November 20, 2001

Cities Online: Urban Development and the Internet

Part 1: Introduction


Communities and economic development groups across the country are exploring ways to encourage people and organizations to go online.  They believe that good things will happen in their communities with greater Internet connectivity.  They think it will help their children learn, improve the job skills of their workforce and make their community a more vibrant and productive place.  In addition, people with Internet access will be better-informed citizens, able to make better use of government services and to play an active part in decisions that affect the future of the community to which they belong. Furthermore, “wired” communities will face a brighter economic future because they will offer attractive locations to businesses thinking about building new plants and offices.

To date, there have been few studies about the specific impact of Internet access on any community’s economic and social life. To begin to explore this, the Pew Internet & American Life Project joined with the Progress and Freedom Foundation to study both sides of the issue. The PFF looked at the economic side of the story; the Pew Internet Project looked at the social side of the story. The PFF has found that high levels of connectivity in communities are tied to some measurable factors. “Wired” communities have large numbers of high-income households, college-educated citizens, and young people. These kinds of communities have always tended to be prosperous, and there are interesting suggestions in the early PFF data that Internet connectivity helps enhance that prosperity but does not necessarily drive it.

The Pew Internet Project’s part of the study consists of cases studies in five communities—Portland, Ore.; Austin, Texas; Cleveland, Ohio, Nashville, Tenn., and Washington, D.C.–to see what kind of change is occurring in social institutions. The one consistent finding in each of these cities is that the availability of the Internet is encouraging people and organizations to spend time thinking about how to exploit it. These new conversations, many of them spurred by grass-roots initiatives, have branched out in several directions.  Here are some of the main lessons that have been learned:

  • Portland

Real changes in communities are evident in Portland as a result of a wide range of community Internet projects, some of them long-established. Portland’s Neighborhood Pride Team, initially founded to revitalize a community in southeast Portland, has grown from one computer in 1995 to a skills center with 20 computers and two full-time instructors that handled more than 1,200 students in 2000. A listserv that began as a way to keep southwest Portland citizens informed about a development proposal has turned into a model forum for allowing activists to talk through technical and environmental issues surrounding neighborhood growth. And on the economic development front, Portland has made a significant government commitment to providing a place for businesses that sell Internet content or rely on the Internet for distribution.

Main Lesson: A technologically sophisticated city, in combination with strong commitment from city government, interested citizens, and an existing infrastructure of community development organizations, has taken identifiable steps to use the Internet to enhance economic and community development.  In the wider community, the existence of many community development organizations makes the soil for community Internet initiatives that much more fertile.

  • Austin

       Like Portland, Austin is a center for high-tech industry and a large number of dot-com start-ups, both of which have created considerable wealth in the city. Along with a core of city activists and an engaged city government, this has resulted in a flurry of initiatives to maintain Austin’s status as a technology hub.  Examples include plans for a  “digital downtown” that promises to attract multimedia developers, lessening the pressure for urban sprawl.  In the wider community, entrepreneurs are encouraging technology literacy for low-income people through the Austin Idea Network, and city government has started several initiatives of its own.  Additionally, community activists have begun projects that have attracted government aid from all levels, federal, state, and local.  But Austin has been hurt by the downturn in the dot-com economy.

Main Lesson: Good intentions and resources are not always enough. In spite of Austin’s many assets, the dot-com shakeout has taken the wind out of some initiatives, such as the Idea Network.  Austin also lacks a well-developed infrastructure of community development organizations, making it more difficult to implement community access initiatives.  Austin’s dearth of community development organization sets it off from Portland in this respect.

  • Cleveland

Cleveland remains a manufacturing city with no real reputation as a center for innovation or Internet activity.  Activists in Cleveland have nonetheless made significant strides in shaping local government policy on community Internet access.  The Digital Vision coalition’s successful effort to get $3 million for “computer boot camps” from local government distinguishes it from other cities in the study (with the exception of Austin). Economically, Cleveland lacks the sort of entrepreneurial tradition that would help it make fast progress in the New Economy, but an accident of history—it has abundant bandwidth in fiber-optic cables laid along railroad rights-of-way–could give it an advantage in business-to-business electronic commerce.

