Barriers to succeeding in business include regulation, special interests, protectionism, access to capital and welfare.
America has always been, above all else, the land of opportunity, a country where those at the bottom can work their way up the ladder to succeed. But now that ideal is endangered -- the bottom rung is broken. For some surprising reasons, the American dream is being destroyed where it's needed most
In recent years we have seen the breakdown and breakup of large corporations. We have witnessed the rapid ascent -- and often equally speedy flameout -- of small companies. The abundance of the 1980s has given way to the hardscrabble mind-set of the 1990s, accentuating both the promise and the peril of capitalism.
The ascent of Microsoft is inextricably linked with the decline of IBM and the wiping out of thousands of good jobs and billions of dollars in shareholder wealth. Within the pages of this magazine and the experience of this writer, lesser-known but equally stunning examples arise. Companies such as Spartan Motors, Wabash National, and Southwest Airlines have leveraged so little to take so much from larger, more hidebound rivals.
A recent study by Cognetics, a research and consulting firm based in Cambridge, Mass., that specializes in business formation, concluded that of companies in business between 1988 and 1992, just 4% were responsible for 70% of all the new jobs created in that time frame. Those are companies that have mastered the mix of technology, talent, capital, and markets. They have crossed the growing divide between the Old Economy with its dated rules and the New Economy, in which the rules change daily. Yet hidden within their success lies the truth that change is often threatening -- and always painful.
Dynamism at the economy's most competitive levels distracts us from seeing the fallout in its lower reaches -- where businesses and people are going nowhere. Never before has it seemed more possible for a person to become richer, faster -- or to be out on the street in need of a job. While opportunity today is evident for the educated, creative, and risk-tolerant entrepreneur, those with less savvy and fewer connections often confront nothing less than a conspiracy of mutually reinforcing elements. Those with the least access to the New Economy must endure the most violent neighborhoods, the worst schools, and a welfare system that locks them into -- not liberates them from -- poverty. Often they lack access to capital, expertise, and the role models necessary to make it in the mainstream economy.
To many readers of this magazine such barriers are incidental -- if not invisible. They hire a lawyer, consult their accountant, tap their banker, or simply talk to a knowledgeable friend. But to those with fewer advantages, who lack such critical touchstones, the barriers to entry loom as large as ever.
What's more, many of our institutions, mired in the ways of the Old Economy, are unresponsive to individuals seeking to better themselves. Banks can't or won't make small loans. The law serves special interests, not economic justice. Regulators write more rules, often favoring those with pockets deep enough to fight back. Charles Rial, chairman of Chicago's South Shore Bank, which does much of its lending in the inner city, says we have created a system in which we implicitly assume "that below a certain level in society, you've just got to depend on your own wits and resources." We have created, he adds, "the economic segregation of America."
As the economy grows increasingly complex, increasingly competitive, and increasingly global, segregation could evolve into apartheid. We run the risk of institutionalizing the economic disenfranchisement of a whole class of Americans.
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Regulation
In the Belly of the Beast
While the U.S. tax code and various governmental regulations are written to foster an orderly and civilized society, Steve Mariotti believes they do virtually the reverse in America's inner cities. Mariotti, who has an M.B.A. from the University of Michigan and once worked for Ford Motor Co. as a financial analyst, didn't used to spend time entertaining such conundrums. But that was before the evening 13 years ago when he went out for a run and was jumped by a pack of teenagers who robbed him of $10. Embittered by the experience, Mariotti sought to explore his anger, not deny it. The more he ruminated, the more he saw the stark divide between his world and that of his attackers. Business, he believed, was predicated on "voluntary exchange." The violent side of life in the streets was based on "coercive exchange."
To bridge the gulf, in 1987 Mariotti started the New York City-based National Foundation for Teaching Entrepreneurship (NFTE), which teaches entrepreneurial skills to "at risk" inner-city children. Since then, NFTE has expanded to 10 cities. This year 2,500 junior high and high school students will go through its program, with the expectation that when they finish they will be ready to run a small business while maintaining a full academic schedule. To date, NFTE has had a 14% business-formation rate, with the definition of a business being an enterprise that is grossing $60 or more a week after six months.
Those numbers are small, but Mariotti, age 40, says his primary mission is to demystify business in the eyes of his students and cast it as something as instinctive as riding a bicycle. "Business is in people's rational self-interest," he says. "It does not require tremendous mathematical or scientific knowledge." Moreover, claims Mariotti, life in the inner city, full of "ambiguity, stress, and conflict," resembles situations that entrepreneurs face daily. "This makes these kids ideally suited to function in the marketplace."
But in a place like New York City, reality can crowd in fast on the visions of people like Steve Mariotti. He contends that what to the typical entrepreneur -- white, middle class, and educated -- are customary hurdles to starting a business, to a minority teenager are bewildering and dispiriting barriers to entry. The vital advice proffered by professionals -- lawyers, accountants, consultants -- that mainstream entrepreneurs take as a given and simply chalk up as part of standard business expenses is simply beyond the means of those with few advantages. "The minority entrepreneur usually ends up being his own lawyer and accountant. He can't go down the hall for that advice," says Mariotti. "It's very lonely. If you have capital, you may not see the stream of paperwork that is generated by a regulation or a clause in the tax code."
