African-American Entrepreneurship Term Paper

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In a comparative light there seems to be significant problems, or obstacles, for African-American entrepreneurs. These problems are categorized by environmental factors, opportunity factors, and issues related to capital. The purpose of this paper is to provide sociological, and economical insight to the plight of African-American entrepreneurs. There is an effort to trace the development of African-American entrepreneurship throughout American history, in the post-reconstruction era to the present, in relationship to social conditions of discrimination. Uniquely, African-American entrepreneurs are involved in the affirmation of a paradox of American ideology. African-American entrepreneurs, in pursuit of the American dream, have been taught to stress individual success where what is needed is communal solidarity to foster access to the things that they have been categorically denied.

A high concentration of African-American entrepreneurs are focused in the service economy. Although these jobs provide viable services and profit for many individuals they are not high profit occupations. This accounts for an African-American presence in entrepreneurship without a high market share. The reasoning for this can partially explained by the Great Migration, a period lasting from 1900-1930 in which millions of African-Americans migrated from the South to Northern cities.1 Upon arrival in the North African-Americans faced entrepreneurial opportunity and already established European communities. With the arrival of these masses of African-Americans came radical changes in the “moderate” status of race relations in the North. “In Cleveland, the influx of African Americans prompted white fears over residential encroachment and occupational competition, resulting in `a sharp rise in racial tensions and an increase in institutional discrimination.’”2 This cause a transformation of the services that already existing African-American entrepreneurs were providing. The newly racialized environment now regulated African-American businesses to serving only African-Americans. A practical example of this assertion is found in an examination of the occupation of undertaking. “Undertaking was perhaps the most exclusive protected market available to African-American entrepreneurs in the early twentieth century.”3 Due to the changing climate in race relations in Northern cities there were no longer white undertakers who would even “touch” black bodies. There were also cultural specificities that African-American entrepreneurs engaged in the funeral process had to respect. As a result, African-Americans became over represented in the field of undertaking (Table 1.1) in the years following the Great Migration. Again, it is important to recognize that most opportunities for African-American entrepreneurs were similar to this one in that they were market specific service economy oriented. “In short, changes in the ethnic compositions of (N)orthern cities in the early twentieth century made it difficult for African Americans to establish an economic interface in entrepreneurial occupations during the crucial period of their initial migration to these cities. The lack of such an interface may have set African Americans on a course of economic disadvantage for the rest of the twentieth century.”4 An important piece in shaping this model of economic disadvantage is the pervasiveness of white supremacist theory in the dominant society of the time.5 The common belief of the inherent inferiority of blacks limited their entrance into the entrepreneurial economy, even in the North. One economist when speaking of the disadvantage of trying to create an African-American owned business in a white supremacist environment goes further to say that, “This disadvantage, moreover, continues to inhibit the entry of African Americans into entrepreneurial occupations.”6

Common historic methodology suggests that there can be no examination of the economic position of African-Americans without relationship to the church. The institution of the church in post-emancipation America is the single most important institution in African-American history. Interestingly enough there is a sect of Christianity that is peculiarly similar to Protestantism, except it is regulated to African-Americans. A Protestant model will be employed in this exposition of the church of Father Divine. The Father Divine Peace Mission Movement was centered in the New York area in the period of the Great Depression. Father Divine and twelve of his “angels” set up an employment agency in which the “angels” would hire out their services as domestic workers. Father Divine offered free dinners at his church in which he enlisted members. However, “The growth of membership in the Peace Mission Movement during the Depression outstripped Father Divine’s capacity to place his converts in domestic employment. Self-employment provided a practical remedy for Divine’s supply problem. . .”7 In this respect the Church of Father Divine is similar to Protestantism8 in creating a community with a propensity for entrepreneurship. God was regulated away from the individual, for in the Father Divine’s sect he was God. The rationalization of profit maximization was made evident in hymns like, “If you love Him [God], get a job and go to work.”9 The Peace Movement was responsible for an African-American entrepreneurial boom in the midst of the Depression. The center of this boom was Harlem, Manhattan. The most abundant category of entrepreneurial endeavors was restaurants. “. . .twenty five restaurants in Harlem made a significant contribution to the relief of misery in the Depression. . .restaurants sold thousands of wholesome ten-cent meals to the unemployed.”10 In order to foster African-American entrepreneurship the Peace Mission Movement “. . .was selective in recruitment. . .demanded a complete change of life and enforced this demand with public scrutiny. . .isolated members from the `world’ and forced them to proclaim the public stigma of their affiliation. Ethically disciplined deviance resulted.” This model of the Mission Movement is comparative to Protestantism where members of the religion were forced into solidarity by religious affiliation, isolated from the dominant society, and rationalized profit with a positive relationship to God. The result of the spread of Protestantism was also “disciplined deviance.” The Father Divine Peace Mission Movement was responsible for enabling many African-American entrepreneurs in spite of the depression.11 As one sociologist noted, however, “`an ideology together with an organization can do things which individual entrepreneurship among Negroes cannot achieve.”12 This is perhaps due to the contradiction in the stress of individuality in American entrepreneurship and its relationship to the communal foundations in religion. In Protestantism it is brotherly love, and in The Peace Mission Movement it is cooperation. Both stress a certain sense of interdependency and communal solidarity that is based on common faith.

