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Attacking Poverty In The Watts Area: Small Business Development Under Theeconomic Opportunity Act Of 1964

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Attacking Poverty In The Watts Area: Small Business Development Under Theeconomic Opportunity Act Of 1964

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Content This dissertation has been microfilmed exactly aB received 66-11,597 WILLIAMS, W illiam J a m es, 1930- ATTACKING POVERTY IN THE WATTS AREA: SMALL BUSINESS DEVELOPMENT UNDER THE ECONOMIC OPPORTUNITY ACT OF 1964. U n iversity of Southern C alifornia, D .P .A ., 1966 P o litica l S cien ce, public adm inistration University Microfilms, Inc., Ann Arbor, Michigan ATTACKING POVERTY IN THE WATTS AREA: SMALL BUSINESS DEVELOPMENT UNDER THE ECONOMIC OPPORTUNITY ACT OF 1964 by William James Williams A Dissertation Presented to the FACULTY OF THE SCHOOL OF PUBLIC ADMINISTRATION UNIVERSITY OF SOUTHERN CALIFORNIA In Partial Fulfillment of the Requirements for the Degree DOCTOR OF PUBLIC ADMINISTRATION June 1966 This dissertation, written by ......... Wim.aKn...Jara.es...W.iUiat»jsi........... under the direction of the undersigned Guidance Gommitte, and approved by all its members, has been presented to and accepted by the Faculty of the School of Public Administration in partial ful fillment of the requirements for the degree of DOCTOR OF PUBLIC ADMINISTRATION D a te ........................... Guidance C om m ittee: Chain TABLE OF CONTENTS Chapter Page I. STATEMENT OF THE PROBLEM..................... 1 The Focus of This Dissertation: Small Business Development Why a Small Business Title in the Economic Opportunity Act of 1964? Scope of the Study Relationship of the Problem to Public Administration Significance and Contribution of This Dissertation Chapters to Follow II. THE SMALL BUSINESS ADMINISTRATION: HISTORY, FUNCTIONS, AND ACTIVITIES ................. 23 Introduction Early History Functions and Activities Small Business Investment Act State and Local Development Companies Management Assistance Congressional Committees Economic Opportunity Act of 1964 Summary III. THE COMMUNITY ACTION PROGRAM . . .......... 79 Introduction An Interpretation of Title II Participation of the Poor ii Chapter Page Governing Boards and Advisory Councils Methods for Involving the Poor IV. THE SOUTH CENTRAL ECONOMIC PLANNING AREA OF LOS ANGELES............................... 102 Introduction Demographic Data Socioeconomic Analysis Recommendations Summary V. THE LOS ANGELES AREA ECONOMIC DEVELOPMENT AGENCY...................................... 155 Introduction History Organization Purpose Activities Projected Effects Summary VI. A SMALL BUSINESS DEVELOPMENT CENTER FOR THE SOUTH CENTRAL AREA ....................... 175 Introduction Federal Approval Small Business Purposes of the Centers Operation of the Center Initial Programs Business Advisory Council Summary VII. ECONOMIC INDICATORS.............. 223 Introduction Economic Indicators National Indicators Regional Indicators Intraregional Indicators iii Chapter Page Economic Activity Indicators Investment Indicators Summary VIII. SUMMARY AND IMPLICATIONS.................... 248 Summary Implications BIBLIOGRAPHY........................................ 261 iv LIST OF FIGURES Figure Page 1. Study Areas Based on 1960 Census Tracts, County of Los Angeles....................... 104 2. Business Development Advisory Staff............ 206 3. Managerial Skills Training Program, Curriculum Development.................................. 214 4. Managerial Skills Training Program, Program Installation.......... 217 LIST OF CHARTS Chart Page I. Unemployment in Los Angeles County and the SCEPA, by Study Areas, in Rank Order, 1960 . 125 II. Percentage of Labor Force Employed as: Operatives, Clerical, Household, and Service Workers; and Laborers; Los Angeles County and the SCEPA, by Study Areas, in Rank Order, 1960 ................................. 127 III. Per Cent of Persons Age 25 and Over with Education Less Than Four Years of High School, in Los Angeles County and SCEPA, by Study Areas, in Rank Order, 1960 135 IV. Families with Incomes at the Poverty Level (under $4,000), Los Angeles County and SCEPA, by Study Areas, in Rank Order, 1960 . 138 vi LIST OF TABLES Table Page 1. Budget for Two Small Business Development Centers..................................... 195 2. Small Business Development Center Budget Recapitulation for First Fiscal Year .... 198 • * VII CHAPTER I STATEMENT OF THE PROBLEM In 1964 a law was adopted which is of great signifi cance to social justice, to education, and to economic stability in twentieth-century America. This law is the Economic Opportunity Act of 1964. This legislation is important because it tries to grapple with problems that accompany the growth and development of cities and metro politan areas. Urban problems--their identification, analysis, and resolution--are the real domestic challenges facing America in the year 1965.^ In his State of the Union Message to the Congress on January 4, 1964, President Johnson declared an ■ ' ‘ U.S., Congress, Senate, Committee on Labor and Public Welfare, Select Committee on Poverty. The War on Poverty: The Economic Opportunity Act of 1964: A Compila tion of Materials Relevant to S. 2642. 88th Cong., 2d Sess., 1964. Washington: Government Printing Office, July 23, 1964. 1 "unconditional war on poverty in America," a war which, as he explained, was "not only to relieve the symptoms of A poverty, but to cure it; and, above all, to prevent it." Subsequently, in the Economic Report of the President, he described again as a major objective of the administration the effectuation of government programs designed to elimi nate poverty. The budget submitted to the Congress on January 21, 1964, made provision for the "initiation of a new major effort to break the vicious cycle of chronic poverty." It contained requests for a number of appropri ations, for specific programs (identified as parts of the antipoverty program), plus a specific request for an addi tional appropriation of 500 million dollars as an allowance for the attack on poverty. In the budget message, President' Johnson said, "I have provided over $1 billion of new obligational authority to begin an all-out attack on the problem of poverty in the United States. U.S., Department of Health, Education and Welfare, Indicators. February, 1965, pp. 1-11. 3 "The Real Story of the Poverty War," U. S. News and World Report. June 14, 1965, p. 37. The Focus of This Dissertation: Small Business Development This dissertation is a report on research con ducted in economic development--one of the problem areas with which the Economic Opportunity Act of 1964 proposes to deal. Economic development is related to a host of other national problems, including employment, education, technology, automation, poverty, and community development. Specifically, the dissertation will analyze and report on a small business development program in the South Central Economic Planning Area of Los Angeles County, conducted under Title IV, Section 401, of Public Law 88-452, more popularly known as the Economic Opportunity Act of 1964. In Title IV, "Employment and Investment Incen tives," of the Economic Opportunity Act, Section 401 stated: It is the purpose of this title to provide new training and employment opportunities for long-term unemployed persons; to assist in the establishment, preservation, and strengthening of small business concerns and improve the managerial skills employed in such enterprises; and to mobil ize for these objectives private as well as public managerial skills and resources.^ U.S., Congress, Senate, Committee on Labor and Public Welfare, Select Committee on Poverty, Economic Opportunity Act of 1964: Hearings. 88th Cong., 2d Sess., 1964, S. 2642. 4 Part B of Title IV of the legislation extended the "War on Poverty" program into a neglected sector of the economy by means of a program of financial assistance to very small business concerns and to qualified persons seek ing to establish such concerns.-* According to Eugene P. Foley, Administrator, Small Business Administration, speaking before the Select Commit tee on Poverty at a hearing conducted in June, 1964: . . . This program, which will be conducted by the Small Business Administration, combines man agement training with loans extended through sim plified procedures on liberal terms. It promises to furnish persons at the lower levels of the commercial structure, particularly Negroes and members of other minority groups, with increased opportunities to obtain employment and, in the case of those who have the necessary aptitudes, to develop their potentials as businessmen.^ In his testimony before the Senate select commit tee, Foley pointed to the fact that the growth of "very small firms" was "stunted because they have been unable to qualify for term loans from any source, public or private." In addition, Mr. Foley cited the dilemma of "numerous per sons with sound plans for the establishment of such firms who have been unable to attract financial backing."7 5Ibid., p. 32. 7Ibid., p. 234. 6Ibid., p. 233. 5 The role of small business in the total economy is an important one, and the Small Business Administration has recently completed a massive study of the entire ques tion. The role of small business Reports that small business is ’’dead" have been greatly exaggerated. Despite economies of scale, corporate giantism, massive government procurement, automation, and taxation, the small businessman remains as a significant element in the American economy. In manufacturing, the big companies are growing bigger; in retailing, the chains are adding link after link. But in the fastest-growing sectors of the economy such as specialty retailing, service finance, transporta tion, and construction, the little man has shown a great capacity for survival. These facts are among the conclusions of a massive study just completed by economists at Robert R. Nathan and Associates, Inc., for the Small Business Administration. In sum, the Washington group sees an assured place for small business in the decade ahead, if the United States maintains a fairly steady economic growth.® The $98,000 study was made primarily for the Small Business Adminis tration's internal use, although it may be published at a later date. Administrator Foley, of the Small Business Administration, a Minnesota lawyer who has headed the agency since 1963, will use the Nathan report to help to develop programs for the country's 4.7 million small busi nessmen. From a vast array of sources, the report pulls together the most detailed analysis to date on the pros pects for small business in an economy that seems to be dominated by a few hundred giant corporations. The Nathan report does not define small business in terms of assets, sales, or number of employees; rather it considers small businesses to be those that are self-initiated, largely self-financed, and self-managed. This definition can embrace a building maintenance contractor with a payroll of 500, an electronics component manufacturer with 50, or a ®Robert R. Nathan and Associates, "The Outlook for Small Business Prospects for a Decade" (unpublished report, Washington, D. C., June, 1965). (Much of the material in this section is drawn from this report.) 9Ibid. drugstore with only 20. It includes about two million tiny businesses, with very limited resources and annual net receipts below $.5,000. These are marginal businesses: the small cafe, the cab owner, the corner grocer.'*"® The survival of the individual business may be tenuous, yet even this sector of the small business uni verse has a future, the study found. It reported that 95 per cent of the country's 4.9 million businesses may be classified as small or tiny. The forecast for the sector as a whole was: "Small business as usual, moderately good. Small business forecast Opportunities in the future to start a small busi ness will not multiply quite as fast as heretofore. An 11 per cent rise in the total number of businesses, nearly all of them small, is predicted by 1976, but this is less than the 15 per cent increase between 1956 and 1966. Still, the fastest growth is expected in sectors where small business does best--in services, which will grow 13 per cent; in finance and transportation, which are expected n T.., Ibid. to rise 17 per cent; in construction, which will rise to 11 per cent from 9 per cent; and in retailing, which will slow to 7 per cent from 11 per cent.^2 Small businessmen will try to improve their chances for survival by turning increasingly to franchise arrange ments . These already account for more than $60 billion in annual sales, $40 billion of which come from petroleum and automotive sales alone. Since World War II, franchised businesses have sprung up in retail and service operations --roadside food stores, sales of hearing aids, carpet cleaning, coin-operated laundries, to name but a few--as small businessmen have elected to trade some of their TO independence to reduce their risks. The small businessman who decides to try to operate on his own capital may find his opportunities for success slightly improved in the next decade. When businesses can be started with a small investment and a little know-how, the entry rate is brisk and competition is keen. In recent Future for Small Business. Reprint of an article in Business Week. July 31, 1965 (New York: McGraw- Hill, Inc., 330 West 42nd Street, 1965), p. 34. 13Ibid. years, new businesses have been created at an annual rate of just over nine per cent of the total business popula tion; they have expired at about eight per cent a year, at a median age of between one and three years. In the next decade, however, small business oppor tunities should multiply faster than the number of poten tial entrepreneurs--the prime age group from which most new businessmen come, ages thirty-five to fifty-four, will remain constant while the supply of opportunities keeps on rising. The quality of opportunities that are seized should tend to rise.^ Small business and manufacturing The idea that small business is being "massacred" arises largely from the furor in Washington over the con centration of power in manufacturing. Some 70 per cent of companies in manufacturing have fewer than twenty employ ees, while about 70 per cent of manufacturing employment in 1958 was concentrated in only 3 per cent of the com panies. Between 1947 and 1962, the two hundred largest manufacturers increased their share of value added from 14ibid. 10 30 per cent to 40 per cent. The public has been told again and again about the growing dominance of big manufacturers, and the "sad lot of their small competitors," The Senate Subcommittee on Anti-trust and Monopoly has documented this in hearings, and Senator William Proxmire (Democrat from Wisconsin) has written a book about it entitled Can Small Business Sur vive A subcommittee of the House Select Committee on Small Business has critically examined the movement of major manufacturers into distribution. Until recently, most economists argued that concen tration in manufacturing had not increased since 1900; some thought that it had even decreased slightly. Now, however, most evidence confirms that the largest companies have grown faster than manufacturing as a whole, primarily by moving into new product lines through merger or internal expansion. Manufacturing is the only sector where the number of companies has dropped in recent years: from 327,300 in 1956 to 313,000 in 1963. If there is no recession, the ^William Proxmire, Can Small Business Survive? (Chicago: Henry Regnery Co., 1964). 11 Nathan report predicts that growth will resume in the next decade at about .8 per cent per year.^ The Nathan report does not envision manufacturing as "a dead end" for the small businessman with up to 250 employees. A small manufacturer may not be able to enter the automobile or petroleum industries, but he can find a profitable satellite market in those industries or local markets in other industries where there are fewer advan tages in large-scale operations. Thus, small businesses can become numerous, even though big business grows bigger. The real growth sector for small manufacturers, the Nathan report said, is in the production of goods for local business users rather than for the general public. In commercial printing, for example, 5,500 new companies were organized between 1947 and 1963, 90 per cent of which have fewer than twenty employees. Manufacturers of signs and advertising displays showed similar growth potential.*-7 With a boom in home building expected in the late 1960's, small makers of concrete products, millwork, asphalt, and other building materials should prosper. "^Nathan, op. cit., p. 35. l7Ibid. 12 Satellite metalworking industries, which depend on growing demand for durable goods and construction, should be fer tile fields for new makers of customized products. But, in local consumer markets, and especially in food production, there is little room for growth of the small manufacturers. Small bakeries ana dairies have already been hit hard and only meatpacking and prepared 18 meats remain a lucrative local market. Small business opportunities The Nathan report saw a continuing struggle for a profitable place in what it called the "interstices of the economy," not only in manufacturing but in retailing and service fields. In retailing--the biggest business sector, with more than 40 per cent of all companies--although the corner grocery store is becoming obsolete, specialty stores are proliferating in suburban shopping centers. Big chains are growing, but small chains--with eleven units or fewer, and with under 150 employees--still employ 66 per cent of the retail workers. 18Ibid.. p. 51. 13 In the service sector, no matter how big the mar ket grows, the scale stays relatively small. Growth in population and in income is directly reflected in opportur nities for small businesses such as beauty parlors and barber shops, self-service laundries, funeral parlors, and service stations. In this field, as in manufacturing, the greatest growth is in service to industrial customers-- public relations, consulting, computer operations, office services, and similar service businesses. Construction, too, because of its local focus, offers small operators a bright opportunity. As more pre fabricated components gradually arrive on the market during the next decade, the growth in overall demand from the rise of new households is expected to more than offset losses.^ State and local government spending could open up new businesses, especially in the construction area. According to estimates of the National Planning Associa tion, upon which the Nathan report relies, state and local government purchases from business will rise from 25.6 billion dollars in 1963 to 60.9 billion dollars in 1974. Money should flow into many small construction outfits for 19Ibid. 14 schools, roads, and other public works. The role of government Federal impact on the small business is difficult to assess. Small business has its champions in Washington: two Congressional committees and the Small Business Admin istration. The latter provides loan programs, technical advisory services, and "educational" plans to help small businessmen compete more effectively. Administrator Foley of the Small Business Administration is not entirely satis fied with his agency's efforts, especially in manufactur ing.21 Foley said that first he needs a better apprecia tion of where competition is possible, and then it is important to figure out where, with his assistance, compe tition can be strengthened. The Nathan study helped to fill this need for data and, in 1966, the National Bureau of Standards will start providing the Small Business Administration with further details on the business struc ture of industrial sectors. 20Ibid., p. 62. 71 Economic Opportunity Act of 1964: Hearings, p. 234. 15 Far from being a radical advocate of small busi- / ness, Foley does not believe that every widget maker has the right to success. He is, however, for a competitive system that permits an enterprising innovator a good oppor tunity to succeed--even in manufacturing. Thus, Foley does not necessarily insist that the federal government should expend every economic effort to the advantage of small business. He thinks that economic power must be dissemi nated in a way that is in line with the American demo cratic system. He also believes that the human resources that we have must be fully utilized, and that not all of the 22 creative ability is in big business. In 1964 the various federal agencies bought approximately 6.6 billion dollars worth of goods and services from small businesses, out of a total expenditure of 38.3 billion dollars. Foley wants this proportion to be increased. In the next few months he hopes to be able to expand the proportion by enlisting the help of top offi cials at the National Aeronautics and Space Administration, The Pentagon, and the General Services Administration. 22 Nathan, op. cit.. p. 71. 16 Why a Small Business Title in the Economic Opportunity Act of 1964? The Small Business Act of 1953 was not written to furnish persons at the lower levels of the commercial struc ture with increased opportunities to become employed and, in the case of those who have the necessary aptitudes, to develop their potentials as businessmen. The businesses to which Title IV was directed were, according to Foley: . . . mostly retailers and service enterprises employing, say, three or fewer persons--luncheon ettes; filling stations; drug stores; barber shops; delicatessens; beauty parlors; shoe repair estab lishments; furniture movers; cleaners and tailors; and the like. The inability of such firms to obtain the credit required for growth has aggra vated poverty conditions in countless neighbor hoods. Taken in the aggregate, the employment potentials of this segment of the economy are sub stantial. 23 It is to reach this untapped potential in our society that Title IV of the Economic Opportunity Act of 1964 was included as an important element of the War on Poverty program. Scope of the Study This dissertation is addressed to the broad prob 234. 23 Economic Opportunity Act of 1964: Hearings, p. 17 lem of poverty in a metropolitan area and to a public program designed to alleviate poverty through small busi ness development. Specifically, the dissertation does the following: 1. Sets forth characteristics of the South Central Los Angeles Area, broadly referred to as Watts, showing conditions of that community and iden tifying indicators of poverty in the area. 2. Analyzes the Economic Opportunity Act of 1964, with specific reference to Titles II and IV, which deal with community involvement programs and small business development. 3. Shows the intimate relationship between the condition of small business and the economy of the area and emphasizes the vital role of small business development in relief of poverty. 4. Describes a program designed to implement Title IV in the Watts Area and suggests a model for evaluating program results. 5. Critiques the administrative means innovated in the program whereby public program objectives are achieved in part through private means and 18 suggests a concept of "remote decentralization” for this purpose. Relationship of the Problem to Public Administration Public administration cannot be separated from economic development, which is the subject of this research, nor can economic development be separated from public administration. Public administration is only one phase or aspect of human cooperation; it is one of the fields of study within the broader technology of urban studies, and has its own special conceptual apparatuses in both its practice and its study. It is essential that students and practitioners of public administration, participating actively in the broader area of urban study and problem-solving, examine the question of economic development. The most important reason for this is that American society is today largely urbanized, inhabiting several large metropolitan regions and at least one great metropolitan area. Here we may distinguish from earlier forms of urban development, but conditions of interdependency (which can only be understood by recourse to the broader fields of urban analysis and 19 problem solving) must include the history of economic A / development. This dissertation will analyze the program of Small Business Development Centers to be funded by the federal government under Title IV of the Economic Opportunity Act. In addition, through examination of the Los Angeles Area Economic Development Agency, it will attempt to reach some valid conclusions relative to the success of the program and the contribution it can make to the economic develop ment of the South Central Area. The conclusions reached here could have implica tions for solving the poverty problem throughout the United States. The end result of the program is supposed to be the development of job opportunities. The federal government, specifically the executive branch, is the focus of the field of public administration. Obviously, this program is locused in the executive branch of the national government. While this study is specifically addressed to policy development in a public program, it will be a prag matic study of a concrete institution within the larger ^Dwight Waldo, The Study of Public Administra tion (Garden City, Long Island: Doubleday and Company, 1955), p. 2. 20 25 sphere of public administration. It is the first time in the history of the United States that a public policy has been enunciated which gives the executive branch of the government the authority to farm out programs which the national government is equipped to administer. Under Title II of the act, the people themselves must assume responsibility for program involvement, making central decisions which have heretofore been handled by the national administration. Throughout this dissertation an analysis will be made of a public administration concept which will be termed "remote" decentralization and delegation. The question, then, is whether or not this "remote" or "detached" decentralization and delegation make for effective implementation. This dissertation, in addition to describing and analyzing an antipoverty program in South Central Los Angeles, will have as further focus the task of developing some tentative conclusions relative to the usefulness, in programs of this nature, of the concept of "remote" decentralization. Sidney Maillich and Edmund H. Van Ness (eds.), Concept and Issues in Administrative Behavior: The Concept of Decision Making (Englewood Cliffs, N.J.: Prentice Hall, Inc., 1962), pp. 6-7, 14. 21 Significance and Contribution of This Dissertation If properly implemented, this new program will yield the first substantial body of experience and empiri cal knowledge yet available about the scheduled creation and expansion of tiny business--with special reference to ethnic communities. The analysis of such a program may provide a sig nificant contribution to an understanding of an expanding art: the matching of public and private sector capabili ties. The study may also make a contribution to our knowl edge of economic development and the concept of "remote" decentralization and delegation, both in this country and in underdeveloped areas elsewhere in the world. Chapters to Follow In Chapter II particulars pertaining to the Small Business Act of 1953 are documented to establish that the Act was not designed to reach the hard-core poverty-strick en individual. The chapter substantiates the contention that a combination of the foregoing Act and Title IV of the Economic Opportunity Act of 1964 can furnish a machinery whereby this heretofore unreached individual can be as sisted in a meaningful small business development program. 22 In Chapter III the necessity to involve the community in a small business development program is estab lished. The chapter stresses the need for application of the revolutionary concept embodied in Title II of the Economic Opportunity Act in order to solve the problems presented in the succeeding chapters. Chapters IV and V are devoted to a demographic analysis of the study area and, in a more general way, the postulation of a model for future programs for application in other urban areas of poverty in the United States. Thus Chapter IV presents a demographic description of the stricken area while Chapter V describes the history and organization of the problem-solving agency. This agency, the Los Angeles Area Economic Development Agency (LAAEDA), was formed especially to cope with the overall problems of economic development in the study area. Chapter VI includes a description of the small business development program for the South Central Economic Area, while Chapter VII develops a model for evaluating results of the small business development program. Chapter VIII attempts to summarize the essentials of the dissertation and to hazard some conclusions. CHAPTER II THE SMALL BUSINESS ADMINISTRATION: HISTORY, FUNCTIONS, AND ACTIVITIES Chapter II traces the history of federal assistance to small businesses from the emergency legislation passed during World War II to the passage of Title IV of the Economic Opportunity Act of 1964. As the progressive development of legislation is outlined, an attempt is made to indicate the broadening scope and changing goals of the various programs. Of particular interest is the increasing emphasis on the problems of individuals and specific localities, and the corresponding decentralization of assisting government agencies. The trend, since 1953, has been to liberalize traditional lending patterns and procedures as economic considerations have given way to more socially-oriented objectives. This trend is shown to have reached a natural culmination in the Economic Opportunity Act of 1964. 23 24 Increases in internal organizational efficiency and effec tiveness in the community are shown to have paralleled this shift in emphasis. Introduction It was pointed out in Chapter I that the Small Business Act, as it was written, did not aim to reach some of the very important client groups, especially the hard core, poverty-stricken individuals, those already in business, and those others who have a potential for devel oping small business ventures. In order for this disserta tion to document that statement and justify the initiation of the Small Business Development Centers, something must be known about the history, functions, and activities of the Small Business Administration. Early History The Small Business Administration grew out of the demands during World War II for the full participation of small business in the national war effort. Its functions and activities serve as a striking illustration of the establishment of a federal agency as an answer to the pressing immediate needs of one sector of our national 25 economy.^ During World War II, the Smaller War Plants Corpor ation concentrated on increasing the participation of small firms in the production of defense goods and services. In order to increase this participation, it was necessary for the government to furnish some of the financing of defense production where such financing was not available through private sources. Following the end of World War II, the functions of the Smaller War Plants Corporation were transferred in 1946 to the Department of Commerce. At this time, the principal small business programs were designed to guide and help veterans and defense workers in establishing and operating small new business enterprises which were needed to satisfy O some of the huge backlog of consumer demand. In 1951, according to a report of the Small Busi ness Administration released in 1960, The Korean crisis necessitated another change in the emphasis of small business assistance pro grams. The Small Defense Plants Administration 1 U.S., Chamber of Commerce, Investment for Jobs (Washington: Chamber of Commerce, 1959), p. 10. ^Donald A. Moffit, "Re-development Woe," The Wall Street Journal. April 11, 1963, p. 1. 26 was established primarily to assist small businesses to participate more fully in the defense production of goods and services required for carrying on hostilities in Korea. There also was a related effort to increase financial assistance to small defense contractors through the Reconstruction Finance Corporation. Previously established management assistance programs were continued but subordinated to the defense procurement and financial assistance programs. At the close of the Korean conflict in 1953, the emphasis of the economy once again shifted from defense patterns into more normal channels.^ In 1953, during the Eisenhower administration, the Small Business Act was passed, establishing on only a temporary basis an independent Small Business Administra tion. The Small Business Administration, widely known by its initials, SBA, became the first peacetime agency under the executive branch of the government to be devoted exclusively to aiding small businesses. Government policy in regard to small businesses was stated in the Small Business Act of 1953 as follows: It is the declared policy of the Congress that the Government should aid, counsel, assist, and pro tect, insofar as is possible, the interests of small-business concerns in order to preserve free Small Business Administration, 14th Semiannual Report, for Six Months Ending June 30. 1960 (Washington: Office of Public Information, 1960), p. 3. 27 competitive enterprise, . . .^ Functions and Activities Business loans As set forth in the 1953 law, the principal func tion of the Small Business Administration was to make loans to small firms. To carry out this function, a Loan Policy Board was created as part of the Small Business Adminis tration. The Board consisted of "The Administrator, as Chairman, the Secretary of the Treasury, and the Secretary 1,5 of Commerce, and was delegated the authority to deter mine the policies governing "the granting and denial of applications for financial assistance"^ by the SBA. The original revolving fund set up for the purpose of lending money to small firms amounted to 275 million dollars. Under the Act, the agency was authorized to make' "loans to small manufacturers, wholesalers, retailers, service concerns and other businesses, provided they [could] not ^U.S., Congress, Small Business Act. Public Law 536, as Amended, 89th Cong., 1st Sess., August 30, 1965, p. 1. 5Ibid.. p. 3. 6Ibid., p. 4. 28 obtain private financing on reasonable terms and are not eligible for financing from other Government agencies."^ These loans were authorized for the following purposes: "business construction, conversion, or expansion; purchase of equipment, facilities, machinery, supplies, or mater ials; and for working capital."® In the original statute a top limitation of $150,000 was placed on such loans, but the SBA found that most of its loans were small--many under $1,000. If the small businessman could obtain some but not all of the funds he needed from a private bank (or other source), the SBA could participate in the financing up to 90 per cent of the total loan. The Small Business Adminis tration has always striven for bank participation in a * loan, since the purpose of the agency's financial program is to supplement, not to compete with, the lending activi ties of private banks,^ ^U.S., Small Business Administration, SBA Business Loans for Small Firms: Who Can Borrow; How to Apply; Credit Requirements; Lending policies (Washington: Office of Information Services, September, 1962), p. 5. ^Ibid., p. 9. 29 A participation loan might be made for as long as ten years, with interest on the SBA's share set at a maxi mum of 5.5 per cent. When a bank or private lender par ticipates with the SBA in a loan, it may and frequently does set a rate higher than 5.5 per cent on its share of the loan, providing the rate is legal and reasonable. If the private institution sets a rate lower than 5.5 per cent, the SBA will also lower its rate, but not below 5 per cent. A second function of the SBA is its disaster loan program, which has been carried on since its organization in 1953. This program was originally limited to help in the restoration or replacement of businesses and homes damaged by major disasters, such as "floods or other 11 catastrophes." Later amendments broadened this legisla tion until, in 1964, a further amendment to the Small Business Act of 1953 provided for loans to small firms in case of economic injury resulting from any extraordinary 12 disaster. 10Ibid., pp. 9-10. 11 Small Business Act, p. 9. 