The United States government has a long-standing policy of using federal funds to keep small business viable.  The Small Business Act of 1953 authorized the Small Business Administration (SBA) to enter into contracts with government agencies having procurement powers and to arrange for fulfillment of these contracts by awarding subcontracts to small businesses.  In the mid-1960's, during the war on poverty years, Congress hoped to encourage minority entrepreneurs by directing such funding to minority businesses.  At first this funding was directed toward minority entrepreneurs with very low incomes.  A 1967 amendment to the Economic Opportunity Act directed the SBA to pay special attention to minority-owned businesses located in urban or rural areas characterized by high proportions of unemployed or low-income individuals.  Since then, the answer given to the fundamental question of who the recipients should be--the most economically disadvantaged or those with the best prospects for business success--has changed, and the social goals of the programs have shifted, resulting in policy changes.

 

The first shift occurred during the early 1970's.  While the goal of assisting the economically disadvantaged entrepreneur remained, a new goal emerged:  to remedy the effects of past discrimination.  In fact, in 1970 the SBA explicitly stated that their main goal was to increase the number of minority-owned businesses.  At the time, minorities constituted seventeen percent of the nation's population, but only four percent of the nation's self-employed.  This ownership gap was held to be the result of past discrimination.  Increasing the number of minority-owned firms was seen as a way to remedy this problem.  In that context, providing funding to minority entrepreneurs in middle- and high-income brackets seemed justified.

 

In the late 1970's, the goals of minority-business funding programs shifted again.  At the Minority Business Development Agency, for example, the goal of increasing numbers of minority-owned firms was supplanted by the goal of creating and assisting more minority-owned substantive firms with future growth potential.  Assisting manufacturers or wholesalers became far more important than assisting small service businesses.  Minority-business funding programs were now justified as instruments for economic development, particularly for creating jobs in minority communities of high unemployment.