Federal Reserve Bank of San Francisco

Community Development

Low Income Communities as Emerging Domestic Markets - Volume 3, Issue 1

June 2007


David Erickson
Center for Community Development Investments

Community Development Investment Review

In many ways, Harvard Business School Professor Michael Porter reignited the discussion about the missed opportunities for investing in inner cities and emerging domestic markets (EDMs) in the mid-1990s. His research on concentrated purchasing power along with the efficiencies associated with access to transportation systems and workers argued that inner cities might have an unrecognized competitive advantage for business success and economic growth.1 As important as Porter’s message was, the notion of undervalued markets in economically distressed communities is an old one. In the 1950s, for example, Illinois Senator Paul Douglas introduced legislation that promised a sort of “foreign aid” for investing in communities that were left behind – mining and factory towns where industry had moved on. He wrote in his memoirs that these communities were rich in “social capital” and that an infusion of cash could leverage existing resources.2

Taken together, the articles in this issue of the Review provide a contemporary look at this discussion of undervalued markets. The overview article by Glenn Yago, Betsy Zeidman, and Alethea Abuyuan, reviews the evolving concept of EDM, a term the Milken Institute coined in the 1990s; it also surveys the existing literature. Other articles, for example Michael Stegman’s discussion of using unclaimed property as a source for EDM investment, provide insights into the new directions that this field might take.

In particular, two themes emerge in this issue of the Review. First, in nearly every article, authors call for better data on markets, entrepreneurs, and investment opportunities. As Alyssa Lee from Brookings’ Urban Markets Initiative explains, we are in the dark about the true potential for urban retail markets. Similarly, Prabal Chakrabarti shows that we need to know more about EDM entrepreneurs and their companies. Finally, Lisa Hagerman and Janneke Ratcliffe both look at the data problem from the investor side of the equation. Here too, there is a need to understand these markets so that institutional investors can fold community development investments into their overall investing strategy.

A second theme is that recent success in investing in EDMs has started to generate some confusion about how to measure the impact of this work. In the past few years there have been spectacular breakthroughs in leveraging finance in EDMs. For example, in his article, Phil Angelides describes the pioneering work at CalPERS and CalSTRS—two of the world’s largest pension funds—where billions of dollars have been steered toward EDM investment. In this new world, where ever-growing funds are invested with more than just a financial return in mind, we need to develop a better understanding of what the social and environmental benefits are to this type of investment. Greg Fairchild calls us to task on this point, and asks the really tough questions of whether we are providing significant social benefit or not. Going forward, how we explain the social benefit of double-bottom line investing will have to be more standardized, transparent, and easy to explain.

Our partner in this issue was Betsy Zeidman of the Milken Institute who was a great help in pulling this issue together. We also look forward to hearing from you on which ideas you think show the most promise to unlock new sources of capital for emerging domestic markets.

1. Porter, M. E. “The Competitive Advantage of the Inner City.” Harvard Business Review 73, no. 3 (May-June 1995).

2. Douglas, Paul H. In the Fullness of Time: The Memoirs of Paul H. Douglas (New York: Harcourt Brace Jovanovich, Inc.,
1972), 514.

The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System. Material herein may be reprinted or abstracted as long as the Community Development Investment Review is credited.

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Table of Contents

A History of Emerging Domestic Markets
Glenn Yago, Betsy Zeidman, Alethea Abuyuan

Who’s Counting? Measuring Social Outcomes from Targeted Private Equity
Janneke Ratcliffe

Panning for Gold in Inner City Markets
Prabal Chakrabarti

Investment Intermediaries in Economic Development: Linking Public Pension Funds to Urban Revitalization
Lisa A. Hagerman, Gordon L. Clark, and Tessa Hebb

The Brookings Urban Markets Initiative: Using Information to Drive Change
Alyssa Stewart Lee


Gregory B. Fairchild
University of Virginia

Phil Angelides
Riverview Capital Investments and former California State Treasurer

Michael A. Stegman
MacArthur Foundation