Necessary to understanding the plight of the African-American entrepreneur is the relationship of the entrepreneur to the society. Until as recent as thirty years ago the African-American was excluded, in a legal and non-legal manor, from; jobs, labor unions, country clubs, and access to capital and credit institutions.13 Therefore, the American landscape was not conducive to fostering successful African-American entrepreneurs until the mid to late nineteen sixties. In effect, widespread African-American entrepreneurship is a new phenomenon. Due to the environment of discrimination, “Things did not begin to change on a noticeable scale until the late 1970s and early 1980s. . .the seeds of the current diversification and growing capacity of black businesses can be traced in part to local, state and federal procurement opportunities.”14 This period is characterized by a the invention and implementation of affirmative action practices. “Between 1977 and 1982, black-owned businesses grew by 46.7 percent.”15 (Table 2.1) Although these may seem like unprecedented gains African-American participation in the entrepreneurial market as a whole only accounted for 3.1 percent of all US firms and 1 percent of all receipts. There is also no causal relationship, although popularly accepted, between minority ownership and small-business failure.16 In fact, the reason why there are less African-American business and more business owned by other minorities is due to a proportionately low start-up rate among African-Americans. This low start-up rate can be attributed to difficulties in obtaining lines of credit. “Virtually every study of minority entrepreneurs finds that a major problem in starting and operating a business is obtaining lines of credit.”17 Since the end of legalized discrimination there has only been slight improvement in banks willingness to loan monies to African-Americans. “The latest study of characteristics of business owners by the Census Bureau indicates that. . . non-minoraty men borrow 16 percent of their initial capital from commercial banks while black business owners get 9.5 percent of their initial capital through such channels.”18 Although the climate of the US is no longer hostile towards the success of African-American entrepreneurs, the environment is still not effective in creating opportunities for these business to even exist. Without this environmental analysis an examination of the African-American entrepreneur is fruitless.

The framework of Race, Markets and Social outcomes is characterized by the exposition of arguments concerning the relationship of African-Americans, entrepreneurship, and success. The case study that will be examined involves black participation in the construction industry of New York City. It is important to note that many blacks who were entering the construction industry as entrepreneurs were doing so as a result of lost opportunity elsewhere.19 “In the favorable political environment of the 1960’s, minorities generally, and blacks specifically, increased their access to jobs in New York’s construction industry. . .By 1980, most blacks working in construction were in the skilled occupations. This pattern was altered in the 1980’s: while new construction boomed in New York, blacks’ share of the resultant skilled jobs and earnings declined. Among those seeking to go out on their own, access to work was a major stumbling block and successful small business creation was often aborted.”20 (Table 3.1) One factor in examining this decline is the relationship of discrimination and entrepreneurial success. What has been found is that, “Construction is unique in that the conventional barriers do not apply. . .Advanced educational credentials are not a barrier to entry in construction; large financial capital investment is not a barrier to entry in construction.”21 Therefore, the traditional models of loss of opportunity do not apply to construction because the industry is not suseptable to them. As a result there must be another reason for the decline of minority representation in the construction industry. The construction industry is ruled by small firms positioning themselves for contracts. In New York, although there are regulatory measures in place22, most skilled labor contracts are given through already existing networks. In other words, “The crux of the matter appears to be discriminatory access to skills training, and to work. Even skills acquisition, when possible, does not solve the problem of old-boy networks, where work is parceled out to in-group members. . .”23 Mostly all of the members in this “in-group” are whites. Although it would seem that African-Americans could escape old-boy networks by simply starting their own networks and firms this was not the case. Much of the construction work in New York City is preformed by receiving contracts from the city. In a study conducted in 1980 non minority entrepreneurs almost unanimously admitted to having a close family member or friend who was involved with the partitioning of city contracts.24 Measures were enacted by Mayor Dinkins to combat this form of discrimination by requiring an “. . .established preferential procurement program for minority vendors in 1992.” However, “[Mayor] Gulianni eliminated bid preferences allowed to MBEs [minority business enterprises] in the awarding of city contracts. Challenging the discriminatory environment in New York City construction is not high on the political agenda.”25 Here is a common observance in the examination of African-American entrepreneurship and that is the admixture of a political and social agenda with entrepreneurial success.

