This particular scientific debate originated following Porter’s thesis, wherein he argues that revitalization of derelict neighborhoods is ought to be created through the private sector, rather than attempting to tackle the social problems inherent to the city.
Porter argues economic impulses, that is a supply side approach, are the most effective way to create a better business environment, wherein the private sector will be more attracted to invest in viable businesses with a true competitive advantage which could serve both the inner city market as well as serve outside demand through exports.
According to Porter programs to stimulate economic activity targeting businesses that serve only the inner city market have failed because of the low spending power of the concerning population. Therefore Porter stresses the importance of stimulating economic activity through the private sector to attract profitable businesses which can serve both inner city and surrounding market.
Porter mentions the first step is to acknowledge a competitive advantage inherent to the city, wherein porter debunks cheap labor and cheap real estate as competitive advantage due international competition of low wage countries, rather Porter advocates focusing on: location, nearby infrastructure, exploiting local demand and potentially expanding to other markets, zoning, utilizing economies of scale and knowledge spillovers through regional clusters (Etizolam Porter, 1995).
Contradiction in this paper
However, Fainstein and Gray argue that stimulating the private sector in a low social economic neighborhood will not lead to business creation with the most competitive advantage. Fainstein and Gray argue that true competitive advantages will only be acknowledged once primary needs (education, proper housing, daycare) have been met.
Furthermore, they argue that Porter’s supply side programs to leverage private investment have indeed been successfully implemented before, however they did not target the worst parts of the city. Consequently, porter’s assumption of a mere supply side in forms of tax cuts or reduction of property tax for the inner city will transform the poorest ghettos in well-functioning inner cities is portrayed as wishful thinking (Fainstein and Gray, 1996). Another of Porter’s critics is Dymsky, supports this claim stating Porter is too optimistic arguing Porter overlooks the effects of market forces being present.
Furthermore does Porter’s position on limiting government intervention in forms of social programs being inefficient, only degree government institutions should function according to porter is to foster profitable business environment.
However removing or cutting down on social programs will only make the poor worse off. Porter’s argumentation of new profitable businesses being able to exploit local demand is scrutinized by his critics as local demand will plummet as social programs are cut down. Porter argues the high density of the population in the inner cities will create sufficient local demand to attract new businesses, which will create new jobs, which in turn boost local demand, a positive vicious cycle.
However his critics mention the significant part of foreign residents ending up in these positions due to specific job skills demanded. Therefore, most jobs created will not flow to most longtime residents.