Main Lesson: Coalition-building in communities can succeed in procuring public funds for community technology projects.

  • Nashville

Even with a strong entrepreneurial ethic in the regional economy, the limited availability of venture capital and the dot-com shakeout means that no dot-com in Nashville struck pay dirt—even fleetingly—while other centers of the New Economy were hot.  The city is actively promoting a downtown district for young entrepreneurs, but community Internet projects are only beginning to emerge in Nashville, and it lags significantly behind other places in this area.

Main lesson: City government is beginning to engage with issues of information policy and community Internet access.  Neglect of these policy issues can be costly for cities, and those trying to make up for lost time must reach out to neighborhood groups to succeed.  Fortunately, Nashville city government does appear to be doing this.

  • Washington, D.C.

The District of Columbia is a latecomer, with several promising initiatives just getting underway.  Tax breaks for tech companies locating downtown and in a revitalized urban district may pay off, but in the distant future.  The District does have a number of innovative community initiatives designed to bring technology access and workforce skills to low-income people.  None of these, however, receive financial support from city government, nor do they appear to be on city government’s radar screen.

Main Lesson: Playing catch-up—especially with attractive suburban competitors in Maryland and Virginia—is difficult.  The plans for tech-based urban economic development seem sound, but the city’s lack of attention to community Internet access is an unfortunate oversight.

This report examines how institutions in the five cities studied are going about exploiting opportunities presented by the Internet. The cities were chosen because of the variability in their economic profiles and for reasons of geographical diversity.  Portland, Austin, and Washington are all centers of high technology, although their specializations differ.  Each has a high level of Internet penetration in its population.  Cleveland and Nashville have lower Internet penetration levels, and high technology is less important to their economic bases.  Cleveland is a manufacturing center; Nashville’s economy has a large service sector.  An appendix to this report contains data outlining the economic and demographic characteristics of each city, as well as a list of individuals interviewed for the report.

As for the institutions chosen for study, it is important to underscore that not all institutions within cities have seized on the Internet.  Exploring why some institutions or organizations have not yet chosen to use the Internet in any strategic sense would be an important research undertaking in itself.  However, the focus here is on those institutions that are using the Internet for organizational goals.  In broad terms, this meant looking at economic and community development organizations in the five cities that have sought to use the Internet to further their objectives.  And as a practical matter, this turned the focus mainly to economic development officials—both in the private and public sectors—and community technology centers.  The latter organizations have been hailed as new kinds of community institutions, and they are bearing the brunt of bringing Internet access to low-income neighborhoods.  Frequently, however, such initiatives are linked to existing nonprofits, such as community development corporations (CDCs), many of which are devoted to providing affordable housing in low-income areas.  As for city governments, the report profiles innovative uses of the Internet by such bodies, but it pays greater attention to whether local governments are creating hospitable environments for community-driven Internet initiatives to take hold.

Social Capital and the Internet

One way of analyzing the impact of the Internet on institutions is to look at it in terms of “social capital,” the phrase that social scientists invoke to capture the notion of social networks.  Social capital, as described by Robert Putnam, constitutes “those features of social organization, such as trust, norms, and networks, that can improve the efficiency of society by facilitating coordinated actions.”1 Social capital can be thought of in two ways: bridging social capital and bonding social capital.  Bridging social capital allows disparate groups in society to come together in ways they normally do not.  The civil rights movement, which brought young Northern whites into contact with Southern blacks, is often cited as an example of bridging social capital.  Bonding social capital refers to organizations that deepen ties among groups with a lot in common; country clubs are good examples of bonding social capital.

