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Spring 2002
   
Minority Business Triumphs in Gotham
Steven Malanga
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In College Point, Queens, immigrant Thomas Chen, a former apartment-building superintendent with little formal education, has built a $40 million-a-year window-manufacturing business in less than ten years. In the South Bronx, Philson Warner, a Trinidadian immigrant, is using technology he developed as a researcher at Cornell University to run a commercial fish farm in the basement of an industrial building. In midtown Manhattan, Lloyd Grant, an ex-programmer at PaineWebber, has scored success with a new business magazine aimed at the growing ranks of middle-class blacks not being served by traditional ethnic newspapers.

These three entrepreneurs, and thousands upon thousands like them from Flushing to Harlem, from Crow Hill to the South Bronx, from the Lower East Side to midtown, are part of the remarkable success story of minority business in New York City during the 1990s economic boom. By the end of 1997, according to the latest government five-year economic census, the city’s 40,000 or so minority firms accounted for fully a quarter of all businesses in the city—employing more than 200,000 workers. Asians owned 24,000 of these businesses, Hispanics headed more than 9,100, and blacks ran nearly 5,700.

As part of this tidal wave of enterprise, another 197,000 minorities were self-employed sole proprietors. Sweeping away a stereotype that blacks are not entrepreneurial, the ranks of Gotham’s black sole proprietors increased by 76 percent from 1993 to 1997—compared with just 26 percent nationally. Local Latino entrepreneurs grew by 120 percent, compared with a 50 percent gain nationally. Today, after the record-breaking economic years of 1999 and 2000, the size of the minority business community is no doubt larger still.

The 400,000 jobs created by minority firms and sole proprietors accounted for 12 percent of New York’s job base in 1997—which means that minorities didn’t just benefit from the nineties boom but helped to create it. Never before have minority businesses played so significant a role in Gotham or had such a stake in its future.

Now, as New York faces another period of economic contraction in the aftermath of September 11, policymakers must recall what spurred this upsurge of enterprise and must resist the temptation to solve city and state problems through measures that squelch the vitality of small business. Any return to the governing philosophy of the early 1990s, in which the city and state taxed and fined small firms mercilessly to close budget gaps, will prove disastrous social policy as well as economic policy, for it will let the air out of the city’s suddenly buoyant minority business community, whose success has been one of the most hopeful developments in recent memory.

With its rich and varied culture, New York City has long had successful, and visible, minority businesses. But until recently, minority entrepreneurs confined themselves to a few predictable industries: Chinese restaurants and garment factories, for instance, or Korean greengroceries or Latino-owned bodegas. As omnipresent as these businesses have seemed, their impact on the local economy was limited. Two decades ago, the federal government’s economic census of minority firms counted just 4,500 black, Latino, and Asian businesses in New York City, employing only about 18,000 people—a mere 9 percent of 1997’s total. Added to that were another 36,000 self-employed minorities. These 54,000 workers accounted for only 2.5 percent of the city’s job base.

Since then, a revolution has taken place in the city’s small-business community. Today’s new minority entrepreneurs are not just more numerous but also more sophisticated than their predecessors. They are more likely to be in a cutting-edge, high-technology business or in a mainstream industry that draws on Gotham’s strength as a center of finance, business services, and media. Mobilizing their now-considerable experience as managers in the corporate world, the city’s black, Latino, and Asian entrepreneurs have leaped beyond traditional minority industries and are opening ad agencies, consulting firms, graphic and design shops, and publishing ventures—to name just a few. They are also taking their expertise out beyond Manhattan’s main business districts, capitalizing on their corporate know-how and the city’s newfound prosperity to tap into new markets.

The time is rapidly passing when many of these firms might even be considered “ethnic” or “minority” enterprises, as government statistics classify them. Many are solidly part of the major industries that drive the New York economy. And more are certainly on the way, as the growing number of minorities who work in professional and managerial jobs enriches the talent pool of potential entrepreneurs. If the Holy Grail of social policy has been fully to integrate urban minorities into the economic and social mainstream, the fact that so many of these businesses are not “black businesses” or “Asian businesses” but just New York businesses is evidence that something momentous and deeply hopeful has happened in the past decade in Gotham, where the American dream has been coming true.

