Long-term trends and prospects for black-owned businesses.

The relative status of black-owned businesses deteriorated somewhat from the mid-1980s through the early 1990s. Between 1987 and 1992, sales of black firms rose as a fraction of total sales, but the number of black businesses as a percentage of all businesses rose slightly faster. As a result, the Disparity Index for black firms declined noticeably. In those industries where blacks did make significant progress, they did so by diversifying into new areas.

Looking ahead, between 1995 and 2000, gains of black firms will be quite uneven. Fairly high growth rates are projected for technology and engineering, along with selected fields in telecommunications. In contrast, traditional areas (such as retail trade, which has long served mainly the black consumer market) will grow very slowly. Moreover, construction and television (which have benefited substantially from various types of affirmative action) will lag behind.

In the following article an overview of the growth of black-owned businesses is presented, as well as a discussion of trends in market shares and, finally, long-term prospects for black firms are examined.

GROWTH OF BLACK BUSINESSES: OVERVIEW

In 1992 (the last year for which official Census Bureau figures are available), there were 621,000 black-owned firms in the United States, accounting for 3.599 percent of the total of 17.3 million. The black firms had sales and receipts of $32.2 billion in that year, representing 0.969 percent of the $3.3 trillion reported by all firms. In 1987, there were 424,000 black firms with total sales of $19.8 billion. The corresponding figures for all firms in that year were 13.7 million and $2 trillion, respectively. Therefore, blacks represented 3.096 percent of all firms and 0.991 percent of total sales. By these measures, blacks' share of firms decreased slightly while their share of sales edged up. These figures yielded Disparity Indexes of 26.9 in 1992, compared with 32.07 in 1987. Consequently, over the five-year period, the overall position of black-owned businesses deteriorated somewhat.

The official measures of black-owned businesses in 1987 and 1992 presented above understate the size and growth rate of black-owned businesses. In compiling the estimates, the Census Bureau included data from the U.S. Internal Revenue Service for individual proprietorship or self-employed person (IRS Form 1040, Schedule C), partnership (1065), and subchapter S Corporation (11205). Thus, firms filing a regular IRS Form 1120 tax return were not included. The exclusion applied to both black firms and firms in the nation at large.

The effect of this change in survey methodology on the scope of black business activity was substantial. The magnitude of the impact stands out clearly in the figures for 1982 (see Table 1). The estimates for that year were based on the original methodology which incorporated filings of regular corporations, i.e., IRS 1120 forms. The black firms on this larger roster had sales of $12.4 billion, equal to 0.301 percent of the total. The revised method (which excluded IRS 1120 returns) produced $9.6 billion of sales by black-owned firms, equal to 0.233 percent of total sales by all firms.

Historically, most black businesses have been sole proprietorships, and many of them have adopted the subchapter S form …