8 - Minority Business Assistance Programs Are Not Designed to Produce Minority Business Development

Summary

Minority business enterprises (MBEs) have been expanding rapidly in size and scope in recent years. Public policies seeking to promote MBE development have sometimes contributed to this growth process. Yet government has generally preferred to pursue assistance strategies that generate little entrepreneurship. Lending programs targeting overcrowded, low-profitability lines of business have been particularly widespread. Tiny loans flow to marginally viable firms; consequent high loan-default rates erode the capital available. The U.S. Commission on Minority Business Development put it well: “Minority firms seem to be gaining ground in a system that perpetuates their relegation to areas of business endeavor that are among the most crowded and least profitable” (1992: 24).

The contrast between high MBE growth and misdirected assistance policies is striking. This apparent paradox can be resolved by understanding the dichotomy between low-growth “traditional” MBEs and high-growth “emerging”MBEs. Although the latter generate most of the job creation and economic development, the former receive most of the government assistance. Unfortunately, as this chapter will show, most MBE assistance programs are flawed in intent, design, and implementation; they are designed to fail. There are a few success stories, however. This chapter will identify effective strategies for assisting minority-owned businesses and provide concrete examples that demonstrate that they work.

As long as minority entrepreneurs are thought of as the walking wounded of the small business world, minority entrepreneurship policy will be misdirected. Programs frequently fail because they ignore the factors that determine and shape small business viability.