Despite the corporate push for supplier diversity, the public policy focus on small businesses, and notwithstanding the fact that 50% of the nation’s 27 million small firms are owned by minority or women entrepreneurs, there is remarkably little information on small business capacity and performance.
Today, there are 5.8 million minority-owned businesses and their number increased by 600% over the last 15 years. They comprise 20% of all small businesses, create 7.6 million jobs and employ 5% of the workforce. Their employment capacity has grown so significantly that if all their employees were minorities, they would now provide jobs for 18% of the minority workforce.
In contrast to the rapid growth of minority-owned businesses, the number of non-minority-owned businesses increased by only 47% over last decade and a half. To reduce high unemployment in minority communities, the minority business sector must become more successfully engaged.
There are several government policy actions that would allow this to happen. Two in particular would make a difference. In this post, we focus on one such policy. In a second post, we will discuss the other. The two policy changes are as follows:
- Fine-tuning government regulations that affect programs designed to assist minority business development and corporate suppliers
- Reducing the bureaucracy and burden on corporations, government agencies and minority suppliers who are attempting to comply with government regulations regarding minority business programs
FINE-TUNING GOVERNMENT REGULATIONS
Since 2007 EuQuant (the consulting company that powers the Gazelle Index) has conducted research for various Congressional committees aimed at revising the economic disadvantage criteria associated with federal minority business programs, so as to facilitate the ability of minority-owned businesses to build greater capacity.
In response to EuQuant’s research and that of others, in 2011 the SBA and FHWA revised the language regarding economic disadvantage criteria for the 8(a) program, the SDB and DBE programs, and the women-owned small businesses program (WOSB).
The problem is that the adjustments were not coordinated among the programs and there are now different criteria for each program. One criterion is based on personal net worth, another uses total income and total assets, one other uses all three, but at different levels. The problems caused by having different criteria:
- It makes it impossible for owners of disadvantaged businesses to move seamlessly between programs
- It requires federal agencies to spend more time and money certifying firms
- It imposes bureaucratic paperwork and cost burdens on SDBs who wish to participate in more than one program, on corporations that must certify suppliers, and on government agencies that must audit the accuracy of certifications.
- It is confusing for firms that are required to self-certify
- It creates a greater potential for miss-representing certification status
- It creates a competitive disadvantage for firms in programs with lower economic disadvantage criteria
Policy Issue that needs to be adopted: Create One Uniform Criteria for Economic Disadvantage
Create a single economic disadvantage criterion and apply it to all federal programs. The standard should be adjusted annually for inflation and it should take into consideration the bonding capacity requirements and the amount of capital that is typically needed to operate successfully in different industries.
What you can do as a Minority Business Owner?
Minority businesses rely heavily upon government contracting opportunities. Because of discriminatory barriers and exclusive networks in private markets, government programs are often essential points of business start-up for minorities. Hence, the smooth and efficient operation of those programs is essential.
The personal disadvantage criteria are designed to limit the benefits of the programs to businesses owners who are truly needy. In doing so however, regulations should not become so confusing that they reduce the programs’ efficiency.
Small business owners should therefore keep close watch on these regulatory changes and write their Congressional representatives to let them know how important it is to create one uniform economic disadvantage criterion.
Let us know what you think.