America can reduce poverty by enabling underground businesses
by Kai Wright, from The American Prospect
Excerpted from Utne Reader here;
Loretta Harrison is a born hustler.
“I been making and selling things since I was about 8 years old,” says the 45-year-old unemployed mom. She buys wholesale in Manhattan—balloons, socks, scarves, you name it—then loads up a pushcart and sells at retail prices on the streets of Jamaica, Queens. She’s peddled Icees off the back of a tricycle, teamed up with her teenage son to hawk bottled water for a dollar at stoplights, and organized “passion parties” where she brings together groups of women to gab about sex and buy erotic toys. “I love sales,” she says. “For me to have something that somebody else wants and for them to go in their pocket and bring out hard-earned money to get what I have is just—it’s like a high to me.”
Harrison hasn’t worked a traditional full-time job in nearly 14 years, since her eldest son, Malcolm, had a series of seizures in the second grade that resulted in brain damage. “After that, you know, he was a paranoid schizophrenic,” she says. “He’d think he didn’t have enough sugar in his cereal, and he’d run away and tell people we were bothering him. Punch out the windows and stuff.” So she quit her job delivering mail in the neighborhood to take care of him and her then-newborn daughter. “That whole year,” she says, “my Ready Teddy bags were the only thing that kept me going.”
Ready Teddy is Harrison’s pride and joy. It’s a crocheted teddy bear–and-tote combo that she’s been making since 1992. In the past, she’s sold the bags in a Brooklyn craft store for $35 a pop but now moves them herself for $20. “When I had people selling for me, I would charge them $15. They’d sell it for $20 and take out $5,” she explains, rattling off pricing and staffing schemes that have never been written down, let alone put into a business plan.
In fact, Harrison can’t so much as give a ballpark estimate of how much money she’s made or lost year to year on all of her little businesses. She figures that between her sales and her wage jobs—as a supermarket cashier, a newspaper carrier, a crossing guard—her income has probably peaked at $25,000 in a year. “As far as keeping records and whatnot—Loretta’s not so good at keeping records,” she jokes. “Especially when you get the money and you end up having to spend the money to live.”
Whether and how Harrison can actually live off her sales schemes are larger questions than she knows—and ones that may be getting more attention in coming years, as policy makers grope for solutions to the joblessness that’s strangling cities. Unemployment was at 10 percent at the end of 2009. More families went hungry in 2008 than at any time on record—an estimated 17 million households—and the poverty rate reached higher than it has been in more than a decade.
The conventional debate over how to help families who find themselves counted among those doleful statistics focuses on the social safety net—do we boost supports like welfare, provide low-skill job training, or just force folks to try harder to find work? The assumption lurking behind all of these answers is that poor people are broken and need to be fixed, or at least propped up. But a rarely noticed industry of small-business advocates and lenders say the problem is the other way around. What we need, they argue, is an economy that values the remarkable entrepreneurial instincts that people like Harrison already have. Their research suggests that with relatively small investments for training and with loans of as little as $500, small side hustles like Harrison’s could get neighborhoods like Jamaica churning with enterprise.
Microenterprise, as it’s called, has long been associated with the developing world. The Grameen Bank’s Muhammad Yunus pioneered the idea back in 1976 with a $27 loan to a group of Bangladeshi businesswomen following a famine. A global industry has since parceled out billions of dollars in microloans, and Yunus has won both a Nobel Peace Prize and a U.S. Presidential Medal of Freedom. But while the idea owes its fame to the developing world, it has also been slowly building in America since the mid-1980s—it’s just been ignored by an economic and political culture obsessed with the pursuit of large, rapid growth.
Now, with the U.S. economy in disarray, domestic microenterprise advocates believe this is finally their moment in the sun. Both Grameen and the celebrated peer-to-peer lending tool Kiva.org have announced new U.S. ventures since the recession began. And after years of hostility from Bush-era Washington, micro enterprise development has won the support of both the Obama administration and the Democratic Congress.
The effort is thus far relatively tiny: The Association for Enterprise Opportunity (AEO), a trade group, estimates that $100 million to $150 million is invested annually in U.S. microenterprise development. But industry researchers argue that Harrison is among an estimated 10 million low- to moderate-income people who could turn their ideas and hustles into thriving, job-creating businesses—and rescue inner-city economies in the process.
