A recent article in the Times-Pucayune has me thinking (again) about the approach inner city communities take to developing their economies. It has me questioning the entire “community activist” approach to bringing jobs and businesses to an area. In the article the heads of a number of non-profits and a small business participated in a panel discussion on economic development post Hurricane Katrina.
The panelists raised concerns about billions of public and private sector coming into the New Orleans area while black businesses were relegated to the sidelines with hardly any of this new capital flowing to them. If the article caught the sentiments of the panelists correctly, the emphasis of the panel appeared to be on creating more public policy that would ensure more public and private funds go to black-owned businesses.
What I didn’t pick up from the article was any discussion on what value black-owned businesses in New Orleans would bring to an investor; whether these businesses could generate sizable returns on and growth of capital to satisfy an investors.
One area of growth is digital media. According to an article in The South China Morning Post, an unprecedented amount of capital is flowing to online media outlets like BuzzFeed.com, Vice Media, and Vox Media.
One thing for sure is that it won’t be barbershops, beauty salons, convenience stores, package stores, or fast food restaurants. These types of businesses make up what you see in black communities. They have low barriers to entry and are very competitive industries. They are also what I call “echo effect” industries which most people also call service industries. These industries pop up to serve people who people who work in what I call the “impact” industries. In San Francisco, an echo effect industry is a dry cleaners. The impact industry is Google or a data analytics firm where its workers are creating intellectual property and earning the higher incomes that come with it.
In black communities it’s tough for these impact industries to get started because the first investment in intellectual capital hasn’t been made. For example, in Delaware only 19% of African American students are enrolled in STEM-related courses. Getting students into these courses is necessary if entrepreneurship in the tech area is ever to grow in the African American community itself.
STEM-related employment is expected to grow 16% between 2014 and 2024, according to the website, ChangetheEquation.org. Non-STEM jobs are expected to grow 11% over the same period. And right now students of color are not getting the inspiration they need to pursue the education that leads them into the more lucrative STEM careers. Again, according to ChangetheEquation.org, African-Americans and Hispanics comprise just over 20% of those who earn computing degrees.
If black communities are to generate business ideas that capture capital and generate higher incomes in the 21st century, its leaders have to recognize the clog in the labor supply line. That clog is caused by a labor pool that is growing to slow to meet STEM-related demand. The community approach to generating wealth sets itself up for failure if its leadership does not take a more proactive and innovative approach to managing the community’s political economy. Falling back on arguments for revamping affirmative action alone wont lead to a revitalized economy.