Growth without Growth: An Analysis of the State of Minority-Owned Businesses in the United States

By Didia, Dal | Journal of Small Business and Entrepreneurship, Spring 2008 | Go to article overview

Growth without Growth: An Analysis of the State of Minority-Owned Businesses in the United States


Didia, Dal, Journal of Small Business and Entrepreneurship


Introduction

The decade of the 1990s was a period of remarkable economic expansion for the United States. This period was characterized by strong economic growth, high rates of employment, low inflation, unprecedented growth in high-technology-based businesses and the internet sector, and overall appreciation in standards of living across the board. Figures from the U.S. Bureau of Economic Analysis and the Bureau of Labor Statistics reveal that the minority groups, especially Blacks and Hispanics, benefitted substantially from this period of economic expansion. While the rising tide of economic prosperity lifted individual minority households, a nagging question remained: how did minority-owned businesses (MOB) fair in this period of extraordinary prosperity? Did they participate fairly in this expansion or were they left out? Since the issue of the performance of MOB is always a concern to policy makers at all levels of government, this study seeks to explore the impact, if any, of the economic boom on MOB. If MOB shared in the prosperity, to what extent did they prosper in relation to all U.S. firms? Another compelling reason to track the progress of MOB is to determine whether efforts by the government to encourage these businesses are yielding desired dividends. If desired dividends are not forthcoming, then an appraisal of government efforts is called for. It is only after an analysis is done that we can ascertain whether or not a change in current or orthodox means of boosting minority business ownership is warranted. These are the issues that this study will explore, and hopefully shed some light on the status of MOB.

To ascertain the true status of MOB, this analysis will be carried out at both the national and state levels, since business performances at both levels do vary. On the state level, the state of Mississippi is chosen as the first test case because (1) it has the highest percentage of minorities of the 50 states in the U.S., with minorities accounting for about 40% of the state's population, and (2) the state of Mississippi also has a relatively high number of minorities in elected positions. In addition, while there may or may not be progress in the aggregate at the national or state levels, there may be progress in the different industries. This analysis will therefore extend to the industry level at both the national and state levels, to isolate industries where MOB may be gaining ground.

This study focuses on the 1990s because the U.S. economy experienced robust economic expansion in this period. This expansion positively impacted most of the households and businesses in the U.S. Therefore, for any segment of the economy to have been left behind, it means that there are serious systemic impediments that call for careful exploration. Without a doubt, MOB are increasing at a fairly rapid rate. From 1987 to 1997, MOB increased by 150%, from 1,213,750 to 3,039,033. In the same period, the number of firms in the U.S. increased by 52%, from 13,695,480 to 20,821,934. Some authors erroneously equate this increase in number of MOB with success. Nothing could be farther from the fact. As data from the U.S. Census Bureau show, while MOB can boast of an impressive growth in numbers, their growth in sales revenue falls far short of the national growth rate. Mergenhagen (1996) equally alluded to this point. Wellner (2001, 2002) attributes this growth in MOB to a number of factors: (1) a rise in immigrant entrepreneurs, (2) unprecedented access to capital, (3) improved levels of educational attainment, (4) growth in political clout, and (5) increase in wealth.

On the revenue side, figures from U.S. Census Bureau show that from 1987 to 1997, MOB revenues increased by 660%, from $77,840 million to $591,259 million. In the same period, the revenues of all U.S. firms increased by 830%, from $1,994,808 million to $18,553,243 million. From these figures, MOB account for only 3.2% of all revenues generated by businesses in the U.

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