America’s roughly 6 million small businesses—defined as firms with fewer than 500 workers—employ about half the nation’s private-sector workforce. Another 21.7 million people ran their own businesses without employees in 2007. Politicians of all stripes love to laud these folks. In the American political narrative, small-business owners do everything from creating jobs to building communities. And they’re the people for whom Congress is still trying to pry open traditional credit markets. As President Barack Obama proclaimed in May 2009, “The entrepreneurial spirit lies at the core of our nation’s economy and identity.” Microenterprise-development advocates say politicians and bankers shouldn’t view people like Harrison any differently.
Microenterprise is defined, officially, as any business with fewer than five employees that takes less than $35,000 to get off the ground. According to the Aspen Institute’s Microenterprise Fund for Innovation, Effectiveness, Learning and Dissemination (FIELD), the vast majority of these ventures are both owned and staffed by an individual or a family. The AEO estimates that more than 24 million such businesses exist in the United States.
The idea of building upon tiny, family- run businesses has never caught on in U.S. economic-development circles. But according to Aspen’s most recent count, at least 500 organizations around the country either lend money or provide training to people who are trying to use small business to thwart poverty. The field started off providing capital largely to residents in black neighborhoods (particularly to black women) who had been walled off from banks for decades; it has since grown and splintered into both money lending and business training. Fifty-eight percent of the clients of today’s microenterprise-development groups are people of color, according to FIELD, and about 60 percent are women.
The changes driven by microenterprise programs are incremental but nonetheless meaningful. In 2008 Aspen surveyed about 1,400 clients served by micro enterprise-development groups. Over half of those who were living below the poverty line when they joined the programs had risen above it within a year. Average household income went from just under $30,000 to $36,000.
The programs have demonstrated a clear ability to help clients build sustainable businesses. In Aspen’s 2008 survey, nearly two-thirds of people who didn’t have businesses when they entered a program successfully got one started. Those new businesses split about evenly between full-time and part-time ventures; the full-time ones generated median revenues of $40,000 in 2007. That’s not Wall Street money, but it’s enough to move a family out of poverty-wage labor. And the biggest programs show even more potential. ACCION USA—the nation’s largest microlender—spokesperson Laura Kozien says, “For every microloan that ACCION approves, 2.7 jobs are created in low- to moderate-income neighborhoods.”
Tasha Stoudymire started working in department-store photo studios in high school when she took her newborn son for a portrait and ended up applying for a job. Over 11 years, she scraped her way up from $5.15 an hour to $16.70 an hour. “I couldn’t stand it,” she says of the sacrifice demanded by earning that money. “My son said to me, ‘Mama, you work more than you stay home. You go to work and you come home and sleep and shower.’ That hurt me.”
After a series of family and medical issues kept her away from the job, Stoudymire was let go. Now, at age 30, she has a new plan: opening a combination day-care and child-portrait business out of her Queens home. Skills aren’t the hard part. She just has to figure out how to make it all work as a proper business.
One night in the late fall, Stoudymire and a dozen other mothers and grandmothers attended a child-care business-development class conducted by the Business Outreach Center Network, a group that offers training and small loans to mostly immigrant clients. The women listened raptly as a trainer walked them through the impressive array of expertise they already have. “The word just—let’s eliminate that,” the trainer chided one woman, a gray-haired grandmother with a small, informal day care who introduced herself too humbly. “You’re not ‘just’ a child-care provider. You’re a child-care provider.”
Over the next two hours the women traded hard-won child-rearing and babysitting wisdom. Throughout, the trainer nudged the women toward a business owner’s mind-set, noting their legal responsibilities, marketing advantages, and money-saving opportunities. “Start looking at things in your house right now that could be used. Take off your adult cap and think as a child. What’s a toy?” She put a shoebox face down, propped the lid on its edge like a ramp, and sent a toy car sailing downward. “You don’t have to buy this! You’ve all got on shoes.”
Stoudymire and her classmates will go through 22 sessions like this, learn how to acquire free start-up supplies, and qualify to apply for a $1,000 grant. Since 2003, the BOC Network has put almost 800 New York City women through this training and given them more than $170,000 in grants. By BOC’s tally, the businesses those women later built created more than 275 jobs.
At the previous week’s orientation, Stoudymire burst into tears of joy as she listened to the talk about the market advantage of providers who understand kids’ developmental challenges and can help navigate city bureaucracy. She had that feeling all innovators get, that conviction that they know something nobody else does. And she embraced an emotion few have found in the recent economic downturn, declaring, “I’m excited.”
Excerpted from The American Prospect (Jan.-Feb. 2010), a perennial Utne Reader staff favorite for its smart, authoritative political reporting. A 2010 Utne Independent Press Award nominee for political coverage and general excellence.www.prospect.org