Black Women and Minority Set-Aside Programs: Are They Helping?

Introduction

In the last few decades, researchers, policymakers, economic development experts, and public policy analysts have increasingly focused on entrepreneurship in the African-American community, with respect to devising distinct strategies for facilitating economic success. The establishment of set-aside initiatives for minorities — also called disadvantaged business initiatives — is one political strategy that serves as an instrument for enhancing small, struggling businesses' chances of survival. Several of these businesses were African-American-owned and -operated enterprises (House-Soremekun, 2007; Chatterji, Chay & Fairlie, 2013). This paper examines the economics–politics interrelationship by analyzing the effects of disadvantaged business initiatives on African-American businesswomen's economic outcomes.

Policy Background

Set-aside initiatives for minorities first developed during the 1930s, with President Roosevelt's Great Depression-era New Deal initiatives for addressing economic hardship (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 government contracts in cities with large Black populations to employ a specified percentage of Black workers.

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

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

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

Problem Statement and Research Questions

Over time, minority businesspersons have been awarded 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, concrete goals pertaining to procuring contracts and dollars for minority companies could be established (House-Soremekun, 2007). Despite the significant funding involved, astonishingly little quantitative evidence exists regarding the impacts of these programs — particularly on minority enterprise formation. This has fueled political and legal disputes surrounding these initiatives.

This study addresses the following research questions:

1. Have businesspersons enrolled in, or benefiting from, minority set-aside initiatives enjoyed greater success compared to nonparticipating minority businesspersons?

2. Have businesspersons in particular types of industries 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?

This research is especially important given recent challenges — at both local and national levels — to affirmative action policies and, by extension, minority set-aside initiatives. This research will offer a legal and historical perspective on the current debate surrounding minority set-aside programs' survival. Additionally, it will explore their empirical effects on Black businesswomen and will contribute to existing literature on the subject, thereby informing decision-making regarding the future of these programs.

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