One of the city’s hottest restaurant designers, Nancy Mah, a second-generation Chinese-American, typifies the new corporate-bred minority entrepreneur. Mah gained valuable design experience working for Ark Restaurants, a publicly held Manhattan company, then later joined the prestigious Rockwell Group, where she helped fashion such restaurants as Michael Jordan’s Steakhouse and Ruby Foo’s in Times Square. In 1999, Mah, then 37, decided to capitalize on her growing reputation and open her own Manhattan-based shop. “In big companies, there can be a lot of layers that inhibit the creative process,” she says, explaining her decision to strike out on her own.

A Tennessee native who studied design in Italy, Mah hardly fits the stereotype of the ethnic small-business owner. Although she was drawn to New York because of its large Chinese population, Mah is cultivating a reputation as a designer with a New York style, rather than as an Asian-American designer. Her latest work, for instance, includes a chain of small cafés in Japan dubbed Gramercy New York. “A lot of people have wanted to typecast me as an Asian-inspired designer, but that alone doesn’t really define what I do,” she says. And the fact that it seems silly and irrelevant to think of her company as a “minority” business is evidence of the magnitude of the success of so many minority entrepreneurs like her.

Some of Gotham’s pioneering urban entrepreneurs are not only part of this new generation of upscale minority executives but are prospering by offering that generation a product it wants. Lloyd Grant and Cynthia Franklin, a husband-and-wife team who publish The Kip Business Report out of offices in Columbus Circle, typify this trend. They decided to transform the small resumé-writing business that Franklin, a former AOL Time Warner exec, had started in grad school into a publishing venture aimed at the New York area’s fast-proliferating black corporate managers. The result was Kip’s, a four-year-old glossy publication with a circulation of 12,000 and a readership of 40,000. “We felt that the local ethnic media have not kept pace as our market has moved into the middle class,” says Grant, noting that blacks now head such top New York companies as Merrill Lynch, AOL Time Warner, and American Express. “Accountants, bankers, and so forth were being ignored, so we aimed Kip’s for them,” he says.

To tap this market, Kip’s staff of four full-timers and ten freelancers serves up investment advice and profiles of new black entrepreneurs—like a recent one of former New York Knick Charles Smith, now head of a local technology firm—as well as in-depth stories about local black-owned businesses, including a recent long, close look at Harlem’s troubled Carver Bank. “There’s a new level of sophistication among urban entrepreneurs that has to be recognized,” says Grant. “Many are corporate refugees, but even mom-and-pop shops are more sophisticated these days.”

These savvier urban entrepreneurs are reaching out beyond Gotham’s main business districts, too. The migration of minority corporate refugees out of Manhattan has helped bolster the small-business revival that has brought renewed economic vitality to the city’s outer-borough neighborhoods. The last government economic census counted nearly 3,000 minority firms in the Bronx, 7,400 in Brooklyn, and nearly 11,000 in Queens.

Sheila McQueen is part of this revival. She gained valuable managerial experience as an account supervisor at a big Manhattan telemarketing firm but got fed up with the long hours and extensive travel. “I figured if I had to work this hard, I could work for myself,” she says. Looking for an opportunity, she remembered how her mother had gotten  jobs for her cleaning medical offices when she was a kid, as a way of helping her learn responsibility. McQueen, then in her thirties, set up a commercial cleaning enterprise, operating out of her mother’s South Bronx basement. After building the business, called Scrub Clean, for two and a half years, she recently moved it into its own offices in a Bronx commercial building. Her staff of 14 largely consists of workers she’s found in her neighborhood, including several former welfare recipients encouraged by welfare reform to find jobs. “As long as someone is willing to work, I’m willing to train them,” says McQueen. “When people can support themselves, it changes them.” So among other successes, these entrepreneurs are helping to transform the culture of minority neighborhoods.

Joe Rivera is another of those who gained experience in Manhattan but started his own business closer to home. While working as a supervisor at a big textile manufacturing firm and living in Manhattan, Rivera began looking for business opportunities for himself. He zeroed in on the large number of medical facilities in the New York area, including in his native Bronx, where health care is the Number One employer. The result was Pipette Technologies, a company that Rivera started to calibrate the devices that deliver or extract extremely small amounts of liquid for precise medical testing. He moved back to the Bronx and opened the business in his home. Now, five years later, he has moved the company into commercial office space, and, as a major expansion, he is distributing a line of pipettes under his own brand name. Echoing McQueen, Rivera says of his decision to leave the corporate world: “If I’m going to be working 60 hours a week, it might as well be for myself.”

