The Reluctant Entrepreneurs
THERE IS NO MORE VEXING PROBlem for the American economy, or American democracy, than the worsening economic plight of American blacks. Blame white racism or the lack of black self-reliance. Point the finger at government programs that offer too much or too little. There is at least a germ of truth in each of these. But none of these highly charged explanations gets beyond the point of political rhetoric to the more fundamental dilemma: why is it that other minority groups have recently found their way into the great middle class while so many blacks still find themselves at or near the bottom rung of the economic ladder?
The accompanying charts begin to define the problem. In 1980, the Census Bureau found that median black family income was only 61% of white median family income -- where it has been, roughly, since the mid-1960s. And since 1980, things have only gotten worse. Compare that with Hispanics, the next largest American ethnic group, whose income has been climbing steadily over the past decade and is now about 70% that of whites; or Asian-Americans, who have long since stepped ahead of whites. Statistics on unemployment, poverty, or welfare dependency all support the same general conclusion: that black America is falling even further behind.
It would be more comfortable to ignore these statistics and focus more positively on the growing black middle class. But even among these success stories there is something distinctive and revealing about the black experience -- namely, the relative lack of black entrepreneurship. For Asian- and Hispanic-Americans, as with the Jews and Greeks and Italians before them, the favored path to upward mobility has lain in the starting of small, independent businesses. For blacks, by contrast, mobility has been defined quite differently -- in terms of education at universities and professional schools, employment in large corporations or government bureaucracies, or celebrity in sports and entertainment. And perhaps more than any other factor, this absence of a black entrepreneurial tradition explains why the advances of some have not led to the advancement of many.
"You can talk about the other problems of our community, but the real cause is that we have failed to get into business," says Tony Brown, who hosts a popular series for public television. "We have to do something to shore up our economic institutions, to generate jobs within the community. When we take care of that, the other stuff -- the family problems, crime, our political needs -- will start taking care of itself."
The Census Bureau surveys minority business ownership only once every five years, so the most recent data available are a bit stale. But they show that while black entrepreneurship has been on the rise, it has been at a pace slower than other minorities. From 1972 to 1977, for example, the number of black-owned businesses rose 23%, but during the same period, Hispanics and Asians doubled their number of enterprises. A private study based on 1977 data reported that blacks owned about nine enterprises per 1,000 population -- a rate about half that of Hispanics and a third that of Asians. Rates of self-employment, as reported in the 1980 Census, also reflected the same relative position.
Even in such fields as franchising, which has been the target of heavy lobbying and exhortation by such groups as Jesse Jackson's Operation PUSH, blacks are now falling behind other minorities. In 1973, blacks owned more restaurant franchises than either Hispanics or Asians, but by 1984 it was just the reverse. In fact, the number of Asian-owned franchises grew at a rate of about four times that of blacks.
In Los Angeles, where I live, you get a sense of these trends simply walking through the city's ethnic neighborhoods. Hispanic East Los Angeles, Chinese Monterey Park, and Koreatown, on the edge of downtown, are all bustling with new and growing businesses, both retail and manufacturing. There is noise and congestion; signs in a potpourri of languages compete for your attention. By comparison, black sections of Watts and South-Central L.A. convey an attitude of abandonment. Many of the storefronts are vacant. The manufacturing firms that survive employ Asians and Hispanics. The commercial life consists of little more than liquor stores, franchise restaurants, and bars -- and, increasingly, even these are falling under ownership by Asians and other outsiders.
"Blacks have not had the mentality to do what the Koreans and Hispanics are doing," says Bondie Gambrell, a black real estate investor and developer in Los Angeles. "They haven't wanted to venture out on their own. They have relied on others to make opportunities. They don't realize it doesn't kill your soul to be a capitalist."
Robert A. Hill is a black historian at the University of California at Los Angeles and, like many who have studied the black experience in America, he traces the lack of an entrepreneurial tradition to African origins and the brutality of the American system of slavery. Africa, Hill points out, is a more communitarian society, where notions of private property have never been so entrenched as in Europe or North America. "The culture of capitalism is just not part of our African heritage," he maintains.