12 U.S., Small Business Administration, SBA: What It 30 A third function of the Small Business Administra'- tion was to assist many small firms to qualify for and obtain government procurement and research grants and con tracts, especially those connected with the branches of the Defense Department. In order to improve the status of small business in the field of federal procurement, a joint set-aside program was established in cooperation with government procuring agencies. Under this program, the Small Business Administration representatives and purchasing officials of major military and civilian buying offices jointly review proposed purchases to determine which ones can be ”set aside,” and made entirely or partially from small business. To set aside all or part of a purchase, there must be reasonable expectation that a sufficient number of small firms will bid on it to assure the Government a satisfactory price.^ To aid small'businesses in the area of government procurement, the Small Business Administration issues cer tificates of competency, which certify to federal procure ment agencies that a small business concern, small business production pool, or research and development pool has adequate productive and financial capacity to meet the Is; What It Does (Washington: Office of Information Serv ices, September, 1962), p. 7. 13Ibid., p. 8. 31 quality, quantity, and time requirements of the proposed 1 / contract for which the certificate is issued. The fourth and final function of the Small Business Administration--to sponsor the publication of manuals and many other aids to small firms, and to organize and provide financial counseling, institutes, and management courses for small businesses*^--will be discussed in more detail later in this chapter. Pool loans.--In 1955 the SBA was authorized to make loans to corporations formed by "pools" or groups of small businesses to: (1) obtain raw materials, equipment, inventory or supplies for use by group members, (2) obtain the benefits of research and development for the members of the group, or (3) establish facilities for these purposes. ® The maximum amount which the Small Business Admin istration can advance, either alone or as its share, is $250,000, multiplied by the number of small businesses which are members of the pool. "The interest rate on pool 14Ibid., p. 9 15Ibid., pp. 11-12. ^U.S., Congress, Federal Handbook for Small Busi ness: A Survey of Small Business Programs in the Federal Government Agencies. 87th Cong., 2nd Sess., 1962, p. 2. 32 loans is 5 percent and loans may be made for as long as 20 years. Limited Loan Participation Plan.--Under the Limited Loan Participation Plan, also inaugurated in 1955, the Small Business Administration may join with a bank in a ioan to a small firm up to a maximum of $15,000 in govern ment funds, or 75 per cent of the loan, whichever is the smaller. This plan was designed especially to meet the credit needs of retail, wholesale, and service firms "which are unable to pledge as much tangible collateral as is required for SBA's regular business loans, but which are soundly managed and have good earnings and credit records. 1958 Changes Following a highly successful five-year period of operation, the Small Business Act of 1958 made the Small Business Administration a permanent agency and expanded its functions. The maximum rate on SBA loans was reduced from 6 per cent (established by the 1955 amendments to the Small 18 Ibid. 33 Business Act of 1953) to 5.5 per cent, thu* easing credit availability for small firms. The ceilin on loans to individual companies was raised from $250,000 to $350,000, and the SBA was granted increased authority to obtain research and development contracts for small business.^ The Small Business Act of 1958 also empowered the Administrator to make grants to qualifying educational institutions and state agencies for ’’studies, research, and counseling concerning the managing, financing, and operation of small business enterprises.”^ Eligible ins titutions include: . . . any State government or any agency thereof, any State-chartered development credit or finance corporation, any land-grant college or university, any college or school of business, engineering, commerce, or agriculture, . . .21 A major expansion of SBA assistance to small busi nesses was authorized in 1958 under the Small Business Investment Act--a facet of SBA activities which is merely « mentioned at this time to maintain a chronology of the activities of the agency and which will be covered later 19 Investment for Jobs, p. 11. on Small Business Act, p. 11. 21Ibid. 34 in this chapter. 1961 Changes Congress continued to modify and expand the work assigned to the Small Business Administration and in Sep tember, 1961, authorized the inauguration of the "Simpli fied Bank Participation Loan Plan." The American Bankers Association aided the SBA in developing this program, which was designed to encourage bank participation in SBA's lend ing program by providing means by which banks could supple ment their term lending to small firms. Under this plan "the small businessman deals entirely with the bank and follows the bank's instructions in preparing and submitting 9 9 credit information." The plan was developed to reduce paperwork and details, to make decisions on loan applica tions available more quickly, and to speed up loan dis- 9 T bursements. According to this plan, the SBA may participate "up to $350,000 or 75 percent of the total loan, whichever 22 Federal Handbook for Small Business, p. 2. ^U.S., Senate, Committee on Banking and Currency, Hearings on Area Re-development. 86th Cong., 1st sess., 1959, p. 105. 35 24 is smaller." The bank's minimum share of 25 per cent was in contrast to a minimum bank participation of 10 per cent under the agency's other participation plans. Loans were to be amortized over a period not to exceed ten years, but where construction was involved the maturity might be extended to include the time needed to complete the con struction. Banks charged their regular interest rates, while SBA charged 5.5 per cent per year on its share of loans. Under this plan, procedures were simplified because the small businessman dealt only with his bank and relied on the bank for guidance in preparing the necessary credit information. The bank then submitted the required credit information to SBA with a request that SBA participate in the loan. The bank used its own forms and procedures in closing the loan, and submitted copies of the loan docu ments to SBA only after it had disbursed the loan. The bank also agreed to service the loan. . Similarly, in 1961, the "Early Maturities Partici pation Plan" was developed as a means of providing the longer-term credit needed by small businessmen. Under this ^ Federal Handbook for Small Business, p. 2. 36 plan, the bank could recover its share of a loan in as little as two years, with SBA continuing its portion of 25 the loan for as much as eight years longer. A combination of these two plans, called the "Simplified Bank Loan Plan with Early Maturity Feature," was another 1961 development of SBA assistance. This plan was described in SBA's 1962 Annual Report, as follows: . . . The bank must agree to take at least a 507. share of the loan and participate for at least half the life of the loan. For example, a bank will be repaid in the first 5 years if it takes a 50% participation in a 10-year loan; and in 6 years if it takes a 60% interest in a 10-year loan. The bank has the option to purchase SBA's share of the loan at any time. All loans under the new plan are "immediate participation loans"; that is, at the bank's request SBA will advance its share of the loan as soon as the bank is ready to disburse funds.26 Displaced business loans.--Many obvious problems confront those small businesses "physically displaced by Federally-aided urban renewal, highway, and other construc- 25 Hearings on Area Re-development, p. 109. ^U.S., Small Business Administration, 1962 Annual Report of the Small Business Administration (Washington: Office of Public Information, 1962). For a discussion of deferred participation plans, see U.S., Small Business Administration, Handbook for Participation Loans with Small Business Administration (Washington: Office of Public Information, 1962). 37 o 7 programs.1 Under the Housing Act of 1961, the SBA was authorized to" provide financial assistance in relocating appli cants in a suitable and reasonable location, compar able to that which they previously occupied, including upgrading and necessary modernization."^® This help was in addition to compensation for moving expenses or direct loss of property which the firm might receive from the local public agency conducting the re newal project. Subcontracting.--An extension of SBA's jurisdiction was incorporated in the legislation passed by Congress in September, 1961, with the establishment of a program to increase the role of small concerns as subcontractors on government procurement. Subsequently, in January, 1962, regulations were put into effect by the General Services Administration and by the Department of Defense, which directed federal procurement agencies to help small busi ness concerns function as subcontractors under government prime contracts.^9 27 Federal Handbook for Small Business, p. 5. 28Ibid. 29Ibid. 38 Prime contractors with government contracts exceed ing $500,000 are required to take steps enabling small concerns to be considered fairly as subcontractors and suppliers for goods and services, including construction. Also, under these new rules, "SBA is authorized to suggest small concerns as potential subcontractors when it appears that small firms might not otherwise be solicited." These additional steps were taken to broaden opportunities for small firms in government procurement. Supplementing this program, the SBA and the Defense Department began a joint program whereby major prime con tractors were asked to notify SBA voluntarily of forth coming subcontracts of more than $10,000, which were suit able for small business competition. Area Redevelopment.--In an attempt to alleviate severe chronic unemployment in distressed areas, the Area Redevelopment Act was passed by Congress and signed by the late President Kennedy on May 1, 1961. The Small Business Administration aided the new agency to develop necessary criteria and guidelines for ARA loans to commercial and industrial projects, and policies and procedures as well. ~^SBA: What It Is; What It Does, p. 9. 39 * The Secretary of Commerce delegated to the Small Business Administration the following primary responsibili ties under the ARA program: 1. To process all applications for ARA financing of industrial and commercial projects which would create new and permanent employment on a local basis. 2. To give communities technical advice and as sistance in formulating overall economic devel opment plans, as well as plans for individual 0-1 industrial and business projects. In anticipation of the passage of ARA, in April, 1961, the Small Business Administration reduced to 4 per cent its interest rate on new loans to small business firms and development companies in depressed areas with a sub stantial labor surplus. The old rate had been 5.5 per cent for most loans, and 5 per cent for some loans to state and local development companies formed to attract new business. Sar A. Levitan, Federal Aid to Depressed Areas: An Evaluation of the Area Redevelopment Administration (Baltimore: The Johns Hopkins Press, 1964), pp. 115ff. 1963 Changes Loan Guaranty Plan.--As a result of cooperative efforts of the SBA and the American Bankers Association, the Loan Guaranty Plan was put into operation on July 1, 1963, replacing the agency's Deferred Bank Participation Plan. The purpose of this new plan was to provide quali fied small businesses with term loans from their primary sources of credit--commercial banks. Under the Loan Guaranty Plan, the bank and the SBA were to enter into a written agreement whereby the loan would be disbursed and serviced by the bank, with SBA guaranteeing repayment of not more than 90 per cent of the unpaid principa. and interest of the loan. Government procurement.--The Small Business Admin istration and purchasing agencies developed small business competition on many items which previously had been pur chased on a "sole source" basis. As a result of this com petition, the government often obtained lower price quota tions for these supplies. For example, as a result of cooperation between an SBA representative and Air Force procurement officials, a small firm was awarded a contract in 1963 for generator 41 repair kits, valued at $100,940. The item was formerly a "sole source" purchase from a large corporation. The small company's bid was $30,800 less than that of the only other competitor--the previous "sole source" manufacturer. 1964 Changes The Small Business Administration stated in 1964 that its objectives were to "do all in our power to assist small firms with their problems, and to create an economic Op climate in which they can continue to grow and prosper." The purpose and goal of the SBA, as Administrator Foley saw them, were "to serve and assist small businesses, and to see that they have full opportunity to share in, and q q contribute to, our economic growth." With these goals in mind, the SBA liberalized some of its existing programs and established new ones. Liberalized small loan plan.--In May, 1964, the SBA introduced a liberalized small loan plan to give more effective aid in financing small retail, service, and other 32 SBA: What It Is; What It Does, p. iii. 42 businesses. Under the plan, the agency . . . will lend a business up to $15,000 for as long as 6 years. In judging an application, the primary consideration is the good character of an applicant and his past record for meeting obliga tions . The purposes for which loans might be made were: Business construction, expansion, or conversion. Purchase of machinery, equipment, facilities, supplies, or materials. Working capital.35 Paperwork and procedures under the plan were to be held to a minimum. During 1964, the SBA received 7,500 applications for loans under the liberalized small loan program, and approved 4,387 loans totalling $41,937,000. ”6 by 6" program.--Under this new plan, SBA will lend a businessman up to $6,000 for as long as 6 years. The interest rate is 5.5 per cent. As in the liberalized small loan program, loan applicants are considered on the basis of character, integrity, and ability to repay a loan from earnings. Although collateral is important, it is not the only consideration.^ 34Ibid., p. 2. 36Ibid., p. 3. 35Ibid. 43 The SBA began the pilot program in Philadelphia, Pennsylvania, and later extended it to New York City, Washington, D. C., and Camden, New Jersey. These loans for "very small businesses" provide funds for neighborhood stores, such as groceries, delicatessens, and shoe repair shops, which have no banking connections and very limited funds. The program has been especially helpful to business men of minority races, notably Negroes. As the Small Business Administration pointed out: Closely coupled with the loans is management training. For example, as a condition of a loan, SBA may require an applicant to attend an evening management course taught by skilled businessmen and experienced educators.37 As of the end of 1964, SBA had approved 286 loans under the "6 x 6" program, totaling $1,231,000, primarily to assist Negro men and women. Improvements in operations.--Each year the Small Business Administration has tried to improve its operations and administration. During 1964 these activities included plans for full decentralization, so that by late 1964, most loan and other small business requests for assistance could 37Ibid. 44 be acted upon by field offices without reference to the Washington office. With full decentralization since the middle of 1965, field offices make virtually all operating decisions, leaving the Washington headquarters free to con centrate on planning and policy development. The savings resulting from these changes amounts to an estimated one million dollars. Also during 1964 an internal audit of field office procedures encouraged improved management practices, resulting in the handling of a vastly increased workload without a corresponding increase in the work force. In addition, simplification and elimination of much paper work resulted in the saving of more than $60,000 a year. Federal procurement.--In 1964 the SBA and the major federal buying agencies jointly "set aside" for competitive bidding by small firms a record three billion dollars of proposed purchases. By the end of 1964, these set-asides had resulted in awards to small business of 2.3 billion dollars of contracts, contrasted with 1.9 billion dollars during the preceding year. Moreover, it should be noted that in spite of extensive efforts by the Small Business Administration and federal government procuring agencies, 45 small businesses' share of military procurement during 1964 was only 15.9 per cent of the total, or 1.2 per cent less than the figure for 1958. By way of comparison, the figures for 1954 show that small businesses' share was 25.3 » OQ per cent in 1954 and 21.5 per cent in 1955. Although there are no exact statistics on the value of research and development contracts awarded in 1964 to small firms through SBA's assistance, the agency estimates the total to be more than 72.5 million dollars. Since the start of the space age, SBA has encour aged and worked for small business participation in the nation's space program, as suppliers of equipment and materials and as beneficiaries of our scientific accom plishments. Toward this end, the agency has established cooperative small business programs with the National Aeronautics and Space Administration, the Defense Depart ment, and the Federal Communications Commission. SBA and FCC are working together to make the fullest possible use of small business concerns in the development of communications satellites. FCC has incorporated in its regulations several SBA recommendations which will help to give small firms greater opportunity to supply the needs of 38Ibid., p. 10. 46 the project. As the satellite program goes for ward, -and additional contracts are let, small firms should benefit substantially from the SBA- FCC action.39 Disaster loans.--SBA disaster loan assistance in 1964 was unprecedented as the agency moved to make loans to victims of several types of disaster. In one lending program, "it helps to repair physical damage," and in another, "it helps to overcome economic injury."4® Disaster struck during the year at a good many points--a devastating earthquake in Alaska, floods in the Ohio Valley and other sections, tornadoes in the Midwest, and hurricanes in the South. Each time a major disaster occurred, SBA moved quickly "to help disaster victims restore or replace their property."4' * ' The SBA approved 4,009 disaster loans, valued at 91.7 million dollars during 1964, which was the largest annual loan total ever approved by the agency. SBA-sponsored research.--Authorized by the Small Business Act of 1958, the SBA's Management Research Grant 39Ibid.. p. 11. 41Ibid. 4QIbid., p. 7. 47 program was initiated in 1959-60. By the end of 1964, some 105 grants to educational institutions and state government units had resulted in the publication of 224 research reports. This activity will be discussed in detail later in this chapter. Highlights of 1964 As an indication of the growth and extent of the work of the Small Business Administration since its begin ning in 1953, the highlights of 1964 are reviewed. During 1964, the SBA received 17,854 business loan applications--more than in any other year of its twelve- year history. Of these, it approved a record 10,708 loans, totaling 425.8 million dollars. Direct loans accounted for 39.6 per cent; immediate participation loans by SBA, 47.5 per cent; and deferred participation loans by SBA, 12.9 per cent. By way of comparison, during 1963 SBA had received 10,004 loan applications and had approved 4,975 loans totaling $278,202,000. Through December 31, 1964, SBA had approved a cumulative total of 50,754 business loans of all types for 2,441 million dollars.^ 42 U.S., Small Business Administration, 1964 Annual Report of the Small Business Administration (Washington: Office of Public Information, 196$), p. 122. 48 The financial assistance program of the Small Busi ness Administration is financed by a revolving fund. Capital for this fund is provided by Congressional appro priations as authorized in the Small Business Act of 1953, as amended. As of 1964, the appropriations could hot exceed 1,666 million dollars.^ "The unprecedented demand for business loans, and for loans to assist victims of the Alaskan earthquake,1 1 caused a heavy drain on SBA's revolving loan fund during 1964, the SBA stated, and in order to conserve its funds the agency last November curtailed business loans.^ Small Business Investment Act As a result of Congressional awareness that a major problem of small businesses was the difficulty of obtaining long-term financing for plant, equipment, and other expan sion needs, the Small Business Investment Act of 1958 was / O Small Business Act, p. 3. ^1964 Annual Report of the Small Business Adminis tration, loc.cit. However, as a result of an increased allowable appropriation to $1,721 million, approved by Congress, and signed by President Johnson on April 30, 1965, the SBA resumed its normal lending operations (see Small Business Act, p. 3; and 1965 Annual Report of the Small Business Administration [Washington: Office of Public Administration, 1966]). 49 enacted to help solve the problem, . . . by creating a new source of long-term funds for small firms— the privately- or publicly-owned but Government-licensed small business investment company.4^ The basic purpose of the act was to liberalize the availability of credit for small business by encouraging the establishment of private financial institutions to specialize in dealing with small firms. These small busi ness investment companies, commonly termed SBIC's, "are required to make equity capital and long-term loans avail able to small business . "4^ An SBIC may begin operations with a minimum of $300,000 of paid-in capital and surplus, of which up to $150,000 may be borrowed from SBA in exchange for subordinated debentures. After an SBIC has invested substantially all its money in small businesses, it may borrow operating funds from SBA. These loans may total as much as 50 percent of the company's paid-in capital and surplus, but may not exceed $4 million to any one SBIC.47 The 1958 act was sufficiently successful from its inception to warrant extensive but minor changes in 1961, the following being the most important: 4^SBA: What It Is; What It Does, p. 4. 46Federal Handbook for Small Business, p. 3. 47SBA: What It Is; What It Does, loc. cit. The amount that SBA may lend an SBIC through purchase of its subordinated debentures was increased from $150,000 to $400,000. The funds are to be made available by SBA on a matching- dollar basis with funds obtained by the SBIC from private sources, with SBA lending as much as $150,000 for use in meeting initial capital requirements, and the balance of $250,000 as needed by the SBIC for growth requirements. National banks--and other banks to the extent permitted under the applicable state law--were authorized to invest up to two per cent of their capital and surplus in SBIC's, compared with a former maximum of one per cent. SBIC's were authorized to participate on an immediate basis with other investors, incorpor ated or unincorporated, in extending equity or long-term financing to small businesses. This relaxed a previous restriction that SBIC's could participate only with banks or other financial institutions. SBA operating loans to an SBIC were restricted to a maximum of 4 million dollars. Previously, loans were limited to fifty per cent of the capital and surplus of the SBIC. The amend ments also provided that operating loans may be made to licensees only if the funds are not obtainable from private sources on reasonable terms. 5. A ceiling of $500,000 was placed on the amount an SBIC may invest in a single small business, unless SBA authorizes a larger investment. 6. SBA was given more extensive powers to investi gate and regulate the actions of SBIC1s.^ Following a period when doubts and uncertainties plagued the young SBIC industry, combined government action was taken in 1964 to strengthen the operation of these companies. These new measures were as follows: 1. Congress amended the Small Business Investment Act to permit SBA to lend an SBIC up to $700,000 through the purchase of its subordi nated debentures. The maximum amount previ ously had been $400,000. 48 Ibid. 52 2. Congress also removed the limitation of $500,000 on the amount which an SBIC might invest in a single small business. 3. In order to encourage private loans to SBIC's, SBA agreed to guarantee up to the full amount of nongovernment loans to the companies. 4. SBA adopted new standards for licensing SBIC's. Among these standards was a requirement that a company must have at least $300,000 of private capital to begin operations, an amount which was twice as much as it had been in the past. 5. SBA adopted several new regulations designed to give SBIC's greater freedom of action in their investments.^ As a result of these modifications, the outlook for the SBIC industry is brighter than ever before. By the end of 1964, more than 700 SBIC's were in operation throughout the country. These companies have combined assets of approximately 750 million dollars and had invested more than 500 million dollars in some 10,000 4Q ^7U.S., Small Business Administration, Small Busi ness Investment Companies (Washington: Office of Public Information, 1964), p. 4. 53 small firms, including manufacturers, research and develop ment organizations, retailers, and wholesalers.-^ State and Local Development Companies In addition to the small business investment com pany program, the SBA has a second basic but indirect way of providing small business with necessary finances: through loans to state and local development companies, which assist in financing small firms in their areas. These loans may be used "for plant construction, expansion, modernization, or conversion, including the purchase of land, buildings, equipment, and machinery."'*'1 ' The SBA may lend a state development company as much as its total outstanding borrowings from all other 52 sources, "maturities may be for as long as 20 years." The interest rate is five per cent, "except that SBA will • « charge only 4 percent when the development company uses the funds for long-term loans in areas of substantial unemploy- 53 ment," and provided the development company passes along 50 1964 Annual Report of the Small Business Admin istration. p. 4. -^Federal Handbook for Small Business, p. 4. 52Ibid., p. 3. 53Ibid. 54 to small firms the benefit of the reduced interest rate. * Like the small business investment company program, the loans through state and local development companies was started in 1958, and modified and made more effective in 1961. By 1964 the SBA's local development company loans had become an effective part of the Johnson Administra tion's campaign against unemployment and other problems of economically depressed areas. As the SBA pointed out: The program is a local, self-help activity. It emphasizes community leadership in financing new and expanding small business concerns as a basis for healthy and sustained economic growth.54 An all-time high was reached during 1965 in the local development program, with 200 loans amounting to 30.7 million dollars being approved. During the preceding year, SBA had approved 115 loans amounting to 18.2 million dol- 55 lars. One of the results of the program is that SBA announced that 7,800 new jobs had been created during 1964, many of them in economically depressed areas. Since the inception of the program in 1958, about 23 per cent of SBA's loans to local development companies 54 1964 Annual Report of the Small Business Admin istration. p. 35. 55Ibid., p. 36. 55 have been made in the Appalachia region. These loans, amounting to 13 million dollars, created projects with a total cost of 25 million dollars and provided more than 7,500 new jobs. From 1958 through the end of 1964, SBA had approved a cumulative total of 575 loans to local development com panies, amounting to 82 million dollars. This assistance provided direct employment for 28,000 people in addition to an undetermined number of jobs which were created indirectly through construction and other related activi ties. ^ Management Assistance 57 As stated above, in addition to making loans to small businesses, helping in the event of disaster, and assisting in the procurement of government contracts and subcontracts, a fourth function of the SBA as it was originally conceived was to aid small businessmen in 58 strengthening and improving their management, both at 56Ibid., p. 38. Supra. p. 31. ~*^SBA: What It Is; What It Does, p. 11. 56 the time of starting their new business and during its development and operation. When the SBA was originally organized in 1953, this program was initiated in order to strengthen one of the weakest elements in small business: management.59 In one of its brochures, SBA stated: . . . lack of information on effective, up-to- date methods of management is a major drag on the progress of many--perhaps most--small business concerns. . . . the typical small business operator is not able to hire expensive consultants or employ specialists on management methods as members of his own staff. . . . However, for the health of the economy, small concerns are needed: They lessen economic and political control by big business, contribute to reasonable prices, diversify employ ment opportunities, and provide sources of new products and methods. . . . And here is where the Small Business Administration enters the picture. A good definition of SBA's place might be this: An agency of the Federal Government designed to help small business owners to help themselves.60 In line with these objectives, four areas of management assistance are provided: help with specific problems, management courses, publications and research. 59 Dun and Bradstreet analysts maintain that manage ment weaknesses cause over 90 per cent of all business bankruptcies. 60 U.S., Small Business Administration, SBA Manage ment and Research Assistance (Washington’ .Office of Infor mation Services, October, 1962), p. 5. 57 Help with specific problems "Staff specialists in SBA field offices counsel small businessmen on specific management problems in response to letters, telephone calls, and personal vis its. It has been found that many owners and managers of established businesses have particular management prob lems with which they want assistance on a personal basis and as quickly as possible. These businessmen have learned to seek special advice from the Small Business Administration, both through the Washington, D. C., head quarters and its sixty-eight field offices. During 1964, for example, the SBA gave individual counsel to 29,000 small businessmen. This was a sixty per cent increase over the number in 1963, when 18,000 businessmen were aided by 69 counseling activities. From the beginning of the program, the SBA has encouraged larger firms to assist their small business customers and suppliers in improving their management. As an outgrowth of this, during 1964 the Small Business Administration reported the establishment of a Service 61 SBA: What It Is; What It Does, p. 11. ^ 1964 Report, p. 15. 58 Corps of Retired Executives (SCORE), through which former business and professional men voluntarily guide and help small business owners and prospective small businessmen. SCORE was inaugurated by the SBA on October 5, 1964. Within 2 months, more than 3,800 retired executives from coast-to-coast inquired about the program or volunteered to serve. As of the end of December of last year, almost 2,000 SCORE volunteers were aiding some five hundred small businessmen with their problems.^3 An example of the kind of help offered by SCORE was reported by SBA. A carwash business in Utah which was experiencing difficulties was helped by a SCORE volunteer who had been controller of a national company and president of another firm. The small firm's problems stemmed from inadequate records and controls, and high labor costs. Ways to reduce fixed and variable expenses and to develop closer controls and more effective advertising were among the volunteer's recommendations.^4 According to the SBA report: t SBA spends almost nothing on the new SCORE program. . . . A retired adviser serves as an 63Ibid.. p. 25 64Ibid. 59 unpaid SCORE volunteer for 90 days; after that he and the small business owner may come to some agreement for remuneration if they wish to make such arrangements.65 SCORE volunteers work especially with small businesses in the "under 25 employees" category. These are firms which normally cannot afford professional consulting services. Management courses When the dissemination of management information was first undertaken by SBA, arrangements were made with a number of leading educational institutions "to present a program of helpful administrative management courses." The tremendous response by the small businessmen has led SBA to expand the type and the scope of the courses offered. Courses vary in length from one-day workshops to full-time college and university courses. The general practice, regardless of the size or duration of the course, is for SBA to cosponsor the education with universities and colleges, high schools, professional and trade associa tions, chambers of commerce, distributive education and other business groups. 65Ibid. , p. 26-. ^ Federal Handbook for Small Business, p. 8. 60 The interest among small businessmen and business women in furthering their management education is shown by the fact that, during 1964, nearly 28,000 of them attended 866 cosponsored courses in basic management--a record high. Topics of some of the courses reveal the breadth of infor mation covered: "Executive Thinking--Planning--Action," "Labor Relations for Ovgiers and Managers," "Developing International Business," and "How Small Business Can Out sell Its Large Competitors." An average of thirty small businessmen attended each of SBA's cosponsored courses during 1964. One of the reasons why SBA cosponsored more ad vanced courses during 1964 than it had previously was because of the vital importance of continuing management education. Advanced courses comprised about 52 per cent of SBA's cosponsored courses during 1964 as compared with only 41 per cent in 1963. In these advanced courses, management problems are discussed and analyzed in detail. At the same time, interest in management "confer ences," especially one- and two-day sessions, usually limited to a single subject, increased greatly in 1964. This increase in interest was shown by the fact that SBA held 293 conferences for small business owners and managers 61 throughout the country in 1964. These were attended by 34,000 interested businessmen. In contrast, only 19,400 attended the 161 conferences held during 1963. In addition, one-day workshops are held by the SBA to assist prospective small businessmen. The reason that these were initiated by SBA was its realization that inadequate preparation and analysis too often cause bank ruptcies among small firms. As the SBA stated: The problems connected with starting and man aging a small concern are far more complex today than they were a generation ago. Today, frequently only the well-informed, forward-looking small firm owner, who has the essential information and the ability to apply it in making sound decisions, can stay in business.^7 SBA's workshops for prospective small businessmen and women present the fundamentals of good management methods. The need for technical and managerial experience and for thorough knowledge of financial, legal, and tax requirements are emphasized at these workshops. During 1964, SBA's 176 workshops, held in 65 cities, were attended by nearly 5,000 would-be businessmen.®® 67 SBA Management and Research Assistance, p. 5. ^ 1964 Annual Report, p. 45. Publications Management assistance is also provided for small business firms through several series of publications, including some that are sent out without charge and others for which there is a small fee: Free series: 1. Management Aids for Small Manufacturers 2. Small Marketers Aids 3. Technical Aids for Small Manufacturers 4. Small Business Bulletins 5. Management Research Summaries For sale series: 1. Aids Annuals 2. Small Business Management Series 3. Starting and Managing Series 4. Small Business Research Series**9 During 1964 nearly 5.5 million management publica tions were distributed by the SBA. Among the many titles were "Accounting and Financial Data for Small Retailers," "Long-Range Planning for Small Business," "Pointers for Developing Your Top Assistant," "Financial Facts Which 69SBA: What It Is; What It Does, pp. 12-13 63 Lenders Require," "Starting and Managing a Small Restau rant," and many others.