Is Black business paving the way?

Black Enterprise, June, 1996 by Eric L. Smith

WHAT'S THE STATE OF BLACK BUSINESS IN 1996? Well, that depends on who you talk to and what information you choose to believe.

Despite scrutiny and legislative attempts nationwide to limit black business opportunities, black businesses appear to be doing well. Black businesses have grown, even in the less-than sunny atmosphere of the U.S. Supreme Court decision in Adarand v. Pena, which required affirmative action programs to meet stricter scrutiny standards, along with congressional proposals to eliminate the Minority Business Development Agency. Even with the imminent elimination of the Small Business Administration 8(a) program and other congressional efforts, namely the Dole-Canady bill, to end affirmative action across the country, black businesses seem to have thrived.

According to findings released by the U.S. Census Bureau's 1992 Survey of Minority-Owned Business Enterprises, the past several years have been good ones for black-owned businesses, at least in terms of the number of start-ups. According to the report, the number of black-owned businesses starting up for the first time increased by 46% between 1987 and 1992.

BE Board of Economists member Margaret C. Simms, a research director at the Joint Center for Political and Economic Studies, recently conducted her own survey examining the phenomenon. She looked at close to 600 companies, using firms surveyed while compiling the BE INDUSTRIAL/SERVICE 100 list of the largest black-owned firms in the country. Simms also surveyed firms within the National Minorities Supplier Development Council networks in four states--California, Florida, Illinois and Texas.

The results of her study specifically looking at BE firms were as wide-ranging as they were revealing. Simms found that minority firms are growing and that they are growing quickly. Over 50% of the minority companies responding reported that between 1992 and 1993 their gross sales increased by over 10%; one-quarter had increases of 25% or more. The firms are 11 years old, on the average, and almost a decade younger than the companies in her non-minority sample. Over one-half of the minority companies' CEOs had less than $25,000 to start their businesses.

Over one-half of the minority firms are located in the central city and many are accessible to public transportation, Simms reports. Several are selling in national markets. While many are small, nearly 40% have over 15 employees, and 10% have workforces in excess of 100. The survey also indicates that the firms recruit in low-income neighborhoods. (For more information about Simms' findings, see "How the Census Bureau Devalues Black Businesses," this issue.)

Given these facts, the question arises as to how much of an economic and social impact these companies exert on their surrounding communities. Are they merely benefiting their owners and CEOs? Or are they truly having a measurable effect on people's lives in the communities they are located in? Despite the initial optimistic results of her study, Simms sums up her findings by saying, "I don't think we can expect minority businesses to be the sole salvation of their community." She tempers this by adding that the strengthening of black-owned businesses would be a vital component in any effort to revitalize the African American community.

The BE Board of Economists (BEBE) recently met in New York to discuss that dilemma and review Simms' study. Other topics for discussion included the ongoing debate on the flat tax and what that might mean for black-owned businesses, as well as the upcoming November elections, and what is at stake for African Americans in general. Participants included BEBE members David H. Swinton, president of Benedict College in Columbia, S.C.; Marcus Alexis, dean of Northwestern University in Illinois; Andrew F. grimmer, chairman of the D.C. Financial Responsibility and Management Assistance Authority in Washington; Cecilia A. Conrad, economics professor at Pomona College; and BE Publisher Earl G. Graves. Thomas D. Boston, economics professor at the Georgia Institute of Technology, and Lucy Reuben, dean of the School of Business at South Carolina State University were guest BEBE members.

MAKING AN IMPACT

The board first took issue with the Commerce Department's census report which indicated the large increase in the start-up of black-owned businesses. While the census results are encouraging, they do not paint an accurate picture, says Simms. So while black business start-ups may be on the rise, it's impossible to determine from the census data how much of an increase there was. The problem is that the information was compiled solely from tax records and includes only firms that can be linked to individual tax returns. As a result, the only firms represented are individual proprietorships, partnerships and Subchapter S corporations. Many of the larger black Subchapter C corporations were left out of the report altogether, a fact that leaves the validity of the census report open to debate.