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ECONOMY
TOWARDS A STRONG BLACK ECONOMY
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TOWARDS A STRONG BLACK ECONOMY
INTRODUCTION
This paper was written to expand the dialogue on Black wealth accumulation through
business ownership. The associated problems, opportunities and solutions are also
discussed. Hopefully, concerned African Americans will be motivated by the
seriousness of these issues and mobilize towards a stronger Black economy.
7) Recommendations
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History Of Black Business
Instead of being a tribute to Dr. Martin Luther King's pursuit of economic equality,
"Martin Luther King Boulevards" throughout the country have become blighted
areas of boarded storefronts. The link to a tradition of black entrepreneurship was
broken. There are no established fathers or grandmothers to give young African-
Americans the jumpstart of legacy entries to business schools or down payments on
their first storefronts or management jobs in family firms. [2]
Today, 42 years after civil rights ended legal segregation in homes, schools, buses
and work, African American businesses are in a grave predicament.
Why this reversal in fortune? According to those who study minority businesses
(i.e. The SBA, U.S. Census Bureau, Minority Business Development Agency (MBDA)
and The Ewing Marion Kaufman Foundation) the causes are fourfold:
Venture Capital
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TOWARDS A STRONG BLACK ECONOMY
$2,000,000,000 $1,602,150,538
$1,500,000,000
$1,000,000,000 $706,666,667
$500,000,000 $105,882,352
$0
African American Asian Hispanic
Source: The Chapman Company, a Baltimore, Maryland investment bank and research
concern
Bank Loans
Minority businesses have traditionally been more dependent on debt financing than
majority firms. This makes them more vulnerable to trends that occur in the
financial services industry, including bank consolidations, decreasing numbers of
regional and community banks and the use of credit scoring [5]. The Federal
Reserve Board’s National Survey of Small Business financing, released in 1995
indicated that only 41% of those minority businesses surveyed obtained bank loans,
compared with 51% of White businesses. [5]
Another lending program, the 7(a) loan program, provides loans to small businesses
unable to secure financing on reasonable terms through normal lending channels.
This program allows private sector lenders to provide loans guaranteed by the SBA.
Although the number and dollar amounts of 7(a) loans have been increasing rather
steadily for all minority groups, not all minority groups have prospered equally. On
average (between 1990 and 2000), minority shares of the number and value of 7(a)
loans were as follows:
The following chart reveals a closer look at the nominal dollar value of loans to
major ethnic groups:
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TOWARDS A STRONG BLACK ECONOMY
Source: U.S. Small Business Administration, Office of Advocacy, based on data from SBA’s
Office of Financial Assistance
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In comparison, The Indus Entrepreneurs (TIE) and the Washington High Tech
Council have emerged as powerful networks of Asian entrepreneurs. Their ranks
consist of some extremely successful CEO’s who have become angel investors in new
Asian ventures. [4] In the Hispanic community, there is National Internet
Community of Hispanic Entrepreneurs (NICHE-Net). However, some also feel that
more Hispanics would be successful if they became involved in mainstream networks
for their industries. [4]
In many urban areas, the Asian and Hispanic Chambers of Commerce are intimately
networked with major contract providers, so once their clients are listed in their
databases, the network is used to get them contracts. In a similar manner, the
Chambers are networked with area banks to expedite loans and certification
agencies to facilitate minority certification.
Most MBA courses are geared towards large multi-million dollar companies. These
corporations have the resources to operate strategic, (long-term) programs. On the
other hand, grassroots Black businesses, with minimal resources, must govern their
operations by tactical (short-term), creative approaches. For example, bank-
financing strategies for African Americans must be more creative than taught in
traditional classes since, as noted previously, we infrequently get loans.
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Black business suffering reflects the state of Black wealth. The median wealth
level for African Americans is $4,300 versus $43,000 for Whites. [1] This is
important because wealth level determines an ethnic group’s access to
functional schools, number of competitive businesses, equal justice, essential
health care, personal comfort and the length and quality of their lives.
Why is there so little Black wealth? Let’s take a closer look at how wealth is
accumulated. In spite of the talk about home-ownership, with the accompanying 30-
year note, there are primarily two ways:
1) Inheritance
2) Converting Income
Inheritance
Being the descendants of slaves, African Americans have inherited far less wealth
than Whites have. White society owns or controls most U.S. wealth and power
resources and passes them on from one generation to the next. Wealth is frozen
and stored inside their race – in their families, culture, businesses, churches,
communities, education systems and organizations in the form of stocks, bonds,
land, insurance policies, trust accounts and foundations.
Converting Income
Wealth is created by converting active income (income from selling your labor) into
passive income (income from the ownership of property - businesses, churches,
communities, education systems, bonds, land, insurance policies, trust accounts and
foundations.). Although Black active income is high, as evidenced by abundant
consumer dollars, issues of financial literacy and immediate gratification obstruct
its translation into passive dollars – and therefore negate wealth creation.