^® Research Traditionally, small business has not been able to engage in time-consuming, costly research projects that big business can finance in a routine fashion. The Small Business Act of 1958, therefore, established the basis for a SBA management research grant program. Its main objective is to provide small business owners--through research projects conducted by public and private agencies--with new information which will help them in managing, financing, and operating small enterprises. Its secondary goal is to provide new information in support of SBA's other management assistance programs.^ By the end of 1964, some 105 grants to educational institutions and state government units had resulted in the publication of 224 research reports. SBA summaries of the reports were sent to more than 28,000 persons and organizations. All summaries are available upon request, while copies of the full-length report may be obtained from the grantee, usually for a small fee. An example of a ^U.S., House, Committee on Appropriations. Hearings on Department of Commerce Appropriations for 1964. 88th Cong., 1st Sess. ^ SBA Management and Research Assistance, p. 11. 64 research study financed by such a grant is "New Small Business in a Redevelopment Coal Area in West Virginia," undertaken by Marshall University, in West Virginia. As the Small Business Administration explained, . . . these sthdies have . . . provided lawmakers with data and background information in planning legislative measures, provided educators with information for use in training courses, and have served as a basis for new training programs in SBA and privately operated o r g a n i z a t i o n s . ^ Summary By way of summarizing the material presented about SBA’s management assistance programs, the 1964 Annual Report gave interesting and pertinent data: New business incorporations, mostly of small firms, increased to an all-time record of 198,000 in 1964, compared with a previous high of 193,000 in 1959. As compared with the figures for 1963, the 1964 figure represents a six per cent increase. Sales of corporations in the million-dollar-and- under category (small firms) totaled $56.9 billion dollars in 1964, or three per cent 72 Ibid., p. 15. 65 above the previous year's figure. Net profits after taxes for corporations in the under-one-million-dollar bracket increased to 1.3 billion dollars in 1964, a gain of forty- one per cent over the preceding year. The number of business failures, which occur chiefly among small firms, declined to 13,051, 7 3 the smallest number since 1956. The 1964 Annual Report also noted: Each Small Business Administration management assistance program was improved and expanded in 1964, to help small businessmen build better, more profitable enterprises,74 By way of substantiation, the report quoted this statement by the president of a Baltimore firm: The course in Government contract administra tion was valuable inasmuch as we had a complete lack of knowledge on working with the Federal Government. It enabled us to look into some Government contract business which we have suc cessfully completed or are completing.7- * Congressional Committees Not even a brief history of the Small Business Adminis- ^ 1964 Annual Report, p. 46. 74Ibid., p. 45. 75Ibid. 66 tration should omit reference to the work of the Senate and House Small Business Committees. These Congressional committees were established in 1940 and 1941, respectively, and both have served in a "watchdog" capacity ever since. In carrying out their "friend-of-small business" role, these committees have held hearings on countless topics of vital concern to small business, to determine the need for legislation. The organization of the Small Business Administration in 1953, and subsequent legislation such as the Small Business Investment Act of 1958, have been largely the result of these committees' recommenda tions. They have conducted frequent reviews of the opera tions of the Small Business Administration and have been especially interested in government procurement assistance for small business. In 1964, both the House and Senate Small Business Committees were concerned with the problem of "dual dis tribution." As the Small Business Administration noted: In the years since World War II, an increasing number of large companies have expanded operations through vertical integration. Large manufacturers have integrated forward into secondary manufactur ing and the distribution field, while large dis tributors have integrated backward into manufac turing. This vertical entry and expansion into 67 related fields has made many large firms competi tors of some of their own customers and/or suppli ers. In this respect vertical integration and dual distribution are virtually synonymous. The practice of dual distribution has led to great friction between small independent firms and their larger competitors, with the smaller firms being subjected to supply or price squeezes and loss of markets. After holding hearings, Subcommittee No. 4 of the House Small Business Committee made a number of recommenda tions. Chief among these were that Section 5 of the Fed eral Trade Commission Act, which prohibits unfair trade practices, should apply to dual distribution, and that appropriate legislation to this end should be enacted. Economic Opportunity Act of 1964 Ba ckground While Lyndon B. Johnson was. still a Senator, he declared on the floor of the Senate several years ago that small business was "more important than ever before in dur history." He continued: I think it is clear that the place of the small, independent businessmen in our changing economic picture deserves attention from other segments of the economic household. It deserves 76 National Industrial Conference Board, Business Record (Washington: May, 1960), p. 6. 68 this attention, I think, because there lie in this important sector of our economy the answers to some of the problems in other segments of our 77 economy.• ' The Chairman of the House Small Business Committee, Joe L. Evens, who was quoting Senator Johnson, added: "For instance, if a majority of small firms could employ even one additional worker, our unemployment, now on the order 70 of some 3.4 million persons, would be drastically reduced.' There is a rather substantial quantity of litera ture devoted to the nature and nurture of the "small, independent businessmen" to whom Johnson referred. Small business has been defined variously as business hiring fewer than 150 people, as having maximum assets of between one and three million dollars, as grossing in the neighbor hood of a million dollars a year or less, or as a business whose credit requirements are too small to interest either 79 the investment bankers or the national security markets. 7^U.S., House, Small Business Committee, Hearing: National Small Business Week, 1965, 89th Cong., 1st Sess., May 4, 1965, pp. 13. 78Ibid., pp. 13-14. 79 U.S., House, Committee on Education and Labor, Subcommittee on the War on Poverty Program, Hearings: Economic Opportunity Act of 1964, 88th Cong*, 2d Sess.f , April 15, 16, 17, 20, and 21, 1964, p. 897. Some of the fiscal problems facing small business, as defined in testimony before the Select Committee on Small Business and the Committee on Banking and Currency, as well as in the wider literature, may be summarized here rather succinctly: 1. Adequate free market sources of credit and capital for small business have not developed to the extent needed. 2. Despite this lack, much small business has been able to secure credit and capital, although usually it is in a form which is relatively expensive, restrictive, and less flexible than that available to larger firms. 3. The major sources of funds for small business are: (1) trade sources--estimated at more than haIf--and short and intermediate term loans from (2) commercial banks. The latter form often serves as a source of long-term credit through renewa1. Purpose In his message to Congress on March 16, 1964, President Johnson outlined his concept of the steps 70 necessary to wage a "war on poverty." Although the Presi dent touched on many areas and aspects of poverty, for purposes of this Chapter those sections of the Economic Opportunity Act of 1964, which Congress passed as a result of Johnson's outline, and which dealt with small business, will be stressed here. The Congressional result of the President's concept was, in part, an extension of the Small Business Act of 1953, and its amendments, and of the Area Redevelopment Act. In the "Declaration of Purpose" of the new act, Congress said: It is therefore the policy of the United States to eliminate the paradox of poverty in the midst of plenty in this Nation by opening to everyone the opportunity for education and training, the opportunity to work, and the opportunity to live in decency and dignity. It is the purpose of this Act to strengthen, supplement, and coordinate efforts in furtherance of that policy. Title II A basic phase of the Economic Opportunity Act was the provision for Community Action Programs to eliminate poverty and its causes. As part of such programs, Small 80 U.S., Senate, Committee on Labor and Public Welfare, Select Subcommittee on Poverty, The War on Poverty. The Economic Opportunity Act of 1964: A Compilation of Materials Relevant to S. 2642. 88th Cong., 2d Session, July 23, 1964. 71 Business Development Centers were planned by the SBA, the primary function of which was the development of new busi ness opportunities to aid community growth. As the SBA explained: Typically, the SBDC has a board of advisers, representing the community's business and trade associations, professional societies and labor organizations, the community college or univer sity, minority groups, churches, and human rela tions councils, the local government and SBA. The Advisory Board proposes ideas for economic development and the staff professionals implement them. The representatives of the educational institution and SBA may help develop ideas and place them in operation. The Advisory Board also helps publicize the availability of the war on poverty loans, aids in finding qualified borrowers, and may be called upon by SBA to judge the credit-worthiness of applicants . . . SBDC's are eligible for grants from the Director of the Office of Economic Opportunity.®^- The stated desire of the Small Business Adminis tration was that the loans authorized under the Economic Opportunity Act should be more than just a piece-meal attack on poverty. The SBA believed that significant community involvement was necessary and felt that fledgling businessmen must be given management counseling and train ing. *^1964 Annual Report, pp. 59-60. 72 In all cities with Community Action Programs, the SBDC will work in close conjunction with the local CAP, which may provide the necessary admin istrative help. Where there is no CAP, the SBDC will seek financial help from private and public organizations and foundations. Title IV Title IV--Employment and Investment Incentives of the Economic Opportunity Act of 1964 was divided into Part A--Incentives for Employment of Long-Term Unemployed Per sons and Part B--Small Business Loans. Under Part B, SBA may make loans to established or prospective small business concerns as a means of increas ing business and employment opportunities in economically distressed areas. The agency may lend up to $25,000 to a single borrower, for a maximum term of 15 years. When a bank joins with the agency in a loan, and SBA provides its share immediately, the limit on SBA's share is $25,000 or 90 per cent of the loan, whichever is less. When SBA guarantees the loan, it may guarantee the full amount. If a participation loan cannot be arranged, the agency will 80 U.S., Congress, House, Committee on Education and Labor, Subcommittee on the War on Poverty Program, Exam ination of the War on Poverty Program: Hearings. 89th Cong., 1st Sess., April 12, 13, 14, 15, 29, and 30, 1964, p. 121. 73 consider a direct government loan. Thus Title IV was needed not because the Small Business Administration had failed, but because its parent legislation was not designed to handle the hard-core prob lem. "Remote decentralization" in administrative program ing will provide new solutions to old, and heretofor underemphasized, problems. Assistance loans, called Economic Opportunity Assistance (EOA) loans, must be consistent with the broad aims of the Economic Opportunity Act. Loans may be made to individuals in the marginal economic class, to small busi nesses which will provide jobs for unskilled workers, or the long-term unemployed, or to small businesses which in some other way will be contributing to the overall attack on the roots of poverty. EOA loans will be made by local SBA offices to individuals desiring to purchase or start a new small busi ness or to small businesses which need capital to strength en or expand their existing operations. The loans will be made under more liberal credit standards than are used in any other SBA lending program. While the applicant must show reasonable likelihood of repaying the loan, many con ventional tests for evaluating credit risks will not be 74 used in this program. SBA will take whatever collateral is available, but loans may be made in the complete ab sence of collateral. No EOA loans will be made to any individual or business which has the credit standing to obtain funds from private sources or other government sources on reasonable terms. The loans will mature over a maximum period of 15 years. Interest will be at the rate of 5.5 per cent per year, although it may be as little as 4 per cent in designated depressed areas. While there are few restrictions on the types of businesses which can qualify for EOA loans, it is antici pated that the large majority of applicants will be very small retailers and service operators. The $25,000 loan limit will preclude EOA loans from effectively assisting 81 much larger concerns.01- As a corollary, the SBA stated that it is widely accepted that most small firms which need financial aid also need management assistance. This, the SBA felt, would be especially true of those receiving EOA loans. For that 81 U.S., Small Business Administration, Economic Opportunity Loans for Small Business: Small Business Devel opment Centers (Washington: Government Printing Office, May, 1965), p. 3. 75 reason, applicants will be required to show management capability. When the applicant's management background is inadequate, he will be required to undergo management training, either before the loan is made or immediately thereafter. EGA loans will be made by all SBA field offices, but they will be made only when the necessary management assistance can be provided to loan recipients. In some cases, this assistance may be available directly through SBA or the one-to-one counseling provided by SBA's volun teer Service Corps of Retired Executives. In other cases, broader community support will be required. Wherever pos sible, existing resources within the community will be utilized. Tiny businesses Beyond the difficulties with capital and credit limitations faced by small business, as traditionally defined, the tiny businesses, which desperately need the services of the proposed SBDC, confront the following problems: 1. Short and medium term credit is too often not available to them on any terms from commercial 76 banks. When it is, the terras and collateral requirements are excessively restrictive. This seems to be particularly true in the Negro and Mexican-American communities. 2. Credit from trade sources is generally not available to Negro and Mexican-American entrepreneurs. 3. Since banking and trade sources are generally more available to Caucasian businessmen oper ating within the Negro and Mexican-American "poverty pockets," a differential is imposed which approximates restraint of trade, based not only on experience but race as well. 4. Like many other middle-class skills and atti tudes, management skills are more obviously lacking in members of culturally deprived groups than in the average American small businessman. Inquiry has uncovered, however, a remarkable perseverance by many in tiny business situations. Summary Significantly, the small business sector of the American economic complex is expanding. Of more than 4.9 million businesses in the United States in 1964, some 4.7 million, or 96 per cent, were classified as small firms. This is 60,000 more than the preceding year's total. In summary, it may be said that the knowledge acquired about small business since World War II has 82Ibid., p. 243. 77 generally been drawn from a kind of business situation almost entirely different from that which will confront SBDC. The new program will provide, through the SBA, low interest loan capital--often where an equity position would normally be called for— to unseasoned, high risk businesses requiring intensive and long-enduring management training, consultation, and monitoring. Summary In this chapter the attempt has been made to capsulize how the Small Business Administration began, how it has grown, and how it functions, emphasizing both its mechanics as it issues loans and the range of its activi ties. Clearly, the agency supplies an instrumentality through which direct assistance to small businesses may be administered. On the other hand, it has been shown that the program originally did not reach the truly poverty-stricken individual nor the hard-pressed small businessman with insufficient collateral to support a loan. This lack has been partially overcome by the Economic Opportunity Act of 1964. Chapter III initiates a description, which is car ried further in succeeding chapters, of means whereby the 78 SBA can assist the hard-core poor as well as the marginal businessman. Specific emphasis is given to Title II of the Economic Opportunity Act of 1964, under which community involvement in the execution of the program is featured. CHAPTER III THE COMMUNITY ACTION PROGRAM This chapter describes the major functions of Title II of the Economic Opportunity Act, stressing the reliance on a decentralized, community-based structure. Because of conditions that, in various combinations, coalesce to pro duce and entrench poverty, widespread community mobiliza tion is shown to be a vital goal. The local agencies’ basic functions.of organization at the neighborhood level, and of determining the most important needs of the poor, are outlined. The Office of Economic Opportunity's aware ness of both the needs and the dangers of local agencies is also discussed, with examples of its powers to meet such demands. j i . This chapter also explains the procedural steps that have been taken to insure democratic representation of the poor on local boards. The Community Action Program Guide1s recommendations to this end are cited, as well as 80 techniques often employed by agencies to stimulate interest and participation among members of the community. Introduction It is well-known that there is no single cause of poverty. Thus there is no simple solution. Poverty is rooted in a network of social and economic problems, which include inadequate education, unemployment, poor health, bigotry, dilapidated housing, and the lack of equal opportunities. Historically a great deal of effort and a substan tial quantity of public and private funds have gone into individual and separate attacks on poverty, but often these efforts have dealt with effects rather than causes. In case after case, the fight against poverty by individual agencies pursuing separate approaches has demonstrated the need for an interlocked, coordinated attack against the causes of poverty. A family living in a hovel more often than not needs medical attention. The head of that family cannot become a wage earner unless he can be employed. His ability to make adequate use of educational opportunities may be hampered by problems of health. It is unrealistic to think that a single approach, or even a number of separate 81 approaches, can be effective in helping the hard-core poor to move into the mainstream of American life; a successful attack on poverty calls for a coordinated attack against a series of causes. An Interpretation of Title II By enacting the Economic Opportunity Act of 1964, Congress expressed a basic understanding of the nature of poverty and established the guidelines for attacking it. These clear and realistic guidelines call for a- mobiliza tion of resources, for programs of sufficient scope and size to give promise of progress toward the elimination of poverty, for participation of the poor in the resolution of their own problems, and for local administration. What is meant by "mobilization of resources?" As intended by the Economic Opportunity Act, this means the bringing together of human and financial resources in order to launch and sustain a coordinated attack on the causes of poverty. The mobilization of resources is no simple task. It calls for the development of local organizations with the commitment, power, and prestige to link business efforts. Consequently, the Office of Economic Opportunity has given preference to broadly-based agencies seeking to 82 carry out coordinated antipoverty programs. This policy is based on the belief that such agencies, and such programs, are most likely to achieve successful mobilization of all community resources in an attack on poverty. According to Title XI of the Economic Opportunity Act, broadly-based community action organizations are charged with coordinating these resources on a local level, assuring continuity and cohesion in services to the poor, reducing the numbers of poor people who traditionally have fallen through the gaps in service, and eliminating dupli cation and waste occasioned by the traditional, independent, and separate actions of agencies. This coordinated effort is needed because separate and independent agencies often have had separate and independent rules for determining whom they will assist, and large numbers of the poor never have received the full range of help needed so that they could move out of poverty. The welfare recipient, for example, may not have gotten the legal help he needed or the consumer education which would help him make maximum use of his welfare check. In many localities, no organiza tion has helped the hard-core poor find and use the variety of business resources which alone will spell the difference between dependency and self-sufficiency. The lost poor 83 have been the hard-core poor. Under the new community action program, a local public or private organization is responsible for seeing that poor people do not fall between agencies, their needs going unnoticed and unheeded. The basic responsibility is not to other agencies but to the poor people themselves. With the new Congressional mandate, it can be held respon sible for developing and coordinating programs which are truly responsive to all the needs of the poor, without any prior commitment to providing particular kinds of services. Title II of the Act also stipulates that local community action programs should be of "sufficient scope and size to give promise of progress toward the elimination of poverty or a cause or causes of poverty . . . This commitment to large-scale efforts to help many poor people necessitates the development of machinery to launch and coordinate a multipronged attack. Reflected in this word ing is a basic understanding of the complexity of dealing with the causes of poverty. Scope means the meeting of the numerous needs of poor people. Section 202 of the Act U.S., Congress, The Economic Opportunity Act of 1964, Public Law 88-452, 88th Cong., 2d Session, Title II, Part A, p. 9. 84 calls for particular attention to such a variety of needs by listing some of them: "developing employment opportuni ties, improving human performance, motivation, and produc tivity, or bettering the conditions under which people live, learn, and work." No single-purpose project alone can provide the variety of necessary services listed. Finally, Title II calls for the development and administration locally of the programs. It was not the intention of Congress to create a federal czar, single- handedly administering a monolithic nationwide program. £ Community action programs were envisioned as a means through which the federal government could assist local communities and local governments to strengthen themselves by dealing more effectively with problems that differ from one locality to another. In response, many local independ ent agencies expressed a desire to participate in the War on Poverty. However, the limitation of funds available to any one jurisdiction requires the existence of a local organization to identify the most pressing needs of poor people and, furthermore, to develop priorities for the implementation of programs. 2Ibid. 85 Determining the priorities should not be a federal responsibility, it was felt, because such decisions depend upon local conditions. In some of our larger metropolitan areas more than 250 applications have been filed by local independent organizations with the Office of Economic Opportunity. Yet the centrally-based Office cannot intel ligently review and process grant applications from all groups which seek to serve the poor. Thus another value of a community action organization resides in its ability to assume a wide and necessary responsibility for setting priorities in the light of local conditions and with the participation of the local poor. The Act provides flexibility for communities in the development of community action agencies. They may be public, private, nonprofit, or a combination thereof. The Community Action Program Guide stated that a community action agency, developing a coordinated program, must pro vide ample policy-making opportunity for three different groups : 1. The major public and private agencies responsi ble for services and programs concerned with poverty. 86 2. The leadership of important elements in the community such as labor, business, and minority groups. 3. Poor persons to be served by the community action program.^ Broadly-based support from all of these groups affords the community action agency a real opportunity to mobilize and coordinate a variety of resources to attack those problems which the poor themselves feel are the most oppressive. This approach holds out the possibility of involving all elements of the local community in a coordi nated attack on the causes of poverty. While the Office of Economic Opportunity supports the development of broadly-based community action agencies, it is aware of the dangers inherent in supporting any organization which exclusively has jurisdiction in a community. A community action agency might develop bureau cratic attitudes or institutional predispositions to down grade or stifle creative programs and groups which it views as threats to its own existence. It might be reluctant to 3 U.S., Office of Economic Opportunity, Community Action Program Guide: Vol. I. Instructions for Applicants (Washington: February, 1965), p. 23. 87 permit effective participation of all groups capable of serving effectively the interests of the poor. A community action organization is, however, required by the Office of Economic Opportunity to be broadly representative of the community. Effective representation is required for public agencies, private groups, including minorities, and finally, for the poor themselves. Such representation tends, of course, to reduce the likelihood of such abuse.4 If such abuse should occur, the Office of Economic Opportunity is not without power under the present statute to insist upon mobilization and utilization of additional resources which give promise of progress toward the elim ination of poverty as a cause or toward the cure of pov erty. It can stipulate that future applications and pro grams must mobilize existing resources more effectively, or must include programs previously not applied for, or must use the services of an agency whose proffered assistance has been ignored. Moreover, the Office of Economic Opportunity can, and is prepared in appropriate cases to, make grants to 4Ibid., p. 17. single-purpose agencies even where an overall community action agency has been recognized. Grants to single-pur pose agencies will be made in any case in which it is found that a community action agency has withheld its support from a proposal for reasons which are arbitrary or inimical to the needs of the poor. The Office of Economic Opportunity will not countenance the stifling of innova tion, or the discouragement of programs that give the poor an effective voice. Moreover, grants to single-purpose agencies will be made when the formation of a community action agency appears to be impracticable or delayed. Finally, grants to single-purpose agencies will be made--as in Project Head Start--whenever there is substantial prom ise that the single-purpose program will provide the gene sis for true community action. Where community action agencies do exist, the possibility of funding a single-purpose organization is viewed by the Office of Economic Opportunity as an impor tant way to help community action agencies remain true to the general purpose of the Economic Opportunity Act. In practice, the very possibility of making a separate grant to a single-purpose agency has sometimes provided a power ful lever for making a community action agency more 89 C responsive to the needs of the poor. Participation of the Poor All community action programs must be "developed, conducted, and administered with the maximum feasible participation of residents of the areas and members of the groups served."^ This injunction, expressed in the original administration bill in words identical to those in the present Act, distinguishes the Community Action Program from virtually all prior programs--state, local, or feder al. It demands that community action agencies provide ways for the poor to play a significant role in the design and operation of programs designed to break the cycle of poverty. The reasons are clear. Past efforts to provide pathways out of poverty have not succeeded. Experience suggests that: 1. The poor have not responded to the paternalism of those who serve them. 5 Ibid., p. 18. £ The Economic Opportunity Act of 1964. Title II, Part A, Section 202 (a) (3), p. 9. 90 2. The professionals and the experts do not know fully either what the poor require or how they may be reached. 3. The poor will not rise to the sense of dignity and self-worth needed for self-dependence unless they are treated less as clients or cases and more as partners. The "maximum feasible participation" of the poor in community action is an attempt to solve these short comings. It is based upon neither a sentimental view of the poor nor an abstract theory of social action. Its purpose is, simply, to make the War on Poverty successful. There is no single formula for participation of the poor. Although efforts are being made in many different ways in community action programs all over the country, no firm conclusions are possible at this early stage. It is, however, becoming increasingly apparent that maximum par ticipation can not be effected by one specific and rigid formula but must be achieved through a variety of devices appropriate to the individual community program. Consequently the Community Action Program Guide suggested a multi-faceted approach to the involvement of the poor: Resident participation. The Economic Oppor tunity Act requires that a community action program be developed, conducted, and adminis tered with the maximum feasible participation of the residents of the areas or neighborhoods in which the program will be carried out and of the members of the groups that it will serve. Among the means to ensure the partici pation of residents of the areas and the mem bers of the groups served are: a. Representation on the policy-making body and appropriate advisory boards of the community action agency. b. Use of existing and neighborhood organiza tions and the creation of new representa tive neighborhood organizations for advice on program policy and, where appropriate, for actual conduct and administration of elements of neighborhood-based programs. c. The provision of meaningful opportunities for residents, either as individuals or in groups, to protest or to propose additions to or changes in the ways in which a community action program is being planned or undertaken. d. Employment, to the maximum extent feasible, of the residents of areas being served in jobs created as part of the community action program itself. Such jobs should include positions which allow residents to influence the ways in which policy decisions are made and carried out, as well as jobs in which special advantage can be taken of the residents’ knowledge of and familiarity with the area. Such employment opportunities should be maxi mized through the identification of tasks not requiring professional status. e. Other methods and approaches for involving the poor include: (1) Formation of a ’ ’ grass-roots involvement" committee to focus attention on prob lems and methods of involving the "hard-to-reach” poor and to evaluate 92 the effectiveness of the approaches adopted. (2) Surveys conducted by neighborhood workers. (3) Surveys conducted by organizations concerned with poverty. (4) Formation of citizen forums. (5) Formation of block clubs. (6) Block elections, petitions, and refer- endums. (7) Newsletters to neighborhood leaders and potential leaders. (8) Neighborhood newspapers. (9) Promotional techniques, including use of films, literature, and mobile units operating from information centers. (10) Meetings of neighborhood groups with civic and political leaders. The requirement of resident participation applies to all stages of a community action program, from its inception on. Achievement of meaningful participation shall be a contin uing objective of every community action program, since it is through their own effec tive participation that the residents and groups to be served can most readily achieve the objective of a permanent increase in their capacity to deal with their own problems without further assistance.^ The first five months after the Economic Oppor tunity Act was passed, participation of the poor was extensive. According to Sargent Shriver at a Senate sub committee hearing, 144 community action agencies have more than 1,400 representatives of poverty areas on their ^U.S., Office of Economic Opportunity,op. cit.. p. 16. 93 governing boards or policy committees. These boards or committees have more than 1,000 representatives from the minority groups (Negroes, Indians, Puerto Ricans, and Mexican-Americans) in which poverty is concentrated. More than 450 neighborhood councils have been formed in poverty areas to provide advice and review of neighborhood pro grams, and more than 16,500 people living in poverty- stricken neighborhoods are serving on these councils. In addition, more than 5,300 poor people are employed or will be employed in program jobs which have been funded and which will contribute to their long-term potential for self-support.8 Governing Boards and Advisory Councils Representation from poverty neighborhoods The Community Action Program Guide sets minimum standards for broadly-based community action groups. In describing the means for assuring involvement of the poor it requires that representation on the governing body of a 8 U.S., Congress, Senate, Committee on Labor and Public Welfare, Select Subcommittee on Poverty, Expand the War on Poverty. Hearings, 89th Cong., 1st Sess., pp. 188-190. 94 community action agency or on a policy advisory committee shall include: Representation from residents of the areas and members of the groups to be served, including at least one representative selected from each of the neighborhoods or areas in which the community action program will be concentrated. In the selection process, there should be maximum pos sible involvement of the groups and persons to be represented. The selection process should be designed to encourage the use, whenever feasible, of traditional democratic approaches and tech niques such as group forums and discussions, nominations, and balloting. This will minimize the possibility that a representative does not command the support or confidence of the group or area that he represents.^ This policy became effective with the issuance of the Community Action Program Guide in late March, 1965, and applies to all prior grantees. By May 15, 1965, every community action agency receiving money from the Office of Economic Opportunity had submitted a plan for meeting the regulation that requires governing bodies or policy advis ory committees to include representatives of the areas and groups to be served by their programs. This policy concerning representation of the poor on governing bodies reflects the evolution of the policy of 9 U.S., Office of Economic Opportunity, op. cit., p. 18. 