RACE : The Need for Black Investment

The reason blacks are falling behind other ethnic groups in economic performance in America today is not the result of genetic deficiency or white racism. In this respect, the conservative authors of “The Bell Curve,” who seek a biological explanation for black failure, and black and white liberals, who attribute virtually all African American problems to racism, are both wrong. Rather, blacks are economically uncompetitive with Asians, whites and Latinos because they have developed attitudes once adaptive to historical circumstances that can now be considered dysfunctional.

One of the most serious African American cultural problems today is an excessive dependency on government. Both poor and middle-class blacks tend to look to public programs as the way to solve virtually all social ills. Not only are blacks heavily reliant on the state but, as a group, they are less likely to develop independent businesses that have proved, for other groups such as Cubans and Koreans, to be a durable source of employment and income. As politicians such as Bill Clinton and Newt Gingrich debate policy alternatives for the inner city, they should keep in mind that African Americans do not need programs that make them more reliant on government; instead, they would benefit most from incentives to private investment and entrepreneurship.

Today, a large fraction of middle-class blacks works for the government--a continuation of a pattern that developed because, in earlier years, government was often the employer of last resort. Though blacks make up 10% of the civilian work force, about 24% of blacks--compared with 14% of whites--are employed by the federal, state and local governments. According to sociologist Bart Landry, about half of black professional males, and two-thirds of black professional females, work for some arm of the state.

According to a recent survey, 67% of blacks believe the government, rather than private business or individuals, has the greatest responsibility for creating jobs. Both poor and middle-class blacks shared this belief. By contrast, whites were far less likely to look to government for jobs; even among the poorest whites, less than 50% cited the government’s responsibility. Sixty-eight percent of blacks, compared with 36% of whites, insisted that increases in government spending were the way to invigorate the economy and provide employment.

Meanwhile, blacks have done poorly in the one area that is a rapid source of jobs and social mobility for other groups: small business. According to U.S. government data, blacks, who make up 12% of the population, owned, in 1987, about 420,000 businesses with receipts of $19 billion. By contrast, Asians, who make up 3% of the population, owned 350,000 businesses with receipts of $33 billion. African Americans currently start and run less than 3% of the nation’s businesses, which take in less than 1% of the nation’s gross receipts. In addition, only about 3% of African American spending each year goes to black-owned enterprises.

Black reliance on government is understandable in the context of African American history. While many whites have historically viewed the government as an enemy of rights--the Bill of Rights revealingly contains numerous “Congress shall not” provisions--for blacks, the government has proved to be the protector and guarantor of rights and freedom.

It was the national government, in the 1860s, that freed the slaves. The basic right of blacks to equal protection of the laws was recognized in the 14th Amendment. In the 20th Century, black leaders were compelled to turn to the federal government to combat state-sanctioned segregation and private discrimination. Under the New Deal and then the Great Society, government became an employer of last resort, and later an active recruiter of black workers--serving as a catalyst for hundreds of thousands of poor blacks to enter the middle class.

Consequently, many African Americans today express a virtually mystical faith in political struggle and state provision as the means to make economic advances. Sociologist Thomas Kochman writes that while whites view their social advantages as earned--”I worked for what I have”--blacks tend to view theirs as the fruit of political activism --’We fought for it” or “We struggled for it.”

Yet, the contemporary problems of blacks are not susceptible to being solved by demonstrations and federal programs. In an era of shrinking budgets and increasing public resistance to power concentrated in Washington, the national government can play only a limited role in providing employment and unearned entitlements. Moreover, in a free society it is difficult to envision how the government today can force single mothers to supervise their children’s study habits, or counteract the strong peer appeal of juvenile gangs. None of these inner-city problems can be easily addressed by signing more civil-rights legislation. Black reliance on government, once justified, may have now become a liability.

Economist John D. Kasarda argues many Asians establish small businesses to overcome obstacles that newcomers to this country face: language and access to credit. Kasarda points out that economic solidarity helps Koreans keep capital circulating within their community. “This is what used to happen in the black community during segregation,” Kasarda says. “A single dollar would turn over five or six times, because it would be spent on goods and services provided by other blacks.” Other scholars such as Timothy M. Bates have written about how Asian groups set up rotating credit associations to invest in new enterprises.

Ironically, this research points to the fact that, used correctly, ethnocentrism can be a business asset. People from a homogenous group who trust each other can avoid the legal and bureaucratic structures necessary in adjudicating the transactions of strangers. Groups who succeed through the private sector don’t need many civil-rights leaders, only entrepreneurs.

Yet, although blacks, as a group, have a gross and per-capita income that exceeds that of many industrialized nations, little of this money is spent on products sold by black-owned businesses. Despite a few modestly successful “buy black” campaigns, blacks who are famous for their political solidarity as a group to date show no comparable sense of economic solidarity. Indeed, at a recent black family gathering on the mall in Washington, many African Americans present were surprised and outraged to see Koreans manning the stores selling Malcolm X T-shirts, African paraphernalia and food.

Despite the opportunities provided by entrepreneurship, and the limitations of government in solving social problems, many black scholars and civil-rights activists continue to counsel resistance as a means to secure greater transfers of wealth from the public treasury to the African American community. Historian Manning Marable calls for a “renaissance of black militancy.” In a more moderate vein, Rep. John Lewis (D-Ga.) says, “We have an obligation to organize and mobilize the African American community like never before. We must continue to push, continue to agitate, continue to get the government to say ‘yes’ when it may have a desire to say ‘no.’ ”

Government has a legitimate role in providing needed services and a safety net. But the degree of black reliance on government is dysfunctional because it prevents many African Americans from being “spurred by necessity,” as Kasarda puts it, into the risks and rewards of entrepreneurship. Like the Big House in times of slavery, government can provide security. But, sometimes, that protection from cradle to grave comes at the cost of self-reliance and private initiatives that offer better long-term rewards and, perhaps more important, an abiding sense of personal freedom.

Please see related article by Glenn C. Loury on Page M5.