By Lee Schuh
There are a number of books and articles covering business issues for dealing with emerging economies in other nations. However, I tried very hard, without success, to find a textbook or even a good article on emerging markets in our own country.
There are areas in the Appalachian Mountains and inner cities that do not have the income from within their community to support a satisfactory, sustainable lifestyle.
Admittedly, sociologists and some members of the cloth have addressed the non-business economic issues, but they don’t seem to understand the business side associated with the depressed areas of the country.
Basically, the question is why does business stay out of the inner cities and mountain areas?
The Watts section of Los Angeles is an example. In the mid-1960s, rioting by the community turned deadly. After the riots, many businesspeople came forward to help pump jobs into the area. Among them was General Tire, which was my employer at the time. They created a subsidiary called Watts Manufacturing Co. to employ 300 local unskilled residents, and I was assigned some administrative duties for it. The company’s philosophy was to make all jobs narrow so it would be easy to train and replace the staff members.
The goal was to have the employees use their skills to obtain better jobs. Profit was not an objective.
Needless to say, that company and most of the others that opened businesses in the area failed within a few years. Economic progress since then has been nominal at best.
In my opinion, the major problems we had then are the same as we have today in the Appalachian Mountains and inner cities:
Education: A good education system that turns out individuals who perform at their grade level is critical. They need the three Rs and to be trained in the art of communication.
Over the years, I have hired high school graduates who could not use a calculator, were not good enough with the alphabet to file, and didn’t have the communication skills to be able to answer a phone call. Schools are still run- down, discipline is lacking and, worst of all, students do not see an advantage to studying and improvement. What they see in their communities are government handouts and crime. They don’t see people they can relate to setting a good example. We need examples of success in the children’s neighborhoods at a level they understand. It could be a manager of a local retail store, or a police officer or firefighter.
Loss: Businesses can’t obtain property insurance in many parts of the inner cities, as the risk is too high due to a history of vandalism and riots. One of my former associates who owned a retail store in Oakland could accurately predict that a major break-in or riot-causing property damage would occur at least once a year. At the Watts Manufacturing Co., we even had break-ins that resulted in the theft of components that were worthless on the open market. Employee theft also is a big issue and major expense for employers in these areas.
Pricing: Sales volume will be less than in other areas so businesses will need to charge more in retail stores to make it a viable business. People in the inner cities and Appalachian areas need to realize this and not treat it as discrimination.
Misunderstanding of capitalism: I have hired employees who said capitalism is where the wealth is stolen by a few at the expense of the rest of the country. A good example of the lack of understanding is that many want an increase to the minimum wage but do not see the impact it would have in terms of inflation and the loss of jobs, which would both hit many low-income people hard. This also should be taught in schools or by entry-level employers.
All of these issues must be addressed before businesses can successfully enter the emerging markets within our own country and bring up the standard of living for those in the inner city or rural mountains.
• Lee Schuh is a lecturer at the California Lutheran University School of Management.