The Promise of Micro-Enterprise: Understanding Individual and Organizational Impacts

Abstract

With the current state of American politics polarized into red and blue states, policy agreement between Republicans and Democrats, or conservatives and liberals seems difficult to imagine. Yet in the 1990s, policies for micro-enterprise and micro-credit were heralded by both conservatives and liberals as silver bullets for addressing poverty and promoting economic development in low-income communities. Inspired by success in developing countries, such as the widely publicized Grameen Bank in Bangladesh, micro-enterprise programs (MEPs) were started in the U.S. to assist low-income entrepreneurs in starting a micro-enterprise. MEPs use tools like micro-credit (small business loans) and technical support to foster micro-enterprises-very small businesses, typically soleproprietorships, small partnerships, or family businesses with fewer than five employees and annual sales of $250,000 or less (Self-Employment Learning Project 1994; Walker and Blair 2002). MEPs certainly appear to offer a novel approach to old problems. At the macro-level, MEPs offer a new organizational approach to economic development. At the micro-level, MEPs are an innovative means to poverty alleviation in low-income households by offering individuals access to loans to start businesses that can provide income. MEPs appeal to conservatives by encouraging self-reliance, individual responsibility, and support for the private sector through business-ownership. In contrast, they appeal to liberals for providing economic resources directly to poor individuals. In the mid to late 1990s, it appeared that MEPs were the bipartisan answer to economic development in depressed areas. MEPs have received much attention from developmental economists who evaluate their impact in developing countries (e.g., Stiglitz 1990; Besley and Coate 1995; Yunus 1999). Fewer systematic studies of micro-enterprise in the United States exist, however, where unlike developing countries, very small and informal businesses are much less likely to produce economic returns great enough to support individuals and families. Two recent books on micro-enterprise begin to fill this gap. Kitchen Capitalism by Sherraden, Sanders, and Sherraden (SSS) uses primarily qualitative interview data, but also longitudinal quantitative data, to analyze the impact of micro-enterprise in low-income households. At the macro-level, Taub analyzes the history and impact of the Southern Development Bancorporation (Southern), an MEP operating in southern Arkansas, one of the poorest regions of one of the poorest states in the United States.