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TOWARDS A STRONG BLACK ECONOMY
Another timing opportunity comes from the markets, technology and consumerism
change in the overall business community. [5]
These dynamics have transformed in such a way that it is again favorable for
entrepreneurial-minded Blacks to benefit.
Markets
Over the past ten years, most corporations have reengineered many of their
processes, including procurement. They continue to search for new ways to
decrease administrative expenses and other costs, while increasing the efficiency
and effectiveness of their operations. Included are a greater use of e-business
strategies, greater outsourcing of non-core competencies and exploration of new
markets.
Technology
Black businesses must understand the trends in the increased use of technology.
They must participate in the electronic streamlining of networking, marketing,
purchasing, selling, and other processes.
Furthermore, Black businesses must realize and act on the fact that business-to-
business commerce is projected to be a major growth area in the Internet economy.
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Consumerism
According to Selig Center estimates and projections of buying power for 1990-
2007, African American buying power will increase from $316.5 billion in 1990 to
$852.8 billion in 2007, up 170% in a seventeen-year range.
As with other minority markets, the Black target market will grow much faster
than the White market, where buying power will increase by only 112%.
The current off shoring of jobs and corporate downsizing has seen the downfall of
some organizational icons (i.e. General Motors, Ford, and Enron). As a result, many
good, hard working people are without work, through no fault of their own,
especially if they are African American.
Becoming a business owner allows one to take charge of their destiny. They are
permanently on the payroll. In addition, their employment is not a management
decision, as it is when 20 staff members are let go to ensure one executive’s golden
parachute.
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Another point of special interest to African Americans is job creation. In this high-
tech age of corporate off-shoring, Hispanics taking over lower-skilled jobs, Asians
and Indians taking over higher-skilled jobs and corporate icons letting workers go,
where will our children work?
They say the future of the U.S. economy is small business. However, small business
is immigrant dominated and they hire their own. If the numbers and receipts of
Black businesses are still on the bottom of the economic ladder, our future
employment is at stake!
Job creation through prosperous Black businesses is our way out of this dilemma.
For a long time, wage earners have suffered heavy tax burdens, while business
owners have kept money in their pockets. Becoming a business owner will allow Black
people to legally manage their tax liability – through depreciation, credits, and
other tax incentives. A business owner can save substantial funds from taxation.
It is not relevant whether the business coach has direct experience in your
particular business. In fact, it is often better if she does not. What he offers is:
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Insights from the business coach help establish realistic goals for success, and a
systematic approach to getting there. From her stable of clients and business
research the Black business coach has vision to see those things that
entrepreneurs cannot — such as:
With the downsizing trend, big businesses are becoming lean and mean by turning to
outside operational, administrative, computing, marketing and business coaches.
What can a small Black business do to stay competitive? It can hire a Black
business coach who provides the same services as the big firm gets, only on an
affordable, ―as needed‖ basis from someone who really cares.
Profits often rise after outsourcing to a Black business coach. Slowly at first then
gradually accelerating to a delightful pace when the business owner has more
confidence in the moves he makes. The business owner has more time to work on
the business instead of in it.
Recommendations
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Ethno Aggregation
Vertical Integration
These concepts become guidelines, regarding racial matters, initiating new ways to
see, think, behave and bring African Americans together as a team. The following
are condensed definitions:
Ethno Aggregation
Vertical Integration
Vertical Integration is the process that takes place after an ethnic group has
concentrated their resources. The resources are moved up the chain of business
distribution (i.e. retailer, to wholesaler, to distributor, to manufacturer, to raw
materials extractor) and compete at each level with other ethnic, religious,
language or gender groups.
The old civil rights model of horizontal integration of cultural diversity with cross-
cultural dependencies has proven to be ineffective. Strategies implemented to help
start, run and grow Black businesses must function under the new model guided by
the concepts of Ethno-Aggregation and Vertical Integration.
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Recommendations
Move out of the box with creative financing tactics such as; bootstrapping,
cooperative economics, and bartering
Implement Internet technologies to gain business process efficiency and
upgrade business image
Implement Internet technologies to pull together, network and become more
competitive
Use Black Business coaching to bridge business education gaps
Encourage and support the concepts of Ethno-Aggregation and Vertical
Integration
The following strategies serve to transform the above goals into workable tasks:
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Footnotes
[1] Isabelle de Pommereau, ―Why Black Financial Progress Is Running into Speed
Bumps‖, Christian Science Monitor, 4 February 1998,
<http://search.csmonitor.com/durable/1998/02/04/us/us.2.html>
[2] ―Economic Opportunity for Minorities Is True Freedom‖, Denise Meredith, The
Business Journal-Phoenix, 2002
[3] ―Rebuilding the Black Entrepreneurial Spirit‖, James Clingman, The Final Call,
<http://www.finalcall.com/perspectives/entrepreneur04-30-2002.htm>
[5] ―The New Realities for Minority Business‖, Minority Business Development
Agency (MBDA)
[7] ―Powernomics: The National Plan to Empower Black America‖, Claud Anderson,
Ed.D, Powernomics Corporation of America, Inc., 2001