Effectiveness of set-aside initiatives for African-American women entrepreneurs

Black Women: Diversity and Inclusion Programs - Are they really assisting?

In the last few decades, researchers, policymakers, economic development experts, and analysts of public policy are increasingly concentrating on the aspect of entrepreneurship in the African-American community, with respect to devising distinct strategies for facilitating economic success. Establishment of set-aside initiatives for minorities (or disadvantaged business initiatives) is one political strategy which serves as an instrument for enhancing small, poor businesses' chances of survival. Several of these businesses were African-American-owned and -run businesses (House-Soremekun, 2007; Chatterji, Chay & Fairlie, 2013). This paper will look into the economics-politics interrelationship, by analyzing the aforementioned disadvantaged business initiatives' effect on African-American businesswomen's economic outcomes.

The research question that this paper poses is: Are the programs (such as the set-aside initiatives) that are designed to support small and disadvantaged (or minority) business owners really successful -- or do they rather perpetuate inequality in the system?

The reason this question is important is because it focuses on a real problem that researchers have exposed -- namely, the that even though African-American women are increasingly employed in the business sector, very few are business owners or shareholders. Yet federal initiatives have been developed for decades that are meant to encourage women to become business leaders. However, as researchers have noted in the past, there is a "frontier myth" that exists in the business world in America and the hero of that myth is the "romanticized cowboy" -- the African-American, much less the African-American woman, does not fit neatly into that narrative (Miller, 2004, p. 47).

The study will examine the experiences of African-American women as small business owners in the city of Cleveland, OH, in order to address this question. The study will conclude by addressing the findings and discussing what it means that African-American women are both encouraged to take ownership and yet at the same discouraged by an inherently bipolar system that strives towards two opposing goals at once.

Policy Background (IN THIS SECTION -- HISTORY OF GREAT DEPRESSION -- READ "WHEN AFFIRMATIVE ACTION WAS WHITE" AND ALSO GIVE PERSPECTIVE FROM THAT ANGLE)

Set-aside initiatives for minorities first developed during the 1930s, with President Roosevelt's Great-Depression-era New Deal initiatives for addressing economic issues (House-Soremekun, 2007). The 1933 Unemployment Relief Act prohibited discrimination against people on the basis of color, creed or race. Requirements were stipulated, making it compulsory for companies that received federal governmental contracts in metropolises inhabited by a large share of Black people to employ a particular percentage of Blacks.

The primary focus of the SBA (Small Business Administration), instituted in 1953, was small-sized largely-White American businesses, rather than exclusively minority businesses. This body grew continually until, in the year 1958, it permanently became a federal agency (Chatterji et al., 2013). In this era, a key area of focus was: offering loans as economic aid to small enterprises, in addition to aiding them with federal contract receipt.

President Nixon's Executive Order (EO 11458) of March 1969 offered the basis for establishing a national-level initiative to assist minority entrepreneurs (Chatterji et al., 2013). The U.S. commerce secretary was assigned the responsibility of overseeing this program, for developing local-, state- and federal- level processes and facilitating long-term growth of minority companies. Therefore, innumerable federal department heads had to present reports detailing the strategy they will adopt for attaining positive outcomes, to the commerce secretary. The result was the Minority Business Enterprise Office's establishment.

As Katznelson (2005) shows, the U.S. Supreme Court has had a history of interpreting the "set-aside" program of the federal government in disparate ways, and its attempts to explain it in view of the Constitution and/or codes of its own devising have caused the waters of the affirmative action movement to become muddied. At bottom, Katznelson (2005) indicates that the affirmative action policy of the federal government is only one aspect of the government's approach to minorities -- and the government is more than capable of exhibiting many faces. With the 1980 Fullilove v. Klutznick case (448 U.S. 448), for instance, the Court ruled in favor of the federal government's "10% set-aside program to aid minority business enterprise" (Katznelson, 2005, p. 219). Yet less than a decade later, the Court would offer up a different take on the issue. The 1989 ruling in City of Richmond v. J. A. Croson Co. (488 U.S. 469) was viewed as a step back for affirmative action because the Court here rejected "a minority set-aside program in Richmond, Virginia, as not meeting" the Court's test for providing "convincing evidence of prior discrimination" (Katznelson, 2005, p. 220). In other words, the set-aside program was not to be implemented across the board -- but only in specific cases where strict criteria were met.