Certainly slavery and its progeny, the sharecropper system, did nothing to foster confidence, independence, or a capitalist inclination among Afro-Americans. Before slavery and after, white landowners considered that the proper way to treat the black was, in the words of one slave owner, to "create in him a habit of perfect dependence. . . ." And it was a system that proved to be enormously successful and enduring. Here is a race of people who for generations, both before and after Emancipation, were denied freedom of movement, education, and even a rudimentary familiarity with the free market -- to say nothing of credit, legal status, or safety from lynch mobs. That their descendants have not taken naturally to entrepreneurship should hardly come as a big surprise.
Despite that, there were black entrepreneurs going back even before Emancipation. Among the country's half-million "free persons of color" were a considerable number of artisans, professionals, and owners of businesses -- nearly 85% of the freed black community in New Orleans, according to one account. In the years after Emancipation, these families became the basis of a black merchant class in cities north and south, and it was through such enterprises as theirs that black income in the last third of the nineteenth century grew faster than that of whites.
By the turn of the century, in fact, there was something of a golden age of black enterprise in America. From his National Negro Business League, Booker T. Washington exhorted fellow blacks to "uplift" themselves by striking out on their own. And from the pulpit, ministers like Harlem's Adam Clayton Powell Sr. urged aspiring congregants into business on a bigger scale, reminding them, as reported in the Harlem newspaper Age, that "no race can ever be rich by saving its money." But there were limits as to how far black enterprise could go. North and South, by law or by tradition, black businesses were forced to operate within the narrow limits of an all-black economy.
At about the same time, a new group of blacks arrived on American shores. Unlike native American blacks, those West Indians who came to this country came by choice. And they came to make money. Many hailed from urban rather than rural backgrounds, which gave them greater familiarity with commerce. And even those from rural areas were more entrepreneurially inclined. Economist Thomas Sowell of the Hoover Institution at Stanford University, perhaps the best known of the conservative black intellectuals, points out that while the American slave remained completely under the control of his white master, West Indian slaves were allowed to tend their own small private plots and sell their surplus in the marketplace.
As a result of these differences in background, West Indians showed a remarkable success in business. By 1901, for example, West Indians owned 20% of Manhattan's black enterprises, twice their percentage in the population. Among the larger were Verbena Perfumery Co., which exported to Central America and the West Indies; and Thomas & Thomas, which imported cocoa and spices from the islands. As with the immigrant groups that preceded them to New York City, these blacks were not shy about their connections to the "old country." And as with the Asian and Hispanic immigrants today, entire families pitched in to run these proudly ethnic businesses, keeping labor costs low and ensuring that the instinct for enterprise would be passed on to the next generation. Several families would sometimes get together, pool their capital in networks known as susu, and launch new enterprises. Such virtues as thrift and hard work were part of the West Indian ethos, and leaders such as Jamaican-born Marcus Garvey found willing listeners for their gospel of separatism and self-reliance.
Even today, Robert Maynard, editor and president of The Tribune, in Oakland, Calif., recalls how the "Barbadian network" helped his father build a small trucking company in New York City during the 1920s -- a company whose profits provided Maynard with his ticket to a successful career in journalism. West Indians, he concedes, started with the a different perspective from blacks born in America. "There's something about the immigrant experience that's different," he says. "There's a communal business spirit -- something that's outside the experience of most Afro-Americans."
Like Maynard, the sons and daughters of these West Indian immigrants have come to play a disproportionately influential role in black America, initially in business, but over subsequent generations in politics and the professions as well. Census data from 1980 show Jamaicans, for example, with rates of self-employment nearly 60% higher than other blacks. And the median income of all West Indian black families now exceeds that of American whites.
The West Indian experience is the best indication that it is historic and cultural factors, not skin color, that best explain the disinclination toward business among so much of black America -- a disinclination that borders on conviction.