95 the Office of Economic Opportunity on the basis of early program experience. During the initial months of the program, a general approach--with few specific require ments --had been taken toward the participation of the poor. Most of the early grants had provided only for program development, and required grantees to develop a proposed approach to both (1) the organization of the Community Action Agency and (2) the participation of the poor. One of the results of this early experience had been to place greater stress on representation of poverty areas on action boards and committees. The composition of governing boards for community action agencies are now being reviewed in terms of the Program Guide. Each agency has been asked to describe the manner in which it now meets or plans to meet the minimum standards for representation. Representation from minority groups Special effort has to be directed toward the problem of minority representation on governing bodies and policy advisory committees. Procedures for achieving representation for minority groups also help to assure a voice for the target group. In most communities an 96 effective spokesman for the Negro, Mexican-American, Puerto Rican, or Indian minority will represent the poor in that community, The Office of Economic Opportunity has taken care to assure that minority members of governing boards can appreciate and speak for the particular problems of their ethnic groups. With respect to representation on governing boards and policy committees of broadly based organizations, the Community Action Program Guide provides that: .... Particular attention should be paid to ensuring adequate minority group representation in cases where minority group members comprise a large proportion of the population of the ''target'1 areas or groups selected for the community action program. The policy stated by the Guide has been the policy of the Office of Economic Opportunity from the beginning. Al ready, the Community Action Program has provided for more participation of minority groups at the policy level than any other federally-financed program. Methods for Involving the Poor The history of the development of organizational theory is a chronicle of the endemic battle that rages 10 Ibid., p. 18. 97 between the advocates of the autocratic versus the partici pative approach to human organization for goals setting and achievement. Most of the accepted organizational theories of today stand somewhere in the middle ground between the opposite poles of this theoretical continuum. In its insistence upon maximum involvement of the poor in the planning and conduct of community action programs, the Congress of the United States has taken a giant step in the direction of the participative approach. In the process it has opened up a "Pandora's Box," which threatens to disequilibrate the established order of things. The focus is on federal, state, and local relationships, the role of the United States Congressman as a grass-roots elected official, the historic idea of home rule as an essential of a free society, and the supremacy of the bureaucracy in governmental organizations of size. In its insistence upon meaningful participation of the poor, Congress has posed a threat to the traditional approach to organization for the rendering of governmental services in the urban areas of the United States and seems to have steered a course in the direction of the views of Saul Alinsky, who was termed "the professional radical" in an article bearing that title in the June, 1965, issue of 98 Harper's Magazine.^ Alinsky is quoted as saying, "A democracy lacking in popular participation dies of paral- . ,,12 ysis. In his article, "From Citizen Apathy to Participa tion," written twenty years ago, Alinsky blueprinted a design for militant peoples' organizations which would translate "the despair born of frustrations, hopelessness, 1 1 and apathy," into fruitful action. While the organization Alinsky has reference to is the urban neighborhood and not the prototype organization of the large business corporation or governmental agency, the organizational theory issues are the same. In the parlance of the professional organizational theorist, the "bottoms up" approach, or maximum participation of those at the lower levels of the organizational hierarchy is analo gous to the community action leader's "involvement of the poor." The emerging interdisciplinary science of urban 11 "The Professional Radical," Harper's Magazine. June, 1965, pp. 37-48. 12 Ibid., p, 31. 13 Saul D. Alinsky,"From Citizen Apathy to Partici pation" (paper presented at the Sixth Annual Conference Association of Community Councils; published by the Indus trial Areas Foundation, 8 South Michigan Ave., Chicago, 99 studies, or ekistics, is serving to blend the fields of organizational theory and community organization into a meaningful unity. This was the original intent of Jane Addams, in her early work at Hull House in Chicago, as later translated into the pioneering contribution of Mary Parker Follett to modem organizational theory. The real opposition to full involvement of the poor, and the accompanying disequilibration of the tradi tional approach to the rendering of governmental services, is sure to come from the bureaucratic establishments. This has been demonstrated in the "cooptation,1 1 using the term in the sense that Selznick covered it in his classic study of the Tennessee Valley Authority.^ This happened between Mayor Yorty of Los Angeles and the local bureaucracy during the summer of 1965. Without the active support and cooper ation of the bureaucracy, the Mayor could not have succeeded in dictating the organizational structure of the Economic and Youth Opportunity Agency of Greater Los Angeles. In his successful efforts to prevent full and meaningful Illinois, October, 1957). 14 Philip Selznick, TVA and the Grass Roots (Berk eley: University of California Press, 1949). 100 representation of the poor on Los Angeles County's Umbrella Poverty Agency, Mayor Yorty skillfully used cooptation by sharing his power base with the bureaucracy. In the process he was able to defeat the efforts of the community to gain the degree of representation intended by Congress. The imperative for sharing was there, and as Selznick recited in the instance of TVA, the accommodation was informal and therefore cannot be documented. In the words of Selznick, "It therefore becomes useful and often essen tial for such cooptation to remain the shadowland of in formal interaction. The question has been posed--the answer must await the passage of time and a further working of the cooptation process. If the intent of Congress is to prevail, and the intended disequilibrating process to continue, there must be formed new oower alliances. These power alliances must be strong enough to prevail over the informal but natural alliance of those who are most threatened by the newly awakened poor. Regardless of the method utilized to involve the poor, the bureaucracy must somehow find ways of adjusting to the dramatic social changes taking place ^ Ibid. t p, 261. 101 and to this new theory of "remote decentralization." The die has been cast--the powerless know that they must be involved. They know that power is taken through organiza tion and that most of all it cannot be given. It must be taken. This means that the powerless will be joining in the decision-making process. This type of community organ ization has to bring the larger power order to significant confrontation and keep it there until the issues which relegate the "little people" to such subserviant status have been resolved and the social structure altered. In other words, social conflict must run its course until it has restructured a society. In our context, this theory or model must be built as the Small Business Development Centers are developed. In a larger sense this has impli cations for practically all programs that fit the mold dictated by the concept of "remote decentralization." Also, it has far-reaching implications as far as the normal bureaucratic processes are concerned. CHAPTER IV THE SOUTH CENTRAL ECONOMIC PLANNING AREA OF LOS ANGELES One of the major poverty areas in a large metropol itan city to receive early recognition of its need for assistance under the Area Redevelopment Act of 1961 and the Economic Opportunity Act of 1964 was the South Central Economic Planning Area of Los Angeles.^ While no poverty may be called "typical” in all respects, this area has in abundance many of the problems found in other disadvantaged or poverty areas. In addition, this area includes Watts as one of its subareas, and the publicity that the "Watts riots" brought to the City of Los Angeles in August of 1964 ^The South Central Economic Planning Area of Los Angeles lies between Olympic Boulevard on the north, Rose- crans Avenue on the south, Alameda Street on the east, and the Harbor Freeway on the west. It corresponds, except in minor details, to the boundaries of the 21st United States Congressional District. 102 103 gives the section more than just local importance. Figure 1 is a map of Los Angeles County which has been broken down into subareas called "Study Areas," each having its own identifying number. According to Meeker, who prepared the map: Each Study Area consists of a group of Census Tracts; in no instance does a Study Area cut across Census Tract boundaries. A Census Tract is a small geographical unit used by the Bureau of the Census for reporting characteristics of the population in metropolitan areas. An average Census Tract generally has a population of between 4,000 and 5,000 residents, and exhibits a consid erable degree of homogeneity with respect to popu lation characteristics.^ The Study Areas included in the South Central Economic Planning Area are indicated as shaded portions of Figure 1. For purposes of reader orientation, the shaded areas of the map are identified by the Study Area name assigned to them by Meeker: F-l South Vermont, Green Meadows F-2 Watts F-3 Florence, Graham F-4 Avalon 2 Marchia Meeker, Background for Planning, 1963 (Los Angeles: Research Department, Welfare Planning Coun cil, Los Angeles Region, February, 1964), p. 1. 104 A J A T6 . OXHARD A 17 A IS A 19 1 A I A 3 A 4 A 5 A12 A 7 A 6 A 14 A 19 A 1 3 A 20 I T G 0 B4 S 4 B 2 S'* G 5 t BEVEBIY B 7 STUDY AREAS IN LOS ANGELES COUNTY B 8 B 12 G 3 F 7 G I C I A-1 SYLHAR F-9 UNIVERSITY A-2 SAN FERNANDO F -10 CENTRAL B 1 0 A-3 PACOIHA F-l I WHOLESALE A-k SUNLAND F-12 DOWNTOWN A-5 TUJUNGA -F-13 WESTLAKE A-6 SUN VALLEY G-l W1LSHIRE A-7 PANORAMA CITY G-2 WILSHIRE PICO A-B MISSION HILLS G—3 WEST WILSHIRE A-9 GRANADA HILLS G-k WEST HOLLYWOOD A-10 CHATSWORTH G-5 HOLLYWOOD A-ll NORTKRIDGE G*6 HOLLYWOOD HILLS, A-12 SEPULVEDA GRIFFITH PARK A-13 NORTH HOLLYWOOD H-I SILVER LAKE A-1 a VAN NUYS H-2 ELYSIAN PARK A-1 5 RESEDA H-3 MT. WASHINGTON A-16 GANOGA PARK H-k EAGLE ROCK A-17 WOODLAND HILLS H-5" ATWATER, GLA6SELL A-18 ENCINO, TARZANA 1-1 BURBANK A-19 SHERMAN OAKS 1-2 NORTH GLENDALE A-20 STUDIO CITY l m > SOUTH GLENDALE B-l MAL1BU, CALABASAS I-U LA CANADA, B-2 PACIFIC PALISADES FLINTRIDGE B-3 BRENTWOOD, BEL AIR i-S ALTADENA B-U BEVERLY HILLS 1-6 CENTRAL PASADENA B-5 BEVERLY, LA C1ENEGA SOUTHWEST PASADENA B- 6 WESTWOOD, SAWTELLE 1-8 EAST PASADENA B-7 WEST LOS AtGELES J-l EL SERENO P-l LYNWOOD B-B NORTH SANTA MONICA J-2 LINCOLN HEIGHTS P-2 COMPTON, B-9 SOUTH SANTA MONICA J-3 BOYLE HEIGHTS W1LL0WBR00K B-10 VENICE, DEL REY J-k EAST LOS ANGELES P-3 EAST COMPTOtl B-l 1 MAR VISTA J-5 HIGHLAND PARK 0-1 DOWNEY B-12 PALMS K-l ALHAFBRA 0 -2 NORWALK B-13 CULVER CITY K-2 MONTEREY PARK 0-3 ARTESIA, DAIRY C-l BALDWIN HILLS K-3 SO, SAN GABRIEL VALLEY C-2 WESTCHESTER K-k SAN GABRIEL o-k BELLFLOWER C-3 INGLEWOOD K-5 SOUTH PASADENA 0-5 PARAMOUNT C-k EAST INGLEWOOD K-6 SAN MARINO R-l LAKEWOOD c-5 LENNOX L-l TEMPLE CITY R-2 HAWAIIAN GARDEN C- 6 HAWTHORNE L-2 ROSEMEAD R-3 EAST LONG BEACH C-7 LAWNDALE L_? EL HONTE R-L OCEAN FRONT D-l EL SEGUNDO L-k ARCADIA R-5 CENTRAL LONG D-2 MANHATTAN BEACH L-5 MONROVIA BEACH D-3 HERMOSA BEACH M-l BALDWIN PARK R-6 TERMINAL ISLAND D-k REDONDO BEACH M-2 AZUSA R-7 WEST LONG BEACH E-i WEST TORRANCE H-3 COVINA R-8 3IXBY KNOLL, E-2 EAST TORRANCE COVINA HIGHLANDS SIGNAL HILL E-3 PALOS VERDES m- 5 GLENDORA, SAN DIMAS R-9 NORTH LONG BEACH E-k SAN PEDRO M-6 CLAREMONT, LA VERNE S-l NORTH COUNTY E-5 WILMINGTON M-7 POMONA S-2 CATALINA E-6 DOMINGUEZ M-8 LA PUENTE E-7 GARDENA K-9 INDUSTRY F-l SOUTH VERMONT f GREEN MEADOWS N-l N-2 WHITTIER PICO RIVERA F-2 WATTS N-3 LA MIRADA, SANTA F-3 FLORENCE, GRAHAM FE SPRINGS F-k AVALON 0-1 MONTEBELLO P-5 EXPOSITION PARK 0-2 BELL, BELL GARDENS P-6 LEIMERT 0-3 HUNTINGTON PARK, F-7 WEST ADAMS MAYWOOD F-8 SANTA BARBARA o-k SOUTH GATE Af 6 D I 02 C 4 E 1 E I E 2 E 3 Figure 1 104 A 9 A 1 4 A 1 9 A 20 O R . 6 6 K 6 6 4 H 3 H 2 8 5 K 2 K 3 B 7 B 12 F 7 B1I B1 3 M 9 BIO C 4 C 5 D 2 STUDY AREAS w m ii BA S E D O N 1 9 6 0 C E N S U S TRACTS C O U N T Y O F LOS ANGELES E 2 BROOK TOM R 0 R 3 DAIRY GARDEN BEACH NT ONG PREPARED BY RESEARCH DEPT. WELFARE PLANNING C O U N CIL, LAR ISLAND , HILL IG BEACH F-8 Santa Barbara F-9 University F-10 Centra 1 F-12 Downtown F-13 Westlake 0-4 South Gate P-l Lynwood P-2 Compton, Willowbrook P-3 East Compton Introduction Before any effective kind of solution can be pro posed to meet the many particular conditions which surround the poverty problem in the South Central Area, the general demographic and socioeconomic conditions of that region should be understood. Statistical data on this area are cited in this chapter which, under analysis, help to show some of the special difficulties faced in this area. Examined are facts about the age, origin, degree of eco nomic dependency, and composition of the family of the area's residents. Attention is also given to the degree of unemployment, the types of unemployment, the educational level, housing conditions, and the family incomes of the 106 subareas. In sum, these data provide a statistical picture of the region to allow a certain amount of forecasting as to the area's future. The information provided is intended to show the scope of the problems that must be solved in many depressed neighborhoods, and especially in the area under study. To deal concretely with the factors related to job displacement, economic marginality, and family disruption, and to determine to what extent each of these situations exists within the subareas of the South Central Economic Planning Area, analysis of the demographic and socioeconom ic data is needed. In examining these data, which outline the evolving social characteristics of the region, this section intends to clarify the various population factors that typify much urban poverty.^ As noted earlier, the manifold problems that pro duce poverty vary greatly in different areas throughout the country, and no successful program can be implemented 3 Except where otherwise noted, the data presented are derived from U.S., Department of Commerce, Bureau of the Census, 1960 U. S. Census of Population and Housing. Los Angeles-Long Beach, California, Census Tracts. Final Report PHC (l)-82 (Washington: Government Printing Office, 1961) . 107 before such local particulars are understood. It is the contention of this dissertation that the problems of pov erty-*-!.e., housing, education, training, public facili ties development, and employment--can be at least partially solved through small business development. First, however, the problems must be identified. Demographic Data Population change One indicator of the social structure within a community is its pattern of population growth. In 1950, the population of the South Central Economic Planning Area was 395,741, while in 1960 it had declined to 384,427. This represented a loss during the census decade of roughly 11,000 persons, or 2.9 per cent. During the same period, Los Angeles County’s population increased by some 1,800,000, a net gain of approximately 46 per cent. The loss of 11,000 persons over the decade hides a large population exchange of great importance to the pres ent and future of the area. In 1950, the white population numbered 244,445; in 1960, this number had dropped to 145,329, representing a loss of 40.5 per cent. At the same time, the Negro population increased by 87,307 persons, a 108 gain of 60.9 per cent. The 1950-1960 increase in the Negro population in Los Angeles County was even more striking: 243,665 persons, or 111.8 per cent.^ Since the population of "other races" in the South Central Economic Planning Area--Orientals, American Indi ans, and a scattering of others--increased by only 495 persons, or 6.2 per cent, during the census decade, the overall population change in this area may be summarized as approaching a one-to-one exchange of new Negro residents for former white residents. The net effect was a slight loss in total population, and a sizable increase in the Negro population within the area. As indicated in other research, the increase in the Negro population of Los Angeles County is in large measure the result of inmigration,'* many of the Negro new comers coming from the southern part of the United States. For example, Avalon (F-4), probably like many other parts of the Planning Area, received so many former Southerners ^Community Relations Educational Foundation, "The Negro in Los Angeles County," Community Intelligence Bulle tin No. 2 (Los Angeles, Calif.: Community Relations Educa tional Foundation, November, 1963), p. 2. 5 Meeker, op. cit., p. 51. 109 during the 1950-60 decade that by 1960 they represented at C . least 17 per cent of that community's total population. It should be noted that, although the Negro popula tion increased markedly for the entire South Central Eco nomic Planning Area, several subareas such as parts of South Gate (0-4), Lynwood (P-l), and Westlake (F-13) have virtually no Negro populations. Study Areas with one-fifth or less Negro population include Santa Barbara (F-8), University (F-9), and Downtown (F-12). In general, with the exception of East Compton (P-3), it is those portions of the Planning Area which have the largest Negro populations that rank highest in or are most characterized by dependent poverty. In other words, they have a greater share of unemployment, economic margin- ality, and family disruption. Age distribution In 1960 there was a larger proportion of children and youths under age eighteen in the South Central Area's population than in Los Angeles County as a whole. Persons ^Bert Renstrom, Avalon and Its People (Los Angeles: Welfare Planning Council, Los Angeles Region, March, 1963), p. 10. 110 under the age of eighteen represented 35.7 per cent of the Planning Area's population, whereas in Los Angeles County they accounted for 33.1 per cent. Moreover, children under five years of age numbered 50,025 in the South Central Area, or 13.0 per cent of the area's total population, while in the County this group represented only 10.7 per cent of the total population. It also is noteworthy that with the single exception of East Compton (P-3), the greatest concentration of children is in the areas of densest Negro population.^ The age pattern of the South Central Economic Plan ning Area shows a second characteristic shared by communi ties with sizable minority-group populations: it has a relatively small proportion of aged persons (sixty-five and over). This is often characteristic of communities in which minority groups have recently settled, and it is true of many parts of the South Central Area. Specifically, in 1960 this segment of the population accounted for only 7.9 per cent of the planning area's total, compared with 9.2 Q per cent for Los Angeles County. Meeker, op. cit.. pp. 16-20. ^Ibid., p. 21. Ill Dependency ratio In spite of the small proportion of aged persons in the area, its productive-age population (eighteen to sixty-four years) was offset by a larger percentage of potentially dependent persons (that is, a greater aggregate number of persons under eighteen and over sixty-four) than is found in the Los Angeles County population. The rela tionship between the population groups--the potentially dependent and the potentially productive--is expressed as a dependency ratio. The greater the number of potentially dependent persons in relation to the number of persons of productive age, the higher the dependency ratio. In 1960, the dependency ratio for the South Central Economic Plan ning Area was 76.9; for Los Angeles County it was 73.4,^ The combination of a large youth population in the Planning Area and a heavy inmigration of Southern Negroes (with limited geographical mobility in Los Angeles) leads to an anticipation of still further growth of the Negro population in the South Central Area. Equally important ^Bert Renstrom, "The South Central Economic Plan ning Area: A Demographic and Socioeconomic Analysis," Work ing Paper #42 (Los Angeles: Welfare Planning Agency, Los Angeles Area, May, 1963), p. 5. (Mimeographed.) to the area's future is the fact that as the Negro popula tion remains in the community it can be expected that a greater proportion of this group will be composed of older persons. For example, Avalon, which has been an area with a large Negro population for several decades, has 9.0 per cent of its population in the sixty-five-and-over age group. At the same time there is nothing that would lead to an expectation of a reduction in this community's large youth population.^- ® This projection for the area will, in net effect, gradually place a greater load on the produc tive -age groups in the community. Simply stated, the proportion of the population in the dependent categories will, in the future, become even larger than it was in 1960. In moving from the general level of the total South Central Economic Planning Area to the subareas within it, wide variations in dependency ratios are noted. Some of the subareas have dependency ratios far higher than the County level of 73.4 Higher dependency ratios characterize East Compton (P-3), Watts (F-2), Compton, Willowbrook ■ * (P-2), South Vermont, Green Meadows (F-l), and the 113 Florence, Graham area (F-3). At the other extreme, several areas have dependency ratios below the County average. This is true of the Downtown area (F-12), University (F-9), and South Gate (0-4). The family The number of traditional families--husband, wife, and children--frequently is used as an indicator of the family stability of a population group, and here again the statistics reveal that the South Central Economic Planning Area does not come up to the Los Angeles County level. Over one-haIf of the population aged fourteen and over in the South Central Area was married in 1960 (54.9 per cent) compared to nearly two-thirds (64.7 per cent) in Los Ange les County as a whole. However, the proportion of tradi tional families--husband and wife, with or without chil- dren--showed an even wider divergence: 53.4 per cent for the Planning Area as against 67.1 per cent for the County. The widowed totaled 9.6 per cent of the Planning Area popu lation, and 8.2 per cent in Los Angeles County.^ Meeker, op. cit.. pp. xx-xxii. 12 Ibid., pp. xv-xix. 114 The smaller proportion of married persons in the South Central Economic Planning Area is largely a reflec tion of a substantially greater percentage of persons who have been divorced or separated: 13.0 per cent, compared with 7.1 per cent in the County population. Legal separa tion rather than divorce is assumed here to be a function of low economic status because divorce proceedings are costly, and the low-income family in disruption may merely "break up" without going through the formalities of legal divorce. Nevertheless, the proportion of divorced persons in the Planning Area (6.9 per cent) is higher than the County average (5.1 per cent); for separation, the propor tions are 6.1 and 2.0 per cent respectively. A further indication of family disruption is the proportion of children who are not living with both par ents. In Los Angeles County, fewer than one-twelfth (8.3 per cent) of children under -eighteen are living in single parent homes, whereas in the Planning Area the proportion is nearly one in five (19.7 per cent). Throughout the thirteen subareas that comprise the South Central Economic Planning Area, the proportions range from a low of one- sixteenth (6.5 per cent) in South Gate (0-4) to a high of more than one-fourth in Avalon (F-4) with 27.2 per cent and Watts (F-2) with 25.6 per cent.^ An additional group of children under the age of eighteen is found living away from both parents. However, since some of these may be in correctional institutions or in foster care homes, or may have established themselves independently, no effort has been made to analyze this particular variable. Yet, the proportion is 11.0 per cent for the South Central Economic Planning Area, nearly double the County level of 5.6 per cent. The range is from a high of 17.2 per cent in the portion of the Downtown area (F-12) included in the Planning Area to a low of 5.3 per cent for Lynwood (P-l)--the latter being the only subarea to fall below the County average. As the above data indicate, there is a far higher proportion of disrupted families in the South Central Area than in Los Angeles County as a whole. The family is, of course, a primary agent in the process of socialization. This process is of significant value to a society, for the more successful it is the fewer the demands placed on the other agents of social control. Family disruption, so often associated with dependent poverty, increases the 13Ibid.. p. 19. 116 probability of an incomplete or misdirected socialization 1 y process. This may result in the necessity of using other agents of social control. It may also produce a lack of motivation for socially acceptable achievement; i.e., little interest in education and in self-improvement, which in turn contributes to the number of untrained and un skilled persons for whom economic marginality and depend ency can become an accustomed way of life. Implications The foregoing analysis of the South Central Eco nomic Planning Area was designed to provide some under standing of those demographic factors which inhibit maximum employment, productivity, and purchasing power. The data indicate that this community has a high level of unemploy ment, exceeding both local and national averages. Further data have revealed that this is a community requiring a labor market of unskilled or semiskilled jobs for full employment, and that the Los Angeles labor market from day ^Irving Rosow, "Forms and Functions of Adult Socialization," paper prepared for delivery at the Russell Sage-Social Science Research Council Socialization Confer ence, New York City, May 17-19, 1963. According to Rosow, socialization produces conformity to a set of shared values, orientations, and behaviors, and involves both a process and a consequence. 117 to day has fewer jobs for such skills. In general, this is a community of low educational attainment, of predominantly unskilled or semiskilled workers, of wide-spread poverty and a community in need of technical assistance and area-wide aid. Moreover, this is a community with many characteris tics which can lead to even more wide-spread economic marginality, job displacement, and family disruption--the primary ingredients of dependent poverty in California.^ At the same time, the South Central Economic Plan ning Area is a community with both economic and social resources, an area capable of planning and carrying out the work necessary to revitalize itself. This is due not only to the existence of community resources,^ but also to the fact that it is precisely those factors that contribute to ■*--*Earl Raab and Hugh Folk, The Pattern of Dependent Poverty in California (Berkeley: Welfare Study Commission, February, 1963). 16 For a selective listing of such resources, see Directory, Health, Welfare and Recreation Agencies, Los Angeles County (Los Angeles: Welfare Information Service, Inc., 1961). In the geographical index (p. 144) the area delineated as Los Angeles--Southeast (postal zones 1, 2, 3, 7, 11, 13, 37, 44, 58, 59, and 61) corresponds roughly to the South Central Economic Planning Area. In these agen cies are centered both interested and resourceful profes sionals and citizen groups capable of contributing to solution of the problems of the area. 118 the pattern of dependent poverty that are most responsive to carefully planned and executed programs of social ac tion. ^ This already has been recognized and is being acted upon by some residents in the community (through community organizations and commercial institutions), and by educational, professional, and civic leaders. Socioeconomic Analysis Occupation and employment Consideration at the outset of the occupational and employment characteristics of Los Angeles County will pro vide a broader overview of these data for the South Central Planning Area. During the 1950-60 decade, the Los Angeles labor force became increasingly composed of professional, technical, and clerical workers. At the same time, there was a decline in the proportion of persons earning their livings in the blue-collar occupations, i.e., craftsmen, foremen, operatives, household and service workers, and 18 laborers. In 1950, the Los Angeles County labor force included 49.7 per cent white-collar and 49.4 per cent ■^Raab and Folk, op. cit. 18 Renstrom, op. cit., Appendix, p. xvii. 119 blue-collar workers."^ In I960, the comparable figures were 49.5 per cent and 44.6 per cent. The increase in the percentage of the County's white-collar work force might have been even greater if the demand for such personnel had been fully met. Or, to state it differently, the market for white-collar workers, and especially for persons with professional and technical skills, is far from 20 saturated. It is significant that the decline in the proportion of blue-collar workers occurred at all skill levels: not only did the proportion of the less-skilled occupations decline, but there was also a drop in the pro portion of persons in the craftsmen and foremen classifica tions. The fact that in 1960 a slight majority of the Los Angeles employed labor force was found in the white-collar occupations, and that two-thirds of the persons employed in blue-collar occupations were in semiskilled jobs, i.e., ■^Meeker, op. cit. . p. 42. 20 Sen. Joseph C. Clark (D., Pa.), Chairman of the Senate Manpower and Employment Subcommittee, stated on May 20, 1963, "... the changes now taking place in our national manpower needs are new. We are moving from a 'blue-collar1 to a 'white-collar' economy, one which offers fewer and fewer opportunities for the unskilled and unedu cated while possessing a voracious appetite for highly skilled professional manpower." Los Angeles Times. May 21, 1963. 120 as craftsmen, foremen, and operatives, probably accounts 21 for the relatively low unemployment rate of 5.8 per cent. Examination of the 1960 occupation and employment picture in the South Central Economic Planning Area reveals marked contrasts. Here the bulk of the labor force, 65.3 per cent, was concentrated in the blue-collar occupations, and only 23.7 per cent was employed in white-collar jobs. One-haIf of these white-collar workers were in clerical jobs, compared with one-third for the Los Angeles County white-collar group. If extensive automation in the cleri cal field becomes a reality in the latter part of the 1960's, this segment of the white-collar labor force can be expected to suffer attrition. It may well be that a propor tion of this white-collar group in the South Central Area will be subject to job displacement and unemployment; to the less-skilled clerical worker, it may even mean unem ployability. Further examination of the makeup of the white- collar labor force reveals that the proportion of profes sional, technical, and managerial personnel was nearly three times as great for Los Angeles County (24.5 per cent) 21 Renstrcm, op. cit., Appendix, p. xix. 121 9 9 as for the South Central Area (8.5 per cent). More than one-fourth of the South Central Area's labor force was employed in the lowest skill levels of the blue-collar occupations--27.3 per cent in the household, service worker, and laborer categories--as against 13.7 2 3 per cent of the total County labor force. As mathods of production and distribution shift toward greater automa tion, it is the low-skilled workers who will be most sub ject to job-displacement. In Los Angeles County, modern automated methods are being installed in growing numbers of operations, substituting machines for manpower; and it is the low-skilled worker, with his limited adaptability, whose economic welfare is especially threatened as the jobs he is capable of handling are eliminated. The current trend toward automation points up the quite obvious fact that the changes for job security and employment are far better for the person who enters the labor market possess ing the skills requisite for employment in the white-collar or the more skilled blue-collar occupations. Thus, few "good" jobs are available to the many low-skilled inmigrants 22 Meeker, op. cit.. p. 57. 23Ibid. 122 untrained and inexperienced high school drop-outs, and uneducated workers in the South Central Area. In addition, the South Central Economic Planning Area suffers still another disability in the competition for jobs: roughly half of all the Negroes in Los Angeles County are found in this area. Even though job discrimina tion may be declining, the qualifications of this popula tion may not permit it to take advantage of existing job opportunities. The frequently cited trend which finds the Negro worker "last hired" also sees him, if for no other reason than lack of seniority, "first fired." Also there are other factors involved in employment discrimination: The most overt is, of course, the refusal of cer tain employers to hire qualified Negroes. This has to some extent faded into the more subtle discrimination which allows Negroes to be hired at entering levels, but confines them there by discriminating in promotion and upgrading. Often excessive qualifications are demanded, so that it is not rare to find Negroes working in positions for which they are over-qualified by education, in terms of members of other groups in the same position. The reverse of this is, of course, the under- qualified Negro, who has not had the educational or vocational opportunities to enter into compe tition in the labor market.24 ^Community Relations Educational Foundation, op. cit.. pp. 13-14. 123 These combined influences, of course, act upon many people in the labor market of today and tomorrow who will be the unemployed and the unemployable, compounding the problems of a community already beset by job instabil ity, marginal economic status, and family disruption. The marginal status of many of the South Central Economic Planning Area resident in today's labor market probably accounts for the high level of unemployment re ported in 1960, nearly double that of the County figure. For the South Central Area labor force, 11.0 per cent were reported as unemployed, compared with 5.8 per cent for the County. The proportion of unemployed males in the Planning Area was twice the County level--11.5 versus 5.7 per cent. For females, the rates were 9.8 and 5.9 per cent respec tively.2^ Advances in automation, shifting occupational trends and labor force demands, plus ever-increasing num bers of South Central Economic Planning Area workers in the semi-skilled or unskilled occupations have all paralleled the steady growth of the minority population in the area. It is, in fact, likely that in the years since the United States 1960 Census was taken, trends toward unemployment, 25IMiL, p. 15. 124 unemployability, and dependent poverty have become even more acute than they were at the time of the census. A number of factors concerning the workers who are being displaced from the job market by current employment trends have been discussed in terms of the South Central Area as a whole. The factors characterizing communities which lack full employment exist in varying degrees within the Study Areas wholly or partly included in the total area under discussion. Further consideration of the degree to which these factors are present within the subareas should lay the basis for (1) pinpointing the subareas where unemployment is most wide-spread; and (2) identifying the subareas where full employment will be a problem in the future. Chart I presents percentages of the unemployed within the South Central Economic Planning Area subareas in rank order, and also gives the figures for the Planning Area and Los Angeles County as a whole. This chart indi cates that the most severe unemployment is found in Down town (F-12), East Compton (P-3), University (F-9), Watts (F-2), and Central (F-10) in the order given. In fact, 12 of the 13 subareas comprising the Planning Area had higher unemployment levels than Los Angeles County, with only South Gate showing a lower rate than the County. 