Sow entrepreneurship, reap employment: B.E. Board of Economists report.

OVER THE LAST SEVERAL YEARS, NATHANIEL Goldston, CEO of Atlanta-based Gourmet Companies, has watched with some pride as the fledgling enterprise he started over two decades ago has grown in size and stature to become one of the largest black-owned businesses in the United States. The food service/golf facilities management concern has built a hearty reputation as a leader in its field for quality and service. Perhaps more impressive, Goldston's business has steadily employed over 1,100 staffers, making it one of the largest employers on the BLACK ENTERPRISE INDUSTRIAL/SERVICE 100 listing.

But it hasn't been easy. "As many of our African American students are leaving the college campuses, they're finding that employment is a lot more difficult to find," says Goldston. "There was a time when, if you interviewed with a Fortune 500 firm and were rejected, working for a black company would be a last resort. But I think now many see they can build a future and life for themselves in their own environment and be able to enhance our economy and the ability for the rest of our people to grow."

Sounds ideal. So you'd think if anyone had reason for optimism about the future of black-owned business, it would be Goldston. But ask the shrewd entrepreneur what he believes the global state of black-owned business will be over the next decade and he hedges his bets. While Goldston feels a boon of black business growth is possible, he says it hinges on the cooperation and trust that minority business owners must have with one another because "with affirmative action being worn away we're going to realize that we can fight all we want, but basically we're going to have to grow within ourselves if we want to see something of an explosion in black-owned businesses. The only way to do that is to trust and do business with one another. If not, we're going to be in some serious trouble."

Is there reason for such concern? At first glance it would seem as if black-owned businesses are doing a superior job in terms of helping the employment picture. A snapshot of the BE 100s companies tells a tale of its own. In 1985, the BE 100s employed a modest combined staff of 20,970. In 1995, that number easily doubled as the BE 100s firms had a total staff of 51,057. So what's the problem?

In a word, jobs. There aren't enough of them. While a booming stock market and rising economy might help to mask some of the symptoms, the employment picture for African Americans is in serious disrepair. According to Andrew Brimmer, a former member of the Federal Reserve and BE Board of Economist member, unemployment among blacks may average 1.6 million this year. If Brimmer's prediction pans out, that figure would be equal to 22.3% of the total number of unemployed. This would continue the trend that saw a jobless rate for blacks 1.94 times the national average last year, and 2.23 times that for whites.

The negative repercussions of that reality need no elaboration. No job means no income, which means poverty--not just economically but, too often, spiritually as well.

So while minority businesses may be doing their best to employ African Americans, it's clear much more needs to be done.

The BE Board of Economists met recently in New York City to analyze the employment picture and posed this question: With the continued steady growth of black-owned businesses in the United States, what substantive impact is that growth having on the larger employment picture for African Americans?

Present at this discussion were David H. Swinton, president of Benedict College; Margaret C. Simms, vice president for research at the Joint Center for Political and Economic Studies; Cecilia A. Conrad, an economics professor at Pomona College; Marcus Alexis, a professor of economics and management and strategy at Northwestern University; Lucy Reuben, dean of the school of business at South Carolina State University; Thomas D. Boston, an economics professor at the Georgia Institute of Technology; and Andrew F. Brimmer, president of Washington, D.C.-based Brimmer & Co. The board was joined by John Jeffries, a visiting associate professor at Columbia University.

As a whole, the board readily agreed that black-owned businesses have made substantive gains in growth, sales and in the number of people they employ. Whether in industries ranging from manufacturing to communications or technology, African American-owned businesses have made great strides over the last several decades. Says Conrad, "The case has to be made that it's not just that we're small and struggling, but that black firms are hiring African Americans. That we continue to do so is an important thing." But is it enough?

"The point is," says BE Executive Editor Alfred Edmond, "the area where unemployment remains at its most intense is in black communities. [Black-owned] businesses are in the best position to be a key to leveraging job creation in those communities, since they are more likely to locate there and hire from there." Indeed employment growth among the BE INDUSTRIAL/SERVICE 100 firms has been phenomenal. The employment capacity has grown from slightly over 9,267 in 1973, when the list was first created, to over 42,000 in 1995. But the board also agreed that for there to be substantial and lasting impact on the black employment picture, African American businesses cannot carry the load alone.

