Minority Supplier Diversity is Dead!

Talk to MWBE Coordinators on Economic Impact and Supplier Diversity – November 13, 2024, Greensboro, NC?

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Thank you for that warm introduction, Kate. Let me thank Shaunne Thomas of Guilford County who gave me an opportunity to conduct an economic impact study of the MWBE Program for Guilford County, North Carolina. Let me also thank Denisha Harris and the MWBE Coordinators Committee for inviting me to speak today. And I want to thank all of you for taking the time to be with us today. ? ? The timing of this meeting is most propitious. I was asked to attend this session and speak on the subject of the economic impact of supplier diversity about two months ago, before the presidential election, that happened just a week ago yesterday. I started preparing my remarks before the election, all aglow with the fervent hope and expectation that Kamala Harris would prevail in her historic attempt to succeed President Biden. Had my hopes been realized, my comments would have been suffused with a cautious optimism and sanguinity about the prospects for your continued success in the field of MWBE development and support - because America had a president in Kamala Harris who was willing and able to put the full power of the federal government behind what we are all so passionate about. ? ? But against the common sense of an electorate driven by fear and ignorance my hope, and I suspect your hopes were dashed like so many fallen dead leaves on a cold November day.? ? ? This talk is propitious because the political environment and the context in which we do our work has changed dramatically and perhaps permanently. I am forced to admit the painful truth that minority supplier diversity, as we know it; is dead. You could even conclude that election of Donald Trump means the final nail is in the coffin of diversity in general.??

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I come to this conclusion not because I desire it to be true. I arrive at this belief because in a struggle that started before, we were born with goals of justice and equality, the tactics and strategies must confront the realities of the situation.??

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The life of supplier diversity lasted a little more than 50 years. March 5,1969 was the birthdate of Minority Supplier Diversity with President Nixon’s Executive Order 11458 establishing the Office of Minority Business Enterprise. This Executive Order also supporting the development of the National Minority Supplier Development Council. While Nixon issued the Executive Order, it was Black Americans who fathered the movement through peaceful and not so peaceful civil disobedience in the 1950s and 1960s.?

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Minority Supplier Diversity’s life was a hard life full of periods of growth interspersed with setbacks. But now what makes this different is that Supplier Diversity does not have the support of the incoming Trump Administration. If the past is prologue, the new administration is likely to immediately cancel all of the previous Executive Orders designed to assist minority businesses. I have not forgotten Trump’s first budget proposal, he called for the elimination of the Minority Business Development Agency, the only agency within the federal government designed to assist minority firms. He was thwarted in this attempt by a Democratically controlled Congress. Now the federal government is under the control of a Republican Congress that fully buys into the Trump agenda. Trump’s recent announcement that Elon Musk and Vivek Ramaswamy will lead the effort to pare down the federal government will likely pick up where he failed in his first term. Trump’s fragile ego will not allow any program to survive that benefits groups he believes did not support him; and the most visible group of non-supporters are Black Americans.???

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The Supreme Court and the lower courts are not supporting Supplier Diversity as demonstrated in a number of their recent rulings on Affirmative Action, the U.S. Department of Transportation’s Disadvantaged Business Enterprise program and other efforts that they view as violating the rights of White Americans. And with the new administration comes the power to nominate new judges and Supreme Court justices who agree with these views. There is a very real possibility that the conservative majority on the U.S. Supreme Court will grow from 6-3 to 7-2 with the impending retirements of Clarence Thomas, Samuel Alito, and Sonia Sotomayor. It has recently suggested that Justice Sotomayor should retire now so that President Biden can appoint a Justice who is ideologically in synch with Sotomayor. But it is an open question whether the Senate would allow such a late change even though they used the same tactic to appoint Justice Amy Coney Barrett on October 27 just a week before the last presidential election. The hypocrisy of that decision considering Senator Mitch McConnell’s delay of President Obama’s nomination of Merrick Garland to the Court, 8 months before the 2016 election on the grounds that the next president should make that choice is astounding. The mercurial McConnell will come up with some expedient rational for not supporting a late term appointment by President Biden. With a 7-2 majority on the Supreme Court, programs designed to ameliorate historical racial wrongs are not likely to survive.???

