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«INVISIBLE BUSINESSMAN: UNDERMINING BLACK ENTERPRISE WITH LAND USE RULES Stephen Clowney* Rates of self-employment in African-American neighborhoods ...»

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CLOWNEY.DOC 7/10/2009 2:12 PM

INVISIBLE BUSINESSMAN:

UNDERMINING BLACK ENTERPRISE

WITH LAND USE RULES

Stephen Clowney*

Rates of self-employment in African-American neighborhoods

remain feeble. Although the reasons behind the failure of black businesses are complex, zoning regulations play a largely unexamined role in constraining the development of African-American enterprises. Land use fees, municipal zoning board decisions, and the general insistence on separating residential from commercial uses all impress unique and disproportionate harms on African-American merchants, making it difficult to find affordable business space in suitable locations.

Moreover, current attempts to reorganize the land use system are inadequate to solve the problems facing black businesspeople. A complete rolling back of zoning laws is impractical and unnecessary, while attempts to promote street vending or home-based business run aground on the objections of local homeowners. Instead of pursuing these failed strategies, municipal governments should create programs that transfer abandoned buildings to fledgling merchants of the inner city. This new land use policy could spark a revival of urban entrepreneurship and help restore crumbling neighborhoods to their former glory. Unlike other proposals to reform zoning laws, transferring vacant government-owned land unites the interests of businesspeople, homeowners, and local governments. Inner-city merchants receive the space they need to foster new business ideas.

Local homeowners rid themselves of the scourge of empty buildings.

Finally, municipalities generate new revenue by returning unproductive buildings to the tax rolls.

INTRODUCTION

At the start of the twenty-first century, land use reform is the most underexamined method of restoring the economic vitality of central ci Assistant Professor of Law, University of Kentucky. I owe enormous debts of gratitude to Nicole Stelle Garnett, Bob Ellickson, Art LeFrancois, Al Brophy, and Ben Barros. Special thanks, as always, to Nicole LeFrancois.

CLOWNEY.DOC 7/10/2009 2:12 PM 1062 UNIVERSITY OF ILLINOIS LAW REVIEW [Vol. 2009 ties. Building on insights from sociology and economics, this Article explores how additional regard for the land use needs of urban communities could spur entrepreneurship in the impoverished, largely AfricanAmerican neighborhoods of the inner city.1 Understanding the connection between land use and the vitality of black entrepreneurship becomes especially important as the fabric of enterprise in urban places continues to fray,2 and conventional techniques of promoting business growth seem ineffective at creating needed jobs and opportunities.3 Professor Janet Thompson Jackson diagnosed the problem facing black areas: “At one time, African-American urban communities contained thriving business districts.... [Now,] low-income

1. This Article defines “land use” as the broad range of activities, from zoning to architecture review, with which city planners are generally concerned.

2. This is not to say that city life is hopelessly bleak. In the last decade, there has been a “remarkable resurgence of a number of big cities.” Edward L. Glaeser & Joshua D. Gottlieb, Urban Resurgence and the Consumer City 2 (Harvard Inst. Econ. Research, Working Paper No. 2109, 2006), http://www.economics.harvard.edu/pub/hier/2006/HIER2109.pdf. For fifty years, however, manufacturers and large retailers—the humming engines of capitalism—have slowly abandoned America’s city centers. Although the reasons behind the collapse of urban economies are complicated, it can be attributed in large part to increased competition from areas with lower labor costs, fewer tax burdens, and better infrastructure. See generally DOUGLAS S. MASSEY & NANCY A. DENTON, AMERICAN

APARTHEID: SEGREGATION AND THE MAKING OF THE UNDERCLASS (1993); DOUGLAS W. RAE,

CITY: URBANISM AND ITS END (2003) (describing the rise and steady decline of New Haven, Connecticut). This decline is felt most severe in urban places of the Northeast and upper Midwest and is especially traumatic for traditional black communities. See RAE, supra, at 254–87; WILLIAM JULIUS WILSON, WHEN WORK DISAPPEARS: THE WORLD OF THE NEW URBAN POOR 6 (1996) (“When the black respondents in our large... survey were asked to rate their neighborhoods as a place to live, only a third said that their area was a good or very good place to live....”); Michelle Adams, Radical Integration, 94 CAL. L. REV. 261, 282–83 (2006) (describing how joblessness and isolation negatively impact black areas); Daniel J. Hutch, The Rationale for Including Disadvantaged Communities in the Smart Growth Metropolitan Development Framework, 20 YALE L. & POL’Y REV. 353, 353 (2002) (arguing that the exodus of whites to the suburbs resulted in “a vicious cycle of decline for older,” blacker neighborhoods); W. Dennis Keating, The Dilemma of Old, Urban Neighborhoods, 3 WASH U. J.L. & POL’Y 699, 699–700 (2000) (stating largely black urban communities have abnormally high rates of social problems).