The specific way in which institutions facilitate cooperation—and thus build social capital—is through their effect on the cost of transactions.2 For an entrepreneur who wants to obtain venture capital financing, it is costly to find a venture capitalist with interest in his project.  It is also costly for the venture capitalist to determine the merit of the idea and business acumen of the entrepreneur.  If a group wants to organize the neighborhood to change the mind of City Hall, it is costly to marshal interest, settle on a message, and deliver it to elected officials.  An institution such as a neighborhood association or, in the former example, a network of entrepreneurs, can reduce the costs of organizing.  In both of these examples, the institutions amount to the “rules of the game” for carrying out transactions.  In other words, the institutions are key sources of people and information for telling actors how things get done in a given environment and what the norms are for social cooperation.3

The Internet can play a role in reducing transaction costs in two ways.  First, through email or the Web, the Internet provides lots of information quickly and cheaply—information that could aid cooperation. Second, the Internet, due to its relative novelty in organizations, can serve as a catalyst to overcoming the friction that is part of any collective undertaking. This catalytic effect usually arises as organizations try to figure out how best to integrate the Internet into their missions. If the catalytic effect takes hold, it may result in the development of innovative Internet content that furthers the missions of organizations. The net impact of the catalytic and “content” effects is a change in the “rules of the game” that define how an organization functions.

How can you tell when the “rules of the game” are changing in an institution and, more importantly, if you can, how do you attribute it to the Internet? The answers have to do with “foot traffic” and content.  With respect to foot traffic, the presence of Internet connections may bring new people to a place who might not otherwise go there.  This can inject new life into an organization by stimulating social networks. In this way, foot traffic is an indicator of the catalytic effect of the Internet on social capital formation. It is the presence of the Internet that shapes social capital, as people establish new networks of contacts as they congregate at places where the Internet is. 

As for content, Internet-driven projects may result in the creation of new Internet content that is devoted to addressing economic or community needs. Rather than the Internet shaping social capital, as is the case when the Internet spurs new social networks, the presence of social capital is shaping the Internet through the creation of specialized content. The creation of specialized content is a strong indicator of the connection between the Internet and social capital, because content creation only comes about if levels of trust about the Internet’s potential have been established in the “foot traffic” phase of the Internet’s development within an organization. 

The “Internet as catalyst” theme, whereby the Internet’s presence alters foot traffic, will figure prominently in this report.  If a community organization decides to provide Internet access and training, the organization may draw new people to it. This changes the character of the organization, while providing a different kind of place where people can gather. Similarly, economic development organizations have established new rules of the game in their cities by adopting social network strategies to encourage entrepreneurship.

Content creation comes into play less frequently in this report, but its impact is important when it is present.  When affordable housing providers come together in a city to develop a Web-based system to track the supply and condition of housing, this Internet content greatly improves operating efficiencies for clients.  When neighborhood nonprofits help residents create Web pages for their home businesses, this reflects a growing level of trust in the neighborhood, and the content on the Web pages represents economic opportunities that benefit individuals and communities.  It takes time for content to translate into higher levels of trust in a community, but Internet-driven social capital is not likely to arise unless the initial catalytic effect from Internet planning translates into content. 

Some have pointed out the limitations in linking the Internet with social capital.  As Putnam has written, “[V]ery few things can yet be said with any confidence about the connection between social capital and the Internet.”4  Putnam acknowledges the potential for the Internet to build social capital, because the Internet is, after all, a network that connects people.  He rightly concludes that “the Internet will not automatically offset the decline of more conventional forms of social capital, but it has that potential.”5  It is this potential—the ways in which communities are beginning to try to convert this potential into reality—which this report charts.

  1. Robert Putnam, Making Democracy Work: Civic Traditions in Modern Italy. Princeton, NJ: Princeton University Press, 1993, p. 167.
  2. Putnam, Making Democracy Work, p. 179.
  3. Douglass North, Institutions, Institutional Change, and Economic Performance. New York: Cambridge University Press, 1990, p. 93.
  4. Douglass North, Institutions, Institutional Change, and Economic Performance. New York: Cambridge University Press, 1990, p. 93.
  5. Putnam, Bowling Alone, p. 180.