Excerpted from The Neighborhood Works, August/September 1992; © Center for Neighborhood Technology, Chicago; subscriptions, $30.
When news anchors and politicians toured south-central Los Angeles after the riots, describing poverty and racial isolation as if they had just discovered them, they failed to note two key facts: first, that the problems are not confined to LA but are of epidemic proportions, and second, that some solutions devised by city residents to turn the situation around are already in place.
These efforts often depend on outside resources, but their essence is local: neighborhood people making decisions, nurturing economic development, creating hope. Hundreds of communities are creating businesses, building housing, increasing job opportunities, and shaping public policy. Replication of this success-from-within approach could help the nation reverse the decline of its cities.
Much of the groundwork is done. A recent survey by the National Congress for Community Economic Development found that the nation’s 2,000 locally governed community development corporations (CDCs) have built 320,000 units of mostly low-income housing nationwide, and in the past five years helped create or retain 90,000 jobs. "CDCs are not a panacea, but they have a proven track record despite a direct absence of federal assistance," says Robert Zdenek, president of the National Congress.
According to Zdenek, one fifth of all development corporations have become involved in commercial and industrial development, and he expects more to follow. The reason: business development creates wealth. The Linwood Shopping Center developed by CDC-Kansas City supports 10 minority-owned businesses and captures $35 million in sales from the neighborhood. A second center will harbor 16 more minority-owned stores.
On Chicago’s West Side, 32 of 69 businesses in the Fulton-Carroll Center incubator, which nurtures small business startups, are minority-owned. "These companies are very important because they provide role models and attract back the middle class," says June Lavelle, the gruff and hard-driving Fulton-Carroll president whose assistance has helped 71 firms "graduate" since 1980.
Two types of people are suited to the knock-down rigors of entrepreneurship, according to Lavelle: those with graduate degrees and financial wherewithal, like former Citibank vice president Ron Damper, whose tea-blending business now employs 25; and those who replace schooling with experience and determination, like Al Johnson, a printer who bought out his boss’s struggling business and, with technical assistance through the incubator, turned the company around.
"People have to be willing to work the 14-hour days," Lavelle says, "but if we’re looking at urban poverty, this makes a lot of sense, because these companies hire out of the neighborhoods."
Incubators have been opening at the rate of one per month since 1986 and now total 470 in North America, according to the National Business Incubation Association. In the "industry" of business development, they represent the middle-market. Above are the larger, well-capitalized companies that use traditional banks for support; below are the bootstrap microenterprises that are growing even faster than incubators.
THE MICROENTERPRISE BOOM
Modeled after programs started by the Grameen Bank in Bangladesh, microenterprise programs provide loans as small as $100 to help individuals start or expand businesses. In lieu of collateral, many programs organize lending circles of five or more people; one or two take out a loan, and when they pay it back, others in the circle borrow the money.
An estimated 108 such programs are operating in the US, up from a handful five years ago. Among the biggest is the Women’s Self Employment Project (WSEP) in Chicago, which to date has advanced 210 loans worth $300,000.
One woman, who WSEP executive director Connie Evans says "could sell anything," used a series of small loans and a lot of financial and business advice to begin a shoe business, first from her home and now in a storefront. Another woman had truckdriving training but couldn’t crack the male dominated industry; she borrowed enough to begin a shipping brokerage firm, borrowed again, and now runs her own trucks.
"One of the greatest byproducts is the impact on the families of the entrepreneurs," says Evans. "The kids see their mother building a business and they want to get involved; they start to understand that there is more out there besides welfare or a dead-end job."
OPPORTUNITY IN KEY INDUSTRIES
As political and community leaders look for strategies to rebuild cities, they will get more bang for the buck if they focus on businesses and industries that create multiple benefits. Most cities need millions of dollars for streets, schools, libraries, and public transit systems. Since minority-owned firms already have a foothold in construction, the spending could boost entrepreneurship while physically reconstructing the ghettoes. Likewise, cities that invest in industrial parks could make a conscious effort to attract and support minority-owned food processors, manufacturers, and technology companies, all of which have shown growth among minority entrepreneurs.
One of the most promising fields is the energy and environmental industry, which could create jobs while making cities healthier and more energy efficient. The recycling industry has created thousands of new jobs in the past five years, most of them in urban areas. Johnnie Jones of Chicago is one of the few minorities to build a business out of it. He employs 14 people rebuilding wooden pallets for the shipping industry, and instead of spending $400 a truckload to landfill unusable scraps, he grinds the wood into an absorbent for use in factories, stables, and food stores.
Growth of the recycling industry will be matched by that of energy and other environmental firms. The Clean Air Act amendments tighten emission standards for industry and require cities and employers to reduce automobile use. Complying with the act will create opportunities to develop and maintain pollution control equipment, provide transportation services, or recycle coolants from refrigeration systems.
Energy equipment and services, like lighting retrofits and construction of cogeneration plants, will also grow because the payback period on efficiency investments has shrunk dramatically. A recent study by Citizens Fund, the research arm of Citizen Action, found that energy efficiency can create four times as many jobs as finding and extracting new fuels.
BROADENING THE PROCESS
The successes of CDCs, incubators, microenterprise and other business development strategies are real, but they can’t do it alone. Other players will need to be:
banks and other lenders, because access to credit remains a barrier to home ownership and business development;
enterprise developers, whose assistance to entrepreneurs can create a base of locally owned businesses;
homegrown leaders, because city-oriented policies won’t be implemented until residents gain leadership roles in local and national institutions, including schools, mayors’ offices, and the US Senate.
Unfortunately, with interest on the national debt draining off $206 billion a year and the continued dominance of Congress and corporate America by well-off, mostly white leadership, the inner-city agenda remains a low priority. That status won’t change until the needs of the cities can be linked to the needs of business owners and the suburban middle class. And that will require a conscious strategy to convince Americans not only that the cities can be saved, but that they can become an economic resource as the nation restructures its faltering economy.
AN INCUBATOR/MICROENTERPRISE SCORECARD
Historically, only four out of 10 small businesses survive their first five years, but businesses started in incubators have an 80 percent survival rate.
According to a 1991 Mott Foundation survey of 29 microenterprise programs operating in the US, the funds pumped $5.5 million into 1,235 new and expanding businesses. The loans, averaging $3,600 each, led to the creation of 1,688 jobs. Fifty-nine percent of the businesses receiving the loans were owned by women, 42 percent were minority-owned, and nearly a third were run by people receiving public assistance. And the default rate on the loans was just 6.6 percent.