Public-Private Partnerships: All Too Often, the Promises Go Unfulfilled

It’s an election year and that itself may explain why so many national and state politicians have suddenly seen fit to make appearances at events promoting various economic bootstrap programs aimed at small businesses.

The carousel of conferences in the last two months has included:

* A meeting at the downtown Regal Biltmore Hotel between Commerce Secretary Bill Daley and 100 top CEOs from companies such as Rockwell International, Wells Fargo Bank, Levi Strauss & Co. and Magic Johnson Theaters. The gathering focused on President Clinton’s initiative on race and how best to build relationships between majority- and minority-owned businesses.

* A gathering of nearly 400 at Pacoima Elementary School to hear Vice President Al Gore talk about new empowerment zones in Los Angeles that will help small businesses in low-income neighborhoods. The event drew a stellar cast of politicos, including Lt. Gov. Gray Davis, state Controller Kathleen Connell, Assemblyman Tony Cardenas (D-Sylmar) and Los Angeles City Councilman Mike Hernandez.

* A walkabout in South-Central by Alan Greenspan, Federal Reserve Board chairman, followed by a meeting of 300 people, including banking regulators and members of Congress, at the Museum of Science and Industry auditorium.

Organized by Rep. Maxine Waters (D-Los Angeles), the event focused on the lack of bank branches in low-income and minority communities.

* An economic summit with business and government leaders from all 88 Los Angeles County cities. Organized by the New Los Angeles Marketing Partnership, a group that grew out of Mayor Richard Riordan’s office, the five-hour session at the California Science Center ended with a to-do list and pledges by the 250 people attending to make the region more competitive.

Truth be told, turnout for most of these events was lower than expected by the organizers. And after the events ended, a common assessment by observers was that they were of mostly “symbolic importance.”

Indeed, some veterans of the region’s small-business economic development agencies didn’t even attend, too busy providing actual services to clients to take a few days for “symbolic” events.

“In the business community, there’s the A list, people who are doing things, and the B list, where it’s unclear if they are doing things,” added one small-business activist.

“At a lot of these things, it’s usually the B list that shows up, and they can’t take it forward because the A list is busy doing their work.”

Perhaps that observation is too harsh. Political leaders and business owners need to take a break now and then to reevaluate goals and set action plans.

But too often, promises go unfulfilled.

Take the case of three corporate banks that together pledged $210 million to the Los Angeles Community Development Bank to lend to small businesses in low-income areas. The big banks have been slow to hand the money over to small businesses, citing high risks and lack of aggressiveness by the CDB in finding suitable borrowers.

John Rooney, director of the Valley Economic Development Center, whose agency has obtained CDB loans for 18 small businesses, said most of these were micro-loans of less than $25,000, which are tough for banks to process and earn them few dollars.

“These micro-loans are not very attractive to a commercial bank,” he said. “They cost a lot of time and money to do.”

Federal banking regulations also prevent the banks from going outside the boundaries of standard banking and business practices, he added.

Those banking and business practices may, in the end, be the real reason why economic development measures, whether by banks, empowerment zones or economic summits, often turn out to be nothing more than promises that cannot be kept.

The withdrawal of government handouts and cash benefits and their replacement with economic opportunities in the form of loans or other programs is based on the assumption that a good loan is the same regardless of where it comes from. “The numbers don’t lie” is the working cliche.

Yet, the template for a good loan is based on companies started, for the most part, by people in nonminority, middle-class or upper-class communities with all the advantages of education, assets and contacts.

Entrepreneurs in low-income areas typically lack these advantages. Their businesses, even healthy ones, may not resemble the “model” that bankers and other business owners look for.

Rooney suggests that nonprofit agencies like his could bring the businesses into shape and do the lending themselves until the companies meet bank standards and qualify for larger loans.

In the meantime, the reality is that, despite all the talk about entrepreneurship and innovation, many of these public-private programs simply add another layer of bureaucracy to assure that business-as-usual can be conducted even in neighborhoods that don’t have business-as-usual environments.

The end result is that those in minority and low-income communities that don’t fit the model either don’t get the help they need and fail, or they find a way to do it themselves. And the promises keep right on coming.