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We Must Revitalize and Expand the Black Business Sector

Lea Hargett, President, Minnesota Black Chamber of Commerce

 

lea hargett

Lea Hargett, President, Minnesota Black Chamber of Commerce

To a greater degree than any other major ethnic group, African Americans are ensnared in poverty, unemployment, failing schools, low-wage work and crime-ridden neighborhoods. Although local African American leaders and the philanthropic and non-profit community have made significant and meaningful progress in addressing many of these problems, much work remains to be done.

 For many, pathways to meaningful participation in the economic life of the metro remain blocked. This leaves many potentially productive individuals unprepared to survive in the new global economy and puts them in danger of falling into the ranks of a permanent underclass. This economic underclass, increasingly isolated from education and the skills-oriented knowledge economy, will continue to create tangible and increasing costs that will weigh down economic growth and subtract spending from other priorities. The costs will be most apparent in rising social service spending, as well as rising state spending associated with a wide range of remediation. Among the most costly is criminal justice.

 According to the survey data released last month by the U.S. Census Bureau, the median income for African American households in the state of Minnesota fell 14 percent from 2014-2015. That was a decline from about $31,500 to $27,000 – or $4,500 in a single year.

 The median black household in Minnesota is now worse off than its counterpart in Mississippi. Among the 50 states, Minnesota ranks 45th in median black household income. Mississippi ranks 44th.

The question is “Will the state, its political leadership, its African American citizenry, and its’ private sector and civic community find the know-how, the political will, and the resources to address this “state-of-emergency”? And if so, what methods will be used to solve these problems? These are the most critical questions facing the metro as it moves forward into this crucial time.

 In a Nielsen Opinion Poll of African Americans Entrepreneurship and job training/worker support were strong and recurrent themes in connection to achieving a strong economic future. Knowing that there is not one answer to the question of “How to expand MN African Heritage Wealth”, I suggest we Encourage Entrepreneurship. Let’s consider the significance of the barriers of small business and the positive impact of small business within our inner city.

 There are several important determinants of success in small business ownership.  Racial disparities create barriers to small businesses that directly impact business performance. The relative lack of success among African American owned businesses is attributable in part to three potential barriers – financial capital, family business background, and human capital. Over the past several years, the chamber has surveyed its members to identify the top three barriers to sustaining and growing their business, and all respondents identified access to financial capital as the number one barrier.

 Financial Capital

 The level of startup capital invested in any business is strongly associated with business success. Firms with higher levels of startup capital are less likely to close, have higher profits and sales, and are more likely to hire employees.

 Differences in startup capital may be due to differences in the personal wealth of the entrepreneur because this wealth can be invested directly in the business or used as collateral to obtain business loans. Personal wealth among African-Americans is one eleventh that of whites. Part of these disparities in wealth are due to blacks being less likely to own homes, having lower home values, and having lower equity to debt ratios in their homes. Many black businesses face lending discrimination, and black people typically have less access to family wealth through inheritances, loans and equity investments.

Family Business

 An examination of determinants of business outcomes reveals a nuanced role for the owner’s family business background in contributing to success in business ownership. Simply having a self-employed family member has no significant effect on business outcomes. In contrast, working in that family member’s business leads to a more successful business. Black business owners have a relatively disadvantaged family business background compared with white business owners. The lack of prior work experience in family businesses among black people, perhaps because it restricts their acquisition of general and specific business education, limits the successfulness of their business compared to whites.

 Human Capital

 There is a strong positive relationship between the educational level of the owner and business performance. Although African Americans have made substantial gains in education, large racial disparities remain. Lower levels of education among Black business owners translate into disparities in business outcomes.

 A study by the Joint Center for Political and Economic Studies (JCPES) found that the creation of minority-owned businesses has a significant impact on minority employment. It sited that minority-owned businesses were more likely to recruit workers from inner-city neighborhoods than non-minority firms. Other researchers also have found that small, white-owned businesses were less likely to hire minorities, as compared to small, black-owned businesses.

 Nationally African-American entrepreneurship is on the rise at rates greater than the general population, according to data from the Census Bureau. Due to high unemployment, many African Americans have turned to entrepreneurship out of necessity where job growth has slowed or disappeared. This trend is likely to continue for all Americans as we continue to shift to a new, globally competitive economy.

Supporting job creation among African American business owners and starting more African American businesses are two solutions to stagnant unemployment numbers in the African American community.

 A report released by the Association for Enterprise Opportunity, “Bigger Than You Think: Gina Wood commented that “businesses with fewer than 5 employees are called microbusinesses. Since 2002 they have created 5.5 million jobs. While large businesses (500 plus employees) lost jobs between 2009 and 2013, microbusinesses were the only ventures creating jobs during the same period.

 Microbusinesses are described as a viable option for “unemployed persons, persons 50+ and underserved groups such as women and Blacks to attain self-sufficiency amidst a mercurial labor market, and as long-term job stability becomes more elusive. For these demographics, self-employment offers a pipeline to wealth-creation that might not otherwise be possible.”  We must revitalize and expand the black business sector here in Minnesota.

 Overall the potential benefits may be large because if you simply increase the number and average employment of African American businesses by only 10 percent that would result in the creation of 1 million new jobs for minorities.

 There needs to be a real push within the African American community to promote and utilize entrepreneurialism as a way out of poverty and a one-way ticket to achieving the American Dream. The push in this direction needs to start now.

Today, it’s not what’s being said that’s important. It’s who we are saying it to that should sound our inner alarms. Today, we are telling ourselves we need to encourage, prepare, and support the creation and sustainability of black businesses.

 As the Black Chamber of Commerce we stand as the mirror alongside those of you and others in our community. We are the mirror that lets our children and community know their value, worth, ingenuity, creativity, innovation, and genius.

The message I bring to you today is that we can no longer afford to keep bailing ourselves, our families, and our businesses out with a thimble. We need big ideas, big plans, and big action.

 We have been asking for a long time but despite good intention that has created conversation and studies versus real commitment, action, and change. We need to demand the resources, and access to capital that it takes to generate a vibrant, sustainable black economy.

 The days of letting our community be ravaged, one drip at a time, must end now. The leaks won’t stop with drip-size asks or drop-size efforts. We’ve got to think big!

Now is the time to look at ourselves. And, now is the time to reach out, collaborate, and go big, or go home.

 In the past year, the MBCC has developed new and different ways of looking beyond ourselves, reaching out to the people in our world we desire to serve. We created and are launching our new Chamber Member Software Platform, which we believe will provide real-time information regarding best practices in entrepreneurship at the fingertips of prospective entrepreneurs all over the globe. Closer to home, we have hosted compelling B2B Roundtable Discussions, continued to manage our Small Business Impact Fund (SBIF), and grown and developed our Membership Roster and Board of Directors. A drop in the bucket – we must do more.

 As we expand our regional, statewide, and international reach, we understand that with all of our endeavors, we are ultimately talking to ourselves: our spouses, children, nieces, nephews, neighbors, community members, students and fellow entrepreneurs.

 For it is ourselves whom we are encouraging, preparing, and supporting. It is ourselves who must dream new businesses into reality, strengthen our families and enhance our communities.

 Thank you all for your tremendous work and contributions during this past year. We appreciate you and look forward to working with you as we continue to “Go Big” together.

(Keynote given at the annual meeting of the Minnesota Black Chamber of Commerce)

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