Is Minority Business Development Really an Economic Development Tool?

Melvin J. Gravely, Ph.D
Melvin J. Gravely, Ph.D
The short answer is NO. Minority business development has not been an economic development tool. At least not to the extent it could be. It has been a good idea. It has been the right thing to do. It does matter socially to communities. But it has been underutilized as a tool for economic development. The evidence is now clear that it is likely one of the largest economic opportunities that communities can actually influence.

The Facts Make It Clear
There are four key facts that create the compelling argument to re-evaluate minority business growth as an economic development tool. Fact 1 — Minority businesses are growing at twice the rate of businesses in general. The fundamentals suggest this trend will continue. Minority entrepreneurs are more educated, more experienced, more bank-able, more connected and more interested in entrepreneurship than ever before. Fact 2 — Corporations will continue to increase spending with minority suppliers. At last count corporate spending with minority owned firms was over $90 billion dollars and growing at over 20 percent per year. The corporate led supplier diversity movement is providing opportunity for a larger number of successful middle market size minority firms. Fact 3 — Only 2 percent of all small businesses create the desired economic development outcomes for communities and that two percent are the more sizable firms mentioned above. Fact 4 — 40 percent of Inc. Magazine’s fastest growing inner city companies are owned by minorities. These firms are creating new investments in the areas that need it most.

Minority business development, done right is an economic development tool. A comprehensive approach to minority business development will deliver direct economic outcomes of jobs, an increased tax base, and additional capital investments. It will also create significant indirect outcomes including a community image to attract additional investments and an increase in diverse wealth. The reality is that most communities are far from able to realize the potential economic impact of minority business growth. Most communities are not ready because there are historical pillars in place literally holding up progress.

What is Holding Us Up?
First, no matter how much people say they want economic development outcomes, they still behave like they want to fix social ills. There is nothing wrong with either objective until the two are confused. People instinctively want to help the down trodden and the left out. For the most part they are perceived to be those at the very bottom of the educational and socio-economic hierarchy. That model does not work in the brand of minority business development that lends itself to economic development outcomes. Enterprises that create community economic impact are run by individuals that are capable and experienced. No one feels good about helping a well educated, well positioned individual build the type of enterprise that can create economic transformations in communities. Bottom line: No one wants to “help” someone else become wealthy. It just does not sell well in philanthropic circles. Yet that is exactly what it takes to turn minority business development into an economic development tool.

Second, most communities have no clear definition of what they mean by economic development as it relates to minority business. Ask for a definition and you are likely to get answers that include job creation, capital investment, and an expanded tax base. Others expect business ownership, jobs and investments specifically in low income areas or other indicators of neighborhood revitalization. It is all good but the lack of clarity of desired outcomes makes it difficult to formulate any meaningful strategy.

Third, most communities do not have a fertile environment for minority business growth. Everything in a community is political. Anyone that has worked for change or served on community boards understands that politics make progress a challenge. Communities experience a whole new level of politics when it comes to issues of race. The nuances of race related topics are almost overwhelming. There would be no doubt about minority business as an economic development tool if somehow it had nothing to do with race. People get rigid when race is introduced. It diminishes our candor, misdirects our efforts and ultimately retards our outcomes. Then communities continue to get what everyone expected…not much. The environment in most communities is simply not conducive for the economic development version of minority business development.