Is Black Capitalism a Mistake?

The Nixon Administration's effort to foster black capitalism has not yet resulted in the establishment of many Negro businesses. Critics have generally faulted the Administration for failing to provide a coordinated program of loans and other help to would-be black entrepreneurs. Actually, the difficulty may be much more fundamental. Last week in Manhattan the nation's most prominent black economist contended that encouraging Negro-owned business in city ghettos is a mistaken strategy for promoting racial equality.

Andrew Brimmer, a governor of the Federal Reserve System and a former Assistant Secretary of Commerce, offered his view in a paper presented to the American Economic Association. He argued that black-owned businesses tend to be small, precariously financed beauty parlors, food stores, and other personal-service or retail establishments catering to a poor market. Most of them owe their existence largely to residential segregation, said Brimmer. Negroes have dim prospects of founding businesses that can compete with white-owned establishments for a broader market, he said, and even in serving Negroes they will have increasing trouble competing with national firms that are showing a new interest in the Negro consumer.

"Self-employment is a rather rapidly declining factor in our modern economy," Brimmer said. "For the great majority of the Negro population it offers a low and rather risky payoff." If many more Negro-owned businesses are formed, warned Brimmer, they "would certainly be more prone to failure than already established firms, and their failures would leave a lasting burden on the individuals starting these firms. Moreover, he argued, "the pursuit of black capitalism may retard the Negro's economic advancement" by distracting attention from programs that would really help blacks and discouraging Negroes from "full participation in the national economy." What Negroes need, Brimmer counseled, is more jobs as salaried managers or as craftsmen for major companies, where they would have the capital resources of the national community behind them.

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