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Will Clinton's plan work for us?

The B.E. Board of Economists stresses the need for shared benefits, not just shared sacrifice, for black America.

The ball is in President Bill Clinton's economic court. And most Americans want to see him run a game-winning play, beginning with the passage of his investment and spending package and ending with a slam dunk of the nation's high jobless rate.

No one knows if the President's ideas will work. His team is new and the stakes are high.

Critics ask if Clinton's return to Keynesian-style economics can provide a fiscal jump-start without triggering inflation. They are also not sure if Americans will wait patiently for the money to get from Capitol Hill to Main Street.

Patiently or impatiently, we have few choices but to wait. During his campaign, Clinton stressed the need to create a more diverse, skilled and competitive work force; foster new technologies; and refurbish our deteriorating physical infrastructure. This goal can be reached through a volatile mix of economic ingredients--a recipe for growth. For some, there will be pain from higher taxes; for others, discomfort from spending cuts. Yet most people say they are willing to accept "shared sacrifice." The objective for African-Americans is to be at the table when shared benefits are being parceled out.

The current state and future of our economy were the primary focus of the BLACK ENTERPRISE Board of Economists when it convened at Earl G. Graves Ltd. headquarters in New York City for two days this past winter. The meeting was chaired by Editor and Publisher Earl G. Graves. The board discussed whether the U.S. economy is regaining its strength, the current economic state of black America, who can provide training for non-college-bound black youth and whether black-owned companies can increase youth employment. The board also considered the ultimate effect of the Reagan/Bush years on the economic progress of African-Americans.

Presenting papers at the session were board members Andrew F. Brimmer, Margaret C. Simms, Edward D. Irons and David H. Swinton. Marcus Alexis, Courtney N. Blackman, Gerald D. Jaynes and Bernard E. Anderson also participated in the discussion. Leading the discussion, Graves observed that for the first time in 12 years, African-Americans may be able to make a leap forward economically--if the program they follow is clear, focused and prescriptive.

The Clinton Plan Begins To Move

Prospects for overall U.S. economic growth are mixed. On the positive side, U.S. economic activity should grow moderately in 1993 and pick up speed during the next two years, says Andrew F. Brimmer, president of Washington, D.C.-based Brimmer & Co. Inc., an economic and financial consulting firm. According to Brimmer, most of the growth will stem from the types of programs likely to be adopted by the Clinton Administration and Congress. The downside: While output will rise noticeably through 1995, employment--the economic barometer Americans most watch and care about--will increase more slowly.

Naysayers question the impact of Clinton's activist economic policy, criticizing its reliance on federal intervention to raise taxes, increase spending and expand regulation. Brimmer says those initiatives are necessary because "a major Clinton objective will be to enhance equity, as well as to stimulate the overall rate of economic growth."

The economic package contains a fusillade of ideas. During the campaign, Clinton sketched broad goals (see "New Prescriptions for an Ailing Economy," Board of Economists Report, January 1993). Now Clinton says that it is time for fine-tuning.

A key proposal is boosting the creation of new businesses. It includes:

* Giving tax credits for business investment spending.

* Offering corporate tax incentives to prime business prospects.

* Making research and development (R&D) tax credits permanent.

* Offering credits and loans for urban investment.

Clinton advocates more spending and new taxes to moderately boost gross domestic product (GDP). Suggestions include investing $20 billion annually through 1997 in construction, transportation, information and environmental protection systems, and $60 billion on education and job training. A new tax policy will also raise taxes on the wealthy and on foreign-owned companies doing business in the United States.

Where will the revenue go? The Administration says the new income, along with spending cuts, will be used to reduce the federal budget deficit 60% by fiscal year 1996. Brimmer, a former Federal Reserve Board governor, says Congress will grant Clinton most of his requests, and that the nation will benefit, primarily through GDP growth.

But at least two problems stand out. Projections show real GDP may grow 10.3% between 1992 and 1995, but employment may rise only 6.4%. Increased technical productivity may boost GDP but not job growth. At the same time, conservatives fear that Clinton's plan will create a larger federal budget deficit and higher inflation. Dismissing these concerns, the White House claims that the deficit will be controlled partly through money supply expansion. The Administration also asserts that due to excess industrial capacity and high unemployment, interest rates and inflation will not growth.

Brimmer agrees but admits that not everything is rosy. "The enhanced impact on output will be noticeable. Yet, marked improvement in productivity does not mean employment will rise at the same rate. The unemployment rate will be exceptionally high by historical standards," he says.

On the other hand, Bernard E. Anderson is not sure he likes Clinton's strategy. Anderson, president of the Philadelphia-based Anderson Group, an economic consulting firm, believes that most Americans want Clinton to reverse structural and cyclical economic problems. But he doesn't see anything "in this policy mix that gives us confidence that black voters will also be beneficiaries."