Entrepreneurs like McQueen and Rivera have benefited from changes in the culture of big companies and big institutions like hospitals, which now increasingly outsource crucial work to small firms. In today’s hotly competitive environment, most of these big outfits are colorblind in picking vendors. “Race isn’t a factor any more when companies go looking for small-business partners,” says Neil Pariser, senior vice president of the South Bronx Overall Economic Development Corporation. “Now, rather, the question is: ‘What can your business do for me? What can your product do for me?’ Corporations want results.”

While sophisticated new urban entrepreneurs are helping transform Gotham’s business community, traditional forces—including immigration—have also reshaped the landscape. In the 1990s, for the first time in three decades, the city’s population grew, as the proportion of foreign-born New Yorkers increased to about 35 percent. That spurred enterprising immigrants to find ways to serve burgeoning ethnic populations with money to spend. Flushing Avenue in and around Bushwick in Brooklyn became known in the 1990s as the Tortilla Triangle because of its bakeries and food-processing plants, which now produce about 10 million tortillas a week for local consumption. Indians helped boost shopping districts in Astoria and Long Island City, where they opened 150 restaurants and stores in the second half of the 1990s alone. Guyanese entrepreneurs, meanwhile, started as many as 500 retail businesses and restaurants to serve the growing Caribbean community in and around the Richmond Hill section of Queens—an area that in the early 1990s was dotted with empty storefronts.

The new breed of savvy, well-trained minority entrepreneur has been quick to recognize business opportunities that might otherwise go unnoticed in these increasingly vibrant ethnic neighborhoods. Nothing illustrates that better than Philson Warner’s fish farm in a South Bronx basement—a farm that supplies the growing demand for tilapia fish from local Asian and Caribbean restaurants. Warner had spent 22 years as a researcher at Cornell University, applying the principles of modern, high-tech agriculture to urban settings. Drawing on his experience raising tilapia on fish farms in South America years ago, Warner embarked on an effort to farm the breed in big indoor tanks. Three years ago he signed a licensing agreement with Cornell, allowing him to use his research commercially; then he invested $300,000 in an elaborate system of tanks and water filtration. His company, Inner City Oceans, is already producing about 2,000 pounds a week of tilapia, also known as St. Peter’s Fish, because it once abounded in the Sea of Galilee.

“This is the future of agriculture,” says Warner, who next wants to move beyond the ethnic marketplace into the mainstream by raising striped bass and then opening a processing plant in the Bronx to go along with his farm. “About 80 percent of the world’s food is produced in and around cities,” he observes.

Few businesses have done a better job capitalizing on opportunities presented by the city’s changing population than VP Music, run by a family of Jamaican immigrants who created a powerhouse music business largely by serving the Caribbean community’s taste for reggae. The business, which employs 50 people in its Queens facilities, is an offshoot of a record store that Vincent and Patricia Chin started in downtown Kingston, Jamaica, in 1958. In the late 1970s, the family—immigrants to Jamaica from China a generation earlier—became worried about the island’s political turmoil, so they came to New York to open an outlet. Slowly, that record store on Jamaica Avenue, Queens, evolved into a distribution center, then a record label. Today, VP produces 50 to 60 albums a year, serving reggae fans in New York and around the country, and it has become legendary as an independent in a world of big, corporate players. In 1999, Billboard magazine voted VP the top reggae label. “If you want to be in this business, you need to be in New York,” says Randy Chin, 39, an engineer by training who joined the family business six years ago and is now vice president of marketing. “It keeps you close to the pulse of the market being so close to the community.”

Minority businesses have contributed to these neighborhood revivals by providing jobs for the newest New Yorkers. They often employ workers from their own group, and some of the most successful minority-owned businesses are also among the biggest employers in minority communities. Such employers often transfer skills they’ve spent years learning to their neighborhoods—skills that would otherwise disappear in New York.

Mose Chest, for instance, spent 40 years in New York’s leather business, rising all the way to general manager of a big Manhattan leather-apparel manufacturer. When the business was sold, he struck out on his own, opening a manufacturing plant two years ago in the South Bronx to make leather components for hats and caps. He staffed his factory with people from local job-training courses, including some welfare-to-work programs, and he taught them the fine art of leather making. “You can’t find people who know how to do this already; everyone has to be trained,” says Chest. “I hire people who want to work and are willing to learn,” he explains, voicing a sentiment that countless employers express—a sentiment that the most successful job-training programs have made their credo. Chest’s company, C&S Leather Products, is part of the answer to the question of where the welfare clients will find jobs. Such companies help create the virtuous circle of neighborhood economic, social, and cultural renewal that is under way in New York.