3. The federal government has devised dozens of programs and allocated millions of dollars in an effort to reverse the erosion of entrepreneurship in black neighborhoods. In addition, many states promote self-employment as a means for families to accumulate capital and leave welfare rolls. See Alicia M. Robb & Robert W. Fairlie, Access to Financial Capital Among U.S. Businesses: The Case of African American Firms, 613 ANNALS AM. ACAD. POL. & SOC. SCI., Sept. 2007, at 47, 48 (“[P]erformance of black-owned business in the United States is a major concern among policy makers.”). Legal academics, for their part, have proposed plans to increase access to investment capital, promote business education, and nurture a community-wide business ethos. See, e.g., Magnus Lofstrom & Chunbei Wang, Mexican-Hispanic Self-Employment Entry: The Role of Business Start-Up Constraints, 613 ANNALS AM. ACAD. POL. & SOC. SCI., Sept. 2007, at 32, 33–34; Robb & Fairlie, supra, at 68. For more on the challenges that black businesspeople face, see SUDHIR ALLADI VENKATESH, OFF THE BOOKS: THE UNDERGROUND ECONOMY OF THE URBAN POOR 99 (2006) (explaining why blacks lack experience operating and owning businesses in America); Robert E. Suggs, Bringing Small Business Development to Urban Neighborhoods, 30 HARV. C.R.-C.L. L. REV. 487, 496 (1995) (stating that African-Americans have a weak indigenous business culture). It is worth noting here that Latinos in the United States face many similar challenges. See Bárbara J. Robles & Héctor Cordero-Guzmán, Latino Self-Employment and Entrepreneurship in the United States: An Overview of the Literature and Data Sources, 613 ANNALS AM. ACAD. POL. & SOC. SCI., Sept. 2007, 18, 28–29. Nationally, only 1.6 million small businesses are held by Hispanics—a small percentage of the twenty-three million individually owned firms in the country. See Krissah Williams & Cecilia Kang, The Latino Small-Business Boom, WASH. POST, Mar. 22, 2006, at A1.





CLOWNEY.DOC 7/10/2009 2:12 PM

No. 4] INVISIBLE BUSINESSMAN 1063

urban communities are filled with abandoned businesses, vacant lots, and dilapidated housing.”4 Empirical evidence confirms the sagging state of black business. Census records indicate that although AfricanAmericans make up twelve percent of the general population, they create only three percent of new business ventures.5 Additionally, black entrepreneurs are, on average, less successful than their white counterparts; they hire fewer workers, pay lower salaries, and make considerably smaller profits.6 Most disturbing, a recent study shows that black-owned firms account for only 0.5 percent of all business receipts.7 The tattered state of black-owned businesses imposes steep costs on the residents of African-American places.8 Policymakers and bureaucrats worry, correctly, that the lack of entrepreneurship in black neighborhoods has closed a reliable avenue out of poverty and into the lower rungs of the middle class.9 Moreover, the erosion of enterprise also separates black communities from the goods and services they desperately need: supermarkets—where they do exist—sell foodstuffs of inferior quality, banks frequently collect exorbitant fees, and shops sell poorly made goods at high prices.10 In short, black neighborhoods seem ripe for

4. Janet Thompson Jackson, Can Free Enterprise Cure Urban Ills?: Lost Opportunities for Business Development in Urban, Low-Income Communities Through the New Markets Tax Credit Program, 37 U. MEM. L. REV. 659, 704 (2007).

5. In 1997, there were 823,499 black-owned firms in the United States. They constituted only

3.95 percent of all businesses and 1.76 percent of firms with paid employees. U.S. CENSUS BUREAU, DEP’T OF COMMERCE, PUBL’N NO. EC97CS-3, 1997 ECONOMIC CENSUS: SURVEY OF MINORITYOWNED BUSINESS ENTERPRISES-BLACK 17 tbl.1, 75 tbl.8, 77 tbl.9, 80 tbl.11 (2001) [hereinafter U.S.

CENSUS BUREAU, 1997 ECONOMIC CENSUS].

