News Column

Implications of the Economic Census

June 2001

By Edwin Melendez, HISPANIC BUSINESS magazine

In 1997, Hispanic-owned businesses represented 6 percent of all businesses in the United States. They numbered nearly 1.2 million, employed more than 1.3 million people, and contributed more than $186 billion to the GNP, according to recently released data from the 1997 Economic Census. These trends have important implications for the nation's economy and for international trade, given the concentration of these businesses in major urban areas and their ties to the entrepreneurs' countries of origin.

Since the previous Economic Census in 1992, the number of Hispanic companies grew 39 percent, or nearly twice the rate of growth for all businesses, which was 20.7 percent. The rapid expansion in the number of Hispanic companies resulted in large part from the rapid growth of the Hispanic population. Among Hispanic ethnic groups, the greatest expansion came in "Other Hispanics," a catchall category of those whose national origin is other than Mexican, Cuban, or Puerto Rican. The "Other Hispanic" category grew 75 percent during the five years 1992-1997.

Although most experts point to increased immigration as the driving force behind the expansion of Hispanic enterprises, other factors also play a role. Recent economic expansion has greatly improved access to capital for all small businesses. Loan programs at small and minority-owned banks have helped Hispanic enterprises finance their operations. During the last decade, governmental small-business support programs have facilitated access to government contracts and promoted partnerships with large private-sector corporations.

The economic power of Hispanic companies is more significant than the bare numbers suggest. Hispanic-owned companies employed 1.3 million people in 1997, with an annual payroll of $29.8 billion. Most of these jobs were concentrated in the wholesale, retail, and service industries, which accounted for 60 percent of Hispanic companies' total receipts.

Hispanic companies also have a significant presence in the largest metropolitan areas and consumer markets. According to a recent study by the Brookings Institution, non-Hispanic whites "are now a minority among the total population living in the 100 largest urban centers." Anglos still are in the majority in 52 of the 100 largest urban centers, but that figure is down from 72 a decade ago. The Hispanic population in the largest urban centers grew by 3.8 million (43 percent) in the 1990s, while the Anglo population declined by more than 2 million during the same period. Among cities, Miami tops the list in receipts for Hispanic companies, with $26 billion, and Los Angeles has the most firms 136,678. Many other large metropolitan areas have significant Hispanic populations and business communities as well.

While the number of Hispanic companies has grown fast, most of them remain small in comparison to the statistical average. The average receipts for a Hispanic-owned business were $155,200, in contrast to $410,000 for all U.S. firms. More than 1 million of the 1.2 million Hispanic-owned firms have annual receipts of less than $100,000. Taken as a whole, those 1 million companies account for less than 10 percent of total receipts for Hispanic-owned firms. Obviously, the small size of Hispanic-owned businesses presents important challenges to policy makers and economic development leaders.

Averages don't tell the whole story, however. The largest Hispanic companies are well positioned to serve the needs of the growing Hispanic consumer market and provide links to international trade and investment. Hispanic consumers like products from their countries of origin, and they send remittances and consumer goods to their relatives there. These flows of capital, goods, and information establish economic links and trade opportunities that are important to all businesses targeting the Hispanic consumer markets.

In 1997, there were 26,666 Hispanic companies with receipts exceeding $1million; they accounted for two-thirds of total receipts among Hispanic-owned firms. This number of relatively large firms suggests there is a segment that can go beyond sales in their local communities and can, potentially, participate more aggressively in international trade. With the Bush administration gearing up to lower trade barriers with Latin America, the extent to which Hispanic companies can benefit from an open trade policy remains to be seen. Often, costly technical standards and distribution systems deter many small businesses from expanding overseas.

On the domestic front, Hispanic CEOs face legal challenges to affirmative action programs that promote government contracting. These set-aside programs are important in key industry sectors such as construction, transportation-related businesses, and wholesale trade with government agencies.

The implications of rapid Hispanic economic growth in the 1990s will influence public-policy decisions on neighborhood revitalization, transportation infrastructure, and business development programs over the next half-decade. If the underlying factors of immigration and urban concentration remain in force, Hispanic enterprises should exceed the 2 million mark by the next Economic Census in 2002.

Edwin Melendez is a professor and director of the Community Development Research Center at the Milano Graduate School of Management and Urban Policy at New School University in New York City.

Source: HISPANIC BUSINESS magazine

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