That affirmative action policies should be resuscitated is a given. But beyond that, the board concluded other measures must be enacted now to bolster the growth of small businesses. An ongoing refrain is the call to improve the number and size of strategic alliances for those minority businesses and a continued focus on growing a cadre of African American entrepreneurs. But how to take that growth and cross the bridge from business growth to ownership and wealth creation has been the ongoing dilemma. By analyzing the growth sectors of minority businesses, it's dear that the fastest growing firms are those that have traditionally had access to government and corporate programs such as the often-maligned Small Business Administration's 8(a) program, says Simms.

Boston concurs, adding that many minority firms have used those government programs as a springboard and have since moved onto a variety of enterprises. "Traditionally you saw the large firms emerging in areas that were closely associated with various kinds of government contracting, but you also saw diversification taking place," he says. "Now you see firms emerging in a whole range of industries tied to contracting."

But despite the best of intentions, the consensus among the board is that specific policies or programs are needed to encourage minority-owned businesses that are not sole proprietorships to prosper in the private sector, then the number of black-owned businesses will continue to grow, but employment levels will never increase.

"The point is, if you want to make a more effective impact on community development, you need to target your resources on the people who are going to build the plants rather than to the wholesaler or retailer," says Simms. "Someone who is going to build the plant that makes the pencils. Not the one who sells the pencils that were made by someone else.

THE GREAT WELFARE DEBATE

The already hazy picture of job creation got even cloudier recently thanks to President Clinton's signing of the Republican-endorsed Welfare Reform Bill. Indeed, the issue came to a head earlier this year when BE publisher Earl G. Graves had a very public disagreement with Clinton during a February visit to Harlem's Riverside Church. Graves condemned the current welfare policy as putting an unfair burden on small business owners to provide job opportunities for a growing legion of untrained former welfare recipients.

"There is a need to create jobs that will enable people to get off of public assistance," he said. "While I believe American business is committed, it is my job to focus on the bottom line. Our elected officials should not give false hope to people by leading them to believe that businesses will hire them for jobs which require skills they do not have."

Telling the President that "expressions of goodwill were not new to the African American community," Graves added they alone were not enough to make a difference to people living in poverty. And from the business owner's perspective, it is "unrealistic and unfair to expect the private sector in general, and black-owned businesses in particular, to sacrifice profit margins in order to do the government's job."

The board members concurred. The consensus was that the current legislation simply asks small business owners to shoulder too much responsibility in training those largely deficient in workplace skills. "The question is how much of a burden do you want to put on companies if the primary point of being in business is to stay in business," says Reuben. "Companies can only sustain so much in terms of serving as a training ground for people."

It's an uncertainty that CEOs like Jon E. Barfield, chairman and CEO of The Bartech Group, will have to deal with as the welfare puzzle takes shape. Bartech is one of the largest providers of temporary services in Michigan. And with a staff of nearly 1,500, the company is one of the largest employers on the BE INDUSTRIAL/SERVICE 100 list. But Barfield says because of the nature of his business, his firm mainly caters to more high-skilled workers; however, lower-skilled positions are occasionally available. "The jobs that we're filling are typically high-skilled, high-paying positions that are in demand by our clients who look to us for their staffing needs," Barfield says. "On any given day we have several hundred openings for skilled positions."

David Bing, CEO of the Bing Group, a steel processing, metal stamping and seat assembly company in Detroit, says the problem boils down to dollars and cents. He says the vast majority of minority firms don't have the financial resources to commit to training unskilled workers. "The problem that you have in many of these cases is training. As long as the government is going to kick people off welfare, then they need to make an investment to us in the business community to ensure that funds are available to train people. That's the major issue. I can hire somebody, but if I have to hire them and train them for a year or two, then obviously that's a negative financial impact."

PLAYING THE MONEY GAME

"Business in America is not just about being able to make bucks," says Swinton. "It's about having power in a local community. It seems to me that we are not going to ever solve these problems if we are always going to be at 2% and 3% ownership and then are trying to force the people who do own the businesses to treat us like we want them to hire us."

