As the president and CEO of the largest minority business development organization in the northeast and a 35-year resident of Connecticut, I have to say that in this land of steady habits, improving the environment for minority owned businesses is not something that has been treated with a sense of urgency by successive administrations.
The Malloy Administration came into office on a wave of great optimism that finally things would change for the better, despite the very real and very significant budget problems facing the new administration. But while we are not quite half way through his first term, I have to admit that the optimism has been replaced with cynicism and despair.
The case for minority business development is tied to two interrelated phenomena: demographics and the state’s economic trajectory. On demographics, minority population in the state continues its upward trend. As recently as 1990, Blacks, Hispanics, Asians and those of mixed races, and Native Americans comprised less than 17 percent of the state’s population. According to the 2010 census, the minority population in the state exceeds 33 percent and continues to grow. In fact, had it not been for the growth in minority population over the past 20 years, the state’s population would be declining. As an economist, we know that declining populations is a recipe for economic disaster.
Around 1990, the State of Connecticut conducted its first and only “disparity study”. Disparity studies are used to justify intervention in markets that provide some value to businesses in certain demographic groups where it can be quantifiably demonstrated that a disparity based on racial, ethnic and gender exists. That study led to the creation of the State of Connecticut’s Supplier Diversity program that sets aside 25 percent of state contracts to small businesses and 25 percent of that — or 6.25 percent — to businesses that are certified as minority- or women-owned.
Even when this program was established, the goals were modest at best. Today the goals are actually a barrier to minority business development. The law that created the program does not distinguish between racial and ethnic minority businesses and white-women-owned businesses in the achievement of the state’s goals. So, over the years, the program that was designed to assist minority businesses has a track record that shows less than 2 percent of state contracts are going to small racial and ethnic minority businesses. (And calling white-women-owned enterprises minority businesses does a disservice to them and to real minority businesses.)
The goals have become a ceiling. State buyers and agencies once having reached the goal of the program have acted as if they are free to go back to buying from their non-minority friends.
The business trajectory of the state is a major challenge facing this administration and its residents. The state has been losing jobs, losing young workers, and losing industries. The solution is to recruit new companies (Jackson Labs), make new investments (UConn Health Center), and improve the economic and business environment (reduced business taxes and fees). These are all very good, important and necessary steps. However, without taking a look at the fastest growing populations in the state and their business formation, these plans will not reach their full potential.
According to the Minority Business Development Agency, minority businesses are growing at much faster rates than non-minority businesses. In terms of gross receipts, minority businesses grew by 56 percent compared to 21 percent for non-minority businesses over the period 2002 through 2007. Over the same period, employment at minority firms grew by over 27 percent while employment in non-minority firms grew 0.3 percent. And the number of minority firms grew by 46 percent compared to only 9 percent for non-minority firms. So ignoring this important business segment is fool-hearty to say the least.
So there are several things minority businesses want.
The state needs to conduct a new disparity study. Last year, with the help of many, we were able to get the state legislature to put into the budget money to conduct a new and long overdue disparity study. The governor cut one half of the $1,000,000 allocated for the disparity study. Fortunately, last week the Legislature was able to save the remaining $500,000 for the study from the governor’s budget ax by moving the funds from the executive branch to the legislative branch. Now at least a new study will be done, despite the lack of interest by the governor.
The state needs to bring an end to the grossly unfair practice of exempting suburban towns from the state’s own supplier diversity program when state funds are being used. This is the so called “municipal exemption.” Exempting suburban, predominantly white towns from abiding by the state’s set aside program, even when it state dollars that are funding local projects in these towns is bad economic policy and discriminatory. This is nothing short of economic apartheid Connecticut style. The municipal exemption says to minority businesses that you are not welcome in Glastonbury, Greenwich and Guilford. Can you imagine the uproar if we passed a law that said that white-owned businesses could not do business in the predominantly minority towns of Bridgeport, Hartford and New Haven? That too would be bad policy and unfair.
Minority businesses want the state to decide to either put the resources in a robust certification program, or turn over this function to organizations that have a track record of certifying legitimate women- and minority-owned businesses. It is hard to determine how many “front” minority- and women-owned businesses are certified by the state right now, but I know that they are out there in significant numbers. The state simply does not have the resources with less than three FTEs to police and monitor the certification process. The state can take the lead from the federal government where WBE certification was just outsourced to the Women’s Business Entrepreneurial Network Council, an organization that uses a process almost identical to the GNEMSDC process for minority businesses. If the governor wants to trim some fat out of the budget, he can close down this ineffective counterproductive activity.
The governor is rightfully spending a lot of his time and political capital on education reform. And as a former full-time professor at the University of Connecticut School of Business, I support education reform. But he and others must realize that education reform is derivative of having real economic reform.
Without jobs and businesses and income and profits in minority communities, education reform is like Sisyphus pushing the rock up the hill only to have it roll back down. Children whose parents do not have jobs to go to, or whose parents cannot start and own businesses are, on average, destined to fail regardless of what marginal educational reforms the governor and the legislature enact. If the governor and the legislature want to get serious about education, they would treat the causes and not the symptoms.
It is time to get serious about minority business development in this state. This is not just for minority businesses and communities. Minority business development is in the interest of all residents of the state. The state can no longer ignore minority business development. And none of this will happen without the leadership of the governor and legislature.
Fred McKinney is president and CEO of the Greater New England Minority Supplier Development Council in Hamden.
