There is a relationship between urban life, economic vitality, and community diversity that is rigorous, significant, and overlooked when we seek to address some of the issues of urban ghetto conditions.

Urban life is economic life. Jane Jacobs taught us this lesson. The greatest per-capita-income-per-square-miles areas on this earth are the city states of Singapore and Hong Kong, which reached their ascendency since Jacobs's first book Death and Life of Great American Cities, in 1963.

We only need go a little farther to recognize that the first great center of commerce was Venice, an urban city state. Japan's productive engine can be related to the great size of Tokyo and its huge population. The same is true for Amsterdam.

On a macro scale of national productivity and urbanity, we find that national GNP/per-capita figures correlate with the percentage of the population that is urban. That is, the more urban the population, the more its economic output.

Urban life is economic life. Why? The answer is is not obvious, and the reason it is not is that we have an unclear understanding of the roots of commerce. We commonly limit our thinking about commerce to only the past century and a half of industrialization, and this has misdirected our attention to the role of factories, rail lines, and mass production. Instead, the underling engine of commerce which is trade.

The great commercial cities of the past two millennia had three distinct qualities in common: general safety, a safe market, and a safe community for a variety of ethnic peoples. These qualities are cumulative and synergistic.

Much trade is based on semi-durable goods that can be stored and transported, such as spices, fabrics, metal objects, and craftwork. These goods and their producers need safety for storage and production. Cities have traditionally provided this. Sometimes safety is the result of being surrounded by water and being guarded by a good navy, like Venice and Amsterdam; sometimes, it is the result of a good city wall and strong, stable government, as in the cases of Carthage, London, and Istanbul.

General safety provides a basis for a safe marketplace. A marketplace is a densly populated location where many buyers and many sellers can converge at one time. The result is efficiency. Sellers can maximize their total revenue, and buyers can minimize their expenses. Everyone minimizes travel, communication, and research time in a dense marketplace. The more convenient a marketplace is, the more suppliers it will draw, and the more suppliers that are drawn, the more crafts producers and the more buyers who arrive. The fundamental economic mechanism is in place.

An urban area is really a large marketplace densely built of durable materials: buildings and streets. When Americans moved to suburban areas in the past half century, they moved the marketplace part of the city with them into dense locations called shopping centers.

The third element that arrives with a large, safe marketplace are ethnic traders. These are the commercial specialists who can make the difference between a minor and a major market. They make it possible for trade to extend over vast areas with their contacts and family connections.

There is no space here to describe the unique attributes that make these ethnic peoples effective traders, but they have retained these attributes for millennia. Ethnic traders have included Phoenicians, Senegalese, Fulani, Berbers, Chinese (especially from the Quandung area), Jews, Vikings (especially the Danes), Portuguese, Venetians, Indians (from Bombay), the Dutch, and a few others. Many societies have also had small sub-ethnic peoples who were and are trade specialists, such as the Swedes in Smarland, the Zurich Swiss, the Osaka Japanese, and the French Hutterites.

This point is made by Donald McClosky, a professor of economics and history, in The American Scholar, Spring 1994: "The virtues of the bourgeois are those necessary for town life, for commerce, for self-government. The virtue of tolerance, for example, can be viewed as bourgeois. Its correlations in European history, such as [the contrast] between Spain and Holland, suggest so. . . . Trading creates a skepticism about certitude . . ."

An urban area, a great city, is almost by definition a location where ethnic trading-specialist populations can be found living peacefully in established communities. Their dense proximity has the same relationship to trade as a wheel has to a wheelbarrow: They allow trade to function. When they are driven out by war, religious zealotry, or other intolerance, trade declines and the remaining homogeneous city becomes a barren market&emdash;witness Beirut and Sarajevo today, Moscow and St. Petersburg from the Bolshevic revolution until the 1980s, Washington, D.C. in the 19th century, and nearly every small to medium-size community around the world now and in the past.

To repeat my point, an urban area becomes a vital economic engine when it provides sufficient safety for a dense market life, and this marketplace becomes important when it is tolerant of and safe for diverse groups of ethnic trade specialists.

What about industry? Forget it. Industry is the factories that provide the low-cost goods that fill the traders' stores and windows. The factories long ago moved out of the cities onto low-cost land and off to low-cost-labor nations; they'll never be back. Cities are still the marketplaces and will continue to be so. How does this relate to urban America today? The poorest areas are the least safe, with the fewest operating retail stores and with little ethnic diversity. Sometimes it is made worse when traditional intolerance drives minorities such as the Korean, Lebanese and Chinese merchants out of the neighborhood.

Is it possible to reverse the patterns that maintain ghetto poverty in a commercial wasteland? Possibly, but tackling all of them at the same time seems to be essential, since no single piece will grow without the others. It also requires using the wisdom of Jane Jacobs.

Jacobs showed in her 1963 book that urban life was safe because of the density of small retail stores, people living above the stores, and the perpetual street activity. How could we create this in existing rundown neighborhoods?

We can do it with penalties and rewards in the property tax system. An entire urban retail area with accompanying residential life could be generated within a special ad valorum tax district aimed at fostering safe street life.

Ad valorum is the technical name given to a tax system used in Portland, Oregon, to revitalize its downtown area. Property taxes in the designated Portland districts were frozen, and all new taxes arising from increased property values were used entirely within in the district to subsidize the renovation of retail buildings and to hire 24-hour foot patrols. The more the property values in the special ad valorum districts increased, the more money there was to make improvements. It was and is a spiral upwards toward street life, safety, and ethnic diversity (ethnic trade specialists were the first to be attracted to these newly revitalized areas).

Some cities could do even better than Portland if they built on the that city's experience. At the same time, they need to understand that Portland didn't have as far to go, because its downtown was not as rundown as that of most other U.S. cities.

Three innovations would accelerate the process. First, in the creation of safe retail street districts, basic property taxes may need to be reduced to zero or near zero for conforming lots, with twenty-year commitments. The long-term return would be warranted when the district special-subsidy expired. And expire it should. No ad valorum district should be designed to last more than twenty-five years, or the districts could become overly cautious and self-serving, like U.S. farmers who can't give up their subsidies even in good times.

Second, the design of the ad valorum tax needs to create street life by taxing sidewalk frontage. The tax should be nill if 100 percent of the street frontage is an open-window coffee shop with tables outside in good weather. The tax should be at its maximum for a blank wall, garage door, or empty lot. In between, the tax level would be determined by the extent to which the frontage appealed to pedestrians' interest and provided a feeling of social interaction and safety. The ideal street frontage has a 100 percent business-and-social interaction with the pedestrians and no blank walls or dead spaces.

Third, zoning should require that retail stores and street-level spaces be surmounted by apartments and living spaces with windows that open and face the street.

Revenue from ad valorum taxes should be used decisively for safety and renovation subsidies. but specific decision making should be at a local democratic level.

What about diversity? It's needed, and it follows from the creation of safe retail areas. If Portland is an example, ethnic trade specialists will be the first to open businesses in newly renovated areas. Slowly, within a few years, their newly arrived immigrant relatives will settle in the renovated district. Diversity thus should occur quite steadily, and because it brings economic vitality, it would be appreciated by all the neighbors.