The Review of Black Political Economy

This study examines the personal backgrounds, business objectives, modes of operation, and degrees of success of Korean greengrocers and Hispanic grocery store owners in the New York metropolitan area. In so doing, the study seeks to uncover factors that may condition differential business performance among all groups of imigrant entrepreneurs, including Koreans and Hispanics.

A survey of 40 Korean and 72 Hispanic businesspersons revealed that both groups tended to work equally hard in terms of the number of hours worked in the business per week. However, the Korean greengrocers were found to be more successful in terms of the profitability and cash flow generated by their stores. The primary reason for this difference appeared to be the fact that Korean business practices were guided mainly by the profit motive, while those of Hispanics were influenced by such nonmonetary concerns as independence and personal satisfaction. These findings led the authors to conclude that there are alternative measures of material “success” and that the equally strong efforts of both groups of immigrant entrepreneurs have resulted in two different, but important kinds of success. Certain policy implications of this conclusion could lead to further immigrant participation in small business.

Analysis of data from the 1982 Characteristics of Business Owners Survey reveals that there are some differences between the social capital (social resources available from group support networks) of black business owners and those of other ethnic groups. Black owners have had less exposure to entrepreneurial role models and training in firms run by close relatives than Asian, Hispanic, or nonminority male owners. They do not rely on their relatives or friends for business loans to the same extent as Asians, and show less such reliance than the other groups as well. Black owners compare favorably with Hispanics and nonminority males in using family funds as a source of nonborrowed capital, but are behind Asians. Black firms are relatively more likely to sell to minority customers and hire minority employees. Finally, black owners are the least likely to be married, which indicates some diminished help from the family, a key institution in group support networks.

Most of the workers employed by black-owned businesses are minorities. This pattern typifies small firms as well as large firms, firms in blue collar industries such as construction as well as in white collar industries such as finance. The hypothesis that reliance upon minority workers may restrict the viability of black firms is tested and rejected; there appears to be no relationship between firm viability and labor force racial composition.

This article discusses the relationship between industrial concentration and the presence of black-owned firms. Strong evidence is found that more monopolistic industries have a smaller black presence. This demonstrates that the monopolistic industries in which black workers are known to face the worst discrimination are also the industries in which blacks face the highest structural entry barriers as entrepreneurs. Indeed, entry barriers may cause the monopolistic conditions which allow discrimination while simultaneously frustrating the entry of black entrepreneurs.

This article presents some of the results from an unusual survey of small business owners who differ in their ethnicity: Asians, blacks, Hispanics, and nonminorities. Contrary to the prevailing view of black and Hispanic business owners and their firms, the blacks and Hispanics in the data base—in general and on average—had the same human and financial capital as their Asian and nonminority counterparts. As a result, the black-owned and Hispanic-owned firms performed as well as the Asian-owned and nonminority-owned firms. Nevertheless, black business owners had lower success rates than nonminority men in obtaining commercial bank loans, although the terms for loans granted were similar for the two groups. In light of the apparent credit discrimination, U.S. Small Business Administration (SBA) loans remain an important source of debt-type capital to black-owned firms.

This article combines the results of three financial studies that examine capital issues affecting minority business development. The results are presented so as to explain or refute conventional wisdom regarding capital availability, cost of capital, credit market discrimination, sources of capital and differences in firm capital composition. Generally, Asian and Hispanic businesses more approximate nonminority businesses in the sources of capital, the cost of capital, total capital investment, and access to capital. Black firms, on the other hand, face credit discrimination from all sources of capital, which limits their access to capital, increases its cost, and affects firm profitability. Consequently, black firms have a smaller capital composition at startup and during operations. The only deviation from this pattern occurs where minority and nonminority financial institutions vie for black business patronage by reducing the cost of borrowing and increasing the availability of funds.