Building A World Class Wealth Building Infrastructure in Minnesota

Testimony Minnesota House Economic Development and Finance Committee, January 18, 2023

(Youtube link to presentation is below). (Presentation on How to Build a World Class ALANA Workforce can be found at this link.)

Chair Hassan, Vice Chair Hanson, Rep. Koznick and members of the committee. Thanks for the opportunity to share some insights on building a world class ALANA Wealth building infrastructure in Minnesota. I am Dr. Bruce Corrie, Professor of Economics, and a founding member of the ALANA Brain Trust. ALANA stands for African American and African Immigrant Latino, Asian and Native communities.

This week we remember the rich legacy of the Rev. Dr. Martin Luther King, Jr. He visited India in 1959 to learn about Gandhi’s strategy of nonviolence and while there he was invited to the southern state of Kerala. You see Kerala is well known for the Kerala Paradox – the poorest of the poor have also high literacy rates and health outcomes unlike in other parts of India and the world. Dr. King was possibly invited to visit and experience this miracle. People were awakened about their rights and responsibilities to change their own destinies that had the positive impact of education and health. That experience had such a deep impact on him that he reflected on it six years later. My doctoral research focused on the Kerala Paradox and my conclusion was that we need a holistic approach to economic development. The same youth who was inspired to change his or her destiny and got a master’s degree became the frustrated unemployed youth with some committing suicide. We need wealth building to complement social and political mobilization and we also need spiritual healing.

Today I reflect on my 35 years in Minnesota wrestling with the Minnesota Paradox as Dr. Samuel Myers framed it: High income with high racial disparities. I have been blessed by being involved in many roles from the Governor’s Working Group on Minority Business Development in 2000 to the Governor’s Workforce Development Council, leading economic development at the City of Saint Paul, and my involvement with the ALANA Brain Trust and other groups. This reflection on ALANA wealth building also draws inspiration from the people I engage daily looking for a loan or a job or a worker or an attorney. It also builds on the work of Representative Ruth Richardson here and the House Select Committee on Racial Justice.

I am sharing my reflections around 5 critical questions: Why? Why now? How? At what cost? And how do we assess outcomes?

Let me begin with the first question – Why?

I was one of the Corrie plaintiffs who for the first time in Minnesota history were at the table when the current boundaries of political power were framed. We asked the judges – who will represent the $1.4 trillion ALANA economy in Minnesota? Our map will show you how. The judges received our input and documented that input in their Final Order where they also asked the legislature to listen to the voices of the ALANA communities. Today I make the case for the political representation of these economic interests and if the ALANA economic interests are not being adequately represented, we will go back to the judges to fix this. What you are doing here is very important. You are defining the contours of economic power through zoning, licenses, rules, and regulations etc.

The second reason why is that Minnesota has a sordid history of racial discrimination. It is a historical and legal fact reflected in the racial covenants embedded in real estate documents and in redlining. The ALANA people were confined to economic prisons that stifled their abilities to build wealth, especially intergenerational wealth.

Today Professor Raj Chetty of Harvard using Big Data shows how the impact of these economic prisons on our ability to achieve economic and social mobility and point to two strategies – those based on improving opportunities and the other on building place.

Finally, the foundational bedrock of racism is the denial of value of the human being. Denied of value, the human being becomes a tool, an animal, an object – that builds the wealth of those that control the economic prison. For three decades I have shown that the emperor has no clothes – the ALANA people have great value – I estimated it to be over $1.4 trillion that includes their lifetime earnings.

I also estimate that the economic cost of racism is at least $280 + billion – the loss imposed on ALANA wealth building by those that constructed the economic prison. However, this number does not capture the mental cost because the denial of value was aimed at breaking the mind to view one as less than what we are. That is why I was so inspired when my wife recently accepted the stewardship of Twin Cities Rise and there every participant is encouraged to realize a core part of their identity – I am Loved. I am Valuable. I am Important. I am Empowered. This insight was what Dr. King wrestled for six years in his mind and when he spoke at Dexter Baptist Church – he named the beast and called for its transformation.