125 CHART I: UNEMPLOYMENT IN LOS ANGELES COUNTY AND THE SCEPA, BY STUDY AREAS, IN RANK ORDER, 196oi/ < f > 0_ 10_ -15 - _2£L ■ ** O l + South Gate LOS ANGELES COUNTY *P-1 Lynwood *F-8 Santa Barbate *P-2 Compton-Willowbrook SCEPA *F-13 Westlake F-l Avalon F-3 Florence, Graham *F-1 S .Vermont,Green Meadows F-10 Central F-2 Watts F-9 University *P-3 East Compton *F-12 Downtown Percentages are based on the total civilian labor force in each of the sub-areas listed. * Partial study areas* 126 Job displacement has in the past affected princi pally those occupations where skill levels are lowest, and the work load most routine. Such displacement affects white-collar as well as blue-collar workers. It seems likely, on the basis of present trends, that displacement of personnel through installation of automated procedures will have the greatest impact on such broad occupational categories as clerical workers, operatives, service work- 7fi ers, and laborers. Chart II indicates the degree to which such dis placement would affect the subareas of the South Central Economic Planning Area. It groups percentages in the less- skilled occupational categories (clerical, operatives, household and service workers, and laborers) according to 76 It should be kept in mind that because the cate gories of "clerical workers" and "operatives" encompass a broad range of skills, top-level jobs in these occupa tional areas may not be as subject to displacement through automation as those in the less skilled categories. The comparison for the County and the Planning Area, therefore, may be skewed by the difference in skill levels in these two categories as between the two areas. Although no breakdowns are available, it is likely that the South Central Economic Planning Area labor force includes a larger proportion of the less skilled in these categories than characterizes the County total. (See Meeker, op. cit., pp. 41-45.) CHART II: PERCENTAGE OF LABOR FORCE EMPLOYED AS: OPERATIVES; CLERICAL, HOUSEHOLD, AND SERVICE WORKERS; AND LABORERS; LOS ANGELES COUNTY AND THE ■SCEPA, BY STUDY AREAS, IN RANK ORDER, 196oi/ LOS ANGELES COUNTY *F-12 Downtown *P-1 Lynwood *0-h South Gate *F-8 Santa Barbara F-9 University *F-1 S.Vermont,Green Meadows *F-13 Westlake 66. b i n SCEPA *P-2 Compton, Willowbrook F-2 Watts 70. 8# F-3 Florence, Graham F-L Avalon F-10 Central *P-3 East Compton i/ Percentages are based on the proportion of persons employed In the specified occupational categories, in relation to the total labor force in each of the sub-areas. * Partial study areas. 128 the thirteen subareas, and also shows percentages for the entire Planning Area and the County, arranged in rank order. The relative standing of the various areas provides a rough guide to the portions of the Planning Area where job displacement and unemployment are likely to increase in severity. If assumptions about the occupations most likely to undergo job displacement by automation are correct, Chart II should lead to the assumption of severe and grow ing job displacement in East Compton (P-3), Central (F-10), Avalon (F-4), Florence, Graham (F-3), Watts (F-2), Compton, Willowbrook (P-2), and Westlake (F-13), all with two-thirds or more of their total labor force concentrated in the occupational categories listed above. With the exception of East Compton and Westlake, these subareas contain a large portion of the Planning Area's Negro population, indicating problems even more severe than are implied by the percentages of lower-skilled job-holders. It should be pointed out, however, that the use of composite employment figures masks assumptions which may not be totally probable or accurate. The first assumption is that the skill level in the labor force in each subarea will remain constant; the second is that job displacement 129 will affect all these occupational groups uniformly. Any radical change in the characteristics of the subareas or in the pattern of automation could markedly change this picture. Another factor, as reported by the Youth Oppor tunities Board of Greater Los Angeles, should also be noted: . . . unemployment figures do not give a complete picture, for in these communities where oppor tunities are limited, individuals frequently with draw from the labor force. There may be as many in this category as those who are reported to be unemployed, causing unemployment rates to under estimate, by a considerable margin, those who can not secure gainful employment.27 However, even though the use of aggregate figures may result in a potentially questionable basis, this should not totally impair the usefulness of the projection. Educational levels In response to the broadened educational oppor tunities and higher skill requirements of the labor market during the fifties, the educational level of the Los o 7 'Youth Opportunities Board of Greater Los Angeles, "The War Against Poverty in Los Angeles: Proposal for Funding Through Economic Opportunity Act of 1964" (Los Angeles: Youth Opportunities Board of Greater Los Angeles, October, 1964), p. 16. 130 Angeles County population registered an increase. From 1950 to 1960 the median number of years of school completed by persons who in 1960 were 25 years old or older rose 9 R from 12.0 to 12.1. It should be noted that this increase occurred in spite of a substantial increase in the number of the County's older population which, on the average, has less education than the younger persons. Based on the population age of 25 and over, these figures fail to include the many persons who in 1960 had completed their education but had not yet reached the age of 25. Nevertheless, in 1960 some 53 per cent of the Los Angeles County population aged 25 and over had completed high school and/or attended college for one year or more. Only 1.6 per cent of this population had received no formal education, and 13.1 per cent had terminated formal educa- 29 tion after completing elementary school (8 years). OQ i0Meeker, op. cit.. p. 50. 29 7As a result of low educational levels and cul tural deprivation, many residents of the South Central Economic Planning Area may be considered as "functional illiterates." This term traditionally has been used to characterize persons whose schooling is below sixth-grade level. There are indications, however, that in the plan ning now under way for remedial education and job training, consideration is being given to extending the range of 131 As might be expected, the population of the South Central Economic Planning Area has median educational levels falling sharply below the County medians. The med ian for the Planning Area is 10.0 years of school com pleted, 2.1 years less than for the County. Only 30.8 per cent of the South Central Economic Planning Area population has had four years of high school and/or at least one year of college education. One-sixth of the area's population completed elementary school and 2.7 per cent had no formal education at all. Comparison of the proportion of persons with no more than an eighth grade education shows that this marks the total educational attainment for 46.0 per cent of the South Central Economic Planning Area population, as against 26.3 per cent for the County. Moreover, the Planning Area's population is characterized by a smaller- than-usual proportion of aged who, on the whole, pull down educational medians; so that the low median educational level largely reflects the schooling of the working-age functional illiteracy to embrace the whole elementary school program; that is, through the eighth grade. This, in effect, recognizes the immensely broadened demands made upon employee skills and comprehension through more sophisticated equipment, methods, and job concepts. 132 population, those in the 25-64 age bracket. There can be no doubt that for tomorrow's world a thorough and comprehensive education is a must. The projected trends in employment . . . make this quite clear. Those jobs which are due to expand within the next decade are those which will require mathematical and verbal skills, as well as a broad knowledge of science, literature, history, and social science.30 Thus the educational level of a community has a strong impact on its economic well-being because of the direct relationship between levels of education and job oppor tunities. For the worker displaced by automation or other changes in the job market, finding a new job is almost impossible unless he has the right skills and the requisite level of educa t ion--nowadays, high school or better. 31 ^Harlem Youth Opportunities Unlimited, Inc., Youth in the Ghetto: A Study of the Consequences of Power lessness and a Blueprint for Change (New York: Haryou, 1964), p. 161. O I -’■ ‘ -Testifying at a Congressional hearing on May 21, 1963, Secretary of Labor, Willard Wirtz, stated that a Census Bureau study estimated the difference in lifetime earnings of those with eight years or less of schooling and those with a high school diploma at around $100,000. He added, "So I wish I could say to those boys and girls who are considering dropping out of school that 'you are making a $100,000 decision."1 Los Angeles Times. May 22, 1963. See also Sen. Joseph C. Clark's remarks, supra p. 119, fn. 20. 133 It is to be expected, therefore, that in those areas where educational achievement is lowest there will be high rates of unemployment and large proportions of low- skilled workers. Charts I and II showed that those sub- areas of the Planning Area with the greatest proportions of the unemployed and of low-skilled jobs were East Comp ton (P-3), Watts (F-2), Florence, Graham (F-3), and Central (F-10). Chart III demonstrates a corresponding relation ship between low educational attainment, the preponderance of low-skilled jobs, and unemployment. This chart indi cates that with few exceptions the subareas comprising the South Central Economic Planning Area, with educational levels predominantly below high school graduation, current ly rank low in employment and in future possibilities for re-employment, retraining, and upgrading of vocational status. It might be noted in passing that three of the six subareas with twice the County rate of unemployment (Chart I) also rank lowest in educational attainment. Family income The median family income level in Los Angeles County as a whole marks it as one of America's wealthier 134 communities. In 1959, the income was $7,046 a year, com- paged with the national average of $5,660. However, because of its substantial concentration of minority-group population with its limited economic opportunities, and of highly skilled professionals commanding premium salaries, analysis of Los Angeles County family income by communi ties and neighborhoods shows enormous variations.^3 The Conference on Economic Progress, held in Washington in 1962, developed an income typology designed to translate annual family income into a series of style- of-life classifications in line with current living costs. The five classifications were: 1. The poverty level--income under $4,000. 2. The deprivation level--income from $4,000 to $5,999. 3. The deprivation-comfort level--income from $6,000 to $7,499. 4. The comfort-affluence level— $7,500 to $14,999. 5. The affluence level--income $15,000 and above. The authorities who developed this typology issued the Meeker, op. cit., p. 64. 33Ibid., p. 48. 135 CHART III! PER CENT OF PERSONS AGE 25 AND OVER WITH EDUCATION LESS THAN FOUR YEARS OF HIGH SCHOOL, IN LOS ANGELES COUNTY AND SCEPA, BY STUDY AREAS, IN RANK ORDER, i960. LOS ANGELES COUNTY *0-4 South Gate *p-8 Santa Barbara *P-2 Coorpton, WiUowbrool 63.736 F-9 University SCEPA *F-12 Downtown *F-13 Westlake *F-1 S.Vermont,Gr.Meadows 70.9$ F-2 Watts F-4 Avalon F-3 Florence, Graham F-10 Central *P-3 East Compton * Partial Study Areas 136 following statement: "The under-$4,000 category which will be used in this discussion to represent the poverty level 3 4 for all multi-person families seems very conservative. To the typical family in the South Central Economic Plan ning Area, with its above-average number of young chil dren, less than $4,000 a year may indeed prove to be a poverty level of subsistence in the relatively affluent Los Angeles area, with its cost of living among the highest in the country. Application of the income typology cited above to Los Angeles County and the South Central Economic Planning Area reveals that more than twice the proportion of South Central Planning Area families are living at the poverty level, with incomes below $4,000, in comparison with all Los Angeles County families. According to Meeker, 38.4 per cent of the families in the Planning Area have incomes at the poverty level, compared with 19.1 per cent for the -^Conference on Economic Progress, Poverty and Deprivation in the United States (Washington: Conference on Economic Progress, 1962). 35 The Consumer Price Index, compiled by the Depart ment of Labor, Bureau of Labor Statistics, stood at 106.2 for March, 1963 (1957-59 = 100). For Los Angeles, it was 107.7. 137 County. An additional 27.1 per cent of families in the Planning Area have incomes between $4,000 and $6,000 a year, as against 19.1 per cent for the County. Collec tively, nearly two-thirds--65.5 per cent--of the South Central Area families have incomes in the poverty or depri vation levels. For the County as a whole, the proportion is 38.2 per cent.36 It is obvious that the majority of families in the South Central Economic Planning Area have marginal economic status. Such economic marginalitv affords little oppor tunity for a family to accumulate financial savings against periods when family income is limited or cut off, thus making the distance from unemployment to dependent poverty very small. The proportions of families in the poverty income- level varies widely throughout the subareas of the South Central Area (see Chart IV). Lynwood (P-l) and South Gate (0-4) have fewer families in this bracket than the Los Angeles County average; the range from lowest to high est percentage in the poverty bracket has a spread of over three to one, from 55.7 per cent in Downtown (F-12) to Meeker, op. cit.. pp. xxxvi-xxxix. CHART IV: FAMILIES WITH INCOMES AT THE POVERTY LEVEL (UNDER $4,000), LOS ANGEIES COUNTY AND SCEPA, BY STUDY AREAS, IN RANK ORDER, i960 * *p-l Lynwood *0-4 South Gate LOS ANGELES COUNTY *P-2 Compton, Willcwbrook *F-1 S. Vermont, Gr .Meadows F-3 Florence, Graham *F-8 Santa Barbara SCEPA F-2 Watts F-9 University *P-3 East Compton F-4 Avalon F-10 Central *F-13 Westlake *F-12 Downtown ♦Partial Study Areas 0 10 20__ 30 A q sq <?a 16.856 18.956 16.8 in Lynwood. With few exceptions, the variables that coalesce in poor communities (among them, low income, high unemploy ment level, large percentage of unskilled workers, and low educational attainment) makes the possibilities of change for the deprived citizenry extremely remote. When firmly entrenched with the psychological effects they foster (such as hopelessness or bitterness), such conditions disallow the realization of the poor rising from poverty. Instead, the unassisted poor can only get poorer. The particular family income levels of the subareas should be studied to determine those portions of the South Central Economic Planning Area marked by the most severe economic depriva tion. Home ownership Home ownership, as might be anticipated in the light of the community's overall economic status, is far less typical in the South Central Economic Planning Area than of Los Angeles County. While 51.2 per cent of the housing units in Los Angeles County were owner-occupied in 1960, owner-occupancy characterized only 33.4 per cent 37 of the housing units in the Planning Area. Moreover, the general economic level of the com munity gives rise to the assumption that many of the rental units are owned by persons living (Outside the area. This is a situation typical of low-income, minority-popula- tion communities; and while there is no direct substantia tion of the hypothesis of absentee ownership, the similar ity of the community to others of its type seems to make it safe to assume that it is a factor in the overall hous ing picture in the South Central Area. Number of rooms per housing unit; number of persons per room The median number of rooms in the typical South Central Economic Planning Area dwelling unit is 3.5, com pared with 4.5 for Los Angeles County.Obviously, then, the typical Planning Area dwelling unit is smaller than the County median. When rents exceed the capabilities of a family's income, common techniques are relocation, doubling up, or 37 Meeker, op. cit.. pp. 35 and xxiii-xxvii. 38 Renstrom, op. cit. 141 both. The prevalence of such living arrangements can be estimated on the basis of the number of persons per room per housing unit in a community. If one person per room is taken as a desirable density for a housing unit,* then about one-sixth of the housing units in the South Central Economic Planning Area (16.6 per cent) may be considered overcrowded, inasmuch as they have 1.01 persons or more per room. Such a density is typical of only 8.8 per cent of the housing units in Los Angeles County. How great the density is in some areas may be seen in the fact that in Watts (F-2) for example, 28.4 per cent of the housing units had 1.01 or more persons per room, and in Compton, Willow- brook (P-2) 30.5 per cent.^ Age and condition of housing An important consideration in any socioeconomic analysis is "the type and quality of housing that citizens of . . . [the] community are able to provide for themselves on a rental or sale basis."^ Generally speaking, as a percentage of the minority group population rises, so does the 39 Meeker, op. cit., pp. xxiii-xxvii. ^Community Relations Educational Foundation, op. cit.. p. 6. 142 percentage of deteriorated and dilapidated hous ing. To be more explicit, while only 7.7 per cent of the census tracts have a concentration of minor ity group persons, less than one per cent of the total show more than 15 per cent of the housing in a dilapidated or deteriorated condition. 63.6 per cent of the census tracts show more than 15% dilapidated and deteriorated housing in those areas in which the minority group population is from 75 to 100 per cent of the total population.^ As might be expected, then, the South Central Planning Area is a community of older housing: 68.9 per cent of its structures were built prior to 1940. For Los Angeles County, only 40.8 per cent of all residential structures were built prior to 1940, and 38.0 per cent were built between 1950 and March, 1960.^ There was relatively little new residential or conmerical construction in the Planning Area in the 1950-60 decade; only 13.1 per cent of its structures were erected during that period. The South Central Area has a far greater proportion of housing units in the substandard categories, as might be expected on the basis of building age and absentee ownership. At the time of the 1960 Census, one-sixth (16.9 per cent) of the area's housing was classified as 42 Meeker, op. cit.. pp. 31-32. 143 deteriorating, compared with 6.6 per cent for the County; 3.6 per cent of the housing in the Planning Area was rated as dilapidated, as against 1.4 per cent for the County. Thus, the total proportion of substandard housing in 1960 was more than one-fifth (20.5 per cent) in the Planning Area; for Los Angeles County, the proportion was less than one-twelfth (8.0 per cent) ,43 Home values and rental levels As might be inferred from the age and condition of the housing in the South Central Economic Planning Area, housing values fall below the median for the County. Me dian home value in the Planning Area in 1960 was $11,400, compared with $15,900 for the County as a whole. As this median would suggest, the great majority of dwelling units in the area were valued at well below the County median-- 85.6 per cent had a reported market value below $15,000, compared with 44.4 per cent for the County.44 Despite the wide differences in family income and housing values, the median rentals in the South Central 43Ibid.. pp. 31-32. 44Ibid., pp. 36, and xxiii-xxvii. 144 Area are only slightly below the County levels--$65.35, compared with the County-wide median of $71.00.4^ Obvi ously, rentals at this level will absorb a considerably larger proportion of the typical family's income in the 46 South Central Area than in the County as a whole. Implications As the data indicate clearly, the South Central Economic Planning Area was characterized in 1960 by an increasing concentration of Negro population,by economic marginality, high unemployment, a relatively small skilled- labor force, and family disruption; substandard housing conditions were aggravated by the increasing age of the community’s homes. There is no evidence to suggest that these problems have not continued or even become more grave 45Ibid.. p . 37. 4^The relatively high median rental may be due in part to the inclusion in the South Central Economic Plan ning Area of some areas with higher socioeconomic status-- where high rents may be offset by above-average incomes. Nevertheless, for the typical family in the Planning Area an annual rental charge of nearly $800 will effectively accentuate an already substandard style of living. 4^The large overall increase in Negro population affected every subarea except Lynwood (P-l) and South Gate (0-4). 145 in the period since the census, All those characteristics lead to an anticipation of still greater concentrations of dependent poverty in the Planning Area as a whole. This is particularly true of those subareas showing the greatest degree of socio economic deprivation; only for those portions of Santa Barbara (F-8) , South Gate (0-4), and Lynwood (P-l), which are included in the area is it possible to foresee a rela tive degree of prosperity in the future This prognosis is based on the aggregate of social and economic indicators discussed above. One of the effects of impoverishment is to preclude the possibility of experiencing those things that are taken for granted by the "affluent Americans." It means for example, that the ex cluded do not know how basic institutions of this society work--because these institutions have never worked for them. The rich and the poor . . . view the world differently. It is this distinction in perspective that must be understood before one can reach people, because they must be reached where they are. This estrangement from participation in the "democratic process," means that people are not only ignorant of this "eemocratic process," except in vague and nonrelevant ways, but also that they have no control over their lives. . . .^8 The Avalon district examplifies the way in which ^Bill Strickland, "Community Organization in the Ghetto: A Critique" (draft for press conference by Execu tive Director of The Northern Student Movement, New York). deterioration gains impetus in a neighborhood. Constant population change, low educational standards, low occupa tional skills, inadequate income, high dependency ratios, and deteriorating housing, all of which operated in Avalon during the 1950-60 decade, accelerated this neighborhood's decline into dependent poverty.^ If, for a moment, we exclude the multiplicity of overlapping and reinforcing influences, this downward spiral may be outlined as fol lows. The community becomes identified as an undesirable place in which to live; absentee ownership and neglect and deterioration of property become wide-spread; overall housing values in the area decline; large numbers of disad vantaged persons move in and remain in the community, while the better trained, better-educated, more ambitious resi dents move out; the area becomes increasingly alienated from the larger community. All these factors serve to per petuate the community's undesirable reputation, speeding the outward movement of the higher-income residents and inhibiting any new influx of such a population. Add to these influences a densely concentrated Negro population, AQ ^Renstrom, Avalon and Its People, loc. cit. 147 largely barred from economic and social participation, and the ghetto becomes a reality. Such influences operating on and in a community lead to something even more significant than the develop ment of a racial ghetto. Neighborhoods arise that are ", . . left out of the mainstream of economic progress, . . . [becoming] pockets of economic blight eating away at the nation's strength, and slowing down the total growth As far back as November, 1963, the warnings about the dangers inherent in the situation in areas such as Watts were being voiced: To date, Los Angeles County has been fortunate in avoiding extreme overcrowding, but if our minority population continues to outstrip our total popu lation in rate of growth, and if they are confined to certain segregated areas either by custom or force, the same potentially explosive situation will develop that has led to rioting and violence in the East and South. Almost two years passed before the August, 1965, riots in Los Angeles, and almost instantly an explanation and a -^U.S., Department of Commerce, Area Redevelopment Administration, A Working Partnership for New Growth. New Jobs (Washington: Department of Commerce, November, 1961). ■^Community Relations Educational Foundation, op. cit.. p. 10. 148 suggested antidote against future trouble came from many sources. Among them was the following: No one can say that if our War on Poverty program in Los Angeles had been in full operation, that the past five days would have faded from the possibility of reality--but like everything else, no programs on any large scale added fuel to the fire. Through the lack of having these programs in operation, our own contact in the community shows that some of these programs would have put some dent in unemployment in the community if a criteria of hiring neighborhood people had been followed. Now the "ghetto" must be designed and built, not as a former prison camp, but as a com munity where people will want to live. And the large masses of the unemployed in the community are the logical basis for a community reconstruc tion work force.52 Thus, by December of 1965 Newsweek could write: . . . Watts has become what its rioters insisted they wanted it to be: a world-wide symbol of all that is wrong with ghetto life for American Negroes, and an instant laboratory, groping for formulas to change the pattern.53 It is widely recognized, however, that the problem of dependent poverty is not internal to the economic and production systems; within these systems there is substan tial productivity, and scope for more. What is needed for Lynne C. Shifflett, "The War on Poverty: No War = an Insurrection" (publicity release by Watts Outpost, Neighborhood Adult Participation Project, Los Angeles, August 19, 1965), p. 2. “^"Watts Today: Brave Plans--and a Sick Psyche," Newsweek. December 13, 1965, p. 31. 149 full participation by the entire population is the oppor tunity for all persons to have the requisite social, technical, and psychological skills. As suggested earlier, this may be an oversimplification where complex answers are needed, but this is what Congress envisioned in the Eco nomic Opportunity Act of 1964. The South Central Economic Planning Area, even though housing 50 per cent of Los Angeles County's Negro population, is subject to its own special limitations on the full social and economic participation of its citizen ry. These problems, however, in all their diversity, are chiefly factors of job displacement, unemployment and unemployability, family disruption, and economic marginal- ity. These are community-wide difficulties, shared by depressed and deprived neighborhoods throughout the coun try. Recommendations made here stress this local charac teristic and advocate social action on the neighborhood level. Oversimplifications, then, serve to universalize the factual data. It is hoped that this report will sup plement the local, first-hand knowledge out of which pro grams of community action can be soundly planned and implemented. 150 Recommendations In the federal War on Poverty throughout the United States generally and in the Los Angeles area specifically, different kinds and sizes of programs are already underway. These are in line with the concept of the war against poverty as expressed by the Office of Economic Opportunity: In smaller communities and in those with more limited resources, local leaders can begin a Com munity Action Program in stages. . . . All local programs should use the talents of persons living in and affected by the poverty stricken neighborhoods in planning and operating programs.... Further, Community Action Programs should see that existing local, State and Federal programs are linked to each other in a concentrated drive against poverty. . . . Community Action Programs, in short, will fuse the old, scattered programs while providing the technical and financial assistance to initiate the new attack against the varied problems that have ensnared the poor.54 » A number of recommendations are offered at this time by the writer in the hope that their implementation will expedite effective assistance to the South Central Economic Planning Area under the Economic Opportunity Act of 1964. ^U.S., Office of Economic Opportunity, The War on Poverty--A Hometown Fight (Washington: Public Affairs, Government Printing Office, 1965), p. 2. It is suggested that the gap between census years, currently ten years, be reduced to five. This would be of great aid to the exact deter mination of the demographic and socioeconomic trends in problem areas. The need for current data is such that Congress should appropriate funds for special census in areas of acute unemployment and poverty. The existing legal and technical requirements that define area redevelopment and similar programs should be revised to permit greater flexibility in providing assistance to poor communities. Only when these programs are truly available to the neighborhoods that need them can meaningful action be taken. In all "designated" areas, federal and state antidiscrimination agencies should be granted sufficient funds to enforce contract provisions requiring equal employment opportunity. Responsible authorities should explore immedi ately the feasibility of tax concessions in exchange for physical improvements made by owners of residential properties in areas designated for restoration or rehabilitation. Although job creation rates high priority, further consideration must first be given to the recruitment policies of newly-established firms. These must be seen in the light of requisite and available skill levels and transportation factors which either hinder or promote the employment of residents of poverty- stricken areas. A cooperative program to provide counseling and technical assistance for businessmen now lo cated, or considering location, in the Study Area should be initiated by the Small Business Administration, Area Redevelopment Agency, and the business and/or economics faculties of the University of California at Los Angeles, University of Southern California, California State College at Los Angeles, and other insti tutions of higher learning in the Los Angeles metropolitan area. The Treasury, in consultation with the Area Redevelopment Agency, the Small Business Admin istration, and other agencies, should consider 153 ways by which property depreciation allowances for tax purposes might be revised to encourage better development of areas which are under developed or poorly maintained at present. 8. Special consideration of depressed areas should be exercised in the granting of government contracts. In addition, rapid tax amortiza tion, or other tax incentives, as proposed by Sar Levitan, should be offered. 9. Consideration should be given to an expanded and liberalized policy of government loans or loan guarantees for construction of high-rise commercial and industrial buildings in "designated" areas with high land costs. 10. The Small Business Administration might con sider granting special technical and financial assistance to small businessmen now located in the Study Area, who might otherwise find it necessary to cease operations or relocate, as a prelude to a more extensive redevelopment program. 154 Summary In development of this dissertation's intent to show the feasibility of attacking poverty in the Watts area of Los Angeles through assistance to small businesses, this chapter has presented the current demographic and socio economic characteristics of the South Central Economic Planning Area. These characteristics have been presented so that the depth of the problem may be seen and also so that the possible solutions to the problem may be more realistic . In the next chapter, the discussion will center on the Los Angeles Area Economic Development Agency as the umbrella agency in the current War on Poverty. CHAPTER V THE LOS ANGELES AREA ECONOMIC DEVELOPMENT AGENCY At the present time, one of the most meaningful and effective agencies organized to wage the War on Poverty in the South Central Economic Planning Area in general, and the reconstruction and improvement of that area and the Watts subarea in particular, is the Small Business Develop ment Center, operating under the Los Angeles Area Economic Development Agency. Before attempting to discuss the Los Angeles Area Economic Development Agency, it should be pointed out that the term "Watts'1 has come to have a dual connotation: first, it is the small specific geographic location labeled F-2 on the map of Los Angeles County on page 104; and second, - it is the entire section of the city of Los Angeles in volved in the August, 1965, "Watts riots." It should be pointed out, too, that these three terms--South Central 155 156 Economic Planning Area, Watts, or the "riot zone"--are not entirely synonymous. Although the boundaries of the South Central Economic Planning Area are relatively explicit and stationary, the boundaries of neither the broad concept of Watts nor the "riot zone" are exact or permanent. In spite of this flexibility in geographical delimitation, the three terms connote the same general section of Los Angeles, and are used synonymously in this study. Introduction In order to understand the functions and operations of the Los Angeles Small Business Development Center, it is necessary to understand first the development, organi zation, and responsibilities of the Los Angeles Area Eco nomic Development Agency--the agency sponsoring the Small Business Development Center. This chapter, therefore, undertakes to present a brief history of the Los Angeles Area Economic Development Agency, and to project the gen eral and overall effects on the South Central Economic Planning Area of the federal funds allocated to it. History At the time of its formation in 1962, the Los Angeles.Area Economic Development Agency worked partially 157 under funds supplied by the Youth Opportunities Board of Greater Los Angeles, which was funded by the Area Redevel opment Agency, and partially directly under the Area Rede velopment Agency. This dual allegiance integrated some of the activities of the Los Angeles Area Economic Development Agency with those of the Youth Opportunities Board and yet at the same time gave it a considerable degree of autonomy. The Youth Opportunities Board of Greater Los Ange les was organized in April, 1962, for the purpose of improving "the opportunities for youth to develop themselves toward gainful employment and other constructive partici pation as citizens" and also for the purpose of an "imme diate concerted undertaking of programs of data gathering, of training, and of action which will implement and guide the Greater Los Angeles area in the successful enhancement and accomplishment of said opportunities. The Board was a "joint powers" agency, and it found: . . . that problems of children and young people could not be separated from the problems--and ensuing deprivation--of their parents and grown up companions. As a result, the Youth Opportuni ties Board set about to conduct the very type of Youth Opportunities Board of Greater Los Angeles, "Joint Powers Agreement" (Los Angeles: April, 1962), pp. 1-2. (Mimeographed.) 158 research and program development that related directly to the nation's "War on P o v e r t y . After the passage of the Economic Opportunities Act, it became evident that broader community representation was needed, and so the Youth Opportunities Board was merged with the interests of the Economic Opportunity Federation of Los Angeles. The resulting organization was known as the Economic and Youth Opportunity Agency of Los Angeles County, and became’eligible to receive loans or grants of Federal Funds for the purpose of implementing the policies O and achieving the goals of the Act." As stated in the "Joint Agreement" establishing the agency: The Agency may . . . constitute itself a "Community Action Organization," as that phrase is comprehended by Title 2 of the Economic Oppor tunity Act of 1964 » . . for the purpose of pre paring . . . proposals . . . which may be submitted to the Federal and State governments . . . to receive grants or loans . . .^ Although the Los Angeles Area Economic Development Agency became eligible under Title IV of the Economic 2 Youth Opportunities Board of Greater Los Angeles, "Quick Facts about the War on Poverty in Los Angeles County" (Los Angeles: 1965), p. 1. (Mimeographed.) 3 Community Anti-Poverty Committee, "Joint Agreement Establishing the Economic and Youth Opportunity Agency of Los Angeles County" (Los Angeles: n.d.), p. 3. 4Ibid.r p. 20. 