Ask Los Angeles businessman Alonzo Wallette. Wallette recalls that a restaurant founded by his great-uncle in Shreveport, La., had become the city's most successful black enterprise by the time his father and some cousins had taken it over during the 1940s. Although whites could not legally sit at tables at the Freeman & Harris Cafe, the establishment enjoyed a heavy phone-in-and-delivery business from those whites whose desire for spicy Louisiana seafood was stronger than their racial prejudices.Yet this success, recalls Wallette, did not earn a position of honor for his family within the black community. As had been the case since Emancipation, it was the ministers, teachers, and other professionals who defined the black elite.
"My father was never considered as important as the so-called black role models, even though he could buy and sell all of them," recalls Wallette, who now runs his own small defense-electronics firm in Inglewood, Calif. "The black community never quite got the point that business is the name of the game."
This relative lack of prominence for black entrepreneurs also came to be reflected, years later, in the civil rights struggle of the 1950s and '60s. Ministers, lawyers, and other professionals dominated the movement, and their emphasis reflected the aspiration of a black middle class that wanted to break down the barriers to the white establishment. Less emphasis was given to building a strong and separate black economy that would create its own wealth, its own jobs, its own prosperity. The goal was status -- legal, social, and even economic -- not money. As Atlanta Mayor Andrew Young, a former aide to Martin Luther King Jr., remembers it, "We were almost taught that there was something wrong with being rich."
Eventually, the civil rights movement opened the doors of opportunity for thousands of blacks. Many went on to college educations. And most responded to the preferences of the prevailing black culture by choosing careers in government, the professions, or the corporate side of American business. In 1980, more than half of all black professionals and managers were working for the government -- a percentage well above that for the white population. The number of black managers in big corporations grew steadily.
"A lot of my black classmates at Harvard felt they were getting the opportunity that we never had before," recalls E. R. Mitchell Jr., president of a family-owned construction firm in Atlanta. "The idea was to be conservative. You didn't want to blow that chance."
Playing it safe meant starting careers, not businesses. And what followed was something of a brain drain within the black business community. Where once the top accounting, legal, and business talent stayed within the community, now the best and the brightest went on to better things in the white world.
"After integration, a lot of blacks got into the system and made it," says Atlanta florist Alice Bussey, past president of the predominantly black Atlanta Business League. "But now they have become so individualized that they forget they are supposed to be active in the community. That's why we're not as cohesive as we need to be."
At the same time as it was being cut off from much of its potential brainpower, black business also suffered the loss of its traditional base of black customers, especially in the retail sector. Shops that survived the humiliations of Jim Crow died like flies during the 1970s as blacks discovered the wonders of franchised foods, Safeway markets, and chain convenience stores.
"When I was growing up, we had black laundromats and drugstores," recalls Oakland accountant Herman Morris of his boyhood in Little Rock. "But integration changed all that. All of a sudden -- hallelujah -- you could work and shop with whites. People turned away from black economic institutions because that was a way of getting away from the past." That was true of all blacks to some degree, but middle-class blacks especially. "It was like an insurmountable trade barrier had dissolved overnight," explains Robert Suggs, a researcher at The Joint Center for Political Studies in Washington, D.C. "The traditional black business almost immediately lost its most affluent clientele."
This turning away of customers severely undermined the market position of black entrepreneurs. According to television personality Tony Brown, from 1969 to 1984 the proportion of black income spent in black-owned businesses dropped from 13.5% to only 7%. Black banks and insurance companies, once pillars of the community's economy, were sold or folded. Even such traditional bastions of black business as hair-care products have watched as corporations like Revlon Inc. and Alberto-Culver Co. have increased their share of the black market.
In Columbus, Ohio, for example, Singletary Plaza Mart, the nation's largest black-owned "superstore," went out of business last year due to a lack of community patronage. Although blacks in Columbus spend $2.5 million each week on food, they couldn't be convinced to spend less than a tenth of it, or $200,000, to keep Singletary afloat.