Indeed, many of these entrepreneurs feel that they are helping to transmit the American dream from themselves to others in their communities. Thomas Chen, the founder of Crystal Door and Window in College Point, Queens, came to America and got a job as an apartment-building superintendent when he found he couldn’t stand working in a Chinese restaurant. He started making and installing window bars and gates during the late 1980s, when crime in the city was spiraling out of control. Soon he had a thriving side business, and then, in 1990, he opened Crystal with just a handful of employees. Today, the firm employs 250 production workers in a 210,000-square-foot facility in Queens and is well known in the local Chinese community as a reliable employer. Many of the plant’s workers have moved into neighboring Flushing to be near the factory. “Most of our workers are immigrants, and many have been with us almost from the beginning,” says Chen. “They are extremely loyal.”

Though this 1990s entrepreneurial boom is a pure product of the free market, government policies nevertheless permitted it to take off, just as they aborted it in the 1980s—and the contrast between the two eras is an instructive one for policymakers to consider right now. Back in the devastating recession of the late 1980s, when small neighborhood establishments were already struggling, government hikes in business taxes and fees to close budget gaps sent firms of all types reeling, and the Dinkins administration further crushed small businesses by burying them under a mountain of tickets for commercial violations. Spurred on by high quotas, inspectors from the sanitation, consumer affairs, and fire departments blitzed neighborhood businesses, collecting an additional $20 million in fines and fees in fiscal 1992 alone.

These tickets added a sometimes crushing price to the cost of doing business, especially for neighborhood retailers. For instance, every sanitation violation for an empty bottle of Night Train Express dropped by a passing derelict in front of a store brought a $50 fine, and after a dozen violations, the fine quadrupled to $200. At one point, the Small Business Congress, a lobbying group formed to protest the blitz, counted more than 100 Korean grocers paying $200 per ticket. This shakedown sparked bitterness among stores struggling to survive; storeowners wondered if the city even wanted them.

The overall effect on small business was devastating. In 1991 alone, evictions of small firms for nonpayment of rent doubled. Not surprisingly, minority business growth slowed appreciably. From 1987 to 1992, the number of minority firms in Gotham grew by just 20 percent, less than half the national gain—and much of New York’s paltry increase came from new Asian businesses serving the city’s growing Chinese and Korean communities. By contrast, the city’s tiny black-owned business community—just 2,371 firms employing 8,779 people—actually shrank under Dinkins, even though the city’s first black mayor provided special support to them in the form of micro-loans, special grants, and set-aside programs that gave minority firms a 10 percent price advantage when bidding for city contracts.

The Giuliani administration took a far different approach, focusing on broader policies that support the overall economy, like tax cuts and public safety, rather than relying on programs aimed at particular groups. Mayor Giuliani reversed the city’s course on taxes—cutting key levies, including some crucial to small business, like the unincorporated business tax, the sales tax on clothing, and the tax on commercial rents, which reduced rents by 4.25 percent everywhere except Manhattan’s main business districts.

Giuliani had proclaimed that his most important economic tool would be to lower crime in the city, a policy crucial to the economic revival in the outer boroughs, where the drug trade had ravaged retail strips, and theft, muggings, and vandalism had drained the life out of manufacturing zones. A 1989 study found that 83 percent of the city’s small firms reported being victimized by crime in the preceding three years and that one in five were considering leaving the city as a result, while 11 percent said they had scrapped expansion plans.

Today, the story is dramatically different, as the revival of a two-mile strip of Franklin Avenue in Crown Heights shows. Drug dealers had taken over much of the Brooklyn strip by the early 1990s, driving away stores and frightening residents. But by the end of 1996, crime had fallen 45 percent, and hopeful local residents and community groups began to visit owners of boarded-up storefronts and encourage them to try to lease their properties again. Slowly, stores started coming back to life.