Black America's Economic Condition

Indeed, no one, including Clinton and U.S. Commerce Secretary Ron Brown (see BE's exclusive interview, this issue), has been able to clearly state how the Administration's policies will address inequities in education and job training, employment and business development facing African-Americans. These inequities underscore the economic condition of black Americans and provide a yardstick by which to measure the Clinton era.

The challenge is a seemingly intractable one. In 1992, 1.96 million black adults did not have jobs. Last year, the black unemployment rate was 14.1%, or 1.91 times the rate for all Americans and 2.17 times the rate for whites.

This year, the black employment outlook, while hopeful, is not euphoric. In 1993, the total civilian labor force may grow to 128.5 million workers, but the black share will expand only 0.2% to 14.1 million workers.

Black unemployment is projected to dip slightly from 1.96 million in 1992 to 1.93 million in 1993. However, the black unemployment rate may still average 13.7%, versus an unemployment rate of 6.2% for whites. Next year, Brimmer sees some growth as black unemployment is projected to drop to 13.1%, while white unemployment is expected to decline 1% to 5.2%.

Why is there such a gap? One explanation is that many unskilled manufacturing jobs are gone, and the new, often high-tech or unionized jobs are beyond non-unionized workers (many of whom are black) without technical training.

These caveats raise the question of whether job growth alone is enough to improve the economic position of African-Americans, says Marcus Alexis, Northwestern University's Kellogg School of Management professor. Alexis asks: Are low-tech, low-paying jobs of any true worth?

No, not much is Brimmer's response. Fewer jobs, or more low-paying jobs, lead to greater income disparity. In 1992, black money income was an estimated $293.1 billion out of $3.8 trillion. If blacks had income parity (that is, if the amount of their income was proportionate to their representation in the population), total money income would have been $415 billion. African-Americans thus face a deficit of $121.1 billion more than they earned. The moderate growth projected for 1993 may produce a similar income rise. Total money income may be $4 trillion, with blacks generating approximately $310 billion. Estimated parity income is $439.6 billion, which means that the black income deficit could actually increase to $129 billion.

Are The BE 100s Models For Black Business?

If more black-owned businesses were as successful as the BE INDUSTRIAL/SERVICE 100s, African-Americans would have a completely different economic, political and social profile. That is the contention of Edward D. Irons, dean of the Clark/Atlanta School of Business. He bases his analysis on the Census Bureau's 1987 Survey of Minority-Owned Business Enterprises. This study of the nation's minority businesses, including African-American, Hispanic, Native American/Native Alaskan and Asian/Pacific Islanders, is released every five years by the Commerce Department. Last year's data are currently being compiled.

For 1987, the Commerce Department reported 1.2 million minority companies, a 64% increase from 1982. Despite making up 17% of the U.S. population and 9% of U.S. businesses, minorities, notes Irons, generated "an infinitesimal share of the receipts of all businesses in the U.S.--only 3.9%."

The 424,165 black-owned companies, which constituted the largest bloc of minority-owned businesses, did not fare well. Of the minority groups, black companies had the second smallest share of national gross receipts, averaging annual revenues of only $46,593. Asian/Pacific businesses had the largest share (1.7%), followed by Hispanics (1.2%). Native Americans/Native Alaskans followed blacks with 0.05%. By contrast, white-male-owned businesses had average annual revenues of $189,000, or nearly four times the black share.

For Irons, one of the reasons minority companies are so small is clear: They are disproportionately in low-growth retail or service industries. In fact, minority companies participate in the more lucrative manufacturing or financial and insurance industries at roughly half the rate of other U.S. companies.

The classic minority business constraints are lack of capital, lack of exposure to the growth industries, lack of know-how and lack of market access, says Irons. This situation led the U.S. Commission on Minority Business Development to conclude in 1992 that: "[most minority] firms are either directed toward those industries with the lowest capital entrance barriers and consequently, to those with the most establishments, the highest competition and the highest failure rates; or, they are made to enter other, less traditional business areas with lower than needed levels of capital and access to capital."

By contrast, while BE 100s owners may complain about lack of capital and access, most do business at a much higher level. In 1987, the nation's 100 largest black-owned companies had total revenues of $3.3 billion.

The differences are more than numerical. The push for profitability has driven the BE 100s into such growth industries as communications, information services, health care, biotechnology, computer products and services and electronics. If Clinton is serious about energizing America's small businesses, then black companies "could indeed become instruments of economic development and sources of wealth and power in their communities," Irons says.

Using Black Companies To Train Our Youth

One way the BE 100s and other black-owned businesses will be expected to empower their communities is by providing employment and training opportunities for black youth. Margaret C. Simms, director of research at the Washington, D.C.-based Joint Center for Political and Economic Studies, stresses that black CEOs must begin to see these young people as their future work force. "In the past several years, discussions of the role that black entrepreneurs can play in assisting inner-city communities have focused on mentoring programs in which black professionals (and other successful black adults) serve as tutors, role models and ombudsmen for black children and adolescents," Simms says.