159 Opportunity Act to receive some of its funds directly from the Office of Economic Opportunity, it was also still work ing partially under the Economic and Youth Opportunity Agency and also partially under the Area Reconstruction Agency. Thus it maintained its autonomous status in respect to some of its funds and its activities while, at the same time, coordinating its activities with other agencies waging the War on Poverty in Los Angeles. In addi tion, the Los Angeles Area Economic Development Agency has operated since its inception according to the programs funded under the Manpower Development and Training Act and has contributed meaningfully to the industrial development programs in the South Central Economic Planning Area, with active participation in the "training and guidance of adults for new jobs, business and industrial expansion, and housing and neighborhood 'spot redevelopment."'"’ Organization "The Los Angeles Area Economic Development Agency was incorporated under the non-profit incorporation laws ’ ’Youth Opportunities Board, "Quick Facts . . p. 5, 160 of the State of California on October 30, 1963."^ The agency resulted from the active interest of four Congress - men--George E, Brown, Jr., Augustus F. Hawkins, Edward R. Roybal, and Charles H. Wilson--whose constituencies encom pass most of the disadvantaged areas in Los Angeles County. Initially funded by the federal government under a contract with the Area Redevelopment Administration, it was founded and active well before the passage of the Economic Oppor tunity Act of 1964. The officers of the Los Angeles Area Economic Development Agency are: Eddy S. Feldman, president, attor ney at law, managing director of the Los Angeles Home Furnishings Mart, chairman of the Los Angeles Art Commis sion, author and lecturer; Raymond L. Johnson, vice-presi dent, attorney at law, vice president of the Los Angeles Branch of the National Association for the Advancement of Colored People, board member of the Holman Methodist Church; Lucy M. Dunn, secretary, real estate broker, notary public, community leader in the Watts-Willowbrook area; and Thomas Rudolph Rivas, treasurer, attorney at law; C . Letter from Eddy S. Feldman, President of Los Angeles Area Economic Development Agency, to Chief, Tech nical Projects Division, ARA, April 2, 1964. 161 officer of the Council on Mexican-American Affairs, member of the Mexican-American Chamber of Commerce.7 The composition of the Board of Directors of the Los Angeles Area Economic Development Agency has not remained static. The following list is given inasmuch as it reveals the type of member serving on the Board and the breadth of the activities represented: David M. Goodman, management consultant, member of the Los Angeles World Affairs Council John 0. Lewis, vice-president of University Savings and Loan Association, real estate broker 0. Robert Fordiani, realtor, field representative for Congressman Charles H. Wilson Leo D. Varela, counselor, Utah Street School (East Los Angeles), member and past president of Aliso-Pico Community Council Alfonso Najera, furniture and hard-goods retailer (East Los Angeles), member and past president of Belvedere Optimist Club.** ^Special information gathered from press releases and miscellaneous reports. 8Ibid. 162 Purpose The program of the Los Angeles Area Econpmic Devel opment Agency is designed to secure the following objec tives : 1. To determine how organized community groups might relieve unemployment among area resi dents within existing programs. 2. To determine, if the scope and scale of exist ing programs are inadequate, what changes should be made. 3. To indicate what new legislation might be required to relieve unemployment among the residents of the area. The emphasis of the Agency's work will be upon efforts to create new permanent job opportunities for area residents. In order to achieve this objective, the Agency's major effort will be directed toward industrial development. As the Agency saw its own work as of Novem ber, 1965, it expected to "continue the planning, develop ment and management of economic and community development programs in the identified areas of unemployment and pover ty in Los Angeles County." To carry out these plans, the Agency expected to: 163 Continue to participate actively in the total mix of "Great Society" building programs in Los Angeles County, and to serve in such programs coordination capacity as the situation may demand. In so doing, LAAEDA can contribute significantly to the solving of problems identified by the study conducted by UCLA's Institute of Industrial Rela tions under terms of a Technical Assistance con tract with the Area Redevelopment Administration of the U. S. Department of C o m m e r c e . ^ Concrete endeavors of the Los Angeles Area Economic Development Agency to reach its objectives will include the following: 1. In the area of industrial development, the Agency will use information developed by UCLA's Institute of Industrial Relations in attempts to induce new and expanding industry to locate in the area. Also, the Agency will organize community groups to join with government agencies in promoting the area's industrial development. A significant part of these efforts will be the creation of inducements to industry to employ area residents. 2. In the area of community facilities, the Agency will determine the local needs and guide com- Q Los Angeles Area Economic Development Agency, "Final Report on Contract No. Cc-6117," November, 1965. 164 munity groups in establishing the required facilities. 3. In the area of business assistance, the agency will set up a Small Business Committee of local businessmen which will cooperate with government agencies to provide business training and assistance in the community. 4. In the area of adult education, the Agency will encourage programs that include not only business education, but also literacy and ski 11-upgrading programs.' 5. In the area of inmigration, the Agency will offer assistance for entrance into the labor force and help, if necessary, in the adjustment to urban living. Activities The Los Angeles Area Economic Development Agency has been designated by the Youth Opportunities Board as the sponsoring agency for Small Business Development Cen ters in Los Angeles County, as envisioned by the Small Business Agency in line with the objectives of the Economic Opportunity Act of 1964. In addition, it has long-estab- 165 lished relationships with the Small Business Administration and with government and private agencies at state and local levels. Broad contacts and working relationships estab lished with the infrastructure of the Los Angeles disad vantaged community as well as with the business and indus trial community. Beyond the extensive research and coordination efforts devoted to the planning of Small Business Develop ment Centers covered by this study, the Los Angeles Area Economic Development Agency's efforts include intensive program development work in three basic areas: (1) busi ness development, (2) housing and redevelopment, and (3) transportation. In the area of business development and business job creation, the Agency's staff has participated in a pilot job shop program, the foundation for a three-unit job shop small-business-complex proposal previously submitted to the Office of Economic Opportunity. Interviews and preliminary processing work with over one hundred Title IV loan applicants has been accom plished to date. The Agency has also done considerable work relating to examination of indigenous business needs which can be developed into profitable labor and/or service 166 establishments. An extensive information program has been conducted within the community to encourage a change in the attitudes of commercial bankers toward small businessmen in the disadvantaged areas, and more specifically to change their attitudes about the government-supported loan programs. A Business Advisory Council, including successful businessmen in the disadvantaged areas and prominent mem bers of the entire Los Angeles business and industrial community, has been created by the Agency. The Economic Development Agency's basic economic survey of the deprived area, presently in process, will be completed shortly. Eight detailed proposals dealing with job creation and with business and economic development in the county's depressed areas are also in process of development. In the area of housing and redevelopment, the Agency is engaged in extensive program development. This requires close community cooperation in a multi-faceted housing program involving local building contractors, the Federal Housing Administration, Urban Redevelopment, the Regional Planning Commission, and other private and public agencies. A program relating to inexpensive transportation 167 is still in its early stages, but already it includes a projected series of conferences with the Area-Wide Rapid Transit District to be devoted to the public transportation problems of disadvantaged communities. Proposals dealing with experimental private and cooperative transportation systems within the depressed areas are also being devel oped . In summary of its activities, it may be stated that the problems in the Watts area that the Los Angeles Area Economic Development Agency has undertaken to study and for which it expects to propose definite solutions are enormous and on-going. In some cases, the Agency's programs are still tentative; in other cases, the Agency is already actively engaged in specific and concrete programs. Much needs to be done, but it would appear that the Los Angeles Area Economic Development Agency has made an effective beginning. Projected Effects In order to comprehend the area-wide economic benefits expected to accrue to the Watts area from funds expended by the Los Angeles Area Economic Development Agency, it is necessary to understand the basic economic 168 premise of the Area Redevelopment Act and the projected effects of federal financial assistance through specific approved programs. Local and regional public agencies in "redevelop ment areas" may qualify for several types of federal assistance under the Area Redevelopment Act. "Redevelop ment areas" are those areas in the United States, such as the South Central Economic Planning Area, where substantial and persistent unemployment has existed for an extended period; where the ratio of unemployment has averaged sub stantially above the national rate; and where unemployment or underemployment figures are among the highest in numbers or percentages of low-income families. To qualify for most benefits available under the Act, a redevelopment area must submit to and have approved by the Secretary of Commerce an overall program for the economic development of the area. It must also submit a finding by an appropriate state or local agency that the project for which assistance is sought conforms to the program. Types of assistance available to state or local governments in redevelopment areas include planning grants, urban renewal grants, public facility grants and loans, 169 federal participation with state, local, or semipublic sources in industrial or commercial loans, occupational training or retraining programs, and technical assistance. An Area Redevelopment Agency area seeks to identify programs which will accomplish the following: 1. Eliminate some of the causes of poverty and unemployment. 2. Provide immediate employment for the unem ployed, and possibly the underemployed. 3. Improve the economic potential of the area. 4. Produce, as a result, an economic climate and environment which encourages the establishment of new businesses and the expansion of existing businesses in the area.^ The effective implementation of the programs will generally require cooperation among the different levels of govern ment, business management, the labor movement, and the communities involved. The successful implementation of the suggested University of California at Los Angeles, Indus trial Relations Department, "Hardcore Unemployment: A Report by the Institute" (unpublished report by the Insti tute of Industrial Relations, 1964), p. 47. 170 programs will also produce increased incomes in the area. Even more important, the increase in overall area income generated by these programs will be a significant multiple of the actual amount invested. To quote the widely-accepted words of Paul A. Samuelson, Professor of Economics at Massachusetts Institute of Technology, "investment dollars 11 . . .are high-powered, double-duty dollars." What is meant by this phrase is that new investment by government or private enterprise not only benefits the direct recipi ents, but it also initiates a chain reaction of secondary spending, consumption, and additional employment. More over, such investment stimulates savings and further in vestments to a degree determined by the spending habits of the area's residents. The multiplier effect of this investment in any specific area can only be estimated. Since, however, it is concentrated on idle human resources, it is certain to be significant, especially in providing the prerequisites for economic growth and basic, sound, 12 productive, self-sustaining employment. 1XIbid. X^U.S., Office of the President, Council of Eco nomic Advisors, Annual Report of the Council of Economic Advisors (Washington: January, 1964). 171 Let us examine the first possible effects of the injection into the South Central Economic Planning Area of funds to finance the suggested programs. In 1960, accord ing to a study by Fred E. Case, Professor of Real Estate and Urban Land Economics, and Assistant Dean of the Gradu ate School of Business Administration at the University of California at Los Angeles, 3,811 families in the Area (16 per cent of the total families) received incomes of less than the $3,000 per year poverty level established by the Council of Economic Advisors, and 3,003 more families (another 12 per cent) received incomes below $4,000 per year--the Council's deprivation level.^ Specific figures for individual subareas included in this study are even more revealing. For example, of 15,949 families in Watts (F-2), 44.5 per cent had incomes of under $4,000; and 47.4 per cent of the 15,759 families in Avalon (F-4); whereas for Los Angeles County on 19.1 per cent had incomes in that bracket.^ 13 Conference on Economic Progress, Poverty and Deprivation in the United States (Washington: 1962). *i i Marchia Meeker, Background for Planning. 1963 (Los Angeles: Research Department, Welfare Planning Coun cil, Los Angeles Region, February, 1964), pp. xxxvi- xxxix. 172 Assuming these data to be applicable today--and evidence suggests that they understate the current situa tion-raising the income levels of the poverty group to $3,000 would add between 3.8 million and 5.3 million dol lars a year to the Area's income, and, if the deprivation level were the target, the additional annual income for the Planning Area would be between 8.3 and 12.1 million dollars. It is not difficult to appreciate what this additional income could mean in terms of new business activity in the Area. For example, if the income, and thus the economic potential, of the Area had been previously increased, it is not inconceivable to project that the South Central Area would have benefited immeasurably in 1964 from national private expenditures of 44.65 billion dollars for new plants and equipment, more than 65 billion for new construction, and over 250 billion dollars in retail sales--to mention only a few economic and business indicators. The secondary effects of this initial injection of new funds into the Area consist of two factors: additional income and additional jobs. For an economic system as 15Ibid., pp. 47-49. 173 advanced as that of the United States, a multiplier of two to three is generally regarded as applicable. The mid point of two and a half is assumed for the Study Area. Let us further assume that the programs suggested will cost about 25 million dollars a year, which sum will be received principally by producers of goods and services. With the assumed multiplier of two and a half, the 25 million dol lars per year ultimately become 62.5 million dollars, because the recipients of new income are going either to spend it on consumption goods or to save it. Money spent on consumption goods immediately becomes income for people employed in producing these goods; they, in turn, spend part of it on more consumption goods, and so on. Most of that which is saved will be invested, which means additional income for people employed in industries producing capital goods who, in turn, will spend part of this increased income on consumer goods, and so on. This increased spending, if sustained, must even tually lead to an increase in jobs in both the goods- producing and the service-producing industries. Attempts have been made to establish relationships between the creation of jobs in manufacturing and resulting 174 increases in nonmanufacturing jobs. In the author's opin ion, however, this is a "chicken-and-egg" situation--it does not make a great deal of difference where one sets the cause-and-effect mechanism in motion. Summary This chapter has attempted to show how the Los Angeles Area Economic Development Agency has formed the bridge between the general and all-encompassing theoretical concepts of a War on Poverty and the resultant working program at the local level. On the one hand, Los Angeles Area Economic Development Agency is funded by and respon sible principally to three federal organizations: (1) the Area Redevelopment Administration, (2) the Manpower Devel opment and Training Administration, and (3) the Office of Economic Opportunity. On the other hand, the Agency's position of responsibility for the operation of the Small Business Development Center in South Central Los Angeles is a manifestation of the local-level battle against poverty in a specific area. The work of this Center is the subject of the following chapter. CHAPTER VI A SMALL BUSINESS DEVELOPMENT CENTER FOR THE SOUTH CENTRAL AREA Introduction The Small Business Development Centers for Los Angeles County are designed to implement Title IV of the Economic Opportunity Act of 1964. Section 401 of the Act reads: It is the purpose of this title [Title IV] to provide new training and employment opportunities for long-term unemployed persons; to assist in the establishment, preservation, and strengthening of small business concerns and improve the managerial skills employed in such enterprises; and to mobil ize for these objectives private as well as public managerial skills and resources . * - U.S., Senate, Committee on Labor and Public Wel fare, Select Subcommittee on Poverty, The War on Poverty: The Economic Opportunity Act of 1964--A Compilation of Materials Relevant to S. 2642 (Washington: U.S. Government Printing Office, 1964), Document No. 86, p. 19. 175 176 This chapter outlines the establishment of a Small Business Development Center for the South Central Economic Planning Area. Its successful operation calls for a cre ative, intelligent, carefully-developed program involving the varied talents and resources of the area. The busi ness-oriented staff and board of the Los Angeles Area Economic Development Agency, together with the volunteer assistance from the greater Los Angeles area, give the program proposed for the Small Business Development Centers an unprecedented opportunity for success. Although the South Central Small Business Develop ment Center is currently getting under way and is in actual operation, many of its programs and activities are still in the planning stages. For this reason, much of this chapter is based on the eventual proposed operational set-up of the Small Business Development Center rather than on what has actually been accomplished. Federal Approval In order to understand how Small Business Develop ment Centers fit into the War on Poverty, it should be realized that the Economic Opportunity Act provides that the Small Business Administration may be delegated the 177 the task of carrying out the lending and guaranty functions under Title IV, and further stipulates: The Director may, in his discretion, as a condi tion of such financial assistance, require that the borrower take steps to improve his management skills by participating in a management training program approved by the Director. The Director shall encourage, as far as possible, the partici pation of the private business community in the program of assistance to such concerns. While Title IV requires that financial assistance and training shall be "determined . . . to be consistent with" the community action program in any community in which such a program has been approved, it does not stipu late that these functions must be an integral part of such a program. Since the passage of the Act, the Small Business Administration and the Office of Economic Opportunity have agreed that the purpose of Title IV can best be realized through the establishment of Small Business Development Centers. The general functions of these centers include: 1. To work with SBA in publicizing the Title IV Economic Opportunity Loan Program and in arousing public interest, thereby stimulating members of the community to make application to the SBDC. 2 Ibid., p. 20 178 2. To screen applicants and determine whether they need financial aid or management assist ance or both, and whether the applicant appears to be a reasonable risk, thereby warranting his request for an SBA loan. 3. To develop and staff management training courses for the purpose of teaching such busi ness skills as basic bookkeeping, inventory control, and credit management. 4. To discover and develop ideas that will pro vide new business opportunities and aid in the economic development of the community. 5. To develop data necessary to analyze the effectiveness of this loan program to the community. An in-depth course of action designed to meet the requirements of the Act was prepared by the Los Angeles Area Economic Development Agency and funds were requested from the Office of Economic Opportunity for the first year of Small Business Development Center operations. The pro posal was submitted to the Office of Economic Opportunity through the Youth Opportunities Board, the community action agency for Los Angeles County, and it was suggested that this program be commenced not later than June 1, 1965. Knowledge of the existence of Title IV, and the 3 U.S., Small Business Administration, SBA and the Economic Opportunity Act of 1964 (Washington: Office of Public Information, 1965), pp. 1-2. 179 designation of the Los Angeles Area Economic Development Agency as the intake agency spread rapidly throughout the South Central Area. No official public announcement was made about this new set up, unfortunately, and publicity of any kind about the activities has been minimal. It is true that on May 3rd, 1965, an article describing the pro posed Small Business Development Center appeared in the Los Angeles Times. Again, on May 5th, a second article appeared in the Times indicating local approval of the proposal by the Youth Opportunities Board. A few addition al articles about the Small Business Development Center have appeared in the local press from time to time, but it cannot be said that the press has given much space to information about the Center. In spite of this, by late 1965 140 unsolicited loan applications were being processed by the Agency. This large number of applications created a situation wherein undue delay of formal Small Business Development Center funding might seriously have reflected on the program, the government and the potential leadership in the affected area. Small Businesses Small businesses in disadvantaged areas share all of the ills of small businesses elsewhere, and partake, additionally, of ills unique to depressed areas, particu larly where these areas involve minority groups. For one thing, characteristically, small businesses lack access to adequate long-term credit, and, often, to adequate medium- and short-term credit. The small businessman's problem Although many organizations, such as the Small Business Administration and some Chambers of Commerce, offer information on small business practices, these sources are not usually consulted on small business prac tices by small businessmen, so that the acquisition of management skills is a random process for many of these people. Then, too, problems are often intensified by lack of prior education and, although the small entrepreneur knows he needs additional training, he is often unable to acquire it, devoting as he must all of his time to the business itself. These difficulties are intensified in economically disadvantaged areas. Credit is even more difficult to 181 obtain; trade sources of credit, available to the larger community, are often not available in depressed and/or ethnic neighborhoods. Educational levels are lower. The areas are poorer and dollar volume is generally less, which, in turn, intensifies some of the other small busi ness problems. Added to this is the fact that well-fi nanced entrepreneurs and businesses from outside the disad vantaged areas tend to monopolize potentially successful business situations and leave the second and third class opportunities to the resident entrepreneur. Thus, a com munity-wide business climate is formed in poverty areas that fosters only marginal operation and, in some cases, insures failure. The strategy of the course of action outlined for the South Central Economic Planning Area is to break up this combination of inadequate financing, sporadic train ing, and limited opportunity--and to provide the small businessman in the Area with something approaching a com petitive situation in the open market. If this could be done in a sufficiently large num ber of cases, the Los Angeles Area Economic Development Agency believed that a substantial contribution would have been made toward: 182 Reconstructing the cash flow in the community to the end that larger portions of the gross volume of business done within the disadvantaged commu nity stays in that community. Providing hundreds of visible, successful examples, of independent self-sustaining entre preneurs that live and work in the community. These "models" will serve as a source of hope and aspiration for many poor and disadvantaged who do not believe such things are possible, or avail able, to them. Providing hundreds of "new" jobs in the dis advantaged area. Providing a clearly structured and documented model that can be used, with variations appropri ate to local conditions, throughout the United States The "small-small" business In general, institutions designed to serve the American business community have shown a preoccupation with size, so that special concern for the .problems of the "small-small" businessman is relatively new. Literature on economics since World War II, for instance, contains almost no information specifically involved with the theory of businesses employing fewer than ten people or grossing less than a quarter of a million dollars a year. ^Los Angeles Area Economic Development Agency, "A Small Business Development Center for Los Angeles County" (submitted to the Office of Economic Opportunity thru the Youth Opportunities Board), pp.13-14. 183 No college or university in Los Angeles has ever engaged in definitive research in the field of "small-small" busi ness or attempted to create a curriculum geared to that level of enterprise. Also, it is virtually impossible to find a consulting firm which specializes in small-small business problems. Beyond this, the art of training man agement consultants per se is in the very earliest stages of development, and-there appear to be no formal courses being taught in business or management consultation tech niques for small businesses--at least, none have been dis covered in the Los Angeles area. Purposes of the Centers5 Consultation The Los Angeles Area Economic Development Agency stated in its proposal that through Small Business Develop ment Centers poverty area residents could be satisfactorily trained in the art of small business consultation. It suggested that a resident staff could help in creating businesses that might eventually play a part in breaking down the walls that discriminatory business practices ~*Ibid. , much of the material that follows is taken from this proposal, either directly or through excerption. 184 have built around the ghetto. The staff would assist in establishing markets for goods and services that cut across the various existing "Mason-Dixon" lines in Los Angeles County. Confronted with a task of special depth and com plexity, only a comprehensive attack was believed capable truly of serving the short-term goal of loan retrieval of Small Business Administration funds and the long-term goal of providing multiple examples of successful business in the Watts area. This attack should include a carefully designed and sophisticated in-house capabilities develop ment program and a managerial skills training program for the loanee. In the Small Business Development Center, special ly-designed training courses for the small business man ager provide a basic framework for his further acquisition of skills and knowledge. However, no training program can be expected to produce experienced entrepreneurs immedi ately, capable of successful operation without support. In addition to the courses, the Center will attempt to evalu ate the past experiences of the operator and examine the integrity of the original business idea. It will also provide information about the relevant, but unpredictable, 185 market variables. The standards imposed by the Small Business Devel opment Center will coincide with the policy interpretations of Section 405 (a) of Title IV of the Economic Opportunity Act.** This section states: Sec. 405. Loans made pursuant to section 402 (including immediate participation in and guaran ties of such loans) shall have such terms and conditions as the Director shall determine, sub ject to the following limitations-- (a) there is reasonable assurance of repayment of the loan; . . .6 Advice The Los Angeles Area Economic Development Agency realized that a consultation program designed merely to insure the repayment of government loans would not meet the further social and economic criteria imposed on the Small Business Development Center program by the Economic Opportunity Act. The Center, therefore, does not seek simply to aid and foster a large number of new marginal businesses that are capable of repaying the initial loan, even though some businesses that meet this criterion will g U.S., Congress, An Act to Mobilize the Human and Financial Resources of the Nation to Combat Poverty in the United States. Public Law 88-452, 88th Cong., S. 2642, August 20, 1964. be able to flourish and expand. Instead, the Small Busi ness Development Center attempts to design and generate new businesses that are growing and expanding to the point that many of them eventually may be able to serve broad and even national markets, thus providing greater employ- ♦ ment opportunities and cash flow into the local area. The counseling offered by the Center is provided through staff members bearing the title, Business Development Advisors, and through its Business Advisory Council, which works very closely with the Advisors. This advice attempts to be thorough, systematic, and effective. In order to supply the support needed by the new business owner, each Small Business Development Center's Business Development Advisor spends time in the field. In order for the Advisor to allocate adequate time to be spent with each "client, the maximum case load for each Advisor ranges from ten to fifteen new or developing businesses. This size of case load has been found to be best. For the purpose of assignment and case load adjust ment, each new business monitored by the Small Business Development Center is divided, in time, into three phases: Phase I. Case acquisition, management training, new business site location, preparation, financing 187 and commencement. Field contact of two to three times a week (two to six weeks). Phase XI. Business development and/or expansion. Methods development. Acquisition of buying and marketing skills. Field contact of once or twice a week (ten to eighteen months). Phase III. Advisory and support phase out. Advisory role limited to occasional trouble shooting and consultation. Contact once or twice per month, or as needed (eighteen to twenty-two months).7 Obviously, peak advisory activity will occur during Phase I and to a lesser degree during Phase II. "Optimum case load will, therefore, depend upon the variety of case phases assigned to each advisor."® What this has meant to the Small Business Development Center is that what will prob ably prove to have been the peak load has occurred during its beginning months. Thus, with optimum mix of phases, and maximum case loads of fifteen businesses per Advisor, the South-Central Small Business Development Center has been able to sustain approximately seventy-five new and developing businesses. ^Los Angeles Area Economic Development Agency, op. cit., pp. 17-18. 8Ibid., p. 18. Evaluation A major role of the Small Business Development Center is to offer evaluated experiences for small busi ness *improvement. Each Advisor, assisted by volunteers of the Business Advisory Council, records continually and reports on his case load, providing a flexible interchange of suggestions, solutions, and program validity data. Operation of the Center The Small Business Development Center located in South Central Los Angeles is one of two pilot centers, the other being located in East Los Angeles. In the future, consideration will be given to the establishment of offices in Long Beach, Pacoima, Venice, and Pasadena, according to the needs of the area. The two pilot centers,officially opened on October 27, 1965, have been busy processing four hundred Economic Opportunity Loan applications received by the Los Angeles Area Economic Development Agency in recent months. The optimum staff, as approved by the Office of Economic Opportunity consists of five business advisors, a supervising business advisor, a secretary, two clerk- typists, a statistical clerk and a research assistant, 189 with overall supervision under the direction of the Small Business Administration staff and the staff of the Los Angeles Area Economic Development Agency. As envisioned by the Agency in its proposal to the Office of Economic Opportunity, the functions of the Center would include: 1. To act as reception centers for Title IV and other long-term loan applications. 2. To provide consulting capability for small businessmen who have received, or will receive, Title IV loans through the Small Business Administration. 3. To provide training facilities for small business management. 4. To act as a general information center for economic development and small business development in the various communities. 5. To develop and improve commercial bank and trade sources of short- and long-term credit. 6. To design and implement new forms, operational services and labor-intensive business. 7. To implement community participation in recruiting of new management capabilities.9 The Center has been selecting residents from the Watts area and has inaugurated the training of these area residents as business development advisors. This program has also included the selection, equipping, and training 9Ibid., pp. 19-20. 190 of a resident-based staff to provide maximum effective assistance to new and expanding businesses in the area. One of the primary aims of the Small Business Development Center is an extended comprehensive training program for small businessmen in the affected area. As visualized for Los Angeles, this program will provide a specialized flexible training program tailored to the unique needs of the new businessman. Included in the sub ject matter proposed are the following topics: 1. Sales and marketing . 2. Promotion, display and advertising. 3. Budgets and record keeping. 4. Employee relations. 5. Business self-restraints. 6. Community trade practices. Job descriptions In view of the relative newness of the operation of the South Central Small Business Development Center, it would be unfair to report on the actual job descriptions in effect at the present time. The outline of job descriptions worked out by the Los Angeles Area Economic Development Agency in its proposal for the establishment of the Small 191 Business Development Centers serves as the target for the Center’s eventual operations and is therefore the outline which is included here: SBDC Project Director The SBDC Project Director will have full responsi bility for the management and implementation of the Small Business Development Center program. He will implement all policy and Federal contractual obligations, as directed by the LAAEDA management and Board of Directors. He will have the responsibility for the coor dination, implementation and direction of all sub-contracts, programs and personnel, as they are retained by LAAEDA for the Small Business Development Center. He will be responsible for the fiscal integ rity of the Small Business Development Center operation. Assistant Project Director The Assistant Project Director will perform all duties as directed by the Project Director. He will also perform as Project Director in the absence of the Project Director. He will function as liaison between the Small Business Development Center and other public and .private agencies outside the LAAEDA group. He will originate and coordinate public rela tions and press activities in cooperation with Director of Volunteer Services and the Project Director. 