For years, minority and women-owned business enterprises (MBEs and WBEs) have received fewer opportunities than comparable white/male owned businesses to develop and grow their businesses. Internal factors, including lack of experience and management training, have diminished the capacity of many of these businesses to thrive. Environmental factors, such as discrimination and bias, have acted as barriers to competition in the marketplace. Since 1978, the State of Maryland has worked to remedy the effects of past and present discrimination in the marketplace, by establishing a series of goals designed to level the economic playing field. However, the Supreme Court, in City of Richmond v. J.A. Croson, 488 U.S. 469 (1989), determined that programs designed to increase opportunities for minority and women-owned businesses must be “strictly scrutinized” by the courts. With this test, states must demonstrate that disparities exist between MBEs and WBEs as compared to majority-owned companies. In addition, states must establish evidence of past and present discrimination against MBEs and WBEs in the marketplace.
The development of qualified and viable MBEs and WBEs is not solely a race or gender issue, but, more importantly, an economic development issue.
To the extent that discrimination and other factors have caused a disparate impact on MBEs and WBEs, states are permitted to carefully craft measures that seek to rectify the effects of those factors. Many states, including Maryland, conduct periodic reviews of these measures to ensure their compliance with both constitutional standards and fair business practices. In 1999, the state retained a nationally renowned consultant, National Economic Research Associates Inc. (NERA) to study the “state of the state” as it relates to MBEs and WBEs. After reviewing the state’s program, interviewing business owners who have done business with the state, and analyzing the environment for MBEs and WBEs, NERA determined, among other things, the following:
- African Americans were significantly less likely to be business owners than comparable Whites over the period 1979-1999, both in the United States as a whole as in the Maryland region.
- Women are also much less likely to be business owners than comparable males.
- African Americans also have significantly lower earnings from their businesses than comparable whites.
- The size of the African American earnings disparity has increased dramatically over time, and the increase has been larger in the Maryland region than in the country as a whole.
- The disparity between the earnings of African Americans and whites is much greater for the self- employed than it is for the those employed by others, especially in the Maryland region.
- Women also have significantly lower earnings from their businesses than comparable men.
- When minority-owned firms applied for loans, their loan requests were substantially more likely to be denied than other groups, even after accounting for differences in factors like size and credit history.
- Between 60 and 80 percent of MBEs reported that prime contractors who use them as subcontractors on public sector projects with MBE requirements seldom or never use them on projects without such goals.
According to NERA’s report, which is available through the Maryland Department of Transportation, MBEs and WBEs in the State of Maryland are underutilized in a number of industries. By comparing the utilization of these groups to their availability, the study demonstrated a statistically significant disparity. For example, African American-owned businesses comprise approximately 7.1 percent of businesses in the state. However, they were awarded 4.5 percent of all state contract and subcontract dollars. Hispanic-owned businesses comprise approximately 2.13 percent of businesses, but were awarded only 1.8 percent of all state contract and subcontract dollars. Businesses owned by white females comprise approximately 12.7 percent of all businesses, but only were awarded approximately 7.6 percent of all state dollars. Some have argued that this under-utilization is caused by the inexperience or incompetence of the firms themselves. As with all businesses, some MBEs and WBEs lack the experience to perform certain jobs. However, the inexperience of certain small businesses often is generalized to all businesses of the same kind, causing some prime contractors to overlook and sometimes ignore competent and qualified businesses. Perceived incompetence is a bigger threat to MBE/WBE success than actual incompetence. Options availableBecause of these disparities, NERA recommends that Maryland should continue its MBE and WBE programs, and target both annual procurement goals and specific subcontracting goals.
Perceived incompetence is a bigger threat to MBE/WBE success than actual incompetence.
There are a number of options available, both race-neutral and race-conscious, that will allow the state to maximize its economic development capacity. For example, the state could create and strengthen a small business center to provide technical advice and loan assistance. In addition, the managers of Small Business Enterprise (SBE) programs throughout the state should be held accountable for meeting the MBE/WBE goals. The state can also attempt to formalize a mentor-mentee program, which places MBEs and WBEs in contact with established firms who provide guidance and counseling. In the General Assembly, Senate Bill 210, and its companion House Bill 306, seek to establish clear participation goals for MBEs and WBEs. The measures currently are assigned to the Senate Economic and Environmental Affairs Committee and the House Commerce and Government Matters Committees, respectively. SB 210 and HB 306 also are designed to eliminate structural and environmental challenges that have limited many opportunities for MBEs and WBEs, such as false reporting by prime contractors, late payments and insufficient monitoring of MBE/WBE data. We urge the legislature and the community at large to support this important legislation. We believe that the development of qualified and viable MBEs and WBEs is not solely a race or gender issue, but, more importantly, an economic development issue. If our state is to remain competitive in the changing marketplace, it must maximize the capacity of all businesses to develop, grow and profit. This can be done by remaining committed to implementing strategies that seek to remove any and all barriers to competition. <table width=”100%” border=”0″ cellspacing=”0″ cellpadding=”0″
|Alison L. Asti, Chair||Michael D. Oliver|
|Jose Anderson||Joanne E. Pollak|
|Harriet E. Cooperman||Bill Reynolds|
|Jack L.B. Gohn||Del. Samuel I. Rosenberg|
|Mabel Hubbard||Karen Rothenberg|
|Neal M. Janey||Craig Thompson|
|Robert D. Kalinoski||Paul A. Tiburzi|
|Andrew D. Levy||Rachel Wohl|
|Cleaveland D. Miller||Robert A. Zarnoch|
|The Daily Record Editorial Advisory Board is composed of members of the legal profession who serve voluntarily and are independent of The Daily Record. Through their ongoing exchange of views, members of the Board attempt to develop consensus on issues of importance to the Bench, Bar and public. When their minds meet, unsigned opinions will result. When they differ, majority views and signed rebuttals will appear. Members of the community are invited to contribute letters to the editor and/or columns about opinions expressed by the Editorial Advisory Board.|
Editorial Advisory Board member Paul A. Tiburzi did not participate in the adoption of this opinion.