Economic development of low-income inner-city minority communities: the role of middleman entrepreneurs in the development strategy

Background/Purpose:

A successful economic development project for a community requires the comprehensive utilization of available neighborhood resources. However, not all community resources may have been included in the development strategy. Middleman entrepreneurs in low-income inner-city minority communities are one example of such “untapped resources.” In fact, in the field of community economic development, only criticism has been raised about the opportunistic behaviors of middleman entrepreneurs. These criticisms include the overt pursuit of profit, little contribution to the community, and their eventual departure from the community as economic opportunities in the areas dry up. Such a charge, however, may be a prejudice based on incorrect information, leading to the under-utilization of community resources that could, if properly used, make a significant contribution to building a solid local economy. In this backdrop, this study aims to explore the other side of the story: the large number of middleman entrepreneurs who continue to operate in inner-city communities, despite deepening recessions and falling profits, and the possibility that these neighborhood resources can be tapped to help revitalize the inner-city economy.

Data/Methods:

The data for this study were drawn from a survey of 132 Korean business owners operating in the Chicago area. A logistic regression and two-sample t-tests were employed to determine how one group differs from the other, in terms of scale, business duration, and hiring practices, as well as why some middleman entrepreneurs stay, while others leave. Of 132 survey respondents, 76 were business owners in low-income inner-city minority neighborhoods who had never conducted business outside their areas. The other 56 were business owners operating in areas that were not low-income and not-inner city minority neighborhoods, but who had conducted business in low-income inner-city minority areas previously. All survey participants were randomly selected from the 2008 version of the Korean business directory, published by the Korean Times of Chicago. Finally, the term inner cities indicated neighborhoods that were within the administrative boundary of the city of Chicago and historically had a high poverty rate (>20%) and high unemployment rate (>15%).

Results:

(1) Middleman entrepreneurs who remained in existing neighborhoods, despite economic losses, tended to run larger, higher-yielding businesses for longer periods of time than those who relocated frequently. (2) Greater sunk costs were incurred by the scale and duration of motivated business owners in the former group to develop stable ties to the neighborhood by hiring residents and participating in local affairs, thus, being less likely to leave during an economic downturn. The more volatile latter group was not as motivated.

Conclusions/Implications:

The study findings suggest that not all middleman entrepreneurs are disconnected, footloose outside exploiters: some develop strong and enduring horizontal linkages in a community and exhibit a high level of local orientation. From the community economic development perspective, this suggests that a successful development strategy might include recruitment of locally-oriented middleman entrepreneurs to act as bonding and bridging agents within inner-city communities.