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The corporate community has already demonstrated its willingness to go with the anti-diversity flow with several companies announcing reductions in their support for supplier diversity and affirmative action. It seems that the post George Floyd corporate promises have been forgotten. In this new environment, there is little reward for “doing the right thing.” I recently co-authored a White Paper for the Conference Board, an organization of the largest American companies. The purpose of the paper was to give its members a sense of what corporations were doing in this post - Students for Fair Admissions (SFFA) v. Harvard environment. In that landmark case, racial preferences in college admissions were ruled unconstitutional violations of the rights of White and Asian students. Our Conference Board study revealed that corporations were still saying they were committed to minority supplier diversity, but they did not like the political baggage associated with the word diversity. Some companies, to continue their efforts, were rebranding their programs as having a positive economic impact on local communities where they are located.?

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Many states and municipalities have also cut back their support for Supplier Diversity feeling those same cold political winds.??

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Even the non-profit sector as demonstrated by recent lawsuits against the Fearless Fund whose mission it is to assist Black women entrepreneurs with their capital needs have been “successfully” attacked by opponents of diversity on the grounds that they violate the rights of White women.? This was not just a shot over the bow; it was a chilling threat against Community Foundations, Corporate Foundations, and other non-profits designed to assist Black and other minority communities. Now these attackers will have the explicit support of the U.S. Justice Department, the Courts, and the Legislatures.??

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Minority Supplier Diversity now only has the support of the would-be beneficiaries – MWBEs and the warriors in this room. A program without supporters is not a program. This is why I conclude that minority supplier diversity is dead.? ? ?

But all is not lost. After this long preamble, there is a solution. At least in the short-term, we must refocus the rationale for minority supplier diversity away from racial justice to community economic impact.??

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Economic Impact measures the effect of money spent on the broader economy. This methodology began with the work John Maynard Keynes who developed the concept of the economic multiplier. Keynes’ focus was on the overall macroeconomic impact of government and investment spending on national employment. The economic system is like a complicated machine where government, businesses, workers, households, investors, and foreign interests are connected to each other. Keynes demonstrated that in times of economic distress, government money spent on infrastructure can have a multiplier effect on the overall economy.?

Community economic impact looks at how county government spending with MWBE firms impacts employment, income, philanthropy, and local government tax revenue and the overall health of the local economy. The county economies are a microcosm of the general macroeconomy. The same principles apply to your county as they do to the overall economy. Your spending can have a multiplier effect on the communities you serve.??

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The methods I use to calculate economic impact starts with a survey of MWBE firms. We need to know what these firms buy, who they buy it from, what they do with their profits – assuming they have profits, who they employ, where they are located. We then need to look at what the counties buy, who they buy it from, where their vendors are located, and information about how the counties raise their operating revenues through various taxes.??

With this information, we can begin to measure the community economic impact of money spent with MWBE firms. It sounds easier than it is.???

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Getting a representative number of firms to respond takes persistence and a help from MWBE coordinators like you to impress upon the MWBE community that community economic impact analysis is what will keep money flowing to their firms, assuming the results are positive.??

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The positive results can show what a dollar spent with MWBE firms does for employment, tax revenues, philanthropy, income, consumption and general economic health in counties across the state. One of the findings I have consistently found is that the MWBE community are some of the largest philanthropists. It makes sense given that many MWBEs are the wealthiest members of the community. Another important potential finding is that MWBE program expenses are good county investments. We might be able to show that the tax revenues generated resulting from the income and purchases made by MWBE firms more than pays for the cost of running MWBE programs. In an era of heightened fiscal scrutiny, this is a finding I am sure anyone in this room interested in their own job security and the survival of their programs would find critically important.??