192 Director of Volunteer Services It shall be the duty of the Director of Volunteer Services to coordinate the efforts of the Business Advisory Council with the Small Business Develop ment Center, as they are needed. He will maintain an active relationship with Business Advisory Council members and super vise and engage in the recruiting of new members as needed. He will be responsible for the design and implementation of the Small Business Develop ment Center community relations program. Economic Analyst and Project Development Officer The Economic Analyst and Project Development Offi cer will prepare and submit, to the Project Direc tor, periodic reports and data obtained from the records of the various subdivisions of the pro gram. He will make monthly projections, as related to the various purposes of the program. He will compile data and submit, to the Proj ect Director, periodic reports on the economic impact of the program in the community. He will develop and submit programs that will be useful in future community projects. Business Manager and Financial Officer The Business Manager and Financial Officer will have working responsibility for the fiscal opera tions of the Small Business Development Center complex. He will be accountable to SBDC management in this capacity. 193 He will prepare and distribute all payroll. He will verify and pay all other obligations of the Small Business Development Center complex. He will supervise the work of all general office help. He will design and implement all routine office procedures. On-Job-Training Officer The On-Job-Training Officer will locate and con tract with various businesses to allow trainees from the programs of the Small Business Develop ment Center to enter into and be trained along the lines as outlined by the Small Business Develop ment Center programs. He will provide all assistance required to trainees while they are at the training busi nesses. He will prepare and furnish, to the Project Director, all data and reports pertinent to his program. He will assume the primary responsibility for the On-Job-Training program and staff.10 Costs The actual costs of running the Center are not available at this time, in view of the few months it has been in operation. In lieu of actual expenditures, the ^ Ibid. , Appendix A. 194 budget for the Small Business Development Centers in both the South-Central Area and the East Los Angeles Area pro posed by the Los Angeles Area Economic Development Agency at the time the Centers were being readied for operation are shown in Table 2. Initial Programs Business advisor selection and training program In order to accomplish its purpose of stimulating economic growth in disadvantaged communities through a program of direct assistance to the small business entre preneur, the Small Business Development Center needs a staff of carefully selected, well-trained Business Devel opment Advisors. According to the Economic Development Agency, these Advisors should be able to: Recognize and develop opportunities for estab lishing new small businesses in the local commu nity. Stimulate interest and recruit indigenous indi viduals interested in and capable of becoming small business entrepreneurs. Interview loan applicants and determine whether they need financial aid and/or management assist ance . 195 TABLE 1 BUDGET FOR TWO SMALL BUSINESS DEVELOPMENT CENTERS (Period: June 1, 1965-May 31, 1966) Staff and Facilities Location Months Rate Cost SBDC Project Director Central 12 $16,000 $ 16,000 (per year) *Asst.Project Director Central 12 13,200 13,200 (per year) Director of Volunteer Central 12 1,000 12,000 Services & On-The-Job (per mo.) Training Officer Economic Analyst-- Central 12 1,000 12,000 Project Development (per mo.) Officer - Business Manager & Central 12 900 10,800 Financial Officer (per mo.) $ 64,000 *Supervisor-Training Central 10 900 9,000 (per mo.) *Supervisor-Training East 8 900 7,200 (per mo.) $ 16,200 *Business Development Central 11 750 41,250 Advisors (per mo.) *Business Development East 9 750 33,750 Advisors (per mo.) $ 75,000 13.8% Employee Fringe Benefits 26.925 Staff and Facilities--Sub-total $182,125 *Recruited substantially from area residents. 196 TABLE 1--Continued Staff and Facilities Location Months Rate Cost *Secretary (1) Central 12 $ 500 $ 6,000 (per mo.) *Secretary (1) East 10 500 5,000 (per mo.) *Clerk-typists (2) Central 12 350 8,400 (per mo.) *Clerk-typists (2) East 10 350 7,000 (per mo.) *Statistical Clerk Central 11 500 5,500 (1) (per mo.) *Research Assistant Central 11 8.000 (1) Total Support $ 39,900 On-the-Job Training Allowance * Trainees (50) All 1 250 12,500 (per mo. ) ______ Total OJT Allowance $ 12,500 Facilities and Overhead Insurance (fire-liability) $ 2,500 Rent and Renovation 20,700 Telephone and Communication 6,000 Office Furniture 7,125 Office Equipment 5,700 Travel (local) 20,700 Travel (other) 6,000 Supplies and Expendables 3,600 197 Table 1--Continued Facilities and Overhead Cost Printing 2,000 Utilities and Maintenance 5.400 Total Facilities and Overhead $ 57,850 198 TABLE 2 SMALL BUSINESS DEVELOPMENT CENTER BUDGET RECAPITULATION FOR FIRST FISCAL YEAR Item Cost Staffing and facilities $279,875 (These monies as itemized in the budget detail, cover all costs related to and anticipated by the current and projected staff at three (3) Small Business Development Centers.) On-The-Job Training Allowance 12,500 (These monies are required for payment to the various small business firms that will provide OJT experience to the Title IV loanee.) Training Program 413,550 (Sub-contract: Norris & Gottfried) Business Advisor Selection & Training Program $ 97,050 Managerial Skills Training Program 316,500 (These monies will be paid to the firm of Norris & Gottfried, Consultants to Management, of Los Angeles, California, for services rendered under sub-contract with the Small Business Development Center. These services are described in Appendices B & C.a) Total Budget $705,925 aThe material referred to has been incorporated into the text of this chapter. 199 Assist qualified loan applicants in requesting and preparing applications for commercial financing from a private financial institution, regular SBA loans, or Title IV loans. Assist the Volunteer Advisory Board composed of local businessmen and civic leaders in screening Title IV loan applications. Provide coordination between the applicant and the Small Business Administration. Provide management counseling to the small business man at his place of business. Act as liaison in getting support -from local busi ness and community organizations. Collect data necessary to analyze the effective ness of the SBDC program in the community. ^ The objectives for the Business Development Advis ors were developed in cooperation with a management con sulting firm, Norris and Gottfried, which was hired to develop a program on an overall basis for the Small Busi ness Development Center. This firm is one of the few con sultants to management that has been interested in working with small groups and small business owners in profit improvement and corrective actions. ■^David B. Norris and Ira S. Gottfried, "Business Advisor Selection and Training Program: A Proposal to the Small Business Development Center, Los Angeles Area Eco nomic Development Agency" (Los Angeles: Norris & Gottfried, April, 1965), pp. 1-2. 200 The success of the entire Small Business Develop ment Center's program would depend, as the Agency saw it, upon an Advisory staff recruited mainly from the local community and which possessed an unusual combination of skills, including the ability to do the following: 1. Understand and be responsive to the problems of disadvantaged communities. 2. Communicate with loanees and the businessmen of the community at their differing cultural, educational, and business backgrounds. 3. Work closely with the loanee's management problems in order to anticipate, define, analyze, and help solve the problems in a practical way.^^ Norris and Gottfried believed that rapid recruit ment, selection, and specialized training of the Business Development Advisors was the crux of the early success of the Center. In addition, they proposed to develop several standardized techniques to assist the Advisor in carrying out his responsibilities more efficiently. 12 Ibid.. p. 2. 201 Norris and Gottfried proposed to develop this program in two sections: first, the selection and training of the Business Development Advisors and, second, aids for maximizing the performance of the Advisors. Staff selection and training.--Working with the Small Business Development Center, Norris and Gottfried planned to develop detailed position descriptions for the Business Development Advisor and corresponding supervisory positions. From these, qualification profiles would be established as a basis for recruitment and selection. An employment application blank was then designed, which included a test of business knowledge and analytical abil ities. A standard interviewing format to assist in Advisor applicant screening was supplemented with appropriate psychological tests. A recruiting program to attract Advisor applicants was suggested by Norris and Gottfried and publicity material was developed for release through the various communication media, such as newspapers, direct mail, professional journals, and television. Several stages of screening effort were proposed. The initial screening was based on the employment applica tion. Following this, personal interviews were conducted 202 with applicants who passed the initial screening. Psycho logical tests were then administered to those still consid ered to be prime candidates. A critical evaluation of interview and test data then resulted in a group of quali fied applicants, from which the Small Business Development Center management could select its initial staff of Busi ness Development Advisors. The curriculum outline of the training program for the Advisors included: 1. Cultural and economic community of the loanee. 2. Interviewing techniques. 3. Problem identification, analysis, and evalua tion. 4. Practical problem-solving techniques. 5. Financial planning and forecasting. 6. Verbal communication skills. 7. Participative guidance techniques. 8 . Management of Advisor's time. 9. Work simplification methods. 10. Liaison services with other agencies. i 11. Report writing. 13Ibid. . p. 5. 203 Norris and Gottfried proposed to select training aids and then, with the management of the Los Angeles Area Economic Development Agency, to conduct up to three com plete training programs for groups of five or more Business Development Advisors. After an initial weekend of inten sive indoctrination, the balance of the training would be conducted concurrently with on-the-job performance of the Advisors. After the training was completed, Norris and Gottfried offered to provide two trips with the Advisor on field business to monitor his effectiveness and to critique the individual's performance for the Agency. Resource aids for Advisors.--The following specific tools were proposed by Norris and Gottfried to "optimize the Advisor's peformance" and help him evaluate Title IV loan applicants. Loan Applicant Screening Guides The Business Development Advisor will have the responsibility of initially screening individuals inquiring about the possibility of obtaining Title IV assistance. To permit rapid but careful initial screening, two items will be developed . . . as follows: A brief, simplified Personal History Question naire to be completed by a potential loanee upon his first visit to the Small Business Development Center. 204 A question and answer Eligibility Checklist for use by the Advisor-in the initial inter- view. This form will be structured to enable LAAEDA:SBDC to weight each item for use in quick evaluation of the interviewee's loan eligibility and qualification. Standard Loan Application Booklet Loan applicants considered as potential bor rowers after the initial screening will be provided with a Loan Application Booklet designed by the Consultants with the assistance of LAAEDArSBDC and SBA. This booklet which may be prepared in basic English and/or basic Spanish can be completed by the applicant himself or with the assistance of the Advisor. Its contents would provide all the neces sary forms for a complete loan application, stand ardized for easy preparation and review. The fol lowing items would be included: Explanation of Loan Steps and Elapsed Time Instructions for Completing Forms Illustrations of Completed Forms Personal Financial Statement Prior Business and Employment History Description of Planned or Existing Business Forecasted Profit and Loss Statements Present Capital Requirements and Planned Use Loan Repayment Schedule Projected Employee Requirements Planned Site Location Field Reporting Forms A regular flow of small business intelligence is needed by SBDC to evaluate the success of the individual Title IV loanee's business and the over all LAAEDA:SBDC loan program. Specific field reporting forms for this purpose will be designed by the Consultants for Advisors' use. . . .^ Schedule Norris and Gottfried's overall estimated schedule and the schedule for each element of their proposal are ■^Ibid.. pp. 6-8. 205 shown in Figure 2. In addition to a report on the actual progress during the course of the program, bimonthly meet ings of officials of the Agency, the Center, and the Coun selors were proposed. Managerial skills training program In addition to the Norris and Gottfried Proposal for a program for the selection and training of Business Development Advisors, the firm also prepared a managerial skills training program. The Consultants were, of course, aware of the elements of the Economic Opportunity Act that presupposed the borrower would be capable of: 1. Operating a profitable enterprise. 2. Providing reasonable assurance of loan repayment. 3. Expanding to provide additional employment opportunities in the community. At the same time, aware that not all businessmen would have the education and skill to handle a new business adequate ly, Congress had stipulated that the Office of Economic Opportunity might "require that the borrower take steps to improve his management skills." To this end, Norris and Gottfried drew up a program to provide such management skills, initially under their supervision. They suggested: ■^David B. Norris and Ira S. Gottfried, "Managerial Skills Training Program: A Proposal to the Small Business Development Center, Los Angeles Area Economic Development Agency (Los Angeles, Norris & Gottfried, March, 1965), p. 1. B U S IN E S S DEVELO PM ENT ADVISORY S T A F F •lICCTO toTf: PROGRAM SCH5D0UE- _______________ WEEKS AFTER F U N D I N G _________ I 2131415 16 7 8 9 liqf I |l 2 \\ 3)14115116117|l 8ll 9EOI2I |22j23124| ( 1X1- - 1 -]4 0 |- SECT'OVJ 1 : S t AFP ’ S.ElEGTioO vTftftm dg. f t . < 5TM=P Sft F = r . T ' n t O i.I>&te\opFb^^6n Gnte.v\a, j? .te s.V i ftpcteafen ♦Screening N V few .1 ■ Aritwofe.'fecx^inij Prcyaufp S&flaentrg Rocesfe B. Tt?ft)MlN<=r i . T f r t e f o p Ftayrarr) J . /Vn-Aigf TVavrYtng 'FToaTQ-vn__ rong rrogTayn_ ^rfeiWrarioL t h h ' t p f i fc.nEi^ S E C T i d U J T ~ A t W S f c g * P = g Q R C E M f f T B M f l L S f t .Itei ftPPhKftUT y.flffiU IH Q fe c n c e s_ l.Tfersoon' t-W fa-'f QussSWirwre, CVgiCxV&V---- b . vrA m agn w>m ftPPLiamtfo B g*iE i_ i . l & r T t e . f r i m t atte. 2. , ' C f e ^ y . C. F^LP BEf’ C tfV lN fa FORM S z.T e s t in Cis\A T ) . F i y i m . -Rgpper n i T r .* ? f t P R \ L I f t l o g i p p m w r n J ' S l i g SUBMITTING Q £P T _______________________ ______________________________ ■ v a t t * M a t 9*i/*<mTn/itiA T tP eo m a t * a o t i t l e v t i m a i* i t i » i » BMEET I O F _____ | _______________________________ ______________ R EV F * £ Q W G 5 N 0 _ CU IIl'IC ftTiO M 2 0 6 207 Maximum use must be made of simple audio-visual aids and practical step-by-step case studies developed by small businessmen or by direct advis ers to small businessmen who know and understand their problems. The small business owner requires down-to-earth practical instruction by other business-oriented individuals in daily contact with the problems of small establishments having five or less employ ees . The training environment must not be threatening or make the trainee uncomfortable by reminding him of past classroom situations not geared to his needs. 6 The Consultants believed that an effective training program should: - contain the flexibility to assist trainees with many different backgrounds of business know ledge . meet the knowledge and skill requirements of the varied industries and trades. provide training at different times of the day due to their need for income and possibly business continuation during the training period. provide for varying numbers of trainees in accord with the loan application work load. be able to expand, contract, or change loca tion readily as dictated by community interest. allow new trainees to enter the program immedi ately. 16Ibid., p. 2. 208 - use seminar and workshop techniques to assure the interchange of problem solutions and con structive ideas among the t r a i n e e s . The class instructors should be available to provide "personalized counseling, advice, and assistance" in the training of loan applicants, and they should have been specially trained to emphasize the functional aspects of the trainees1 requirements. The locations for training were to be selected on a basis of accessibility and possi ble expansion of the facility. Another criterion for selection might be the proximity of other small businesses capable of providing on-the-job training. In its analysis of the training program, Norris and Gottfried saw the role of Consultant to be as follows: Interpreters and Adapters to interpret and adapt management knowledge for the use of and in the languag'e of the small business man. Organizers and Catalysts to help LAAEDA bring into focus and schedule the steps for immedi ate assistance to the loan applicants.^-® It expected that, with the successful completion of the programs, the Agency and/or the Center would have the staff and the knowledge for carrying on the training by itself. 17Ibid., pp. 2-3. 18Ibid., p. 4. 209 The program for the development of managerial skills was divided into four parts: 1. Curriculum development 2. Program installation 3. On-the-job training 4. Program validity evaluation Curriculum development.--Norris and Gottfried felt that no textbook was available which covered the subject adequately and proposed to develop a syllabus specifically designed to teach small business managerial skills. The areas that they believed should be covered included: 1. Business site survey and selection 2. Sales and marketing techniques 3. Promotion, display, and advertising techniques 4. Customer relations 5. Budget preparation and cost control 6. Bookkeeping and taxes 7. Inventory and asset selection and control 8. Employee interviewing and hiring 9. Community, association, and other free advisory services 210 19 10. Allocation of businessman's personal time They were aware that adaptations might have to be made in the syllabus and/or text after trying it out on a group of trainees. Since it was their idea that all mater ial should be dealt with on the basic level, however, they anticipated no special problem. Their experience in related programs led them to believe that their text might even prove sufficiently valuable to be adopted by the federal government for use in other Small Business Develop ment Centers in other disadvantaged areas. In addition, they proposed to develop other train ing aids as needed, such as audiovisual material, case study material, trainee evaluation criteria and report forms, and actual training experiments. They also proposed a comprehensive picture of trainees, called "trainee pro file." This would include a variety of experiential, intellectual, and personality dimensions for use in vali dation of the overall training program and to help in the evaluation of future candidates. The Consultants agreed to conduct the first train ing classes, using members of their firm as the instruc- 19Ibid., p. 6. 211 tors, inasmuch as all instructional material would have to be developed. From the experience gained in these initial training classes, Norris and Gottfried believed they would be able to produce all of the training materials which they proposed, including the text which was to be a "packaged 90 course in teaching small business managerial skills." Program installation.--This part of the program was designed to permit the training of loan applicants in managerial skills to be handled by staff members of the Los Angeles Area Economic Development Agency and by volunteers. Once Norris and Gottfried had developed a text and other teaching aids, they planned to establish a set of criteria to be used in recruiting teachers of these managerial skills and to apply these criteria to develop a competent teaching staff. On-the-job training-In order for trainees to gain practical experience at the same time they are learn ing the theoretical aspects of management skills, a survey was to be made of prospective on-the-job training facili ties. Whenever possible, it was planned to assign trainees 20Ibid., p. 9. 212 to related successful businesses and to evaluate their progress and their helpfulness. The intent was that even tually it would be possible to develop three-way discus sions among the small business owner, the trainee, and the Agency staff member. Program validity evaluation.--This phase of the program, it was thought, could be accomplished best after „ the Managerial Skills Training Program had been in effect for some time. After trainees had entered their own busi nesses and had had time to utilize their training, Norris and Gottfried proposed that the Agency staff would use their guidebook to assess the effectiveness of the training program. Among the areas to be covered would be the fol lowing : 1. Relevance of program substance to actual small business managerial problems. 2. Relationship of program elements to total program. 3. Satisfaction of program to trainee's evaluation of his current needs. 4. Evaluation of program methods and teacher capabilities. 213 5. Evaluation of OJT Training to subsequent prac- 2 1 tical experience. Schedule The overall schedule for each phase of the Manage ment Skills Training Program, and the detailed check points within the phase are shown graphically in Figures 3 through 4. These schedules would be used to report the actual progress against plans during the course of the study. In addition, progress meetings were planned at least semimonthly with the management of the Los Angeles Area Economic Development Agency. Business Advisory Council As visualized by Norris and Gottfried and the Los Angeles Area Economic Development Agency, the Business Advisory Council would be a volunteer organization that would facilitate the free flow of experience, information, life styles, tempos, and business know-how "between the 22 affluent sector of the society and the depressed area." The Council was to be organized to provide: 21Ibid.. p. 14. 22Ibid., Appendix D. M A N A G E R IA L s k i l l s t r a i n i n g p r o o r a m PHASE I 00 N cm m CM CM CM CM CM in CM b J u > 1 1 1 U J i / i ‘ E ii O f £> <_> OK OK MANAGEMENT SKILLS TRAINING PROGRAM PHASE 215 CM 22 r o <n < \ j in CM CM CM CM m CM cO m O J .o U. U ) Off "0 c j d> t f i « £ 2 7 MAROrl IRfeS- APPROVED X S & MANAGERIAL SKILLS TRAINING PROGRAM I PHASE 216 K > O J O j VO1 O J m o j 04 K ) O J O J eO m CM L l) » o OJ L 1 4 O f Q.- cr o 4-0 T J 2 7 MftRQl I9&S a p p r o v e d M A N A G E R I A L SKILLS T R A IN IN G PROGRAM PHASE < r > oO rO rv j 80 K ) K ) lO K > r O CM K) l i i to oO r s t , UJ I T ) C\J CM CO d ^ MANAGERIAL SKILLS TRAINING program phase 218 N JQ. CO K > K > K ) K > CM «0 04 c t tO OJ Z. t $ c + - 0 3 H ( o ^ * < ? I *i f 4 o * • 0 £t i i r w t . B l B K C T O U T i : Managerial skills training program PHASE iii VALIDITY EVALUATION W EEKS AFT ER FUNDING 40 v 4142434445464748495051 525354555657585960 (■B&ieiofi eualuai'ijvi cn'temA, 2 ■ Present ch&*T< Brrnine> G** ofmidates A ■V" +c > aiaAuiti/ cot^-vtVevicjVVis a+A uimWifeS R.T>jupJop ^ocm=, -W r&forfMj o i i -ftriuiD. btysirtcsatvmi s,'p^^(S5S 4.'D2ue\op> 4teiimqv&s ■ £ * • oi-site, i^jni£u* rt^-gradUi&L ^ CA* € . D f V j O f y t i v T q i ■C9«i-loflrk. i i i l t P i : prw^cwn e\ewc«Cts 1 L_ ■Vo+al prwyravrl -tea dun capaWWTtt t?a.irvha aid A ; i At»Ar£c dwi ^ sityjk 4i/tv * CCTT 5 > V c « | 2 . . £ > . kWeuG a S o n v e . uui^ LAAECA . 1 UVte. t t i r t d ^WJcsttf I.LAAEDft . r t r t t ^ c r e r j a \ u C c V i ( V i JCSU*6 rutVifyk v i r t V i QiMs*}Vr<udr«; EtflD OP TDTAL. pee&eA^ v r\ Fifvii io Uwtvfc A- i , . . . . . . . . . 1 SUBMITTING DEPT . 0*TE 27 MARCH BUT/MOO T H /Y IU if»tD Ktat a*9 m u ■3S6L ci*inrieAii« written laimu MGE NO__ 220 1. Specialists who can provide expert, explicit answers to a specific problem in the new or developing business. 2. Specialists who can work on a continuing basis, for varied periods of time, with new entre preneurs and provide an on-going insight into the "tricks of the trade" and some access to the implicit and covert aspects of the busi ness decision-making process. 3. Specialists who can help plan expansion, buying patterns, inventory characteriestics, merchandising programs and the like. 4. Specialists who can provide, from experience, obscure sources of supply, cooperative manu facture, and specialized techniques for spec ial problems. 5. People with broad acquaintance in the larger business community who can, as time goes on, provide merger and buy-out opportunities for small manufacturers and retailers or small businessmen who have succeeded in developing a business attractive to acquisition. The plans called for the Council to be composed of a broad cross-section of the business and industrial com munity, including executives and owners of large businesses as well as proprietors of very small retail shops. The idea was that loosely-knitted teams of specialists would be developed, such as a team of soft-goods retailers, a team of service industry experts, a team of hard-goods 23 221 retailers, and so on as the need arose. These teams would meet occasionally to be instructed in the art of consulta tion, and individual members of the teams would act as volunteer consultants to help new or ailing small business men. The Business Development Advisors were expected to be able to work closely with the Council, too, in order to elicit the help of the experts when and where needed. It was felt that small businesses or small business men who were having trouble would be able to consult the Business Development Advisor for solutions to problems. If this help was not sufficient, then the volunteer experts from the Council would be available for consultation, for on-site visits to the ailing business, and for whatever cooperation might be deemed advisable. Summary As. indicated previously, the organization and operation of the Small Business Development Center for South Central Los Angeles as presented in this chapter is tentative. After obtaining approval of the Office of Economic Opportunity and allocation of the necessary funds, the Los Angeles Area Economic Development Agency opened the Center officially on October 27, 1965. Applications for loans which had been received by the Agency were turned over to the Center for processing. However, the full working organization, and the effectiveness of its operations, is still in a state of flux. It has made a start which, at this time, seems propitious, but it must face the many tests of actual operation, coordination, and cooperation with many organizations and individuals before any valid evaluation can be made. CHAPTER VII ECONOMIC INDICATORS Up to this point in this study, the economic prob lems extant in the South Central, or Watts, area of Los Angeles have been pointed out. In addition it has been stated that solutions for some of these problems may be forthcoming through the newly-organized Small Business Development Center under the Los Angeles Area Economic Development Agency and with the cooperation of both the Small Business Administration and the Office of Economic Opportunity. The general and broad results of the operation of the Small Business Development Center may, at times, seem to be nebulous. It is only through checking periodically the various economic indicators and indices in the South Central Economic Planning Area that any trend toward improvement in economic conditions may be apparent. These economic indicators, therefore--their meaning and their 223 224 use--form the basis of the material presented in this chapter. Introduction To appraise past and current economic indicators, information is needed about population characteristics, such as mobility and spatial distribution. This informa tion is needed by the economic development planner in order to determine space requirements for industrial, commercial, and residential use as well as the location of public and semipublic facilities. Labor force information (employ ment data) is also essential to economic planners, for it is generally held that the size and quality of the labor force, measured in terms of its occupational and industrial composition, largely determines the economic future of an area. Not only is employment a widely-used measure of economic activity, it is also a useful indicator for the determination of industrial and commercial land require ments. Personal income data are particularly useful in planning as a general measure of economic activity and economic growth. It can also be used in appraising the performance and analyzing the structure of an area's economy. Personal income is frequently used as a 225 substitute for the gross regional or metropolitan product because the latter is extremely difficult and c ostly to determine for metropolitan areas. Consumption as measured by retail sales, and investment as measured by construction, are additional important economic measures. One intent of this chapter is to enlarge upon an aspect of the paper, "Urban Economic Analysis,"'** to provide a more specifically descriptive analysis of an economic indicator file applicable to the South Central Economic Planning Area. This investigation will focus on how economic indicators are used at the national and regional levels, including an evaluation of how well they have met the purposes for which they were constructed. In addition, a presentation is made of the requirements for selected economic indicators which may be used at the intra-regional level, and which can provide economic planners with some measures of the apparent changes taking place in the Los ■^Russell G. Chase, "Urban Economic Analysis," in "Cybernetics and Urban Analysis," a collection of term papers prepared in partial fulfillment of requirements of a graduate course at the University of Southern California, Los Angeles, February, 1964. 226 2 Angeles region. This change must be measured, if the impact of the small business development program is to be determined. Economic Indicators For some time economists have been concerned with developing measurements which show the cyclical behavior of the economy and which can indicate if changes in general business conditions are impending. Although early studies were primarily concerned with national-level indicators, the past two decades have brought an increasing awareness of the importance of making these or similar measures applicable to the regional level. The term "indicator" is used in this paper to mean "a ratio or other number mathematically derived from a series of observations and used as a measure of certain 3 conditions." In this context, the term "indicator" is synonymous with "index." However, it might be noted that o It is not the intention here to include "popula tion" as an economic indicator. 3 A. F. Bums and W. C. Mitchell, Measuring Business Cycles (New York: National Bureau of Economic Research, 1946). 227 "indicator" is generally associated with national level economic series, while "index" is more often used at the regional level to show general business conditions at a specific point in time, e.g., the "Security-First National Bank's Index of General Business Conditions." National Indicators In 1937, during a somewhat sharp recession, the federal government asked the National Bureau of Economic Research (NBER) to compile a list of statistical indicators that might be expected to signal an impending recovery. Wesley C. Mitchell and Arthur F. Burns, two NBER economists, analyzed nearly five hundred monthly and quarterly time series to determine their relationships to past general economic business cycles.^ Their study confirmed that no "ideal" indicator existed, but they were able to list twenty-one indicators which were superior when taking into account the following five characteristics: 1. How long it had been available. 2. The length and variability of its lead or lag period. 4Ibid. 3. Its smoothness. 4. The amplitude of its cyclical movements. 5. Its relationship to general business activity. In 1950 Geoffrey H. Moore revised the list. He determined that there are eight indicators which normally lead, eight which tend more or less to coincide with, and five which generally lag behind cyclical turning points. The leaders' function is to give notice when the economy is about to change direction, the coinciders' to indicate the turning point, and the laggers' to confirm that the cycle is in its new phase. They are as follows: The leaders: Number of new incorporations New orders of durable goods manufactured Industrial stock prices Wholesale prices of basic commodities Commercial and industrial construction con tracts (floor space) Residential construction contracts (floor space) Average work week in manufacturing Business failures (total liabilities) 229 The coinciders: Production (Federal Reserve Board Index) Nonagricultural employment Unemployment Bank debits (outside New York City) Freight carloadings Wholesale prices (except farm and food products) Corporate profits Gross national product (GNP) The laggers: Personal income Retail sales Consumer installment debt Bank rates on business loans Manufacturers' inventories^ A more recent revision, resulting from a compre hensive study of each indicator and its relationship to general business activity, has increased the list to twenty-six and has realigned some of the indicators from Geoffrey H. Moore, Statistical Indicators of Cyclical Revivals and Recessions. Occasional Paper 31 (Washington: National Bureau of Economic Research, 1950). 230 one category to another.^ These are only the basic indi cators. Hundreds more are used in national level economic analysis, and information about them is published in the Survey of Current Business. Although the basic indicators tend to oversimplify the complex relationships among economic processes, they were chosen empirically. Economists are in general agree ment that good reasons exist to show why each indicator on the list turns as it does in relation to turning points of general economic activity. For example, the leaders now include accession and layoff rate in manufacturing; average work week, manufacturing; durable goods, new orders; housing starts; commercial and industrial building awards; net new busi nesses; failure liabilities; net corporate profits; and common stock prices. Coinciders include non-agricultural employment; unemployment rate; industrial production; GNP, both in current and in 1954 dollars; bank debits outside New York City; personal income; retail sales; and nonfood wholesale prices. Laggers include plant and equipment spending; unit labor cost; manufacturers' inven tories; installment credit; and bank loan interest rates. ^For an excellent analysis on this subject, see Henry M. Platt, Economic Indicators. Their Use in Business Forecasting (Hanover, N.H.: The Amos Tuck School of Busi ness Administration, Dartmouth College, January, 1959), Tuck Bulletin #21. 