Capital Deepening: A Source of Socioeconomic Growth

Physical capital helps the human capital with efficiency and productive output of products and services. This common sense approach to economic growth is complex as it pertains to the responsible role of the public and private sectors. As these groups should more responsibly invest their earnings to secure its physical capital of operational equipment and supplies with local business enterprises. The question rests with how much business (capital) can be placed with smaller companies that reside in geographically underutilized areas to effect greater worker demand through major contracting requirements for goods and services.

For starters, it is agreed that disbursed capital for maintaining a company/agency is an investment, not an expense. Consequently, every major buying entity that has to acquire a service or product has to ensure that acquired labor and material results in transactional value. The overlooked or predisposed challenge is how to get the quality of resources to the right level in order to make a capital investment.

This presumes that the owner is willing to make an investment in the geographical areas that are undeserved, i.e. enterprise/empowerment zones.  The complexity of the matter is therefore not with the investment, but with the vested interest in other enterprises. All organizations appreciate how jobs make the economy work, and the jobs do not stop with large companies, but smaller companies need revenue to pay its smaller workforce. This should be the daily objective for those organizations wanting to contribute to economic parity among communities and that is to increase the demand for utilizing smaller firms that will help increase the equilibrium wage rate in the labor market for all areas.

Widespread capital deepening was a much easier discussion during the first half of the 20th Century while Americans knew the benefits of economic growth and how everyone needed a leg up to make it in a failing America. Unfortunately, larger buying entities suffer from amnesia as it relates to shared-economic growth as it was common principles during the era of the great depression era. Modern day captains of industry wish to view themselves as world economic leaders, at the expense of solid domestic capital investments. Executive management has to come to grips with the fact that it is their input that bridges the values for seeing to it that all American enterprise participates in order to achieve a well-balanced economy.

Major buying entities are fixated on doing business with those companies they are most familiar with, both in products and management. In order to share an accepted wisdom, I need to take one minority group from my VIABLE base (Vending Indian, Asian, Black, Latino Enterprises), where the mind set for most blacks in America during the 20th Century operated on a distant belief that equal protection under the laws as promised to all American citizens by the 14th Amendment to the U.S. Constitution would ever occur. Which for me made it so memorable when the late great President John F. Kennedy gave his civil rights speech of June 11, 1963, where he asked for legislation to give all Americans the right to be served in facilities which are open to the public (hotels, restaurants, theaters, retail stores, and similar establishments), as well as ‘greater protection for the right to vote.

This was my first glimpse at a transparent public process where many people watched on and roughly one week after the President’s speech a democratic congressional representative (Emanuel Celler) introduced new civil rights legislation in the House as H.R. 7152 by on June 20, 1963. Even without C-SPAN television, it was easy to find out about the bill’s status as it passed the house in February 1964, despite the tragic assassination of President Kennedy just a few short months prior, and it fully passed the Senate on June 30, 1964, where President Lyndon B. Johnson signed the civil rights Congressional Public Law 82-352 on July 2, 1964.

Conceivably, major buying organizations should be reminded and/or trained about understanding this vision and what this legislative action underscores about not divesting away from the American citizenry, but to build America with all of its resources, even those of a protected class. There exist some mild transparent activity within private corporations who are rightsizing their firms on a routine basis, however, it was a huge restructuring phenomenon during the 1980-90’s that brought with it considerable layoffs of each company’s work force. This ultimately became a rightsizing business strategy yielding a number of benefits in the way or mergers and acquisitions. Sadly, the corporate moves have worked to avert paying local taxes to meet worker compensation cost and the 21st Century American economy reveals entire cities having to downsize, such as Detroit, Cleveland, Pittsburgh to name a few, and to some extent Los Angeles.

What is really critical to this state of affairs is unlike stockholder controlled corporations, the public sector does not have the operational luxury of benefiting from lucrative merger and acquisition processes.  The U.S. government established legislation to help safeguard the economy from enduring unforeseen economic implosions, but captains of industry have consistently ignored or dismissed this shared knowledge in lieu of operating with deficient responsible socioeconomic business development and expansion strategies. A considerable amount of time and material has gone into the general business model of operating socioeconomic development programs in the public and private sectors. Conversely, there is a serious lack of responsible care with administering these efforts as there is no transparent course of action to demonstrate tangible outcomes in growing small business enterprises.

