Latino entrepreneurship is on the rise. But is that always a good thing?  

2Untitled Los Jacales, Houston, Texas

Some comments I gave at a congressional briefing on immigrant enterprise, September 12, 2014, in Washington D.C.

Recent census figures indicate that Latinos now constitute the largest American minority group. The rise of this population has coincided with an unprecedented growth in Latino business.

The Latino share of American entrepreneurs grew from 10.5 percent in 1996 to almost 20 percent in 2012. During the past ten years, the number of Latino owned businesses has doubled, growing from 1.5 million to over 3 million in 2014. This rate of growth in business ownership is twice that of the general population. This year, the projected combined annual revenue of these businesses is over $450 billion dollars – an increase of over $100 billion dollars in the past six years.

The rapid growth in Latino enterprise is also observed among Latinas, who, like their Latino male counterparts, represent one of the fastest growing entrepreneurial segments in the United States. In the last five years, Latina business ownership has increased by almost 50 percent. This rate of growth is much higher than the 20 percent increase observed for women-owned businesses as a whole. Today, approximately 1 out of every 10 women owned businesses is owned by a Latina. Last year, the revenue generated by Latina business owners totaled $66 billion dollars.

Clearly these numbers suggest that Latino enterprise is contributing markedly to the American economy. Additionally, it also benefits business owners’ communities, and their families.

Qualitative research has shown that Latino entrepreneurs often “give back” to their communities, by providing financial and material resources and support to coethnics. For example, in my research on Latino restaurant owners in Houston, I met a Mexican American man who provides a scholarship for the purchase of books for one prospective college student in his community per year. Moreover, in a survey of elite Mexican American entrepreneurs in El Paso, I learned of a business owner with no children of his own. He befriended a young Mexican male employee at his favorite ice cream parlor and paid for that young man’s college education in the hopes that he would one day take over his prosthetics and orthotics business. Latino entrepreneurs also give back to their communities in less personal ways, by providing ethnic-specific services and hard to find specialty items, offering employment to those who may not be English proficient, and training coethnic employees to go into business for themselves.

Latino entrepreneurs also contribute to their families’ social and economic progress. Recent estimates show that over 50 percent of Latino business owners report earning over $50,000 dollars in household income, on par with the median household income in the United States; this compares to 35% of Latino wage workers who report this household income. In other words, 15% more Latino business owners than wage workers earn over $50,000 in household income. Latino business owners are also 85 percent more likely to earn between $100,000 and $150,000 dollars, and are three times more likely to earn over $150,000 dollars in household income, when compared to that of the Latino population as a whole.

Although these numbers suggest that Latino enterprise in the United States is wholly beneficial for the American, and the Latino American, economy and society, it is important to note that Latino entrepreneurs are a heterogeneous group. For example, Cuban Americans report much higher rates of business ownership than Mexican Americans do; this is due in part, to different premigration characteristics, patterns of migration and settlement, and modes of incorporation, which include the American societal and government reception context.

The first significant wave of Cuban migrants to the US entered this country as political refugees, and as such, benefited from US government policies that provided aid to refugees, including the passage by congress of the Cuban Adjustment Act in 1966. This act granted 1.3 billion dollars in financial aid to Cuban refugees, including low interest college and business loans. This Post-Castro Cuban migration was largely comprised of a professional and managerial class, who settled in a concentrated ethnic enclave in Florida known as “Little Havana”; not surprisingly, a thriving Cuban entrepreneurial class and ethnic economy soon followed.

