Leading the way: how African American businesses can help alleviate unemployment for blacks.

How African American business can help alleviate unemployment for blacks

Last month, BLACK ENTERPRISE Board of Economist member, Thomas Boston proposed a plan that would allow Black-owned businesses to begin making a noticeable impact on the employment outlook of African Americans. This month, he presents his strategy: "Twenty by Ten."

The idea behind "Twenty by Ten" comes from the premise that if the government and private sector pursue policies to increase the number of African American-owned firms, then by 2010, these businesses would employ 20% of the African American labor force.

This is not an unrealistic goal. In fact, if we could simply maintain the rate of growth that African American-owned firms experienced between 1982 and 1992, their employment capacity, by the year 2010, will be equal to about 17% of the 2010 projected African American workforce.

In 1982, the Census Bureau reported that there were 339,239 African American-owned firms, which employed 165,765 workers--or 1.5% of the black labor force at the time. These figures included companies that had zero earnings as well as Subchapter C and Subchapter S corporations. (Subchapter S corporations have 35 or fewer shareholders and enjoy special tax advantages; Subchapter C corporations are regular corporations.)

That same year, the Census Bureau eliminated from its survey firms earning less than $500 a year and 1,120 Subchapter C corporations. After the adjustment, it reported only 308,260 African American-owned firms employing 121,373 workers--which is equivalent to 1.07% of the African American labor force. If Subchapter C corporations had been included in the survey, the employment capacity of African American firms would be 36.5% greater.

Between 1982 and 1992, the number of black-owned businesses grew at a rate of 7.25% annually while their employment capacity grew 11.02%. Because of this rapid growth, there were 620,912 black businesses in 1992, with a capacity that was equal to 2.3% of the 1992 African American workforce. By including Subchapter C corporations, we estimate that this capacity would be equal to 3.2% of the 1992 workforce.

If the current growth continues, there will be 2.2 million African American firms employing 2.3 million workers by 2010. But by adding Subchapter C corporations, these firms would employ 3.1 million workers, which would be equivalent to 16.6% of the projected workforce.

If the current trend holds, 80% (or 2.5 million jobs that these firms create) will go to African Americans. But this outcome is contingent on our ability to maintain what we are doing now. And if we can improve our efforts just slightly, we can easily reach Twenty by Ten.

THE IMPLICATIONS

These results mean there can be no backsliding on the hard-fought gains in affirmative action programs. These programs have allowed blacks to diversify into nontraditional industries and move away from the concentration in retail and personal service enterprises. Also, affirmative action in public procurement has created important demonstration effects in the private sector, where diversity, mentoring and strategic alliances with minority firms have increasingly become a goal of major corporations. But with affirmative action programs under assault, it's doubtful the current momentum in the growth of African American-owned firms can be sustained.

The government and the private sector must step up to this challenge. If society wishes to see the end of racial employment disparities, the solution is right at our fingertips. Past policies have not worked because they have been centered on promoting all businesses with the assumption that their employment growth will "trickle down" to African Americans. But this has not happened. However, we can now see that promoting African American-owned businesses can solve the problem. In addition, it makes good economic sense--and good social sense.

--Thomas D. Boston, a professor at the Georgia Institute of Technology, is a member of the BE Board of Economists