And outside of St. Louis, in predominantly black University City, Sammy Kelley has similar complaints. Two years ago, Kelley left his job as assistant manager of an auto-parts store to open his own auto-parts shop. To finance the start-up, he invested $15,000 and put his house up as collateral for a $60,000 Small Business Administration loan. At first, things seemed to be working out, with sales averaging $13,000 a month. But since two white-owned stores opened nearby, sales have dipped below $9,000 -- not enough to break even. When he asked a former black customer why he now shopped at the white-owned Auto Shack, the customer said that he wanted to "help out the new guy."
Other ethnic groups tend to be more loyal to merchants of their own kind. Tony Brown refers to a San Francisco study that found that money in the Chinese community circulates there five or six times before leaving the ethnic enclave. The figure is four or five times for Jews. With blacks, money earned in the community usually leaves within minutes. It's no wonder, then, that among black entrepreneurs surveyed by Black Enterprise magazine, some 70% consider lack of community support among their greatest problems.
"The Chinese are helping the Chinese, the Haitians help the Haitians, Cubans help Cubans, but blacks are helping everyone else," complains Brown. "We have been conducting the most successful business boycott in American history -- against ourselves."
This erosion of traditional markets helps explain the relative lack of success among black businesses. From 1977 to 1982, according to the Census Bureau, the total receipts of the nation's black-owned businesses dropped in constant dollars by more than 9%. As a group, they generated virtually no new jobs. During the same period, the receipts of the rest of the economy jumped by more than 3.5%, while total employment was up by 8%.
Even the best black-owned companies so far have failed to break into the elite. In a recent survey of nearly 600 chief executive officers from the INC. 500 list of the fastest-growing private companies in America, 10 were Asian, 11 were Hispanic, and only 2 were black. Equally revealing, the Black Enterprise 100, a ranking of the nation's top black-owned firms, lists only 4 companies with 1985 sales above $100 million. In contrast, the top 15 of the nation's largest Hispanic-owned firms had 1985 sales above the $100-million mark.
"When it comes to business, we're barely out of chains," observes Oakland accountant Herman Morris. "There's a tremendous lack of sophistication in our business community, lack of infrastructure. In the six-mile race with everyone else, we're starting out 6,000 feet behind."
Perhaps no American city so epitomizes the problems faced by blacks and black business as Miami. Miami's is a booming economy in a booming region.And as in so many cities, Miami blacks have had to watch as other, newer minority groups have come along and passed them by on the road to economic security and prosperity.
Back in 1957, when Sonny Wright arrived in Miami, business was lively and vibrant in such black inner-city neighborhoods as Overtown and Liberty City. Independent laundries, restaurants, nightclubs, hotels -- many of them black-owned -- flourished along the main streets of the steamy resort city. "We had a thriving little business community," Wright remembers. "The black entertainers like Sammy Davis Jr. and Nat "King" Cole stayed in our hotels. Blacks bought from blacks."
Wright himself started out as a laborer, washing cars and doing odd jobs. Over time, he met a number of local businessmen, both black and Jewish, who soon helped him start his own restaurant. "I worked my ass off," Wright remembers. "But I learned a lot. I met the meat man, the bread man, the jukebox man. They became my advisers. I was getting an education in business administration." Eventually, this education paid off. After attending real estate school, Wright left the restaurant business and started his own realty firm. And by the mid-1970s, he was boasting more than $5 million a year in sales.
Now all that has changed. "Ever since integration, everything is gone," says Wright. "The smart guys went to work for the government or moved to the suburbs. Nobody stayed around. Nobody created jobs in the community. Integration set everything downhill for black business in this town."
Today, where once Sonny Wright sat at the lunch counter chatting with his fellow black businessmen, there are only deserted storefronts and empty lots. As the deterioration of the 1970s gave way to the riots of the early '80s, Wright's inner-city real estate trade took a turn for the worse. Sales today, he says, are "a helluva lot less" than what they were a decade ago.
In contrast, the ascendancy of Miami's Cuban community has become the kind of story that renews the great American dream. And, not surprisingly, it is a tale that evokes both envy and resentment among Miami blacks.