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Without getting into the nitty-gritty of EI analysis, it is common to distinguish among the three main sources of economic impact. Firstly, there is the direct effect of your programs. A dollar spent with MWBEs is a dollar that those MWBEs now have that they would not have otherwise had.? This is a direct impact.???

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Economic Impact does not stop there. The dollar earned by the MWBE also is spent. Economists have long recognized that one person or firm’s income is another person or firm’s expense and vice versa.? The MWBE is now in a position to use that dollar earned from the County to pay the wages of its employees, purchase the services of other firms, pay taxes, and support the firm’s/entrepreneur’s philanthropic interests. These are the indirect effects which start their own multiplier processes.?

The induces effects of this process involve the spending of employees who earn income from the money generated by the initial purchases by the County.???

The sum of the direct, the indirect, and the induced represent the total economic impact we measure in this analysis. From that total economic impact, we can then calculate rates of return to the MWBE program. The ROI on MWBE spending is a very important figure to know, particularly when budgets are determined.???

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Economic Impact analysis takes the focus away from race-based programs and is consistent with the original purpose of the Nixon interventions.? Nixon wanted MWBE development not because he wanted to increase the number of wealthy entrepreneurs.? He pursued these programs as a conservative alternative to welfare which he and other conservatives viewed as ineffective and inconsistent with their capitalist ideals.? “If only the Blacks could support themselves, then we would not have to” was their reason for supporting these programs. It seems we have now come full circle.?

Community economic impact also has the benefit of providing incentives for MWBE firms to hire workers in distressed communities, to buy from other MWBE firms in the community, and to support other local government and philanthropic goals. Community economic impact is also consistent with the development of communities that are economically self-sufficient and thriving.??

On a personal note, I am in the process of moving to Prince George’s County in Maryland from where I have lived in Connecticut for the past 48 years. I am familiar with my new home which is a majority Black County and also one of the wealthiest Black majority counties in the country. The newly elected United States Senator for the State of Maryland, Angela Alsobrooks was formerly the chief executive of Prince George’s County. Additionally, Maryland has a Black governor, the mayor of its largest city, Baltimore is Black. And the mayor of nearby Washington, D.C. is Black. This is the state where Black entrepreneurs, business professionals, and movers and shakers from across the county should move. The connection here between economic power, racial concentration, and political power is an undeniable lesson that community economic impact can be a powerful lever for change.????

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I want to close with some things for you to consider in these changing times. What should you be doing now? My first suggestion is that if you have not done it already, you should be taking a census of MWBE firms in your community. This census should not be of the MWBEs you are doing business with or the ones that are certified by your organization. Those are good places to start, but the census should cast a wide net. Community Economic Impact will require accurate and timely information on who and where are the MWBEs who might be affected the most by a Community Economic Impact strategy.???

Secondly, you need to conduct a Community Economic Impact study that demonstrates the value of money spent with MWBEs for the taxpayers of your county.??

We also need to educate the community on business and the economy. This effort should start with the children in our community. Economics and business education should be at the core of our education system. The curriculum in our schools can no longer afford to not teach our children at the earliest possible age how our economy works and how they can establish themselves as business owners and professionals. We owe it to them.?

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And finally, I want to stress that while MWBE programs in their traditional sense, are dead, it does not mean we should abandon our allies or disband our ability and willingness to work together for common goals. The end of minority supplier diversity does not mean we surrender.? It means we retool and recommit to achieve an America where we all have a share and a critical role in its further development and future.?

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If I had additional time, I would share with you my thoughts on other strategies that are natural extensions of what I have shared with you today. Those strategies differ significantly from the MWBE strategy we have used to date to grow business opportunities and create entrepreneurial wealth. But I will leave that important discussion for a later time.???

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Thank you.? I would be happy to answer any questions you have and we have time for. It has been my pleasure to be with you, and I hope we can continue to support each other in our mission to increase economic growth in all our communities.?