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Lending a hand to black business.

Is government assistance to African-American and other minority businesses merely a form of charity or welfare? Some observers say yes. And if viewed from their illogical position, it is no wonder that minority business funding has held a very low priority level among federal officials, thus ensuring its inadequacy. The result: Cash-starved businesses are unable to sustain or expand business that can boost the tax base and help cut employment rolls.

In 1969, the Minority Business Development Agency, a division of the Commerce Department, was created to assist such businesses. But federal support has diminished steadily since then. For example, in 1981, the agency received $60 million in government funding. But by 1992, this was reduced to $42 million on an inflation-adjusted basis.

There is also ample precedent for federal support of American industry. The dairy, peanut shipping and automobile industries are all either directly or indirectly subsidized by the government. Without these subsidies, some of these industries would have difficulty surviving.

Given the opportunity costs, it is in the national interest to assist minority business to become a viable business sector. The alternative is an ever-expanding and expensive welfare system. In 1970, U.S. taxpayers paid $25 billion to support poor Americans. By 1990, the figure had grown more than 900% to $253 billion. To reverse this trend, we must create a new paradigm. If we assume black business in the future will mirror the past, i.e., a typical company will have an average of $50,000 in annual revenues and three employees, then this analysis is unnecessary. However,there is emerging evidence that given the right environment, black businesses can be highly successful and employ large numbers of workers.

The growth of the be industrial/service 100 and be auto dealer 100 shows how African-American business can expand. In 1972, the BE list of the 100 largest companies generated $473 million in revenues. Twenty years later, the base, revenues and numbers of employees covered had expanded markedly. In 1988, the automobile dealers were ranked separately from the industrial/service companies. In 1992, the combined lists generated $9 billion in revenues, with the industrial/service companies generating $5.7 billion and the automobile dealers the remainder.

The growth of these companies was also reflected in the increased number of employees, which grew from 9,000 to 44,372. If we subtract the total employee count from TLC Beatrice Holdings (No. 1 on the 1992 be industrial/service 100 list), the average industrial/ service firm still had 270 employees, while the average automobile dealership employed 63 people.

Most of these firms are relatively young, and it would be premature to definitively extrapolate their experience into a trend. However, we can conclude that a high proportion of the CEOs of these firms are either college graduates or attended college. Most have relevant experience and have been able to find sufficient capital. These entrepreneurs are also community leaders and role models of success.

In 20 years, there is no reason to think there might not be a be industrial/service 1000 employing hundreds of thousands of workers. But to reach that point, President Clinton, and ultimately the Congress, must be committed to making this business segment grow: through access to venture and debt capital; the creation of a competent management and technical assistance organization to ensure that the capital is soundly managed; and finally, through the enforcement of laws guaranteeing access to government and private sector markets. In sufficient numbers, successful black entrepreneurs could have a greater impact on our youth than Michael Jordan, Zina Garrison or Barry Sanders.
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Title Annotation:federal aid to business
Author:Irons, Edward D.
Publication:Black Enterprise
Date:Oct 1, 1993
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