6. See Robb & Fairlie, supra note 3, at 53–55. There are other disheartening statistics. In 1996, the total sales of the top 100 black-owned businesses generated a paltry $14.1 billion. To put that in perspective, a single company with sales of $14.1 billion would not crack the list of the top 80 earners on the Fortune 500. See ENCYCLOPEDIA OF AFRICAN AMERICAN BUSINESS HISTORY xxxi (Juliet E.

K. Walker ed., 1999); see also Leonard M. Baynes, The Q-626 Report: A Study Analyzing the Diversity of the 626 Largest Businesses, and the 105 Largest Minority-Owned Businesses, in Queens, 80 ST.

JOHN’S L. REV. 1007, 1043–44 (2007) (showing a troubling lack of diversity among the largest businesses in Queens, New York).

7. The exact percentage of receipts brought in by black-owned firms is disputed, but all commentators agree that they amount to less than one percent of national totals. See, e.g., U.S. CENSUS BUREAU, 1997 ECONOMIC CENSUS, supra note 5, at 9 (pegging percentage of black business receipts as

0.4 percent of the national total); Earl Ofari Hutchinson, Black Capitalism: Self-Help or SelfDelusion?, in AFRICAN AMERICANS IN THE U.S. ECONOMY 271, 273 (Cecilia A. Conrad et al. eds., 2005) (reporting that overall the gross receipts for black business hover around 0.5 percent of total business receipts); Suggs, supra note 3, at 488 (reporting that, in 1982, business activity in the black community accounted for only 0.16 percent of total business activity). But see Jackson, supra note 4, at 701 (stating that interest in self-employment grows in black community). “[B]etween 1997 and 2002... the number of black-owned businesses grew by forty-five percent.” Id.; see also BESSIE

HOUSE-SOREMEKUN, CONFRONTING THE ODDS: AFRICAN AMERICAN ENTREPRENEURSHIP IN

CLEVELAND, OHIO xxiv (2002) (reporting that the number of black businesses is steadily increasing).

8. See infra Part I.

9. See sources cited supra note 3.

10. I argue that promoting black business could improve both the quantity of services in urban neighborhoods and the quality of available consumer goods. Even though poor people are unlikely to start organic markets, the competition fostered by entrepreneurs presses all businesses to “provide high-quality goods and services at low prices.” Jonathan R. Macey, Transaction Costs and Normative Elements of the Public Choice Model: An Application to Constitutional Theory, 74 VA. L. REV. 471, CLOWNEY.DOC 7/10/2009 2:12 PM

1064 UNIVERSITY OF ILLINOIS LAW REVIEW [Vol. 2009

a new wave of commercial development, yet the storefronts necessary to remake neighborhoods remain covered with plywood. What is to be done?

In this Article, I propose a plan to ameliorate the anemic rate of business growth in black neighborhoods. I begin by arguing that black business lags, at least in part, because commentators have overlooked a key constraint on African-American entrepreneurship—land use regulation. In both academic circles and in city hall, observers have failed to understand how land use rules restrict commercial development in minority communities.11 More specifically, the literature has not acknowledged that zoning—the process of dividing an entire municipality into districts and designating permitted uses for each area—has sharply limited the formation and expansion of entrepreneurship in black neighborhoods.

This analysis of zoning strives to move beyond the customary and formulaic critiques of municipal regulation. In recent years, it has become “standard fare in moderate-left to libertarian-right circles” to claim that overly technical government rules disadvantage small businesspeople.12 Rather than treading this familiar ground, in Part II of this Article I argue that land use schemes impose unique and disproportionate harms on African-Americans. Relying on extensive analytic and ethnographic evidence, I make three core claims. First, I argue that the cost of complying with land use regulations has a disparate impact on AfricanAmerican business. Black-owned companies, which are notoriously undercapitalized, have the same land use costs as multinational corporations, but possess significantly fewer resources to pay fees and apply for permits. Second, I empirically show that the types of ventures typically pursued by black entrepreneurs—small-scale service enterprises—face the most stubborn resistance from local zoning boards. Finally, I assert that zoning, which insists on separating commercial uses from residential neighborhoods, creates particular problems for black entrepreneurs. The segregation of uses, for example, divorces black business owners from local customers—a considerable obstacle in a community where relatively few households have access to a private automobile. The overriding theme of these claims is that restrictive land use measures make it near 515 (1988); see also David Dante Troutt, Ghettoes Made Easy: The Metamarket/Antimarket Dichotomy and the Legal Challenges of Inner-City Economic Development, 35 HARV. C.R.-C.L. L. REV. 427, 473 (2000).

11. See infra Part II.



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