Part of the reason for these differing faces is found in the composition of the Court itself, which like federal government administrations and Congresses is constantly prone to change. For example, Justice Kennedy replaced Powell, which altered the dynamic of the Court. Yet, other political and socials factors were present as well. The 1980s were a time when Reaganomics was moving American in a new direction -- back to a "club rule" type of democracy -- and Court rulings allowed for more restrictions to be placed on affirmative action programs and for more "aggrieved whites to challenge existing programs" (Katznelson, 2005, p. 220). Thus, what was meant to be a policy to assist marginalized minorities in the business world had, by the 1980s, become a politicized issue where the original intent was no longer viewed with the same importance by the leading authority figures of the time.

By the 1990s, the issue of affirmative action had returned to the fore under the Clinton Administration, and the concept of political correctness was becoming popular. A somewhat more liberal Court allowed that "the unhappy persistence of both the practice and lingering effects of racial discrimination against minority groups in this country is an unfortunate reality, and government is not disqualified from acting in response to it" (Katznelson, 2005, p. 220). The battle between right and left, liberal and conservative, racism and responsibility, continued to wage. Under this battle lay an even more important question, however: how to adequately address the issue of inequality and racism? The set-aside initiative was supposed to be the answer.

Set-aside initiatives are of two kinds. One entails allotment of a specific dollar value or share of total governmental contracts to minority contractors. The other involves allotment of a specific share of governmental contracts to suppliers and subcontractors from minority communities, by prime contractors (Rice, 1991; Myers, 1997). Percentage goals are different for different schemes, and even occasionally within schemes in case of different purchases (e.g., construction contracts, professional services, and services and goods procurement). MBELDEF's (1988) information on local-level set-aside initiatives suggest that percentage goals vary from 1%-50%. The percentage goal of a majority of initiatives lies between 5 and 15%. These initiatives are typically supplemented with procurement officers offering additional general support to minority business owners (Bates and Williams, 1993).

Problem Statement

Over time, minority businessmen have been granted several billion dollars' worth of contracts (Boston, 1999). With the enactment of the 1977 Public Works Employment Act and the 1978 Omnibus Small Business Act, practical goals pertaining to procuring contracts and dollars for minority companies could be established (House-Soremekun, 2007). But in spite of the big money involved, astonishingly little quantitative proof is seen with regard to their impacts, particularly on minority enterprises' formation. This has resulted in a political and legal dispute in relation to these initiatives.

Research Questions

1. Have businesspersons enrolled in, or profiting from, set-aside initiatives for minorities enjoyed more success compared to nonparticipating minority businesspersons?

2. Have businesspersons belonging to particular kinds of industry participated more in such initiatives?

3. Should better-educated businesspersons enroll more in such initiatives?

4. Should well-established and older businesspersons enroll more in such initiatives?

Research Significance

This research is especially imperative, owing to recent challenges, on local as well as national levels, against policies for affirmative action, and set-aside initiatives for minorities (by extension). This research will offer a legal and historical perspective on the present debate pertaining to minority set-aside initiatives' survival. Additionally, it will explore their empirical effects on Black businesswomen and will contribute to existing literature on the subject, thereby contributing to decision-making in regard to the future of these programs. Finally, this study forms a central aspect of my studies. I will be able to complete this course successfully through the successful completion of a number of academic activities and assessments, including this research work.

Methodology

A case study approach has been chosen. This study will analyze African-American businesswomen in Ohio's Cleveland city and eastern suburbs, between September and October 2016. The reason for choosing Cleveland as the study's setting is the large urban city's substantial population of African-Americans. This research will concentrate on small enterprises which aren't leading units in their industry (Bardic, 2011; Clemons and Mcbeth, 2009). Criteria for labeling a business as 'small' include: relatively small initial owner investment; no more than 500 workers employed; usual annual profits amounting to below 100,000 dollars (however, there is a possibility of significant differences in the study sample with regard to the last criterion). Four key business types will be part of the study: construction, manufacturing, services, and trade or retail. Enterprises that didn't come under the above categories will be marked as "unclassified"; this includes marketing or promotion, distribution, finance, and real estate.

