Government Needs to Do More to Encourage Minority Entrepreneurs
Part 1 in a 2 part series
It’s an undeniable fact – you cannot have real equity until you have financial parity. The wealth gap in this country has continued to increase, and minorities are far behind in key indicators such as household income and homeownership. For many Americans, the opportunity for wealth creation comes through entrepreneurship. A recent study found there are more than 31 million entrepreneurs in the U.S., representing about 16% of the population. This same study also found that African Americans start businesses at a higher rate than the White/Caucasian and Hispanic/Latino ethnicities.
Unfortunately, many black-owned businesses start with fewer capital reserves and are much less likely to survive inhospitable business environments such as we now are experiencing with COVID-19. 41% of African American businesses have closed during the pandemic versus 17% of white-owned companies. And it doesn’t help that minority owned businesses are often overlooked by the U.S. government, which often touts its commitment to racial equity.
For example, a recent study found that the Federal Government during the Trump administration awarded $23b of government contracts towards COVID-19, but only 4% of those went to black-owned businesses. And state governments are certainly not making up the difference. Dr. Randal Pinkett, CEO of BCT Partners, recently spoke out about his frustration. Although his consulting firm has grown to become the second-largest black-owned company in New Jersey and the 92nd biggest in the United States – he has not secured a single dollar in state contracts, despite multiple efforts. “It has been an absolute cesspool, an absolute mess, an absolute wasteland of me trying to find opportunity from the very state that produced me,” Pinkett said.
With the changing landscape of employment opportunities, it is essential for our government to be supportive of Inclusive entrepreneurship as it can provide career options for people of all ages, gender, and ethnicities. As Babson College, Associate Professor Julian Lange said, "Entrepreneurship can fill employment gaps in the economy and enable people to pursue the career they desire. Thus, we must equip people with the ability to pursue entrepreneurial opportunities and start businesses when they need or choose to do so." Lange continues, “It’s also critical to identify groups that may be underserved in the entrepreneurship ranks as entrepreneurship can enable them to be generators rather than consumers of income.”
So, what can we do to eliminate these disparities? American Progress.org has created a blueprint for how the government could become a champion of minority entrepreneurs by revamping the Minority Business Development Agency (MBDA). American Progress has outlined five steps that the agency could take (given the proper funding) to mitigate the disparities among white and black-owned small businesses. The MBDA is sorely underfunded right now, with an agency budget of nearly 60 million in 1981 to less than 40 million in 2017. And the payoff of increasing budget and enacting the five steps that American Progress has outlined is not insignificant. Their research shows that “If financial capital were more evenly distributed and Black Americans enjoyed the same business ownership and success rates as their white counterparts, there would be approximately 860,000 additional Black-owned firms employing more than 10 million people.”
At a state level, critics agree that there has to be more accountability. There has been no significant improvement in state government spending with minority-owned businesses despite years of affirmative action programs. A federal study released in early 2017 found the needle has barely moved on boosting minority business participation in public contracts. Much of this can be attributed to lack of consequences. For example, while many states have mandates in place such as Massachusetts where public projects are required to hire a certain percentage of minority and women-owned businesses, those requirements are not being monitored. In fact, over the last two decades, adjusted for inflation, the value of Massachusetts contracts going to minority-owned businesses has actually fallen 24%. That's $135 million less per year paid to minority entrepreneurs.
However, a recent success story is Philadelphia where the Mayor’s office has prioritized contract spending with minority businesses. Iola Harper, who heads up Philadelphia's office of economic opportunity, said "You really have to have buy-in from the top. The boss of the city, not their boss, but their boss's boss, expects that there's going to be some inclusion. They know that part of my evaluation or part of what my boss is looking at is my ability to be inclusive and be equitable."
So, if new administrations at the federal and state level really want to equal the playing field, they might want to consider some of the suggestions offered by American Progress as well as examples of a city like Philadelphia. In fact, as the U.S. becomes more diverse, governments may not have a choice but to be more inclusive. It will be the only way to ensure economic growth for the U.S. and enable a prosperous future for the next generation.
In part 2 of our series, we will take a look at how other institutions such as universities are playing an important role in providing guidance for minority entrepreneurs. Innovative programs including incubators for start-ups could help turn ideas into long-term viable businesses.
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