Miami's Hispanics are twice as likely to start businesses as Miami's blacks. While most of these are modest businesses, some are more modest than others. One study reported that the average Hispanic company in Miami boasts sales of $84,000, the average black business only $45,000. And you sense the shifting balance at every street corner. In 1960, blacks owned 25% of the service stations in Dade County, for example, while Hispanics owned only 12%. By 1979, the figures were 9% for blacks and 48% for Hispanics.
This entrepreneurial prowess has translated directly into a higher standard of living, not just for those who own businesses, but for the Hispanic community in general. In 1979, median family income among Miami's Hispanic community was $16,331, or 80% of the median family income for whites. Among black families, it was $12,710, or 63% of that for whites. Today, black unemployment is near 9%, while the rate for Hispanics is about 6%.
"The black leadership sees success not in an entrepreneurial context," says Tim Mescon, a business school professor at the University of Miami who has conducted studies on both black and Cuban businesses in the Greater Miami area. "It's like their whole development is missing a chapter, the one on achieving equality through their own business development. They still see success as being a teacher or physician, of fitting into the white world that way. Cubans try to make it by working together to build economic strength. And it's worked marvelously."
The difference is perhaps most visible in the area of banking. Blacks have only one small and still struggling bank in South Florida -- Peoples National Bank of Commerce -- which was purchased by Sonny Wright and others in 1983 only after the white owner of the Miami Dolphins agreed to guarantee the financing. By contrast, Miami's Hispanics control 30 banks, including the Cuban-owned Republic National Bank of Miami, which has grown from a few million dollars in assets a generation ago to more than $800 million today. That's more than the combined assets of the 9 largest black-owned banks in the entire United States.
"When the Cubans came over, they didn't have any inside track," notes an admiring Arthur Hill, president of Peoples National Bank of Commerce. "The whites didn't trust them any more than they trusted us. The difference was that the Cubans took matters in their own hands. They knew each other and took risks for each other. They went out and created their own economy."
Of course, the Cubans who came to Miami were self-selected risk-takers, many with personal savings and entrepreneurial experience to draw upon. But there is no doubt that they pooled their resources effectively and, through their banks, helped multiply those advantages a thousand times over. The bustling garment factories, coffee shops, trading firms, bodegas (grocery stores), and gas stations of Miami's Little Havana and Hialeah stand in sharp contrast to the economic torpor of Liberty City and Overtown. These are businesses, by and large, that got their start with Cuban money, and now rely heavily on Cuban customers.
"If a Cuban had a cleaning shop and we knew him, we lent him money," explains Republic National's chairman, Luis Botifoll. "And people in the community bought from that store because the owner was Cuban. Blacks have to do the same. They have to help themselves, their own people. You have to create that sense that there's no reason to go to McDonald's. When you go to your own, you create wealth. Then you have the power."
Judged by its purely political power, of course, black America has enjoyed progress far greater than any major minority group. Since 1970, the number of black congressmen has doubled to 20, and the number of black mayors is approaching 300. Blacks now control the top offices in Detroit, Newark, Los Angeles, Chicago, Philadelphia, and New Orleans. Not since the Irish has an ethnic group shown such political muscle.
Yet these gains do not seem to have translated easily into economic gains. "When blacks took power, everyone thought the economy would change overnight," says Oakland real estate developer James Johnson, himself a former city manager of Compton, a predominantly black city south of Los Angeles. "But government can only provide leads and open doors.Government cannot create entrepreneurs. It can't turn a ghetto into a nice neighborhood."
The limits of political clout can perhaps best be seen in Atlanta, a city that Southern blacks, like Miami-Dade Chamber of Commerce president Kelsey Dorsett, call "the Black Mecca." Atlanta has long boasted a strong black professional and business class, and, with Morehouse College and Spelman College, has been home to some of the best black colleges in the nation. The city has also served as the training ground for a generation of civil rights leaders, starting with Martin Luther King Jr.
