting scarcity of businesses means a scarcity of jobs for inner-city residents.

Business owners face a tortuous system of licenses and regulations. A case in point is New Orleans-area entrepreneur Wayne Porter. He has been trying for years to get a business license in New Orleans, to no avail. By comparison, it took him about two hours to get a business license in Gainesville, Fla.

According to Porter, large, wholesale-type businesses have largely moved out of the city. They prefer the more business-friendly environment of neighboring Jefferson Parish.

He attributes New Orleans' oppressive business climate to cronyism and special-interest politics. "Powerful groups can influence, to the detriment of the majority, the outcome of everything from sewerage rates to the way that utility rates are distributed or property taxes are collected, as it may affect their narrow needs," he notes. "The greater the sway of people of influence, the less need for competition or openness of the regulations of business."

So the solutions advocated by the champions of big government produce a pull/push effect: the poor get pulled into certain areas, and employers get pushed out. Poverty deepens.

Unless that cycle is broken, expect a continuation of poverty in America's inner cities, and additional manifestations of discontent among France's underclass.