The U.S. economy is currently undergoing not one but two industrial revolutions. The first is driven by digital technology, wireless broadband and now generative artificial intelligence. The second is driven by massive public and private investment in infrastructure upgrades, the net-zero transition and the domestic reshoring of advanced manufacturing, from computer chips to electric vehicles and batteries.
The media and policymakers alike focus on the location and investment decisions of large companies. However, this revolution involves not only large companies such as Intel or Siemens, but also thousands of small and medium-sized enterprises that provide goods and services to the government or large companies that receive government contracts or subsidies. This is called “new purchasing economy”.
Familiar lineup of large companies
While much has been said about the jobs created by the relocation of U.S. industries, less attention has been paid to the once-in-a-lifetime opportunity to build a new generation of dynamic, successful small businesses with diverse ownership in industries that will dominate. enterprise. The next economy.
Take the energy transition as an example, which will involve a large number and a wide range of small and medium-sized enterprises. Public and private utilities will look to local construction firms to complete grid and transmission line modernization projects as well as new solar and wind farms to support electrification. Auto and battery manufacturers are building and restructuring their supply chains to support the production of electric vehicles. A large number of commercial, residential and public buildings require energy efficiency retrofits. These shifts represent billions of dollars in business opportunities in the coming years.
The new industrial era involves architecture, design, engineering and technology companies of all sizes, as well as software and other services businesses. Public infrastructure projects, however, are dominated by familiar large corporations. According to statistics, by 2022, the top 20 contracting companies in the transportation, power and industrial construction fields will occupy 56% to 82% of the market share (calculated by revenue). Industry data. In addition to equity concerns, as the pandemic has reminded us, this over-reliance on a few key suppliers also poses long-term risks, including increased costs and delays to critical projects across the country.
Market forces and unprecedented federal spending have renewed the focus on leveraging public and private investment to grow small businesses of all kinds, especially Black- and Hispanic-owned businesses. However, this important goal cannot be achieved without addressing harsh economic realities.
The COVID-19 pandemic has devastated small businesses, and not just those in the retail or hospitality industries. Small and medium-sized construction and manufacturing businesses are still recovering from pandemic-related stopgap measures and financial losses due to supply chain disruptions, material and labor shortages, and rising inflationary costs.
Pandemic setbacks and closures also remind us of stark racial disparities in business ownership. According to the Census Bureau, Black- and Hispanic-owned employer firms accounted for just 2% and 8%, respectively, of all employer firms in 2020. Minority-owned businesses make up an even smaller share of the construction, manufacturing and utilities industries that are expected to grow significantly. Black companies are particularly scarce, accounting for less than 1% of all employer companies in these three industries.
The racial gap in business wealth is already much larger than the gap in ownership of real estate or financial investments, even though these gaps are so wide and persistent.White households own about a dozen times more real estate wealth than black or Hispanic households, but more than three dozen Twice the wealth of private corporate assets. Conversely, from an opportunity perspective, black families with entrepreneurs are twelve times wealthier than black families without entrepreneurs.
In light of the recent Supreme Court decision on affirmative action in higher education and subsequent decisions, it is even more important to get this point right. ruling A federal district court in July limited a federal program designed to help minority-owned businesses compete for government contracts.
We face huge supplier access challenges. In addition to fit-for-purpose capital, the new procurement economy will require serious reform. Federal investment flows to fragmented public authorities and agencies, each with its own unwieldy rules, definitions, and practices, placing a heavy burden on small businesses. There is little collaboration between public entities and chambers of commerce, financial institutions and entrepreneurial support groups that help businesses grow. Supplier diversity efforts have traditionally focused on legal compliance rather than business building or inclusive growth. Financial products do not address the glaring disadvantages of minority and women business owners, such as weak capital reserves and lack of traditional collateral.
Addressing supplier pipeline challenges
To meet this moment, we need to approach the problem from multiple angles.
First, we need to reform public procurement and contracting at all levels to ensure maximum inclusion of small, local and diverse businesses.Experts include Government Performance Laboratory at Harvard University and Infrastructure project equity Always trying to do this.F national league of cities (which has long emphasized the importance of fair contracts), the National Black Chamber of Commerce and the U.S. Hispanic Chamber of Commerce. They need more support.
Secondly, large private companies should study procurement and expand local procurement.The manufacturing company is invest Hundreds of billions of dollars of projects can transform entire regions, but they also bring global supplier relationships but have yet to participate in local U.S. economic development
Third, we need new public-private partnerships to support SMEs across the region, significantly reducing the fragmentation that exists between buyers, capital providers and established businesses. Small Business Development Program (Many of these offer no department- or procurement-specific training or coaching at all).
From San Antonio and El Paso to Chicago and Philadelphia, such as Norwalk Metro Financial Lab at Drexel University, Aspen Institute Latinos and Society Programand next street has been promoting the establishment of such partnerships in markets across the country and developing digital backbones and other tools to make them effective marketplaces for institutional buyers and suppliers.
Fourth, we need more analysis and financing to identify opportunities for small businesses and identify new forms of support, especially capital suitable for suppliers (startups and growth companies). High interest rates and recent bank failures have made lenders more risk-averse, leading to a credit crunch—the opposite of what a construction boom requires.Flexible financial products suitable for scalable small businesses, e.g. supply chain financing Or that revenue-based financing offered by founder First Capital Partners — which started in San Diego and now also operates in the Chicago and Dallas markets — requires more experimentation and broader adoption, not less. The federal government is helping by working to provide flexible capital to underserved businesses through programs like the state Small Business Credit Program.Private businesses, banks and charities are also using Alliance for Economic Opportunity.
The imperative we face is clear. As well as making buyer practices more inclusive and innovative, we also need to invest more strategically in developing small and medium-sized suppliers, in a fairer way and at greater scale. This requires reform, funding and collaboration powered by new thinking.
We are facing a looming supplier pipeline challenge, but solving this problem will bring huge economic and social rewards. This new industrial moment offers opportunities not seen since the wartime economic mobilization of the 1940s, and we have no time to waste.
Xavier de Souza Briggs is a senior fellow at the Brookings Institution as part of its Valuing Black Assets Initiative and senior advisor to the What Works Plus Funder Collaborative.
Charisse Conanan Johnson is co-CEO of Next Street and a former vice president at J.P. Morgan Asset Management.
Bruce Katz is Founding Director and Co-author of the Norwalk Metro Finance Lab at Drexel University of new localism.
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