In 1973, Atlanta's black elite gained control of city hall with the election of Mayor Maynard Jackson, and went about, in a systematic way, trying to leverage political power into economic power. Shortly after taking office, for example, Mayor Jackson threatened to hold up a $400-million airport-development project until whites agreed to allow blacks 25% of the airport-design-and-construction contracts. Today, under Jackson's successor, Andrew Young, black firms are supposed to receive 35% of the city contracts. This aggressive strategy has resulted in a major shift in city spending: since 1973, contracts to minority businesses have grown from $41,000 to $20 million. And it has certainly meant a windfall for a number of black construction firms, business service companies, and, through airport concessions, black retailers as well. But there is precious little evidence that it has spawned a new era of entrepreneurship among Atlanta's blacks, or even significantly improved the lot of Atlanta's poor.
Consider, for example, that overall rates of black entrepreneurship in Atlanta are no greater than in such cities as Houston, Baltimore, and Dallas, where city halls are still very white.And in Atlanta, even those black entrepreneurs who have benefited from the city's tough minority participation policies complain that, in dealing with white companies on nongovernment business matters, they are still treated like second-class companies. "I go to the trade shows and start handing out my cards to 75 or 100 potential clients," says black contractor E. R. Mitchell Jr. "I follow up with them. But nothing ever happens."
Fourteen years of political power have also done little to raise the relative position of Atlanta's black underclass. The income differential between the city's black and white families remains much as it was. And the city's rate of black poverty is no better than the national average. Furthermore, much of the economic growth in Atlanta has now shifted to the suburbs, beyond the range of most inner-city workers and beyond the reach of black political power. "Blacks might control the city," observes Cornell McBride, president of M&M Products Co., a maker of ethnic hair-care products and one of Atlanta's largest black manufacturing firms, "but they can't stop whites from moving the industry."
Atlanta is not unique. Blacks in Oakland find themselves in control of city hall, and even of the city's major newspaper. But political progress has not been matched by economic progress. The mayor and the newspaper have not persuaded blacks to deposit their money in the Bank of Oakland, where the majority of stock is minority owned, rather than the giant Bank of America. Nor have they been very successful in luring bright young black professionals away from Clorox Co. or Safeway Stores Inc. so that they could start their own electronics firms downtown. Developer Jim Johnson despairs that while Oakland blacks may view politics as a collective enterprise, they still see business as an "every man for himself" proposition. Economic growth in Oakland today lags far behind that of its surrounding white suburbs.
Approximately 400 miles to the south, in Los Angeles, which elected a black mayor 14 years ago and boasts the single largest concentration of black businesses, blacks still lack economic clout. One good indication is the absence of even a single black-owned commercial bank. Back in 1982, Alonzo Wallette tried to start one, figuring that surely there was $3.5 million to be raised from the scores of wealthy black entertainers and athletes who call Los Angeles their home. But Wallette rarely got past the celebrities' agents, and he was forced to abandon the effort, bitterly disappointed.
"It's still the damn slave mentality," complains developer Bondie Gambrell, who helped Wallette in the search for black capital. "It's the house nigger and the field nigger. Those that have don't want to let the guys out in the field in on the goodies. Everyone seems to want to be the only black allowed in. They don't understand that there's a big enough world out there for everyone."
Gambrell casts an admiring eye at Los Angeles County's Asian community -- about half the size of the black community -- which today controls some 30 commercial banks in and around the city. The Asians have used their money collectively to start and expand businesses, educate their youth, and even send some of what's left over to relatives abroad. Korean-Americans, for example, who represent only 1% of the population, own nearly 5% of all retail businesses in the county. And more recently, Koreans have begun buying up businesses and real estate in such traditionally black areas as Watts and South-Central Los Angeles. The move has spawned new racial tension in the city. Some blacks have even begun to boycott Asian-owned businesses as a sort of silent protest against the aggressive "foreign" businesspeople in their midst.
"Blacks just don't do what the Koreans do," says Gambrell as he looks wistfully over the city from his posh hillside home. "They band together and raise capital. They work hard and move into our neighborhoods. But it's not their fault. They've figured out that the real color of freedom is green."