Data collection will chiefly concentrate on constructing a databank of businesspersons from the African-American community residing in Cleveland and eastern suburbs. The study's target sample is 10 businesses owned and run by African-American businesswomen. At present, no clear list exists covering names, contact numbers and address of northeast Ohio's African-American businesswomen. Multiple sample selection approaches will be employed, of which one will be composing a listing of Black-owned enterprises, included in Cleveland's Black Pages, situated in Cleveland and eastern suburbs (Clemons and Mcbeth, 2009). But owing to voluntary participation in the publication, it may not include all businesspersons.

Compilation of another list -- businesspersons included in Cleveland City's and Ohio State Department's Certified Minority Business lists -- will cover companies wherein at least 51% of the firm is minority-owned.

For this study each small business was located using both the City of Cleveland's Economic Development website Entrepreneur & Small Business Resources and Blackpages.com -- an Internet database repository of black-owned businesses with addresses and information nationwide. The contact information for the small businesses was provided by the websites, which essentially served as a black-business Yellow Pages. The business owners were contacted and interviewed and the data recorded for analysis. Questions asked included whether or not the business had applied for and/or received a government contract through the city of Cleveland or any type of minority small-business owner type of grant.

Expected Results

Study data is expected to indicate the link between minority set-aside initiative participation and whether significant, positive economic growth is enjoyed, irrespective of success measurement technique.

Analysis

The 10 female-owned small businesses identified in Cleveland included: 2 restaurants, 2 physician's health care offices, 2 construction firms, 2 law offices, 1 fashion design business, and 2 financial and business consulting firms. One of the latter -- Bad Girl Ventures -- assists woman-owned start-up companies in tapping resources that can help facilitate successful launches and providing entrepreneurial educational skills to help the new female small-business owners meet objectives.

Of the businesses contacted, the two construction firms had received direct incentives from the city's reserve for grants given to minority owned construction companies, allowing the business owners to reduce their required level of equity in their companies to only 10%. One of the financial consulting firms had bid on an EMS billing contract offered by the Federal government but had not won. Another had bid on a banking and investment services contract. This bid was still open and no contract had yet been awarded. The fashion design business owner had bid on a contract to deliver police uniforms and since the bid date was still open, no contract had yet been awarded. This was not the company's first time bidding. It had also placed bids on other clothing manufacturing contracts with the federal government but had not won.

Each of the business owners who were aware of state and federal contracts complained of having to be "certified" in order to be eligible to bid on them -- a process that in the past had taken upwards of three months. That type of delay was difficult to justify especially for a small-business attempting to plan out its year. In the words of one businesswoman "it doesn't help when you're waiting to hear back on whether or not you're even qualified to be a bidder -- you got a life meanwhile and you got customers you gotta be ready for now -- so it's kind of a lost cause in that respect." In the past year, however, the state of Ohio has worked to cut down times that it takes for minority-owned businesses to become eligible bidders, proudly asserting that the process can now be completed in under a month (Higgs, 2015). Still, for minority-owned businesses and the African-American women who own them, it is understandable that there should be some lack of enthusiasm for going through the process again -- especially considering the limited amount of contracts designated to minority-owned businesses.

Several businesses had not directly engaged in bidding for contracts but they were able to recount narratives about others who they knew who had participated in bidding processes and some that were awarded contracts. Their overall perception of the set-aside policies was that it was good for minority-owned businesses -- but in terms of the success rate of minority-owned businesses obtaining federal contracts they were less enthused. Of the businesswomen owners interviewed, only 1 spoke of the process in positive terms. The others were either skeptical or unfamiliar with the set-aside policies. Of the small-business owners interviewed, only 10% of them offered a positive view of the set-aside program. Higgs (2015) points out that since 2009 "minority participation in state business has generally been moving upward" but that in 2015 it finally reached its 15% goal. Essentially, 17.2% of state contracts "set-aside" for minority companies (Higgs, 2015). However, while this means that minority-owned businesses are being granted a share of the contracts for work, they are only included in a portion of those contracts. In short, as the interviews with the small-business owners in Cleveland suggests, the greater portion of contracts are not open to small-business owners: they are capped.