231 Regional Indicators Unlike national economic indicators, which purport to signal changes in general business conditions, regional indicators are usually constructed to measure the trend within a region, and to compare this trend with those in a larger geographic area. In 1934 the Security First National Bank of Los Angeles began compiling and publishing an index of busi ness activity covering the Southern California economy on a monthly basis. Since then, the index has undergone a number of revisions, the most recent occurring in August, 1962, when the base reference period was changed from 1947-49 to 1957-59 so as to be compatible with indices at the national level. Since 1954 the index has been a com posite of fourteen seasonally adjusted economic series or indicators, including manufacturing, construction, retail trade, financial and real estate activity, and mineral production. Basic data are collected monthly, adjusted to a seasonal basis, and converted to an index on a 1957-59 base. Each series is then weighted to reflect its impor tance in terms of its relationship with the others. The fourteen components and their respective weights are listed as follows: 232 Component Weight 1. Bank debits in Los Angeles 10 2. Bank debits in residential cities 5 3. Bank debits in agricultural cities 5 4. Department store sales in Los Angeles area 15 5. Valuation of building permits issued in the 14 southernmost California counties 10 6. Dollar volume of engineering construc tion contracts in Southern California 1 7. Real estate sales activity in Los Angeles County 4 8. Number of production workers and related workers in motion picture production 2 9. Number of wage and salary workers in manufacturing in Los Angeles Metro politan Area 8 10. Number of man hours worked under 9 10 11. Number of kilowatt hours of electric power used by industry in Southern California 14 12. Petroleum production, Southern Cali fornia 2 13. Freight car loadings and unloadings 6 14. Telephones in use in Southern California 8 Total weight, all series combined 100® The inclusion and weight of each component was based upon the following factors: 1. The economic importance of the industry or activity. 2. The degree to which the series measures or reflects fluctuations in general business activity. Q Security First National Bank of Los Angeles, "Index of Business Activity in Southern California," August, 1962, p. 2. 233 3. The flexibility of the series and its sensi tivity to economic change. 4. The stability of the series, its smoothness after adjustment for seasonal variation, and its freedom from erratic fluctuations. 5. The unit in which the series is expressed; i.e., whether in terms of dollar volume or of physical units. 6. The accuracy of the data, and its prompt availability on a monthly basis.9 Each of the fourteen component series is adjusted to eliminate seasonal fluctuations. Moving averages are applied to eight of the series, and each series is expressed as an index number with the base period of 1957- 59 taken as 100. The components are then combined using the weights listed above. The bank has tested the relia bility of its index by using the following three require ments : 1. The components should include a majority of the best available economic data and should measure a relatively wide cross-section of the economy. 2. Since the Southern California economy is an integrated and important part of the national economy, fluctuations in the local economy should follow a pattern not unlike that of the national economy. 3. If an economic series which is considered a relatively reliable measure of the health of the local economy--but which is not a compo nent of the index--is used as an independent ^Ibid., p. 3. 234 check on the business index, the two should follow a similar pattern.10 The bank is satisfied that its index meets all three of these requirements. The first requirement is met in the selection of each of the series. The second re quirement is met when the index is matched against national business activity, and as for the third require ment, the index does well when compared with the season ally adjusted percentage of the Los Angeles area's labor force which is employed. Intraregional Indicators Up to this point it has been found that both national and regional indicators are primarily concerned with measuring the cyclical behavior of the economy. On one hand, secular trends of economic series are analyzed with the hope that signals of impending changes in general business activity will be discovered. At the regional level, however, indicators are commonly used to compare the economic state of the region with a larger geographic area, usually the state or nation. ^ Ibid. . pp. 3-4. 235 Another important field of regional economic analysis is being somewhat neglected: analysis of location shifts within a region. How much is really known of the changes and rates of change of such important economic factors as employment, production, consumption, income, and investment by intraregional areas? Wheaton felt that our understanding of the forces which cause growth and change in urban areas is comparatively primitive, because of failure to analyze at the small-area level such things as housing market behavior, employment location, transpor tation patterns, and the influences of transportation sys tems on land use development, and vice versa. Wheaton said: . . . any attempt to plan for urban growth involves the development and implementation of policies affecting the rates and direction of change in the urban system. It is, therefore, essential to develop measures of these rates of change as they exist under present market conditions and public policies. This is a comparatively new concept among city planners; yet until we know what the existing rates of change are and what the charac ter of these changes is, we can scarcely influence the system In any rational, projectable, or ef fective way.-^ 1 1 William L. C. Wheaton, "Operations Research for Metropolitan Planning," Journal of the American Institute of Planners. XXIX, No. 4 (November, 1963), 256. 236 One of the major reasons for the information lack at the regional and intraregional levels is in the quality of the available data. It is generally recognized that the data stock for small areas is weak compared to the sophisticated information found at the national level. The reasons for the many weaknesses and inadequacies found in the available data seem to focus on two main points: (1) there is a multitude of independent data-gathering agencies to be found in every regional area, and (2) there is a general lack of concern on the part of each gatherer whether his efforts help to improve the level of regional information and thus facilitate his own agency's adminis trative operations. Hirsch summarizes this point as fol lows : . . . in the eyes of most observers, decisions with regard to regional economics--whether cit ies, counties, metropolitan areas, or states — have been generally poor, inadequate, or inef fectual. . . . The fact is that on the subnational (i.e., regional) level, a framework for economic policy-making does not exist, and the data are all too often scanty, faulty, or altogether absent. [Scattered local] . . . efforts have not produced a framework and system of data collection for the field of regional and local economics comparable to that which has proven so valuable on the national level.^ 1 9 Wermer Z. Hirsch, "A General Structure for 237 Recently there have been some efforts made to correct this situation. This may be due to the growing, interest in regional economics as a field of study and as a tool for decision-making. Furthermore, computer-based techniques require as inputs great amounts of accurate time-current information, and efforts to secure such information are underway in many areas. Finally, planners and others who have had to use inadequate information for many years now recognize the importance of improving the quality of secondary data. It appears that the reputation of regional scien tists is growing rapidly, and that their introduction of such economic tools as input-output analysis, regional accounts, interregional flow accounts, and so forth, is a step in the right direction. The computer has opened up new vistas in the field of economic analysis, and there is little to prevent this from happening in the field of physical planning. However, most economists agree with Andrews that, at least for the present, small-area Regional Economic Analysis," in Design of Regional Ac counts . edited by Werner Hochwald (Baltimore: The Johns Hopkins Press, 1961), pp. 1-2. 238 economic analysis should begin with simpler statistical analysis, and that planners should start with simple appli cations.-^ Although the people who must make decisions and set policy are generally sympathetic to the use of new mechanical tools, there is always the danger that complex masses of new data will only create confusion. It is for this reason that this paper uses the simpler approach in designing an economic indicator system for the South Cen tral Economic Planning Area. Economic Activity Indicators One group of indicators represents the level of economic activity in intraregional areas of the County, and is reduced to a time-series trend within each of these areas. Volume and dollar amounts are converted to an index number basis. The three economic activity indicators selected are (1) employment, (2) number of business estab lishments, and (3) taxable retail sales. These items are by no means the only ones which could or should be included in the file. The primary reason for^selecting these 1 q Richard B. Andrews, "Economic Planning for Small Areas," Land Economics. May, 1963, p. 155. 239 indicators is the ease with which data for them can be obtained in automated, time-current form. Employment In the context of this study, employment means the number of full-time equivalent employees covered under the California Unemployment Insurance Code. The items in the employment file are stored on magnetic tape coded for the IBM 1401 and located in the office of the California Department of Employment, Sacramento. This tape file is updated quarterly and includes the following items: 1. Name of employer. 2. Mailing address of employer (tax address). - 3. Employer's standard industrial classification. 4. Average monthly covered employment in the previous quarter. Duplicate tapes are available at cost from the Department. Two major problems are apparent: (1) the actual place of employment is not available in all instances, and (2) a sizable segment of the employed labor force is not included in the file. An example of the first problem is the case of the Douglas Aircraft Company, which has head quarters in Santa Monica but which has many branch plants scattered throughout Los Angeles and Orange Counties. The employment tape file erroneously shows all Douglas employ ees as being located in Santa Monica. It is apparent that before quarterly allocation of covered employment can be made to any small area unit (census tract, statistical area, etc.), a major modification must be made in the Department of Employment's address system. It seems that the Department has no interest in changing this procedure at present, but if demand for this information increases and some plan to pay for the necessary changes is proposed, the Department might be willing to make this improvement. The second problem lies in the ^n::e of "covered" employ ment. Excluded under the Code are most federal, state, and local government employees. Also excluded from cover age are most agricultural and self-employed workers, and various others. Thus, a great portion of the employed labor force is not represented in the Department of Employ ment's report. It seems, then, that additional data must be gathered from various rede.* 1, state, and local govern ment sources to provide governmental employment figures, and that small area estimates must be made for the self- employed. 241 Number of business establishments The number of business establishments by small areas can be obtained by running two tapes: the Department of Employment file and the Board of Equalization address file. Duplications can then be eliminated. . The latter file contains a place of business address for all firms required to make collections under the California Sales and Use Tax Law. By itself, this report can furnish some measure for the small business development program by providing a count of small businesses in the area. Taxable retail sales Quarterly reports of taxable retail sales are made by the State Board of Equalization for each county and city in California. Unfortunately, the coding procedure used in these reports does not permit the separate identifica tion of data for areas smaller than whole cities. The imminent completion of a census tract street index for Los Angeles County will greatly ease the problem of identifying addresses with small area units. A computer program which will read addresses and place them in the appropriate census tract is now being developed. When this tool is in use, each establishment, its employment and 242 sales, can then be allocated to a census tract. It seems best to collect economic activity indicator data at the census tract level, even though practical problems of dis closure arise. Disclosure rules for employment and sales data would probably preclude their publication at the cen sus tract level, but confidential analysis would certainly be appropriate. Publication of data, of course, would follow the regulations of the collecting agency. In many cases, aggregating census tracts into some larger statis tical units will be necessary.^ Investment Indicators A second group of economic indicators involves the measurement of investment--and disinvestment--by small area units. Before analyzing the tern "investment," it seems appropriate to describe the components of private invest ment as used on the national level. The Regional Planning Commission of Los Angeles County has divided the County into study areas, statistical areas, and substatistical areas. Since population and housing data have historically been collected by these units, it would seem desirable that economic activity data also should be collected by these same areas. Gross private investment consists of: 1. New construction, including residential, com mercial, industrial, and utility. 2. Expenditures for producers' durable equipment. 3. Change in business inventories (net additions to inventory stocks of raw materials, semi finished, and finished products). 4. Net foreign investment. "Investment," as used here, does not mean "financial investment" in stocks and bonds. Rather, the word means real investment--the purchase of capital goods. Outlays for durable consumers' goods (automobiles, household equipment, etc.) are sometimes included in "investment" because they bear a resemblance to producers' equipment. The term, "net investment," includes gross private invest ment, minus depreciation, plus governmental expenditures. Because of a serious lack of data at the local level, the above concept of investment must be modified so that investment at the intraregional level includes only new construction. While information about the dollar volume of new construction in each census tract is obtain able from the Daily Construction Report and from the County Assessor's Office, information about other forms of 244 investment is not readily available. This lack of data is not too critical, however, when the formula described below is used. be thought of as having a specific, quantifiable stock of capital goods at any given point in time. This stock is simply the total of all private and public improvements. The siim total of all public and private new construction in a given area during a given period of time represents "gross investment." Also included in this figure are repairs and alterations which extend the life of the structures affected. "Net investment" is determined by deducting demolitions and depreciation from the gross investment. If the combined worth of demolitions and de preciation exceeds that of new construction, net investment is a minus amount and there is said to be a disinvestment in the area. The investment account appears as follows: A census tract, or any other small area unit, may Census Tract XYZ Net Investment Account Demolitions Depreciation New construction Repairs Alterations + 245 The "inventory of capital assets" account is: Census Tract XYZ Inventory of Capital Assets Beginning Inventory + Net Investment (or) - Disinvestment - Ending Inventory + In determining how to evaluate the existing inventory of public and private improvements, the County Assessor's valuation of real property at twenty-five per cent of market value must be accepted for the present. Presuming that the ratio of assessed value to market value is constant throughout the County, the correctness of the ratio is irrelevant in this study. In fact, it makes no difference if the assessed value is used in place of the actual market value. However, direct analysis of real estate sales records could provide an internal control to verify the assessed-value-to-market-value ratio. The County Assessor's Office already has such a control. From the above investment data, an "investment index" could be constructed for each census tract in the South Central Economic Planning Area. Such an index could show one particular year's investment as being equal to 246 100 and give data for other years in terms of this norm. For those tracts which show a continual downward trend (presumably due to disinvestment), further studies should certainly be undertaken to determine what action could reverse the trend. The importance of an investment index in economic development work cannot be overemphasized. Although it is fairly easy to find those areas which are so deterior ated that large-scale redevelopment action is needed imme diately, areas which do not yet show deterioration, but which have problems developing below the surface, must be identified as early as possible. The investment index is just one measure which could help identify these areas. Summary The discussion in this chapter of economic indi cators has been somewhat theoretical. The reason for this is that the relative newness of the entire War on Poverty program makes impractical any specific use of economic indicators to interpret the effectiveness of definite elements in the program. Certain pertinent statistics have been available and have been utilized for analysis for varying lengths of time--some going back many years--in 247 establishing needs or aims for projects in the War on Poverty. The Small Business Development Center, however, having officially opened for business only as recently as October 27, 1965, is far too new to have created any effect on indicators in the area of economic redevelopment. Figures can, of course, be cited as of any given point in time to indicate the number of small business loans applied for, the number granted, the mean or average or total or quantity of loans repaid. These figures, however important they may be from the standpoint of money expended, are of real importance only as they influence some of the area's various economic indicators. This in fluence will take time--perhaps a considerable amount of time. The day-to-day criticisms of the program by poli ticians, economists, or members of the various news media may be pertinent from some viewpoints, but the only valid and worthwhile evaluations of the effectiveness of Title IV of the Economic Opportunity Act in general, and the Small Business Development Center of the South Central Economic Planning Area of Los Angeles in particular, will be the eventual influence on the economic indicators of the Watts area. CHAPTER VIII SUMMARY AND IMPLICATIONS Summary With the federal government's continuing emphasis on economic development of underprivileged areas and sponsorship of various programs and laws designed to foster improved political, educational, and economic oppor tunities for Americans of all races and national origins, and with the so-called War on Poverty a current issue of bitter and widespread controversy, it was felt that an analysis and evaluation of the background and development of these concepts and their relationship and application to a specific metropolitan area would be pertinent and valuable. For several reasons, the metropolitan area selected was the South Central section of the City of Los Angeles. One reason was because this section had already been recognized by the Area Redevelopment Administration as a poverty area in need of federal assistance. A second 248 249 reason was because some limited programs sponsored by the Office of Economic Opportunity were already under way in this section. A third, and highly important, reason was the national prominence gained by the area during August of 1964, with the violent outbreak of racial unrest and the subsequent pinpointing by the news media of the social and economic needs of the people of Watts. A fourth, and more personal, reason was the writer's involvement with the area and his desire to foster and facilitate all valid and available means to alleviate the undesirable conditions in this section of Los Angeles. As proposed in Chapter I, this study has examined a potential solution to one of the area's problems--that of aid to the small businessman. It was, and is, the writer's conviction that helping the residents of the South Central part of Los Angeles to help themselves through the successful operation of their own businesses and business ventures was the basis for the only kind of worth-while improvement in the conditions of the area. These condi tions are long-standing and in recent years have been worsening noticeably. This type of help would affect not only the businessmen receiving federal aid but also would help to create additional employment opportunities and 250 } thus generate economic ripples that could touch the lives and well-being of countless additional residents of the area. This study, therefore, examined the development and the functions of the Small Business Administration from the time of the first Small Business Act in 1953 up to and including the Small Business Administration's role in the implementation of the 1964 Economic Opportunity Act. This federal agency is directly responsible for overseeing the loans and other financial assistance needed by small businessmen. The Small Business Administration has an important role in attacking one aspect of America's poverty, but the total War on Poverty, as undertaken by the present admin istration, is now under the aegis of the Office of Economic Opportunity, created to implement the Economic Opportunity Act of 1964. To understand what this Act may mean to the South Central area of Los Angeles, an examination of the pertinent aspects of the Act, especially Titles II and IV, was undertaken. After considering the federal legislation already enacted to provide potentially the necessary assistance to develop and/or redevelop the Watts area, a comprehensive 251 overview was given in Chapter IV of the South Central area from the points of view of the demographic and socio economic factors involved. This overview was followed by a detailed analysis of the Agency authorized by the Office of Economic Oppor tunity to facilitate the War on Poverty in Los Angeles-- the Los Angeles Area Economic Development Agency. In its short existence of two years, this Agency has undertaken many analyses and formulated many potential programs. The implementation of some of these programs is already under way, one specific operation being the initiation and supervision of two Small Business Development Centers; one of these is located in the heart of the South Central Economic Planning Area of Los Angeles. Although it is too soon to discuss in any detail the effectiveness of these Centers--inasmuch as their official opening did not take place until the end of October, 1965--it was considered important to present in Chapter VI their conceptualiza tion, their objectives, and their organizational set-up. In addition, it was considered important to present in Chapter VII a discussion of the kinds of indicators on which the effectiveness of the programs of the Los Angeles Area Economic Development Agency eventually may be judged. 252 Of especial interest to this study is the potential signif icance of these indicators in evaluating the effectiveness of the attack on poverty in the Watts area through the development of small businesses under the Economic Oppor tunity Act of 1964 in general and the Small Business Development Center of South Central Los Angeles in particu lar. No conclusions about the effectiveness of the War on Poverty in Los Angeles can yet be drawn. The program, as it applies to the Watts Area, is getting under way and the developments of the program are daily items of news. When history has recorded the results of this war, it may be possible to look back and see what might have been changed. Implications The implications which develop as a natural result of the material herein presented covering the attack on poverty in the South Central section of Los Angeles are those related to the activities of the Agency directly responsible for leading this attack. Its supervision of the Small Business Development Centers, on which this study has focused, is one program of the Los Angeles Area 253 Economic Development Agency which is now in operation. In its short existence of two years, the‘Agency has under taken many analyses and formulated many other potential programs in its attack on poverty in the Watts area and its files are filled with information which attests to the range and volume of the activities in which it has engaged and the services it has rendered. The currency of all of its activities outdates statements about the status of any one of these almost as soon as the statement has been made. In spite of this, the implications of some of these pro grams, although enormous, in most cases are still nebulous. A brief review of some of these programs, undertakings, and activities is, therefore, included at this time. Agency programs By its own analysis of its obligations, the Los Angeles Area Economic Development Agency felt that it was expected to furnish a program of technical assistance to "identified areas of persistent unemployment." It grouped the work expected to be performed under the following categories: 1. Industrial Development 2. Community Facilities Development 254 3. Business Assistance 4. Merit Hiring Programs 5. Assistance to in-migrants 6. Cooperation with the UCLA Institute of Indus trial Relations in support of various community programs which fall within the general context of the LAAEDA program'*' Small business development activities.--Two Small Business Development Centers were established and opened officially on October 27, 1965. During the first month of operation four loans, totaling $40,000, were approved for small businesses in the area. One of the immediate results was the creation of thirteen jobs for residents of the poverty areas. Over four hundred loan applications that had been accumulated by the Agency were turned over to the Center for processing. As detailed in Chapter VI, programs for the selection and training of a business development advisory ^Los Angeles Area Economic Development Agency, "Final Report on Contract No. Cc - 6117, Presented to the Area Redevelopment Administration, United States Department of Commerce" (Los Angeles: November, 1965), p. 1. 255 staff and for the preparation, development, and improve ment of the managerial skills of the small businessman in the less privileged areas have been developed. In addi tion, the Agency has been engaged in the development of techniques for measuring the effectiveness of the opera tion of the Small Business Development Centers (see Chapter VII for a discussion of these measurement techniques). The Agency expects that the Centers, in addition, will provide follow-up counselling service to those to whom loans are granted. This service will utilize the services of members of the business and financial community of Los Angeles who O function on a volunteer basis. r • An integral part of the work of the Center will be the creation of a job development program.. [This] will enable entrepreneurs to utilize the resources of the MDTA program as they start up new business operations requiring skilled per sonnel. This can be accomplished by making OJT [On Job Training] funds available for the training of new employees who come from the economically depressed communities and who are unskilled.3 ^For a discussion of the Service Core of Retired Executives (SCORE) see p. 58, supra. 3 William T. White, Jr., "Draft--Statement of Intent" (Los Angeles: Los Angeles Area Economic Development Agency, October 8, 1965), pp. 2-3. (Mimeographed.) 256 Housing.--The Agency has developed programs for sponsoring and financing four low to moderate income projects, one of which will be located in the Watts Area. Specifically, for this area, the Agency has suggested: . . . 10 housing developments of approximately 150 family units each should be commenced in the curfew area immediately. Construction should be by private developers, who will use F.H.A. in sured mortgage money and their long years of experience in putting such projects together in a short period of time. This housing should be built under the terms and conditions of the Hous ing Act of 1965., Section 221-D-3, with rent supplement assistance.^ In addition, the Agency has recommended that F.H.A. process ing of the loans for this and similar construction projects be speeded up so that work can be started almost immedi ately. Transportation.--The Agency has believed that "lack of adequate public transportation is a contributing factor to economic disadvantage" and that "the transportation problems of the Los Angeles County poverty areas cannot be separated from the economic and social problems of these ^Leland M. Swanson, "Recommended Course of Action to Meet Acute Community Needs of Los Angeles County Poverty Areas" (Los Angeles: Los Angeles Area Economic Development Agency, September 15, 1965), p. 3. (Mimeo graphed.) 257 areas.”- * The Agency staff is therefore participating extensively in meetings devoted to transportation planning in the Los Angeles area and proposes to sponsor additional transportation studies to be used as bases for proposals to interrelate economic development and transportation. Other activities.--A neighborhood-based consumer education program has just been initiated. The program includes: 1. Debt management training, 2. Homemaking training, 3. Buying clubs, and 4. Credit unions coordination.^ Another program involves the employment of up to six hundred disadvantaged persons in a job-shop complex owned, manned, and eventually to be operated by residents of the area. Three such job shops are involved, all located in extremely low income areas of Los Angeles County, and they are designed to create employment oppor tunities in their respective areas. The attention of the Agency is also focused on 5 Los Angeles Area Economic Development Agency, op. cit.. p. 6. 6Ibid.. p. 5. 258 hospital-medical-research facilities in two of Los Angeles County's poverty areas. A very rough estimate indicates that each facility will be approximately a $10 million project. One reason for the Agency's interest in these projects is that existing facilities are completely inade quate in the poverty areas. A second reason is: These projects will also stimulate employment from among members of minority groups in these areas through the training of highly specialized personnel in medicine, nursing, laboratory tech nicians, research technicians and subsidiary fields of employment. There is a great need and shortage of skilled personnel in the nursing, lab technician field and employment from among minor ity groups in these fields are woefully lacking. Other programs include "the provision of public safety facilities in the poverty areas, the frequency of street sweeping, smog and the 'Summer Crash' Teen Posts Program. Watts Area As a result of the South Central Area riots of 1965, the Agency felt that "the fragmented and non-coordi- Letter from G. 0. Brown, Health Plan Consultants, Inc., to the President of the Los Angeles Area Economic Development Agency, December 18, 1964. O Los Angeles Area Economic Development Agency, op. cit. , p. 8. 259 nated approach to problem solving in the poverty areas of Los Angeles County has been worsening" during the period following the disturbances. At a meeting of Watts Area community leaders, the Agency proposed a course of action. It recommended that the following steps be taken to meet the immediate and acute needs of the area: 1. Emphasis be placed upon programs that will strengthen the individual, the family, and neighborhood and the community at large. 2. Environmental improvement be commenced imme diately in the riot or curfew area through early planning and construction of at least ten F. H. A. insured 150 family unit develop ments, to include neighborhood service cen ters . . . 3. Environmental improvement be commenced imme diately in the riot or curfew area through the analysis of public transportation service deficiency or gap, and the elimination of this gap through service improvement. 4. Expedition of Small Business Development Cen ters (SBDC) Program. 5. Expansion of the Neighborhood Adult Partici pation, Teen Post and pre-school programs funded by the Office of Economic Opportunity. 6. Incorporation of the proposed non-profit Com munity Action, Incorporated, and immediate commencement of its operation . . . 7. Establishment of a small local-state-Federal levels of government "task force" to assure interagency, as well as intergovernmental coordination. . . .9 Swanson, op. cit.. pp. 6-7. Outlook It should be pointed out that the elements of the War on Poverty program in Los Angeles add up to a massive undertaking. The size of the area covered, the numbers of people involved when those administering the program are added to those affected by it, the broadness of the basic fields of economics and sociology involved, and the total number of dollars authorized and projected all indicate the enormity of the total war. On a national as well as a local basis, the very size of the poverty program has lent itself to being hampered by the weaknesses and greed of some individxials and by the inevitable power plays of some politicians. The result has been that the news media has enjoyed a considerable amount of sophomoric calumny con cerning some of the people involved in its administration. Whether or not these commentators' evaluations are justi fied will be revealed in time by the results achieved. The attack on poverty is underway--the outcome can only be awaited. BIBLIOGRAPHY 261 BIBLIOGRAPHY Books Burns, A. F., and Mitchell, W. C. Measuring Business Cycles. New York: National Bureau of Economic Research, 1946. Conference on Economic Progress. Poverty and Deprivation in the United States. Washington: Conference on Economic Progress, 1962. Directory. Health. Welfare and Recreation Agencies, Los Angeles County. Los Angeles: Welfare Information Service, Inc., 1961. Galbraith, John Kenneth. The Affluent Society. New York: Mentor Books, September, 1963. j * Harlem Youth Opportunities Unlimited, Inc. Youth in the Ghetto: A Study of the Consequences of Powerless- ness and a Blueprint for Change. New York: Har- you, 1964. Harrington, Michael. The Other America: Poverty in the United States. Baltimore: Penguin Books, 1962. Levitan, Sar A. Federal Aid to Depressed Areas: An Evalu ation of the Area Redevelopment Administration. Baltimore: The Johns Hopkins Press, 1964. Maillich, Sidney, and Van Ness, Edmund H. (eds.). 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Small Business Guide to Government Research and Development Opportunities. Washington: Prepared by Office of Procurement and Technical Assistance, Issued by Office of Information Services, 1962. ________ . Small Business Investment Companies. Washing ton: Office of Public Information, 1964. University of California at Los Angeles, Industrial Rela tions Department. "Hardcore Unemployment: A Report by the Institute." Unpublished report by the Institute of Industrial Relations, 1964. White, William T., Jr. "Draft--Statement of Intent." Los Angeles: Los Angeles Area Economic Development Agency, October 8, 1965. (Mimeographed.) Wright, Mary. The Dusty Outskirts of Hope. Reprint from Mountain Life & Work: The Magazine of the Appala chian South. 1964. Youth Opportunities Board of Greater Los Angeles. "Joint Powers Agreement." Los Angeles, April, 1962. ________ . "The Los Angeles 'War against Poverty1: A Proposal Submitted for Funding. 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Creator Williams, William James (author)

Core Title Attacking Poverty In The Watts Area: Small Business Development Under Theeconomic Opportunity Act Of 1964

Degree Doctor of Public Administration

Degree Program Public Administration

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag OAI-PMH Harvest,Political Science, public administration

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Anderson, Desmond L. (committee chair), Storm, William Bruce (committee member), Swanson, Leland M. (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c18-224163

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Rights Williams, William James

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