In contrast, the long history of Mexican migration to the US can be characterized as a revolving door of low-skilled, low-wage, and often unauthorized or temporary labor on the one hand, and authorized family reunification migrants on the other. As such, Mexican Americans have been much less likely to engage in entrepreneurship than Cuban Americans, and when they do, are less likely to achieve economic mobility or business longevity. They are also less likely to enjoy the moniker of “job creator,” as approximately 80% do not hire any paid employees (but often require unpaid family labor). Instead, these disadvantaged entrepreneurs are likely to engage in business ownership to combat unemployment or underemployment in the general labor market; they are basically providing themselves with a job in the absence of other labor market opportunities. Not surprisingly, then, economic downturns in the economy are often associated with an uptick in self-employment among disadvantaged immigrant, ethnic and racial minority groups. When the economy rebounds, self-employment rates drop. This relationship requires us to challenge the mainstream viewpoint that entrepreneurial activity is always equated with the American dream, when for some, it may indicate an American dream denied.

The differences between distinct Latino-origin groups like Cubans and Mexicans remind us that Latino entrepreneurs are not a homogeneous group. Their conditions of arrival and settlement shape different trajectories of business ownership and economic progress, as does the opportunity structure of the economy. Immigration policies matter, as well as the social and economic context of reception that greets Latino immigrants upon arrival, and that conditions in part, their entrepreneurial outcomes. Nevertheless, Latino business owners, whether Mexican or Cuban, men or women, immigrant or native, high skilled or low skilled, share in common that they are all small business owners who are striving to achieve the American Dream. My research shows that without a doubt, Latinos do not lack the ambition, drive, passion, or “entrepreneurial spirit,” to succeed in business ownership; many, however, lack the resources and support that foster business ownership, economic mobility, and longevity.

Human capital, or education and work experience, is associated with higher rates of business success. One of the clearest ways to increase the numbers of successful Latino entrepreneurs is to increase access to and opportunities for education among Latinos in the United States.

Social capital, or social relationships that foster business ownership, is also a necessary ingredient for successful Latino entrepreneurship. Yet,  Latinos face obstacles in connecting and developing meaningful social relationships within the white and male dominated American business world. The lack of access to such ‘social’ capital resources limits the degree to which Latinos can raise financial capital and other necessary support for business success. Latino social capital resources, however, may provide some compensatory support. Such social capital resources include reaching out to family, friends, or the coethnic community, for business information, networks, or startup capital. Latino or Latina business organizations also provide a source of social capital, and include the Hispanic chamber of commerce, the Hispanic women’s chambers of commerce, the national association of women’s business owners, and the like. Beyond financial support and establishing business connections, these organizations provide training in business and financial planning to increase the chances of business success.

Government capital may provide the resources and support that Latino business owners need, and is especially important for those would-be entrepreneurs with limited education, a lack of personal savings, or whose social capital networks are economically disadvantaged. Although many Latino small business owners have mentioned to me that they needed help in navigating the small business administration’s website, or that they downloaded the forms and applications with every intention of filling them out, but gave up halfway through due to the red tape, others have benefited from SBA loans or qualified for the 8(a) business development program for disadvantaged individuals and businesses. Such government programs are crucial and should be expanded to promote Latino business. There is a particular need for programs that are geared towards the Latino self-employed (with no employees). The Small Business Administration currently offers a micro-loan program that works with non-profit agencies as intermediaries; this program could be expanded and centralized, to promote its existence, streamline access, and create consistency from state to state. An SBA micro-loan could make the difference between a Latino entrepreneur who is self-employed with no employees and just breaking even, to one who can hire employees, expand the business, and perhaps even turn a profit for the very first time.

To wrap up this note, it is important to acknowledge that the top two reasons Latino entrepreneurs give for becoming entrepreneurs are to “make more money” and “be their own boss.”That is, Latino entrepreneurs get started in business for the same reasons that other American entrepreneurs do. And just like most American entrepreneurs, Latino entrepreneurs – even those who work seventy hours a week and are just breaking even – believe that through entrepreneurship, they have achieved the American Dream. From this perspective, being an entrepreneur is, in and of itself, a positive endeavor. Despite that, there are real economic disadvantages that Latino entrepreneurs confront. With some policy changes and interventions, however, I believe that the positive ideology associated with American enterprise can converge with real economic prosperity, fostering economic mobility that improves the lives of Latino entrepreneurs, their communities, and their families.

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