Is there any reason to be optimistic? Some board members believe so. One promising sign is the increased activity of private sector African American entrepreneurs forming strategic alliances. Recent examples reported in BE include Dumas M. Simeus, the former COO of TLC rice who joint-ventured with Dallas-based MESBIC Ventures Holding Co. to Simeus Foods International. The Dallas-Fort Worth-based company has annual sales pegged at more than $100 million. Another example is Donzell Starks, the Chicago-based theater operator recently joint-ventured with Cineplex Odeon to bring black-owned movie theaters to Chicago's inner-city neighborhoods of Chatham, North Lawndale and Chicago Lawn.

But the board believes there's still much tore to do. "I think there has been some increased access to both debt and equity capital for African Americans," says Boston. But, he adds, "I think on balance it would be very difficult to sustain the rate of growth as it has been over the last decade, at least from 1982-92."

Gourmet's Goldston has an eye toward the horizon. As his company positions itself for an increasingly competitive marketplace, he realizes that to be successful and remain competitive, minority-owned companies will have to strategically align themselves with similar minority-owned companies. "What I see in the future is a takeover of the mega companies in the food service industry. You're either going to be one of them or you're not going to be around very long. You've got to employ the synergies that you have in order to make your company bigger and more serviceable to the industry." Goldston says he has such plans in the works for the Gourmet Companies, but declined to elaborate.

Should the sole focus of a strategy be on building a cadre of entrepreneurs? While this is critical, the board concluded it must be a multifaceted attack. "It can't be just about entrepreneurs," says Swinton. "For it to be a realistic strategy, African Americans have to decide that we need a new covenant in order for us to achieve our full potential. This is not a business issue. It's a public policy issue." As a collective, African Americans must invest m creating larger capital pools to be owned and managed, Swinton says. "The businesses aren't going to develop through some kind of mysterious process. But if we create ownership, then we would be able to compete in the national markets and world markets and become productive business people in that arena."

There must be a continued focus on partnerships between those who dictate and influence public policy and those who are empathetic to the growth of minority businesses. "Again we talk about the issue of strategic alliances and access to capital. I think opportunities have to be generated in the private sector, ultimately because that is where we lose the game," says Boston. "African American entrepreneurs have to sit around the table and think strategically about their own survival and the expansion of businesses within the community and also more strategically about how entrepreneurship itself can facilitate community revitalization."

THE DIRTY 'R' WORD

Playing the capital game with an empty hand. That's how one board member describes the ongoing dilemma of blacks trying to cross the bridge from jobs to the creation of wealth. The notion of "40 acres and a mule" has been bandied about for years as an engaging, if unrealistic, thought of how best to level the playing field between African Americans and whites. At least one board member believes the notion has merit which should be seriously examined before being dismissed. "Reparations is a dirty word," says Swinton. "But it seems to me we're in a situation where we don't have any ownership to speak of and that is not going to be corrected without something that is going to change that parameter. We're in here trying to play a capitalist game with no capital and we can't solve the problem."

But the consensus of the board was that in today's social climate, the possibility of such an occurrence was remote. Instead, they argued for broader coalitions with corporate America where both sides would see some form of economic benefit.

"The alliances have to be done with corporate America. Not in the way of something because `you owe me one' because I don't think that is going to be successful," says BE Executive Vice President and COO Earl "Butch" Graves Jr. "It's got to be something where they say this makes sound business sense, and if I invest in X, I may get a return."

Brimmer adds that African Americans should not abandon the notion of government as a source of stimulus for the growth of black-owned businesses. "But I agree the environment is not hospitable and will be less so in the future." Brimmer also believes the growth rate of minority businesses will slow down, but "black firms will become more efficient. For each dollar of growth in sales, they will require a smaller proportionate input of employment because they, too, will become more efficient. It will not require as much labor for the black firm, down the road, to generate a certain volume of output."

So where will black-owned businesses be in the future? Are they prepared to jump boldly into the next millennium? And are they the key to the economic survival of black Americans? There are no definitive answers only more questions. But where we want to be as a collective is clear, the board concluded. The burning question is how best to get there.

"What I would like to see is a BLACK ENTERPRISE buying the New York Times or the Wall Street Journal," says Swinton. "We want to own our own Chrysler. We'd like to have Chase Bank. That's my vision of where we end up at the end of this 30- or 40-year period of policy changes. So that when you look out there, in proportion to our numbers in the population, you are just as likely to see a black CEO, as you are to see a black who owns a Fortune 500 firm. That's the key to our success."