Several months ago, the federal government decided to have a talk with some of the nation's minority businesses about the facts of life. They didn't discuss the birds and the bees, rather big business and big bucks.
And at the end of the lesson, minority bussiness learned its performance has been poor. It is going virtually nowhere.
The discussions were echoed in a U.S. Commerce Department report issued in April which said the path to success and self-sufficiency was not paved with small Mom-and-Pop businesses but with large firms that mirrored large corporate America. Commerce then decided that it must take a novel approach and concentrate its energies on creating medium-sized minority-owned businesses which have a better chance for making profits and increasing jobs.
The proposed agency still would cater to small businesses, but would lean more toward upgrading the management skills of the firms' owners.
The resulting proposal was circulated quietly around the minority-business community. However, Washington's political climate, thick as mid-summer smog, has bred squabbling among blacks over the limited amount of federal dollars available for minority business and who will have the most influence. Who should get the limited federal aid-small businesses, which comprise about 98 percernt of minority enerprises, or the larger, more successful black firms, which may have a better chance of growing, but still don't compare financially to majority-owned corporations? The disagreements include subtle name-calling and suggestions that some older black businesspeople who oppose focusing on larger firms are behind the times.
The undercurrent of friction is an ususual power struggle between minority business constituencies who perceive each other as the "haves" and themselves as the "have-nots."
"There are a limited number of dollars available in this area," said Boston venture capitalist Edward Dugger. "The [Commerce] Department would be wise to focus its resources on businesses that are viable."
Dr. Berkeley Burrell, head of the National Business League, which represents many minority businesses, is leading opposition to the plan, saying that focusing on the 8,000 minority businesses grossing more than $1 million a year would ignore the remainder of the 400,000 minority-owned firms. The Commerce Department is "attempting to take the safe course," Burrell said. "Surely the best way for a doctor to establish an excellent medical record is to treat exclusively those patients who have never been ill and who have a high probablilty of dying of nothing more than ripe old age."
"Iths not the function of the federal government should concentrate on strengthening and expanding existing firms rather than creating new ones.
"The program should not be tailored to the most successful firms, since their level of receipts would suggest that their needs would best be served by other existing agencies of the federal government where resources commensurate with their needs are already in place," Burrell said."Unless there is an organized constituency outside the federal government, perspectives on minority enterprise will have little chance of being heard within government."
"Thus a partnership between the agency and the constituent groups is critical," Burrell continued. "With (the new agency's) concentration on medium-sized firms, Commerce is effectively destroying the only constituent groups its minority enterprise program has."
"Dr. Burrell's approach to minority business is antiquated," said James Denson, president of the D.C. Chamber of Commerce. "The mainstream is not restricted ot Mom-and-Pop-type businesses. We must get into aid for middle-sized businesses."
The Commerce Department is relying partly on a report criticizing the government for concentrating its minority business efforts on small, unprofitable ventures. "Minority black enterprises are not positioned where the action is in the U.S. economy," the report said. "Therefore as the economy grows, minority black enterprises do not equitably share in that growth. The implication of such an analysis is that minority business enterprises will fail to catch up with U.S. business in general and may even fall behind further."
The small businesses were unable to attract capital or capable managers and were unable to gain access to large growth markets. Because of their small size, they are now unable to penetrate the mainstream of America's free enterprise system, the report said.
"This is a very critical turning point, not just for minorities but for all people," the report's author, James H. Lowry, said in a a telephone interview. "People are getting tired of giving handouts."
Lowry said that minorities need to show that all of their buinesses can provide quality services, not just from one or two major firms that are consistently spotlighted for their achievements. "We need a critical mass" of successful minority bussinesses" across the country," Lowry said. "That's what's holding us back."
"In the past, minorities have gone to big business and said, 'Do us a favor because I'm black,' rather than 'I can help you make money,'" Lowry said. "If we expect white businessmen to help us, we have to give them a deal."
In addition to recommendations for future success, the report gives an illuminating look at the dark past and present of minority businesses.
In 1972, the 393,000 minority businesses in this country had average receipts of only $41,200 per firm, which averaged between 6 percent and 46 percent of revenue levels of majority firms, the report said.
"Although the number and size of minority black enterprises has increased over the past five years, the 100 largest black-owned companies generated receipts of only $870 million in 1977," the report said. If those firms were merged into one, "it would rank 271st on the Fortune 500 industrial list," according to the report.
In addition, "Minority black enterprises are not positioned where the action is in the U.S. economy," the report said. "Therefore, as the economy grows, minority black enterprises do not equitably share in that growth. The implication of such an analysis is that minority business enterprises will fail to catch up with U.S. busienss in general and may even fall behind further."
"In summary, because of their size, retail and service orientation and poor locations, minority business enterprises experience a higher-than-usual loan default and total failure rate," the report said.
And now they must overcome political fighting over who will get how much federal funds.
Minority firms also suffer from poor management skills because blacks historically have been excluded from business fields ar eductional institutions or have chosen more traditional black ventures such as medicine, law and religion, the report said.
But "one problem that transcends almost all federal minority business enterprise development programs is the federal government's failur to delineate and accept the givens of conducting business in the American free enterprise system," the report says. It gives as examples:
Majority officials in lead government agencies still retain racial misconceptions aginst minority business people, and will not extend themselves to assist minority black enterprises if they are not motivated and rewarded.
Most small minority firms hiring one to three employes won't grow dramatically, are located in depressed areas, and market 99 percent of their goods and services to other minorities or the government.
Minority investors prefer to invest their excess capital in majority corporations; their greatest concern is the rate of return on investment.
Majority officials in major corporations still retain racial miconceptions and prejudices against minority business persons.
The report recommends pumping more energy into successful businesses and devloping other medium-sized business through acquistion of majority firms. The Commerce Department to take that advice and it has drafted a preliminary plan for creation of a cabinet-level office that, while maintaining aid to small businesses, would use any new funds to develop medium-sized, minority-owned firm.
Government sources said that, in addition to expected opposition from Capitol Hil where budget-cutting has become the newest darling, they feel friction within the ranks of small minority business people.
"Older guys who came up with the Civil Right movement tend to be southern and rural and may be uncomfortable with young guys making a lot of money," one government official said.
"Older business people think they have a proprietary hold on the knowledge on what it takes to make business work," Denson said. "That's not necessarily true."
The Commerce Department's goal is to help arrange between 10 and 15 acquisitions a year, each amounting to at least $5 million to $10 million. Larger deals are hard politically because the White House has made it known that no loans or loan gurarantees of more than $50 million will be acceptable.