“In our first 16 months we attracted 22 new stores,” says Evangeline Porter, head of the community association in the mostly black neighborhood. Many of these stores belonged to local residents who liked what they saw happening around them. Ann Marie Fraser, an accountant who had lived in the neighborhood for 20 years but operated a storefront tax service elsewhere in Brooklyn, decided to relocate to Franklin Avenue in 1999. “I could see the changes in the neighborhood, like the new residents—white, Asian, Latino. We hadn’t seen anything like that in years,” she says now. Fraser was the first new business on a block with four boarded-up stores. Now, all the other shops have been rented too. “I’m hoping for 500 new clients this tax season,” Fraser says.

Despite these enormous success stories, the city’s business community now faces a reversal of fortune that will test not only its resources but also the soundness of city and state leaders’ policies. Since September 11, more than 100,000 jobs have disappeared from Gotham, and big corporations that bought goods and services from smaller firms are leaving the city or cutting their spending. Small firms are feeling the repercussions throughout the five boroughs: a survey by the South Bronx Overall Economic Development Corporation found that businesses in its area had eliminated about 600 jobs after the Twin Towers bombing.

How will policymakers react? Facing a several-billion-dollar budget deficit, the City Council in December took a step ominously reminiscent of the bad old days when it canceled the Giuliani administration’s plan to scrap a surcharge on the city’s personal income tax. Now the new City Council president has even suggested that Gotham consider an income-tax hike. Such a policy would be catastrophic for small businesses, not only because high personal tax rates dampen overall economic activity, but because the profits of many small firms are taxed not at the corporate rate but as if they were the personal income of the owner. New York’s high income-tax rates thus make it literally less profitable to be a small-business owner here, and they also make it harder for individuals to accumulate the savings to start a new business in the first place. Mayor Bloomberg should not only hold the line on taxes but should be eyeing cuts in the city’s personal income tax, a tax almost no other city imposes.

Mayor Bloomberg should also resist recent calls for a return to the Dinkins administration’s minority set-aside programs for city contracts. Though Mayor Giuliani ended the city’s minority contracting program in 1994, minority businesses in New York spectacularly outperformed those in cities with minority contracting quotas and preferences. In Houston, for instance, a city that has emphasized set-aside programs for 17 years, the ranks of minority entrepreneurs increased a wan 11 percent between 1993 and 1997, compared with the 80 percent gain in New York. In Atlanta, two decades of set-aside programs have benefited only the small group of privileged vendors who land plum government contracts. Atlanta’s minority businesses and sole proprietors increased at only half the pace of New York’s gain in the last economic census.

In addition to a tax cut, two further reforms would help. Next to high taxes, the high cost of health insurance in the Empire State is small business’s biggest problem—and the biggest disincentive to start a new venture. State taxes and surcharges—such as a $350-a-year tax on policies written in New York City to subsidize medical education—drive up the cost of private insurance policies, and state-imposed mandates forcing private insurance policies to cover everything from chiropractic care to prostate screening drive premiums higher still. With health insurance so costly, a quarter of the state’s small firms go without it—one reason why New York State has the country’s highest number of uninsured workers. All these state mandates and surcharges can increase the cost of health insurance by 15 to 20 percent—a huge cost when premiums can range from $6,000 to $9,000 a year. Moreover, mandates and surcharges make it hard for insurers to offer the kind of no-frills coverage, with high deductibles and low premiums, that small businesses and sole proprietors typically buy elsewhere. Such policies, which protect against catastrophic medical costs, are virtually unheard of in New York.

Finally, the state’s fast-and-loose tort laws impose a further burden on small businesses by driving up the cost of liability insurance and of mandated workers-compensation insurance. Despite some minor reforms four years ago, the workers-comp system is still among the priciest in the nation. One problem: unlike in most states, New York employees who are partially disabled can collect benefits indefinitely, even after they return to work. Eliminating that provision and bringing New York’s laws in line with the rest of the country’s would save the system nearly $1 billion.

It is unclear whether policymakers even notice the auspicious blossoming of the local minority business community that has occurred, much less understand what fostered it—and how crucial it is to the city in so many ways. To keep nurturing these entrepreneurs, lawmakers must first of all do no harm to them. Then they should hack away at taxes and regulations to make New York an easier, more profitable place to do business. Never have minority entrepreneurs—and the city they enrich—had so much to gain, or to lose, from what city and state leaders do next.

 

 

 
Savvy minority entrepreneurs helped create New York’s 1990s boom and now account for one out of every nine city jobs. Government should foster, not harass, them.
City Journal Spring 2002.
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