In this policy conversation two elephants are brought into the room. First, investments in the ALANA communities are a zero sum game as it takes resources from Peter to give Paul. This myth has no basis in fact.

I present results of a simulation of the Minnesotan economy and see how the ALANA worker helps create almost $200 billion in output in Minnesota and supports over a million workers and $24 billion in taxes. I have presented data to this legislature in the last session that investments for example in the African American community in Minnesota benefits all. There are not enough African American businesses or individuals to complete many of the projects on their own. They rely on fellow Minnesotans.

The other elephant in the room is the argument – why can’t we offer universal programs rather than focusing on one community. I wish the same people, or their ancestors were around when they were building the economic prisons and the subsequent launch of universal programs that could not be accessed by the ALANA communities. I know this for a fact as I lead the Department of Planning and Economic Development of the capital city and saw the city’s prime resources were accessed primarily by those who walked the skyway in suits. Yes, we need to reshape these universal programs to be accessible to all. We also need to correct the underinvestment and disinvestment in the ALANA communities with specific community focused investments.

Why now?

As one famous saying goes – If not us? Who? If not now? When?

We are in a distinct point of history where we have a huge budget surplus that can be shaped to make progress on undoing the harm of the past and build the foundations of the future. And remember, ALANA communities paid into this surplus and I have data to show that too.

Let provide some context with facts on the ALANA Businesses in Minnesota.

There are over 45000 ALANA businesses in Minnesota with around 7000 being firms with employees. In terms of numbers these businesses have been growing more rapidly than other businesses in Minnesota, reflecting a very strong entrepreneurial energy. At the same time there are huge disparities. ALANA firms with employees make up 6 percent of the total number of businesses in Minnesota relative to 20 percent of the total population of Minnesota. Their annual payroll of $2 billion is just a fraction of the $58 billion revenue of white firms. They also tend to be small relative to white firms. All characteristics of businesses with limited opportunities to expand and grow.

We have historically neglected and underinvested in our ALANA businesses.

ALANA businesses are found across Minnesota. As the table shows in 2012 – the latest data available by county, there were 28 Minnesota counties that had at least 100 ALANA businesses. This number must have at least doubled today and spread out to a larger number of counties as is evident when one drives through Minnesota.

The economic base of wealth building consists primarily of education, income, and entrepreneurship of the individuals. If we look at data across Minnesota economic development region, we find great disparities around income and education, especially for African American, Native American and Latino communities and some within the Asian community.

An ethnic economy emerges as the population grows and the need for ethnic and other products and services. For example, in our study of African immigrants, I estimate that they spend around 40 percent of their income on the ethnic markets. This provides a base for ALANA firms to grow.

As Chair of the Governor’s Working Group of Minority Business Development we conducted statewide hearings and produced the first comprehensive report to grow ALANA businesses in Minnesota. You will see the common themes in other reports since then. We identified the many barriers that ALANA firms face as well as the opportunity for Minnesota to tap this vibrant engine of economic growth. One just has to visit the cultural malls to experience this energy. However, except for a recent burst of attention after the murder of George Floyd there has not been a serious attempt to grow ALANA businesses.

What should we do?

Let’s create a World Class ALANA Wealth Building Infrastructure in Minnesota. In this strategy we will provide tools for wealth building accessible to the diversity within the ALANA communities of Minnesota.

We create Four ALANA funds focusing on: flexible capital, land/real estate banks, capacity building and 50 community/neighborhood nodes for innovation and entrepreneurship.

Flexible Capital – We need a portfolio of capital which addresses various segments of the ALANA market. Loans, alternative finance such as profit sharing or community ownership models, working capital, microloans and equity.