The legal and political broader policies impacting the set-aside initiative for African-American small businesswomen owners can be assessed by the figures associated with the employment of African-American females in the oil and gas industry -- which as Miller (2004) showed is a fundamentally white male industry. The figures related to this industry are comparable to the figures related to Cleveland's African-American female small-business owners who were interviewed for this study and their assessment of the changes in their sectors regarding racial and gender equality: Fewer than 20,000 employees in the oil and gas industry are African-American women (Gillula, Fullenbaum, 2014, p. 20). Moreover, the kind of change that is supposed to come with equality is not evident in this sector as the majority of women workers in the sector have "office and administrative" jobs rather than roles in "blue-collar" positions alongside men -- with the one exception being "the high share of women in semi-skilled and unskilled blue-collar occupations in the petrochemical segment" (Gillula, Fullenbaum, 2014, p. 21). This however does not support the hypothesis that African-American women are able to maintain management positions or act as significant shareholders or stakeholders in industries otherwise dominated by white men. It remains a closed system and the set-aside programs by law are only there to do just that -- set aside a portion of the work for a specific minority group. A remnant or flavor of segregation thus permeates the atmosphere and gives the environment an aroma of being tainted by past prejudices.

From a rational point-of-view, the set-aside program works on one level and fails utterly on another. In the sense that minority-owned businesses are guaranteed a percentage of government contracts, the programs can be viewed as a success. In the sense that said businesses are not able to be part of the larger pie or participate in the fuller picture, the programs are a failure. Outcomes that indirectly occur as a result would also go to undermine the programs -- namely a specific complacency within government institutions that blithely accepts the current legislation and does not investigate beneath the surface to see whether or not it is actually effective or even inherently positive.

The broader picture indicates that the set-aside program is a continuation of America's centuries' long policy of discrimination -- only now it is legislated and marketed to the public in such a way that it is believed to be a positive step towards promoting equality in the business world. It appears from the literature review and the evidence on the ground that these programs represent a misconception. First, the programs imply that minority-owned businesses should be satisfied by a having a percentage of available contracts ear-marked just for them. Second, they attempt to deal with a centuries' old issue that still remains controversial and prevalent throughout much of society (the rise of Black Lives Matter and "safe space" issues on college campuses across the nation indicates as much) -- yet that attempt can be viewed as superficial and unrealistic considering, one, the lengthy bureaucratic delays associated with becoming an eligible bidder and, two, the fact that the minority-owned business is still limited in terms of a percentage of contracts available.

These programs will likely continue into the future, for as Higgs (2015) notes, politicians are able to tout them as successes and thereby ensure their own stature among the voting electorate. However, with real study and intensive discussion on the issue, a better and clearer picture may emerge that actually challenges the establishment and overturns the white male values that remain commonplace in the business world -- whether that is in Cleveland, OH, or in the oil and gas "frontier" sector.

Recommendations and Conclusion

Political interventions that are needed and how they might be framed should include a comprehensive review of precisely how issues of racism, sexism and discrimination are "solved" by set-aside programs. An honest examination from an oversight committee would be helpful in highlighting shortcomings and inherent prejudices within the programs themselves. Furthermore, political interventions should aim to address the culture of the business world, where values are shaped and passed on. The value-shaping environment has to be transformed before the actual goal of equality among the races and sexes can be achieved. The current culture is inherently opposed to such equality, as is evident in the fact that a "set-aside program" exists at all: it is clear that the main portion is reserved for the "important" players in the business world -- but this type of image is destructive to any discussion on egalitarianism or fairness.

In the 1980s, the opposite view took hold -- that the affirmative action was a kind of reverse discrimination. That same era was good for the establishment's "club rule" -- the white males of finance and industry who profited greatly during the Reagan Administration. Today, that same kind of view -- that reverse discrimination is the culprit behind any demands for equality -- is one that still comes to the fore. Such will always be the oppositional voice, because of the threat to their existence and way of life that equality represents.

Till such time as equality becomes a principle that the entire country and culture can support, promote, and rally behind, the need for some type of legislation and political intervention will be required, if only in order to keep the issues alive and at the forefront of society's mind. Till the time when justice can be better supported in the long run, minority-owned businesses will continue to struggle to earn a right to compete on an equal level at the same table as the companies that participate in the "club rule" within the establishment. That struggle will likely continue for many years, as changing a culture begins not with legislation but with the changing of minds in the up-and-coming generations.