In this paper the authors seek to build a new case for neighborhood-oriented government programs, primarily based on economic, rather than moral, political, or social policy considerations. Serious government investment can provide a base for much expanded service sector employment in neighborhoods in the central city and aging suburbs. Agglomeration effects in expanding service industries remain important for productivity, in spite of decentralization. Furthermore, the costs of decentralization impose constraints on further suburban growth. Urban neighborhoods can provide relatively high-productivity locales for service industries, because of existing infrastructure, a large labor force, proximity to downtowns, local entrepreneurs, and the enduring advantages of density. However, programs are needed to improve public infrastructure to increase productivity; invest in human capital; and strengthen the competitive position of neighborhoods through quality-of-life improvements.
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