Mostly an Empty Promise

When Richard Nixon first brandished the phrase "Black Capitalism" during the 1968 campaign, it captured the imaginations of blacks and whites alike.

There was something exhilarating in the idea that racial strife could be ended by helping blacks to get, in his words, "a piece of the action." As President, Nixon created an Office of Minority Business Enterprise to oversee Government efforts aimed at helping blacks and other racial minorities to start their own businesses, and expanded programs to lend more money to--and buy more products from--those striving firms.

Now, as the effort begins its fifth year, the record of Black Capitalism at best is mixed. Government purchases from nonwhite firms have rocketed from $17 million to $394 million since 1969, the Small Business Administration has increased loans and loan guarantees to nonwhites to $258 million a year, and the OMBE budget has grown to $52 million. In concert with the Government, Manhattan's Capital Formation persuaded major corporations and others to deposit more than $200 million in nonwhite banks, thus vastly in creasing their ability to make business loans. Yet Black Capitalism's impact on the economic status of America's blacks has been minimal. While thousands of nonwhite firms have been created as a result of the Government effort, only a minuscule number of new jobs have been opened for black, Puerto Rican, Indian and Chicano workers. Racial minorities, which comprise 17% of the U.S. population, still control only about 4% of the nation's businesses, and these firms have less than 1% of total business receipts. The figures have not changed perceptibly in the past four years.

Even the most bitter critics of the program concede that it has benefited some entrepreneurs. The Government's emphasis on black business development, coupled with the greater availability of federal funds, has contributed to a climate in which ambitious blacks can aspire to owning their own businesses. Typical of the new entrepreneurs is Electronics Engineer George G. Rock of Manhattan. Until last year, he was a high-paid employee of a defense contractor. When the firm developed an airborne alarm device to prevent collisions between planes, Rock acquired the rights to the device in return for a promise of royalties. With $173,000, part of it lent through a Government program, he opened Rock Avionic Systems, which will market the device.

Similarly, the Watts Industrial Park, a 54-acre conglomeration of 24 firms. 22 of which are nonwhite owned and which make products as diverse as truck seats and choir robes, owes its existence largely to Government loans. Located on a site where rioting occurred eight years ago, the park provides employment for 1,200 workers; sales total $25 million to $30 million a year.

These success stories are still distinctly in the minority. The more usual plight of black "start-up" businesses is exemplified by the fate of Robert Musgrove of Chicago. Four years ago, he got an SBA loan to open the city's only photographic lab owned by a black. Today he is trapped between an inadequate cash flow and the desire to expand. He is working mostly to pay off the SBA. Beset by similar problems, as well as by undercapitalization and bad management, many other blacks simply close their doors. A recent survey in Chicago showed that 80% of the black-owned firms that were founded in 1972 folded by the end of the year.

Part of the difficulty is that the Government effort has emphasized small businesses--grocery stores, haberdasheries, restaurants. The new black firms are so small and vulnerable to failure, says Robert S. Browne, director of Manhattan's Black Economic Research Center, that "it is not likely that the 'action' will ever be significantly shared by those who do not already control it."

Another difficulty, as OMBE's new director, Alex Armendaris concedes, is that the Government's thrust was poorly thought out and badly implemented at its start. "We may have funded too many programs too quickly," he says. "There was a general desire to throw the money out, to get things going." Only now is OMBE setting up a computerized evaluation system to monitor the performance of the 160 semi-autonomous Business Development Organizations in 40 states that carry out the bulk of its work. With the new system. OMBE officials will be able to decide which BDOs have been effective in creating new businesses, and which have failed to measure up.

Troubles have also hit the so-called MESBIC (for Minority Enterprise Small Business Investment Company) program since its inception in 1969. An individual or company can form a MESBIC by putting up at least $150,000 in private capital; after investing most of this sum in nonwhite companies, the MESBIC can increase its original capital 15-fold through a combination of Government and private funding. There are now 62 MESBlCs, and they have the potential for investing millions. But Government regulations restrict the sum that a MESBIC can put into any one company.

This provision, says Frank Savage, president of the MESBIC owned by the Equitable Life Assurance Society, means that many of these otherwise promising ventures are largely limited to "mom-and-pop" businesses. Some of the first MESBlCs, such as the Arcata Investment Co. of Palo Alto, Calif., seem to have been confused about the difference between an investment loan and a charitable donation. Arcata folded in 1972, after nearly half of the businesses it had funded--including such risky ventures as a posh restaurant in the East Palo Alto ghetto--closed down.

Black capitalism's champions and critics generally agree that some kind of Government-sponsored program must be continued, but that it must not concentrate on failure-prone small businesses. Says Darwin W. Bolden, a member of the President's Advisory Council on Minority Enterprise: "It's time to take the next step and begin to develop a clear-cut blueprint from which you will move blacks from the mom-and-pop stage to the mainstream of American business--knowing that it is going to take at least another decade."

Such a shift, he says, would require OMBE to concentrate its efforts on assisting blacks to form larger ventures in manufacturing, banking, construction and services. It might require the Government to lend larger amounts to individual entrepreneurs. If such steps are not taken, Black Capitalism is likely to remain just another catchy slogan.

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