Barriers to Entrepreneurship in Emerging Domestic Markets: Analysis and Recommendations
Apr 01, 2006

Between 1997 and 2002, the number of U.S. firms owned by minorities grew at three times the rate that of firms in general -- a fact that reflects the reality that ethnic communities in the United States are expanding rapidly. Indeed, more than 85 percent of the estimated population growth between now and 2050 will come from minority groups.

A close look at the breakdown of distribution of business ownership by race, gender and ethnicity reveals significant imbalances. Women, for example, are under-represented as majority owners of firms, and the under-representation increases as one goes up the ladder. Much the same can be said of Hispanics, who account for 13.5 percent of the population, but just 7 percent of firms and less than 1 percent of revenues. African-Americans account for 12.4 percent of the population, but only 5 percent of firms and less than 1 percent of revenues. By contrast, for Asian-Americans, the percentages of firm employees and receipts are in approximate parity to the group's percentage of the population as a whole, and they own a share of firm numbers higher than their share of population.

These imbalances raise questions about access and potential stumbling blocks to individuals in different demographic groups. The fact that many of these individuals are also in low- and moderate-income communities intensifies the urgency of such questions. To limit their individual entrepreneurial opportunities is to limit the chances for their communities to achieve prosperity.

It is not surprising to note growing interest among policy-makers in the promotion of entrepreneurship. Yet uncertainty persists about the most important determinants of entrepreneurship and the policies that best support entrepreneurial activity, or at least do not impede it. There is even greater confusion about how to foster entrepreneurship in low- and moderate-income communities. Ironically, much of the confusion results from the increasing attention to entrepreneurship by researchers, yielding a plethora of databases that are rarely comparable and sometimes contradictory.

This policy brief, based on an earlier paper presented to the Federal Reserve Bank of Kansas City and the Ewing Marion Kauffman Foundation, considers various efforts made over recent years and offers some new thoughts on the issue. Among the recommendations:

  • Measure, monitor and manage efforts to support entrepreneurship
  • Bridge the financing gap
  • Increase small business loan-origination and investment vehicles
  • Reach out to African-Americans and Hispanics
  • Re-examine tax and regulatory policies that impede entrepreneurship
  • Take advantage of well-developed education programs with targeted outreach.