Land Banks – the importance of site control is critical for the launch of any business or real estate venture. There are many successful models of various kinds of land banks and land trusts in Minnesota. These entities help reduce the cost of the project and make available commercial space or affordable housing at a reduced rate because the cost of land has been removed. These land banks can be used to develop community ownership models for businesses, mixed use developments, cultural malls, and housing. Since the ownership of land has also been pivotal in the construction of the economic prisons with redlining, the land banks will help restore some of the lost wealth in our ALANA communities.

Capacity Building

On a regular basis I get calls from people seeking various elements of wealth building capacity – loans or grants or equity, workers, access to contracts, referral for a lawyer or accountant or to learn about cultural destinations. So let me explain why building capacity in these areas are important.

Let me start with the strategy of Cultural Destinations. These are businesses infused with cultural assets of the owner reflected in a unique cultural experience for the customer. This is reflected in things like ethnic murals, art, music, cuisine, entertainment etc. Minnesota is a pioneer in the development of these cultural destinations like Little Mekong and Little Africa and leverage it as a strategy for economic development. In this strategy we flip the negativity imposed on ALANA cultures into an important channel of wealth building. The business owner is empowered to celebrate their culture and the customers enjoy the experience. The strategy also helps make Minnesota a global destination. You will find many virtual tours of Cultural Destinations on my website – culturaldestinations.org.

One of the challenges of ALANA entrepreneurs is to expand their customer base. A virtual presence connected to search engines etc. can be very effective. We could invest in creating this virtual network through expanding existing resources such as Explore Minnesota or the Cert website which already lists over 400 ALANA businesses.

ALANA businesses fail often or get caught up in scams or predators. Access to good accounting, finance, and legal services they can also trust is important. Development of capacity in this area will serve an important need.

Finally, we can create neighborhood innovation hubs by working with community organizations to convert a room in their facility to a co-working space for entrepreneurs. With a small investment the basics such as computers, printers, a mailbox, meeting space, access to databases and connection to the resources of the other three funds. These nodes will become centers of entrepreneurship connecting people to resources and spaces they need to build wealth.

Implementation

As a strategy and knowing how government works, perhaps we can follow two steps in our strategy.

This session, we allocate money for the four funds and at the same time appoint a represent of the House, Senate and Governor to oversee a ground of technical experts who will develop the operational and foundational elements of the funds along these 5 core principles:

This model will be presented for public input in the Fall.

In Spring of 2024 when the legislature convenes, the first order of business is the approve the ALANA Wealth building Funds and launch it January.

By going in two stages, we give ourselves time to first allocate the money so it is there and then construct a well thought out ALANA Wealth building Funds.

What will it cost?

To come up with a number I looked at the various factors such as the average loan amount of DEED’s Emerging Entrepreneur Program, Lending Trees loan study, the average loan size of SBA etc to come up with the estimate of the Flexible Capital loan fund of $250 million.

Similarly studying the results of the $104 million of the Twin Cities Land Bank, the average cost of 22000 sq feet land parcel by NAHB, and the sale value of office space buildings in Minneapolis, I came up with the estimate of a $500 million land bank fund.

For capacity building fund I looked at various costs such as to take a year’s subscription for Loci.io for a business to come up with the estimate of the $50 million fund.

The estimate for the 100 community or innovation hubs of the $25 million is derived from the basic cost to convert an empty room into a co-working space in 100 different locations across Minnesota

The total of all these funds in $850 million.

How will we measure success?

The ALANA Funds will have a community board who will evaluate the fund relative to its core founding principles. This board will make sure that all ALANA communities are accessing these resources, that the fund is agile and can adapt to the times, that it is human centric and easy to access for all.

I include a sample evaluation tool. For example, a project comes by way of the board. They have a human element in their criteria to see if various people are included – the single mom with kids, the second chance worker, the immigrant or refugee, the college grad. They will also assess if this project addresses the core principles of the fund. Projects that score an optimal level will be awarded or evaluated. This is a simple tool and can be very effective in decision making.

Thank you for this opportunity to share some insights. I look forward to engaging with you as you address the question – If not us? Who? If not now? When? I am confident in your leadership. Thank you.