Detroit Flashback

Detroit’s “Coloreds-only” Flashback

City of Detroit

Financial markets are unsentimental places. That’s why it is a little strange that Detroit Mayor Mike Duggan is pumped up about the Entrepreneurs of Color program, a creation of the nonprofit Detroit Development Fund, JPMorgan Chase and the W.K. Kellogg Foundation.

images-2The “coloreds-only” loan initiative sends the message that the city tacitly, if not officially, supports race specific set-asides. Detroiters, though, shouldn’t expect to see a black business boon anytime soon. Everyone in the business class would fare better in an open process that accommodates qualified participants.

The stated purpose of the $6.5-million fund is to enhance minority-owned businesses in Detroit by giving them greater access to capital in the form of loans up to $150,000. Eligible businesses must be majority owned by people of color. Colored employees must also make up 50-percent of their workforce.

The implication is that banks and lending institutions reject a high percentage of financial requests based on race or ethnic origin bias. However, no one has actually provided conclusive proof that Detroit blacks are victimized by discriminatory lending practices. Some of the accusations fail to take into account such factors as an applicant’s credit, employment histories or debt burden.

The commitment of financial institutions to do business where it makes economic sense takes the air out of most bias claims. Market forces, after all, tend to work against discrimination. Making loans to credit worthy customers is a profitable activity, so it makes all the sense in the world that banks would be anxious to make such loans without regard to color or ethnicity.

Government outreach programs like the Community Reinvestment Act (CRA) are designed to “encourage” banks to be more accountable to creditworthy poor, low-and-income minority communities. But the CRA has never required financial institutions to dramatically loosen loan standards and willy-nilly throw money at severely distressed communities of color. Nor should they.

That would guarantee many loans would go sour and lend support to the stereotype held by some bankers that lending to cities like Detroit is bad business – which may already be the case.

With the exodus of the white and black middle class went a good share of the city’s prosperity. When retail and manufacturing jobs followed, a general deterioration of the economy was inevitable.

Today, few black residents understand, apply or subscribe to the concepts of entrepreneurship. Too few have the vision, skill or tenacity to start companies from scratch and pursue dreams that spring from owning businesses.

Income for a growing number of functional nonworking city residents is disproportionately derived from government transfer payments — or the underground economy. So there is also the question of whether stable markets still exist in the city. But then, they won’t again without a major re-culturing.

Mayor Duggan apparently believes that if he can demonstrate the viability of a few loans to colored investors, it would ease the perception that white investors are the primary participants and beneficiaries of the expected turnaround. The failure of downtown redevelopment to deliver jobs for neighborhood residents compounds the dilemma and the decline.

Notably, the “coloreds only”  program is outside the control of city officials. That’s because the federal courts have ruled that government can’t officially sanction race-base set-asides.

That means the mayor is merely catering to political pressure from the City Council, which wants him to be more aggressive about including black businesses in the recovery effort.

images-1But consider this: Between 1974 and 2013, Detroit’s black leadership mistakenly believed that political power trumped economic empowerment as the avenue to black success. Squandered were opportunities that focused on building wealth among the predominant colored populous. Black businesses all but disappeared.

Today, there’s little evidence that the city is anywhere close to again creating flourishing stand-alone communities of opportunity. So the most optimistic result from the Entrepreneurs of Color fund is that handsome advantages may be in store for a few handpicked companies – and undeserved plaudits for the mayor.

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