Issue #107, September/October 1999
To turn communities around, training programs must teach a double bottom line.
By Michael H. Shuman
A remarkable left-right consensus has emerged that one of the most promising
ways to address poverty these days is through minority business development.
Politicians, policymakers, philanthropists, academics, corporate heads,
and even activists are touting the virtues of entrepreneurship. This has
come about from a confluence of factors: mounting concerns from liberals
and conservatives alike about the paltry results from more than a generation
of entitlement programs; the proliferation of legislation to replace "welfare
as we know it" with stiff work requirements; and a broad recognition, even
by many social activists who were once resolutely anti-business, that conversion
of the poor into successful proprietors of small enterprises is one of
the few politically viable tools left to revive America's inner cities.
A study this year by the Office of Advocacy in the U.S. Small Business Administration estimates that between 1987 and 1997, the number of minority-owned businesses more than doubled, and their revenues and number of employees nearly quadrupled. Much of this growth, however, came from recently arrived Asian and Hispanic immigrants. Moreover, of the half billion dollars in revenue minority businesses generated in 1997, Asians produced more than half.
In contrast, business growth among African-Americans, arguably the poorest minority group in the country, has been disappointing. On average, an Asian-owned business is grossing $250,000, a Hispanic-owned business $130,000, and a black-owned business only $70,000. While African Americans represent 13 percent of the population, in 1997 they owned only three percent of all U.S. businesses and these generated two percent of the nation's business revenues. Of every dollar an African-American spends in this country, less than two cents go to black-owned businesses. And, according to the National Black Business Trade Association, black businesses are falling further behind every day. In 1987, African Americans owned some 35 percent of minority-owned businesses; today that number has declined to 29 percent.
To help counter this trend, nonprofit entrepreneurial training programs have cropped up to serve young people in minority communities. Here are some recent examples:
Criticism of the president's initiative, however, immediately must be tempered by two observations. First, Clinton's dance with the multinationals is no worse than what many community activists have done over the past generation, when, for example, they have worked to bring a Safeway into an inner-city rather than focus on starting new locally owned supermarkets. And second, most Republicans in Congress have decided that even these modest initiatives are politically repugnant. Chances are good that most elements of the New Markets Initiative will not happen, at least in the near future.
If a new model of entrepreneurship that benefits the inner city is to emerge, it must come from community-minded activists, philanthropists, and small businesspeople. And while the spread of nonprofit entrepreneurial training programs for low-income Americans is a hopeful development, most of these programs still fail to link business development with community development. It's therefore all the more important that we ask tougher questions of our fellow community activists who are promoting business training for young people.
Consider, for a moment, NFTE's widely publicized work, which typifies the strengths and weakness of most entrepreneurship training programs. Businessman Steve Mariotti founded the group in 1987 with a mission "to teach low-income youth the basics of starting their own business by creating curriculum, training teachers, and providing graduate services." Endorsed by a broad spectrum of CEOs, public figures, and politicians, including many liberals like former New York Mayor David Dinkins, NFTE has an annual budget of $5 million and boasts some 20,000 "graduates." Yet what exactly is NFTE teaching?
To find out, I purchased nearly $200 worth of their guides, workbooks, and study modules. On the inside cover of How to Start and Operate a Small Business: NFTE Fundamentals is the old quote of Lao Tzu: "Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime." Looking for evidence that NFTE was teaching community-friendly entrepreneurship, I then perused the materials with three questions in mind:
What kinds of goods and services are being produced? Are the new businesses producing fish genuinely needed by the hungry in the community, or Pet Rocks and Saturday Night Specials? The business example used by NFTE throughout its materials is T-shirt silkscreening. The only important question, according to NFTE, is that the product "must satisfy a need of the consumer," not the myriad needs of the community.
How are the goods and services produced? If you learn how to be a fisherman, will you also learn the importance of paying livable wages and giving health-care coverage to your employees, or of taking care not to dump garbage into the spawning grounds for the fish? The NFTE materials have a section on "ethical business behavior," but the focus is on ensuring that customers feel you are punctual, reliable, courteous, and well dressed, and that employees do not feel "used" no mention is made of the role of wages or benefits.
Finally, who owns the fishing gear and the pond? Is the ownership local, or is it a branch of Starkist Inc. with little commitment to the community? The NFTE guides states: "Businesses come in three basic legal structures: The sole proprietorship, the partnership, and the corporations." But the business structures with the most proven loyalty to a community cooperatives, municipally owned, and community stock-held companies are not even mentioned.
I don't mean to single out NFTE, because most entrepreneurship programs do exactly the same thing: present a simplified version of a business school curriculum, where students are taught to maximize personal gain period. It's hard to object to the poor making more money, but for low-income communities to truly benefit from business development, the other three goals for community well-being should be taught as well: businesses should be attentive to the what, how, and who of production. While much has been written about the importance of the how of production that is, labor and environmental standards the what and who elements warrant brief elaboration.
Meeting Local Needs
Entrepreneurial programs rarely focus on what exactly they encourage their entrepreneurs to produce. While they do not encourage their graduates to make obviously nasty products like tobacco and nuclear weapons, the critical scrutiny rarely goes much deeper. If thousands of inner-city kids use their training to manufacture T-shirts or similar products, it's fair to conclude that the impact on community development will be nil.
A simple tenet of community entrepreneurship is this: Tailor your goods and services to meeting your community's basic needs like food, energy, and housing first; once these are met through local production, then consider moving into exports. This approach to business creation is important for several reasons.
