BUSINESS, MINORITY. The term "minority business" refers to businesses owned by members of racial or ethnic minority groups. Through the middle of the twentieth century, such enterprises were typically small businesses with relatively small amounts of working capital that served the minority community itself. As a result of the civil rights movement of the 1960s, the federal government began programs to encourage minority enterprise. In 1965, the Small Business Administration began to channel loans to minority businesses. In 1969, the Office of Minority Business Enterprise (from 1979 the Minority Business Development Agency) was created within the Department of Commerce to coordinate public and private initiatives in the development of minority businesses. The law establishing the Office designated African Americans, Latinos, Native Americans, Asians, Aleut, and Eskimos as minority groups eligible for assistance in business development. These efforts appeared to have an impact. Two 1981 surveys found that fifty-six of the top one hundred African American firms at that time had been formed between 1969 and 1976 and that forty-five of the top one hundred Latino businesses had been formed during the same time period.
During the 1970s and 1980s, while most minority enterprises continued to be small retail businesses, minority businesses were also established or expanded in construction, engineering, and business and professional services. Beginning with the administration of President Richard Nixon (1969–1974), their efforts were aided by set-aside programs of local, state, and federal governments that mandated a certain percentage of public contracts for minority firms. These set-asides were justified in part as ways to overcome past racial discrimination and in part on the grounds of breaking down barriers to business development suffered by minority-owned firms. A 1997 study by the Urban Institute identified several obstacles faced by minority firms: lack of financial capital; limited access to informal business networks; lower human capital; and limited access to nonminority markets.
Government set-asides were controversial on both political and legal grounds. They were politically divisive because some people saw them as essential to redress a long tradition of discrimination in the United States, while others saw them as unfairly reserving government contracts to businesses that did not have to compete on the same terms as others. Legally, these set-asides were controversial because they raised difficult issues about whether the government could use race as an explicit criteria in the distribution of government benefits.
Several U.S. Supreme Court cases considered this latter question. The two most important were Richmond v. J. A. Croson Company (1989) and Adarand Constructors v. Pena (1995). In Croson, the Court held that state and local set-aside programs would be subject to the Court's rigorous strict scrutiny standard under the equal protection clause. Under this standard of review, government programs using race as a criteria are upheld only if the racial classifications serve a "compelling interest" and are "narrowly tailored" to serve that interest. Croson has been interpreted to mean that state and local set-asides will be upheld only if they are intended to redress specific discrimination in a specific industry. The programs will not be upheld if they are justified as attempting to redress general societal discrimination.
In Adarand, the Court applied the strict scrutiny standard to a set-aside program of the federal government even though it had implied in Croson that the Fourteenth Amendment gave the federal government greater power than state and local governments to redress the effects of past discrimination. Thus, after Adarand, set-aside programs, and indeed all government affirmative action programs, had to be justified by a compelling interest and be narrowly tailored. Nevertheless, the Court left open the question of what, if any, government interest would be deemed compelling. Adarand and Croson made it much more difficult to justify government set-aside programs as a legal matter, but they did not end them entirely.
Notwithstanding the trend away from government assistance through set-asides, minority businesses were, according to a 1999 study by Small Business Administration, a fast-growing segment of the U.S. economy. By 1997, there were an estimated 3.25 million minority owned businesses in the United States, generating nearly $500 billion in revenues and employing almost four million workers. Between 1987 and 1997, the number of minority businesses increased 168 percent, while revenues grew 343 percent and employment climbed 362 percent.
Enchautegui, Maria E., et al. Do Minority-Owned Firms Get a Fair Share of Government Contracts? Washington, D.C.: Urban Institute, 1997. A comprehensive report on the status of minority-firm government contracting.
Office of Advocacy. U.S. Small Business Administration. Minorities in Business. Washington, D.C.: n. p., 1999. Also available at http://www.sba.gov/advo.
Rotunda, Ronald D., and John E. Nowak. Treatise on Constitutional Law: Substance and Procedure. 3d ed. Vol. 3. St. Paul, Minn.: West, 1999. A comprehensive treatise on constitutional law including the issue of affirmative action.
REDLINING is discrimination against people trying to buy homes, finance businesses, or obtain bank services in minority neighborhoods. The term comes from banks allegedly drawing red lines on maps in the early 1970s to mark neighborhoods where they had offices to take deposits and provide bank services but where loans would not be made. Since the mid-1970s the megamergers that have transformed the banking industry have exacerbated the problem of redlining by reducing the number of bank offices in minority neighborhoods, often leaving only check-cashing stores and pawn shops to provide bank services.
At the same time, the megamergers have alleviated the problem of redlining by creating favorable conditions for increasing the flow of credit to minority neighborhoods. The 1977 Community Reinvestment Act gives community groups, like the more than 600 nonprofit organizations organized into the National Community Reinvestment Coalition, the authority to challenge the megamergers if the banks involved do not have good records of lending in minority neighborhoods. To avoid such challenges, banks have established partnerships with community groups to expand mortgage lending, new and rehabbed housing, and small business lending. The 1992 Federal Housing Enterprises Financial Safety and Soundness Act has also been helpful in this regard, by requiring government-sponsored credit agencies (Fannie Mae and Freddie Mac) to purchase more mortgages that banks issue in minority neighborhoods.
Campen, Jim. "Neighborhoods, Banks, and Capital Flows: The Transformation of the U.S. Financial System and the Community Reinvestment Act." Review of Radical Political Economics 30, no.4 (1998): 29–59.
National Community Reinvestment Coalition. NCRC Reinvestment Compendium. Bimonthly report on regulatory and legislative developments.
Yinger, John. Closed Doors, Opportunities Lost: The Continuing Costs of Housing Discrimination. New York: Russell Sage Foundation, 1995.
See alsoDiscrimination: Race .
A discriminatory practice whereby lending institutions refuse to make mortgage loans, regardless of an applicant's credit history, on properties in particular areas in which conditions are allegedly deteriorating.
The term redlining stems from some lenders' practice of using a red pencil to outline such areas. Redlining violates civil rights statutes.