The diminishing cities reflect the lack of input going toward building communities. That notwithstanding, the sprit and intent of legislation for socioeconomic development includes employment, supplier utilization, and philanthropic support among protected classes designated by race, color, religion, sex, national origin, disability, or age, which still presents enormous parity gaps. These protected classes add up to a large range of American citizenry, but yet the distribution of annual spend among these groups from the public and private sectors is more disproportionate today than it was when these programs first began in the mid-1960’s.

Banking, finance, insurance, pharmaceutical, petroleum, energy, food/beverage, entertainment, technology, telecommunications, and universities have made and are still making some unreal multi-billion dollar profit margins each year. All the same, it is not so much the excessive profits that can be pointed to as the problem for the shrinking economy; as much as it is how these successful major industries have selectively chosen to divest their respective annual spend for operational products and services away from small business enterprises. Operational requirements for goods and services are not appropriated nearly enough to local and smaller firms that can easily help defray the tax burden required to run large scale economies like the city of Los Angeles, plus it perpetuates a vast disparity gap in the American economic landscape between the 2% extremely wealthy and 98% of everyone else who literally have no wealth worthy of a comparable measurement.

Ironically, the easiest place to see where small business gets overlooked is to take a snapshot of the National Minority Supplier Development Council that has a membership grouping that includes the top Fortune 500 corporations, and a sprinkling of municipalities and state agencies. For starters, ask yourself how the membership does not match the title of this organization as its’ charter excludes minority businesses as members.  Anyway, this is a 38-year old organization records an aggregated annual corporate spend with minority businesses in slight excess of $100 billion. This sounds like a really good outlay, and this annual spend with minority firms was achieved by the National Minority Supplier Development Council corporate members sourcing qualified minority firms and awarding such contracts on a competitive basis.

So, here is the downside, where competitive means there was no set aside contracting, no bidding preferences for small or local firms, no restricted bidding processes where only minority owned firms can compete against each to ensure a minority award, and the like where employed to reach this outstanding annual spend. It was straight ahead competitive bidding processes, with a touch of outreach and certification, hence, if regular competition is the business model norm, private sector socioeconomic development programs at this time is somewhat of a redundant work product, driving zero value or innovative application to the bottom line. Such a situation surely does not work to support government legislation to provide economic safeguards for the protected classes to build historically underutilized business enterprises.

It would appear that contracting fairness is resolved, whereas any company demonstrating responsive competitive pricing and responsible management will reach parity through an auditable win-capture rating in pursuit of corporate contract opportunities. All the same, everyone should be questioning the significance and relevance of what does a $100 billion as it pertains to the protected class groups and to what extent does recording such a large annual spend accomplish if the very communities and cities where protected classes reside are going belly up? Pronouncing an annual collective spend of $100 billion dollars without transparency of positive outcomes does not make for trustworthy socioeconomic progress. Especially when the business model expressed by the roughly Fortune 500 corporations maintains doing business only with other like companies, then there is no change in the game, the hierarchy of wealth remains analogous to the very start when America apparently began giving lip service to socioeconomic barriers.

The other part of this $100 billion means that 70% to 80% of the annual spend went to white male owned firms, or roughly $99,900,000,000. This is a very conservative number as it presumes that the Fortune 500 corporations are doing and average of 20% of their business with minorities-owned firms. It has been reported by many firms under legislative reporting requirements that this is still a sought after percentage to reach when you exclude white women-owned firms. Consequently, ninety-nine trillion dollars are going to firms that are apparently more responsive bidders. The problem is that these firms are rarely operating and hiring the underutilized portions of major cities like those stated earlier.

More than ever before, the dreams of black-owned business proprietors for operating a successful enterprise are facing evasive purchasing opportunities and it has shaped a slim likelihood for such emerging companies to obtain sustainable long-term contracts from the most public or private sector buying organizations. For blacks, and other minority group members, the rules of contract engagement overtly deals with ownership certification processes and other frivolous up front acceptance requirements in order for these firms to market their prospective supplies to major buyers. As a consequence, the supplier diversity initiatives interpreted by big business have emerged somewhat as a mere supplier outreach game in which black business enterprises on a deceptive socioeconomic business development merry-go-round ride.

