Economic base theory holds that in order for communities to prosper they must derive income that comes primarily from the wage earners and businesses of the community, and when that does not happen communities suffer catastrophic adverse social outcomes, such as poor health, poor educational attainment, low property values and high crime.
Research suggests that micro businesses play a crucial role in a community’s economic system. Micro businesses employ local citizens and are an economic engine that causes cash to move through the community’s economy. Successful local businesses allow owners to remain in place and generate opportunities for in-migration and more opportunities for other entrepreneurs.
The most recent analyses of minority business ownership, earnings and loan approvals was conducted by Mason Tillman & Associates as a part of the Metropolitan Sewer District (MSD) Disparity Study. The study documents disparities that could adversely affect the formation and growth of minority-owned business enterprises (MBE) and woman-owned business enterprises (WBE) within the St. Louis region.
“In the absence of a race- and gender-neutral explanation for the disparities, the regression findings point to racial and gender discrimination that lead to depressed business ownership, business earnings and business loan approval rates,” the study concluded.
“Such discrimination creates economic conditions in the private sector that impede minorities and females’ efforts to create and grow businesses. An impact of these private sector conditions is manifested in M/WBEs’ lower business formation rates.”
Of course, American history shows clearly how this discrimination was put into practice.
The Great Depression touched everyone, but by 1932 half of all African Americans were out of work, and in Northern cities whites demanded that African Americans be fired so that unemployed whites could get jobs. Racial violence increased, lynchings surged in the South, the Tuskegee Syphilis Experiment was underway, and some soup kitchens refused to serve blacks.
The president and Congress paid little attention to the specific plight of disenfranchised African Americans. Their focus was on alleviating the financial crisis for businesses hurt by the Depression.
In 1932, the Reconstruction Finance Corporation (RFC) was created by President Herbert Hoover. It was basically a federal lending program for businesses. The RFC’s efforts for small business intensified during World War II to help smaller businesses that were left unable to compete against large wartime plants.
To help small business participate in war production, Congress created the Smaller War Plants Corporation (SWPC) in 1942 to provide direct loans to private entrepreneurs, encourage large financial institutions to make credit available to small enterprises, and advocate small business interests to federal procurement agencies and big businesses. The SWPC was dissolved after the war, and its lending and contract powers were handed over to the RFC.
Congress created another wartime organization to handle small business concerns during the Korean War, this time called the Small Defense Plants Administration (SDPA). Its functions were similar to those of the SWPC, except that ultimate lending authority was retained by the RFC. The SDPA certified small businesses to the RFC when it had determined the businesses to be competent to perform the work of government contracts.
By 1952, a move was on to abolish the RFC. To continue the important functions of the earlier agencies, President Dwight Eisenhower proposed creation of a new small business agency – the Small Business Administration (SBA). Congress established the Small Business Act with the intent of providing services, including but not limited to financial, management and technical assistance that would provide for the opportunity for full participation in our free enterprise system by socially and economically disadvantaged persons.
More specifically, Congress found that it is in the national interest to expeditiously ameliorate the conditions of socially and economically disadvantaged groups by providing the maximum practicable opportunity for the development of small business concerns owned by socially and economically disadvantaged groups so that they could compete on an equal basis in the American.
To be continued in next week’s St. Louis American.