Black businesses need to do more. But can they help provide jobs and job-skills training for young non-college-bound youth?

What is daunting is the small number of black companies compared with the large number of youths seeking work. The 1987 Survey of Minority-Owned Business Enterprises found that 64% of all black businesses were in 12 states. These same states were home to two-thirds of the BE 100s companies. How does this company distribution match up with the employment problems within the black community?

A mixed picture emerges. African-American businesses are concentrated in metropolitan areas where youth unemployment is high. But the sheer numbers make it hard for them to help. In 1990, 60 of the BE 100s were located in 10 metropolitan areas; they employed more than 22,000 people with an average staff of 369. But nearly 350,000 unemployed black youth live in these same cities. "Their numbers far exceed the current employment capacity of black firms in those areas. Nevertheless, the size of the average successful black firm suggests that there could be some opportunities for black youth in black-owned firms," Simms says.

So what can small companies do? Simms suggests they investigate European apprenticeship programs. In such programs, ninth- or tenth-graders, the majority of whom are not college-bound, are recruited as vocational trainees for formal apprenticeships. Apprenticeships are available in a wide range of occupations and are not limited to the crafts. At the end of the training period, the students take exams for the occupation or trade they are interested in. The exams are developed by a committee of representatives from government, labor and business. A passing grade is rewarded with a certificate, which serves as an assurance to prospective employers that the apprentice has developed the skills to perform the required job tasks. Quality is the key to the training. Large European companies match trainees with "masters" and have wide-ranging activities. On the other hand, small companies don't do that, but they must have training-site certification.

By contrast, employee training in the United States is usually done to upgrade the skills of current, not future, employees, says Courtney N. Blackman, former governor of the Central Bank of Barbados.

Most black companies have a limited capacity to serve as a training site--in 1987, 83.3% of black firms were one-person operations. But the BE 100s are different. They have greater resources, larger staffs and tend to be the growth industries. For example, 23% of the 1992 BE INDUSTRIAL/SERVICE 100 were engaged in computer or high-tech businesses.

Whether these companies are capable of training students depends on management's ability to participate in the programs and the impact on the companies' bottom lines. In the European models, apprentices earn salaries, which increase over the training period to full wages. There are other training costs as well, including the development of training materials, possible outlays for classroom instruction and having skilled personnel as teachers instead of workers.

Blackman raises another question: Is it fair to ask black companies to bear more responsibility than the rest of American industry for providing job training to African-Americans? Blackman says no. "It is not a bad thing if black firms are encouraged to take on job training," he asserts. "But I don't think that it is a strategic consideration for the economic advancement of African-Americans. Job training should be done on a national basis, rather than picking out black firms to take on the extra costs of providing training."

However, while black-owned businesses cannot be expected to shoulder the entire burden of job training and employment for African-Americans, it remains a critical part of the equation of economic empowerment--one that is a primary benefit of black business development.

Simms observes: "In European countries, these costs are thought of as part of the businesses' social responsibility to human resources development. "Will black entrepreneurs see training youth in their own firms as part of economic or community development? Can they afford to bear the burden that is involved? Can they afford not to?"

Outlook For 1993 And Beyond

Several observations and prescriptions flow directly from the BE Board of Economists' mid-year meeting:

* The consensus is that moderate growth will occur in 1993. But employment will not keep pace with productivity. In this post-recessionary period, the unemployment rate will be unusually high.

* In 1993, black unemployment is projected to dip slightly, falling from 1.96 million in 1992 to 1.93 million. But the black unemployment rate may still average 13.7%, versus a projected white rate of 6.2%.

* In 1993, moderate growth is projected to produce a similar income rise. The total money income of blacks is expected to be $310 billion.

* Black business owners will participate in manufacturing or financial and insurance industries at roughly half the rate of other U.S. companies. But the changing nature of the BE 100s list indicates growing interest in such higher-return industries as communications, information services, health care, biotechnology, computer products and services and electronics. The Clinton Administration, particularly the Commerce Department, must be pressured to assist black companies to move into these growth areas.

* It is in the interest of the BE 100s to investigate European-style apprenticeship programs to provide a stream of new trained workers while fighting unemployment among black youths.

However, the considerable costs of providing job training and employment opportunities to non-college-bound African-Americans must not rest disproportionately with black-owned business. As the entire nation will share the benefits of lower unemployment, better-skilled workers and increased economic productivity, so must all of American business share the sacrifice.
COPYRIGHT 1993 Earl G. Graves Publishing Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Title Annotation:Bill Clinton's economic plan; includes related article on black economic progress during the Reagan/Bush era
Author:McCoy, Frank
Publication:Black Enterprise
Date:Jun 1, 1993
Previous Article:Investment firms show what they can do.
Next Article:A talk with America's top business advocate.

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