This is especially applicable when it comes down to meeting with diversity specialists who in turn do present a good game, but in the end are unable to produce tangible or transparent results of how the outsourcing budget is being invested into community expansion. Relatable business management job descriptions to the self-made departments labeled supplier diversity have little use during our current economic crisis, where whole cities are eroding while sizable workforce members sit idly by as ‘Rome’ burns to the ground. Experience shows that in order for small business owners to effectively win contracts they must be allowed to interact with a much different management level than diversity officers who are not being held accountable, or as they are un-conscientiously prepared to deliver.

The economic crisis that is fully engulfing the 98% non-wealthy sector of America is greatly impacting how small business enterprise will be unable to survive as it was intended to exist. It is being compromised in plain sight due to the lack of business offerings extended to such firms and the lack of transparency in obtaining those aforementioned competitive bids is an obvious problem as the lack of participation from small business is withering away.  This withering is encouraged by big business since it benefits from the displaced small business workers seeking areas of economic refuge within corporate America as consultants, contractors, leased employees and temporary workers. This is good for Corporate America who can aptly continue to prosper and bad for small business enterprises who can barely forecast next month, less alone produce a five to ten year plan with meaningful accuracy.

The city of Los Angeles has a small minority business program; however, when you review the business corridors of the city you do not get a visual picture of thriving concerns. Los Angeles’ annual spend investment does not align itself well with the community in which its serves. Likewise, the protected class business owners located in the prescribed service territories of the investor-owned utilities have dissolved considerably over the past twenty years as these profitable major corporations thrive and their respective service territories waste away from the lack of corporate investment.

Scrutinizing the deficient transparency in contracting in this manner in no way attempts to call upon or seek to engage in a pity party; I am actually sharing this for public and private buying organizations to take a look at their probable wasteland of time and material in the correct disposition of socioeconomic development objectives. It will do the public and private sector good to change their approach of coddling the window dressing of supplier diversity, the gatekeepers of purchasing opportunities and the door blockers of contracting engagement, so as to consider a more productive use of that same money by investing it in authentic community growth.

With few exceptions, corporations are wasting considerable money with supplier diversity programs and outreach officers are useless when they are unable to share purchasing forecasts on outsourcing requirements. The excuse normally shared by an outreach specialist is that the outlook on outsourcing is proprietary, but in reality most supplier diversity managers are ill-equipped to open any transparency on how the operating capital of their respective organization plans to invest in the growth of small business enterprises.

It is a waste to have supplier diversity managers unable to conduct business site visits in geographical areas that need economic development. The past era of just-in-time purchasing brought on a massive need to bundle corporate contracts so as to give major suppliers the ability to meet quick demands and short turnaround requirements. Consequently, local smaller companies lost a considerable edge to market their wares directly to area managers and department heads to sell to local/regional offices. Long gone are the days of office supply stores, automotive repair/supply, hardware and/or general commodity sellers that would go to their banker with an open or blanket corporate purchase order that could demonstrate impending future revenue sources.

The contemporary arena of corporate purchasing deals with major general construction firms, contract personnel service groups, and personal/professional service companies who are accepted to access to the billions of dollars allocated for the outsourced needs of products and services. The protected classes of race, color, religion, sex, national origin, disability, or age reveals a considerable number of corporate executives placing this sort of diversity as its least important business initiative. Additionally, large chambers of commerce are suspect to this instability led by the same captains of industry, as such groups offer no standing or ad hoc committees to remotely address socioeconomic development programs.

In spite of these undesirable facts, I am optimistic that somewhere, somehow, public and private sector socioeconomic initiative planners will gain a better understanding on how valid socioeconomic development programs benefit the communities that they serve, and bottom line profits, respectfully. Higher revenues can be enjoyed when lower income communities are assisted in building with fair trade practices. In southern California, the utilities are acutely aware of their service territories, but yet the leadership is quiet as to how poorer communities are experiencing a severe shortage in corporate business activity. This steady decline is coupled with the public and private sector socioeconomic placing excessive emphasis on affordable home mortgages, which are only as practicable as the sustainable jobs generated to help pay for and maintain them; where the bases of such activities begin and end with supplier contract engagements.

By Dean L. Jones, C.P.M.