First, the best community-minded training programs teach their entrepreneurs fulfilling unmet local needs is, by definition, going to be better for the inner city than exporting yo-yos. One such program is Urban SEED (Sustainable Economic and Environmental Development), based in Alameda, California, which encourages its trainees to focus on microenterprises that grow organic food and generate renewable energy. Another is the Detroit Farmers Cooperative, which operates seven community gardens and five neighborhood-based markets, all run by seven young African Americans, 14 to 16 years old. And the Hope Takes Root program, also in Detroit, employs homeless men to grow food for local meals programs for the poor.
Second, a community that moves toward self-reliance is often rewarded with a higher economic multiplier. Economists sometimes assert that a community should be indifferent about whether a new enterprise produces $100,000 worth of apples for export or $100,000 worth of apples consumed locally, since each injects $100,000 of productive activity into the local economy. There is a difference, however. In both cases, the producer realizes $100,000 of gain and re-spends it in the local economy. In the latter case, however, consumers also spend $100,000 locally that they otherwise would have had to spend outside the city to import apples. Every time a community chooses to import an item it could just as easily make for itself, it's giving away another piece of its multiplier.
Finally, a self-reliant community enjoys greater tax receipts. Again, the business taxes from the $100,000 exporter and the $100,000 import-replacer are identical. But in the latter case, the higher economic multiplier in the rest of the community means that taxes from other enterprises in the city will be higher. Plus, the city can enjoy sales tax (the U.S. constitution bans sales tax on interstate or international commerce). Higher tax revenues mean better schools, police, roads, and so forth.
Most minority training programs pay as little attention to the who of production as they do to the what. If they did, the defects of well-intentioned proposals like Clinton's New Markets Initiative would be widely appreciated and roundly criticized. But too many entrepreneurship initiatives measure success by the number of local companies that become publicly traded stock companies and the number of entrepreneurs transformed into millionaires. When a company goes public, however, the ownership link to a community is almost always severed. A dozen thousandaires who keep ownership of their businesses local are far more important to the community's well being than is one millionaire.
Unless an enterprise is anchored to the community through dispersed ownership, its owners are likely once successful to move to the suburbs (or, if they're really successful, Mexican maquiladoras). When that happens, of course, the economic multiplier and tax payments no longer benefit the inner city. Businesses owned by inner-city residents, in contrast, can become long-term assets for local development, and unlike their global competitors with no links to place, when labor and environmental standards rise, such businesses tend to adapt rather than flee. One of the few National Football League teams that has not tried to extort a new stadium or other bribes from the community by threatening to move if its demands were not met is the Green Bay Packers a community-owned nonprofit.
Young people who pass through NFTE's and other conventional entrepreneurship programs are never exposed to the kinds of business structures that are economically viable and supportive of the community. For example, they would never learn about the successes of nonprofits (currently constituting 6.5 percent of the U.S. economy), cooperatives (47,000 nationwide) and worker-owned businesses (including 2,500 in which employees own the majority of stock shares). They would not know that Ben & Jerry's placed residential restrictions on the first public offering of their stock to keep control of the company in Vermont (though subsequent offerings were conventional and diluted local control), or that North Dakota operates a system of state-owned savings banks.
The Right Stuff
Positive examples of entrepreneurship training programs sensitive to community do exist, though they lack the large budgets, corporate sponsors, and high media profile of mainstream programs. Take youth credit unions. More than a dozen programs in the country teach young people how to run community banks. The D.E. Wells Youth Credit Union, started in 1988, now has over a thousand members 18 and younger. The president of the Youth Credit Union Development Project in North Carolina is 12 years old. Since community development credit unions, by their legal charter, must provide local loans and are owned by the members who live in the community, they embody and teach the principles of community entrepreneurship.
Or consider urban farming. For several years, the Rev. George Singleton's Hope L.A. Horticultural Corps trained young and at-risk gang members to plant flowers, herbs, vegetables, and trees in vacant lots in South Central Los Angeles. Sales of the produce paid for the project, including coursework and hands-on training. In Detroit, the Foundation for Agriculture Resources in Michigan (FARM) provides internships to 19 African-American kids over the summer to teach them how to run a cooperative urban farm. These projects aim to teach the virtues of urban self-reliance in food and in locally owned farms, markets, and cooperatives.
In the Bronx, Max Blake's training program, Recycling Solutions, took advantage of skills at-risk kids already had stripping cars and reselling the parts. He taught them how to locate and disassemble abandoned vehicles, legally, that is. The program taught all the skills of a NFTE course, plus the value of recycling materials, cleaning up the environment, and keeping business local.
Training for true community entrepreneurship is possible, but it will not happen automatically. Too many institutions in our society business schools, government training programs, even many progressive nonprofits like the NAACP are teaching their students to focus solely on the bottom line. That's a great way of helping a few street operators become rich. If trickle-down economics worked, that would be enough. But if we truly are going to turn around inner cities in this country, we must teach entrepreneurs that there's one other important bottom line the community's. Along with basic skills in accounting, marketing, management, and organizational development must be taught the value of high environmental and labor standards, socially useful goods and services, and local ownership. Failing to make these criteria essential features of entrepreneurial programs risks leaving poor communities behind for another generation.
Michael H. Shuman is author of Going Local: Creating Self-Reliant Communities in a Global Age (Free Press, 1998).