News Column

Filling the Business Gap

December 16, 2010

Richard Larsen, Senior Writer

While hopeful signs of a slow, steady economic recovery exist, one key element lags behind--job creation. No where is this more apparent than among small-business owners. A national economic outlook survey conducted in late October by Pennsylvania-based PNC Financial Services found that six out of 10 small-business owners nationwide would increase capital spending but delay hiring in 2011.

And yet, the potential for job creation is great, especially among businesses owned by minorities and women. All it takes is a little incentive, some hard work, and people dedicated to the idea that businesses owned by minorities and women are an increasingly potent engine in helping the economy recover and grow.

But one main means of helping minority- and women-owned businesses has not reached full potential--government agencies using discretionary spending to do business with those types of firms. The result shows up in what is called the "business gap." The gap is identified by comparing the ratio of total sales and receipts of minority-owned businesses to the sales and receipts of all firms. That is then compared to the portion of the population that is minority. A ratio of 1.0 means there is no gap.

Business Gap Significant

A white paper put together by the New York-based Council of Urban Professionals (CUP), a group that seeks to mold diverse business and civil leaders, found the business gap for Hispanics was significant.

The national average business gap for Hispanic-owned businesses was 0.1872, more than four-fifths below 1.0, the ratio signifying no gap. Three of the four states with the largest Hispanic population hardly did any better. No. 2 Texas came in slightly ahead of the Hispanic national average with a ratio of about 0.2. No. 1 California fared worse with a ratio of about 0.155. And No. 4 New York only achieved a ratio of 0.11, despite having a Minority- and Women-owned Business Enterprise program in place for 22 years. (No. 3 Florida was not included in CUP's white paper.)

Closing this business gap would have two important results--the creation of more jobs and a boost to local economies, something that New York's MWBE Coalition understood. But the coalition also knew New York needed a little prodding.

"The coalition is aware that the state of minority business will determine the future of the economy in New York," Victoria Rodriguez, program manager for the Council of Urban Professionals and a member of the MWBE Coalition, said in a phone interview.

Focusing on minority-owned businesses has a very practical application.

"It's a way to create jobs," said Chloe Drew, executive director of the Council of Urban Professionals.

But New York state agencies' spending with minority- and women-owned businesses has not kept pace.

"New York is ninth in state spending," Ms. Drew noted.

A white paper from CUP earlier this year put the problem into perspective. "Despite being one of the most ethnically diverse states in the country and having the second-highest number of women-owned enterprises and the third-highest number of minority business enterprises, as of 2008, at least eight other states were spending more with minority- and women-owned firms."

Only California has more women-owned businesses, and only it and Texas have more minority-owned businesses.

A similar effort is under way in Los Angeles, Calif. A report by the Greater Los Angeles African American Chamber of Commerce urges the city to increase contract dollars that go to minority- and women-owned business from 7 percent to 35 percent. The effort has support of L.A.'s Latino Business Chamber.

"The city's economy depends upon robust growth among minority-owned firms," wrote Jorge C. Corralejo, chairman and CEO of the Latino chamber. The report "is a step toward rebuilding the city's economic base utilizing one of its greatest resources--minority businesses."

Giving the Law Teeth

To help boost state spending, the MWBE Coalition supported several pieces of legislation that give New York what the coalition calls "the most progressive MWBE policy framework in the coalition."

The laws, signed by New York Gov. David Paterson in July, went into effect Oct. 15 and would:

--Expand public authorities' contracting practices to increase opportunities for MWBE participation.

--State entities that are not executive agencies but that control large pools of money for investment--the comptroller, the state Insurance Fund and the Deferred Compensation Board--would gain the ability to invest with MWBE financial institutions.

--Provide a new disparity study that would include contractors' hiring and promotional practices.

--Create the position of chief diversity officer in the governor's office to oversee the MWBE program as well as work-force diversity issues.

As with many measures that become law, one key element necessary to implement some of the provisions is missing--the appropriations necessary to fund such things as the chief diversity officer position.

Full Implementation

Now that the laws are passed, the focus will be on making sure the laws are enforced. At the top of the MWBE's list of things to do for 2011 is to advocate for the funding needed for the program.

The secondary agenda for 2011 is to "build awareness, educate small business and women, and help grow businesses," Ms. Rodriguez said of the coalition.

One of the ways they hope to do this is by participating in the 40th annual New York State Black and Puerto Rican Legislative
Conference in February 2011, testifying at a state legislative MWBE public hearing tentatively set in March 2011, and putting on the second annual MWBE Advocacy Day on March 8.

Helping the Economy

Not only will increased spending help minority- and women-owned enterprises grow and help create jobs, it also will help in areas hard-hit by economic woes.

According to the CUP, studies consistently show minority-owned businesses are likely to locate in minority communities and to employ minority workers. CUP's white paper cited a study by Chicago's convention authority, showing that in the Chicago area 60.1 percent of minority-owned businesses have 76 percent or more minority employees.

And what is the upside for the state?

"By helping minority- and women-owned enterprises grow their businesses, the state gets a better return," Ms. Drew said, citing a study by The Hackett Group that showed organizations that focus heavily on supplier diversity generated a 133 percent greater return on the cost of procurement compared to average organizations.

It is a win-win situation for Hispanic and other minority enterprises in New York, a win-win situation for the state, and a win-win situation for an economy that is recovering sluggishly.

Source: (c) 2010. All rights reserved.

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