Many scholars and economists feel the need to compare the success of African-American entrepreneurs and Asian-American entrepreneurs. The common question that comes to mind is, “If this latter day Horatio Alger, `famous neo-conservative icon’ flourishes selling groceries in America’s poorest urban areas, then why don’t local residents (including African-Americans) take advantage of these business opportunities?”26 Commonly accepted answers to this question include, lack of motivation among African-Americans, lack of initiative, or an aversion to hard work. In fact, none of these are the case. The factors that need to be examined are, access to higher education, white-collar work experience (management), and access to capital. Typically the most successful firms are those that involve a positive combination of the aforementioned characteristics. (Table 4.1) Although these things seem to be able to be harnessed by the individual , it seems that African-American entrepreneurs have a harder time gathering these elements. “Scholars who study the development of the minority small-business community in the United States are unanimous on at least one issue: minority self-employment patterns only make sense in the context of prevailing constraints and opportunities.”27 However, many of those opportunities have been opened up in recent years. For example, there was a positive 92.9 percent change in the amount of business degrees awarded to African-Americans between the years of 1976 and 1992. This growth in higher education can be accountable for a successful boom, nationwide, in African-American entrepreneurship. Yet, this recent enjoyed success must be still read in the light of ever prevailing limited opportunities for African-Americans to receive capital from major banks.28 In light of these blocked opportunities Bates states, “Possession of class resources and access to social resources are positive factors encouraging prospective entrepreneurs to take the plunge into self-employment. They are pull factors. Blocked opportunities to pursue wage and salary employment are push factors, dictating that self-employment be pursued, even though one may prefer to work as an employee in a managerial or professional occupation.”29 When put into these terms it is evident how the relationship of African-American entrepreneurs plays out to Asian-American entrepreneurs.

“William Baumol states that if we want to explain why some economies have grown significantly and others have remained relatively stagnant, we must look at `differences in the availability of entrepreneurial talent and in the motivational mechanism which drives them on.’”30 Holding this to be true and relating it to the recent boom in African-American entrepreneurship, that has a direct correlation to the loosening of discrimination practices, and the implementation of affirmative action programs, one can see that there lies, in the African-American community, an infinite amount of resources for the growth of the American economy. However, if American society continues to use discriminatory practices, and cut back on affirmative action programs we will lose access to this resource. Therefore, it is in the interest of every American to foster the growth of African-American entrepreneurship by, opening lines of credit, doing away with old-boy networks, and increasing educational opportunities.



Bates, Timothy. Race, Self-Employment & Upward Mobility: An Illusive American Dream. The Woodrow Wilson Center Press & The Johns Hopkins University Press; Washington D.C. & Baltimore and London, 1997.

Boston, Thomas D. Affirmative Action and Black Entrepreneurship. Routledge; London & New York, 1999.

Boyd, Robert L. “Demographic Change and Entrepreneurial Occupations: African Americans in Northern Cities.” The American Journal of Economics and Sociology. Vol. 55, April 1996.

Light, Ivan H. Ethnic Enterprise in America: Business and Welfare among Chinese, Japanese, and Blacks. University of California Press; Berkley, Los Angeles, and London, 1972.

Mason, Patrick L. & Williams, Rhonda M. Race, Markets, and Social Outcomes. Kluwer Academic Publishers; Boston, Dordrecht & London, 1997.

Word Count: 2375

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