Elizabeth Méndez Berry, program officer, Thriving Cultures, hears from Shawn Escoffery about how equity drives his program’s grant making, what Surdna is doing to prepare small businesses to succeed, rethinking how loans are made to entrepreneurs in low-income communities and communities of color, and applauding grantees’ success at advancing state and city minimum wage legislation.
You talk a lot about ownership. Why?
As we shift toward becoming a majority-minority nation, in philanthropy and elsewhere we still talk about people of color and low-income people as workers. We must also talk about them—and to them—as owners, innovators, and producers. These communities must be part of what drives the economy. One of the challenges Surdna is taking on is business ownership within these communities. But it is not just about the percentage of businesses owned by women and minorities; it’s about their viability and the conditions they need to grow. The majority of these are single proprietor businesses operating in a micro space with no growth prospect.
What keeps you up at night?
I’m scared to death that people of color in low-income communities are not fully participating in the country’s economic growth or in the transition to new, higher-wage industries. At times it seems like minorities are almost relegated to certain low-wage, sectors of the economy or they are being presented with limited opportunities. Last year, for example, I was meeting with a group in Seattle that was excited at the prospect of construction jobs associated with the city’s development boom. I told them that many of these jobs would be over in six to eight months—they weren’t permanent. But what was really upsetting was that we were in Seattle, a high-tech town if ever there was one, and they were not even talking about tech jobs, or jobs in other high-growth sectors! We need to focus on preparing people to succeed in growth industries with quality jobs.
There’s an economic recovery, so why aren’t we celebrating?
I’m pleased that the unemployment rate has plunged below pre-Recession levels. But it’s difficult to celebrate the arrival of better days when the unemployment rate for African-American men in cities like New Orleans and Detroit is close to 40 percent. This is a narrative that is submerged in discussions of a recovery, and it only highlights that our economy does not—and never has—worked the same for everybody. Take a look at the jobs that did come back during the recovery—they are predominantly lower-wage jobs, part-time work, jobs in sectors like the retail and food service industries that historically don’t pay well. The middle class continues to erode and the poor are only getting poorer. Yet, each month we celebrate the addition of the thousands of jobs added by the private and public sector. Try convincing jobless black men that we are on the road to recovery. They are not celebrating—they’re feeling left behind.
What are some trends you’re encouraged by?
Thanks in part to the efforts of our grantees, states and municipalities across the country are passing legislation to increase the minimum wage and extend paid sick leave to workers. We should applaud these wins, but also eye them cautiously. Income inequality is real and even if we get to a minimum wage at $10 or $15 an hour, it’s still going to be the bottom rung on the ladder. For way too many, life will remain hard. And the middle class will still be out of reach.
I’m increasingly excited about a conversation emerging around the idea of a new economy that questions how capitalism works, who benefits, and who does not. While Thomas Piketty’s book (Capital in the Twenty-First Century) played an important part in giving momentum to this conversation, it is not limited to his philosophies alone. Conversations about equity are no longer occurring at the margins, they are moving toward becoming a national conversation.
How are you working toward more inclusive economic development?
Take a look at Pittsburgh, where the state created innovation zones that have begun to generate economic opportunity in the city. But not at first, for neighborhoods like Homewood and the Hill District, both economically challenged, historically African-American neighborhoods. Our grantee Urban Innovation21 saw that as a major problem but also an opportunity. It asked, “How can we use these economic development tools for our disconnected communities?” Its message to the city was that these neighborhoods were open for business and that creative and other industries could find well qualified workers here. It’s what it calls “inclusive innovation,” and it’s the assistance it provides to help businesses grow and create jobs—like business support services, grants, tax incentives, and interns. It has supported 98 high growth companies and is now one of the most successful innovation zones in the state.
Can you talk about some of the hurdles entrepreneurs of color face in access to capital?
To secure a loan, a bank might require your house as collateral. But if you don’t have a house—or enough savings to satisfy the loan officer—your chances of getting a loan are pretty slim. Banks don’t exactly have a history of jumping at the prospect of making small business loans to entrepreneurs of color. And with tight credit markets, if your credit score isn’t above 700 your application won’t even get a sniff. Access to capital is a huge hurdle, but there are others—like gaining entry to the types of networks that lead to city contracts. And our grantees are addressing many of these. They’re providing business owners with management advice, guiding them to better operations and strategies, and helping them access those networks and navigate procurement programs.
So, how do these businesses get loans?
A lot of small businesses—especially in communities of color—never even apply for a bank loan; instead they use their credit cards to fund their operations. And with the very high interest rates of credit card debt, it’s an almost certain path to ruining their credit. So it’s critical that if you want to lend to these businesses, you must get really engaged with them and with their communities. A loan from a Community Development Financial Institution (CDIF) is far different than a traditional bank loan—it has different underwriting criteria and provides more of the handholding, back office work and business support services designed to help the entrepreneur succeed. BOC Capital, a grantee and Program Related Investment (PRI) investee, is working directly with business owners not only to meet their capital needs but also to help them deliver on city construction contracts they’ve been awarded. For BOC and other CDFIs, making the loan is often the easiest part. They’re working to improve management, help their clients win new contracts or generate new customers. These loans are complex and can’t be made—or be successful—unless the lender understands the communities in which they’re made. CDFIs are not just investing capital, crossing their fingers, and hoping for the best.
Are large institutions getting better about hiring locally?
Large institutions like universities and hospitals are using their economic muscle to create value for the community. They understand their communities and who their patients and students are—but they are still working to find ways to fill jobs with local residents. I recently had a conversation with a major university located in an urban area about why there were no local people of color in its business incubator program. Their response was that it’s difficult to find people in their neighborhood. I asked, “Well, what about your students? They’re members of the National Society of Black Engineers, aren’t they? And there are Hispanic engineers, and minorities in all of the sciences on campus. Why aren’t you connecting to these populations?” It was frightening—and a major disconnect—that no one at the university’s incubator program had even considered that. We cannot assume these connections will simply happen by themselves. We have to help make them happen.