Racism Hinders Rebuilding of Inner City

`MY father started this business in 1948 - before affirmative action - so I've always felt that we could get ahead with or without it," says John Cruz, president of Cruz Construction here in a predominantly African-American section of Boston.

His company, one of the largest minority-owned firms in the state, has built shopping centers, high-rise apartment buildings, and manufacturing plants.

But success stories are hard to come by in America's largely minority inner cities.

Nationwide, minority business owners like Mr. Cruz are struggling to run profitable companies in the face of obstacles such as racism, poor access to funding, and declining urban infrastructure.

After more than four decades, Cruz, who is president of the Contractors Association of Boston, is still not asked to bid on jobs outside of the Roxbury area. "The only time we get a call is when firms doing business with the government decide they have a poor record on minority participation," he says.

"We are one of the better-known companies, with a solid track record, and we can't break the institutional racism," Cruz says.

"It is not so much that somebody wouldn't have you live next door to them, but they won't give you the opportunity to bid a job. That's still racism," he adds.

The Los Angeles riots have focused public attention on underlying structural problems in inner cities. Minority businesses have a central role to play in the solution to these problems, say activists, bankers, and community leaders.

"Merchants are the backbone" of inner-city communities, says Ronald Homer, president of Boston Bank of Commerce, a minority-owned institution. "They lobby for street lights, parking, keeping streets safe and clean. They want all the things that make the community a good place to live."

Developer Cruz agrees: "The only way we are going to overcome the welfare-dependency syndrome is by having strong black and minority businesses that employ people."

"We need an industrial policy for our inner cities," Mr. Homer says. "We're not going to develop an area that's so distressed and undeveloped on an ad hoc basis. The suburbs were not built up on an ad hoc basis. Millions of dollars were poured in," including grants for sewers, highways, and other incentives for development.

A similar all-out approach is needed in cities across America today, says David Lee, president of the Boston Society of Architects. In the past, when the federal government has really wanted to do something, such as create a superior jet fighter, it has given the defense industry cost-plus contracts to get the job done, he says. That ensures that contractors make a profit on top of the costs of production.

"The government is really quite good at stimulating the kinds of businesses that it wants to have happen," he says.

Paying a premium to start a crash rebuilding program is "going to be cheaper than to continue to pour money into these social programs to clean up the mess," Homer says.

"An increase in federal subsidy dollars could leverage private money to an unprecedented degree," says Michael Shea, national housing director for the Association of Community Organizations for Reform Now, a nationwide advocacy group.

"Banks are starting to see the light in some cases," Mr. Shea adds. "Community groups are applying the stick, and if the government could provide the carrots in terms of loan guarantees and subsidies [to banks], that would go a long way toward starting to revitalize housing in inner cities."

The role of financial institutions in minority communities has long been a point of contention between community activists and bankers. Rep. Esteban Torres (D) of California, chairman of the House Banking Subcommittee on Consumer Affairs, said last month that "the recent explosion of violence that ripped through Los Angeles ... brutally illustrated the effects of long-term disinvestment on our minority communities. Decades of discrimination, abandonment, urban flight, and joblessness have bred a dangerou s social alienation that cannot be allowed to go unchecked."

Few big downtown banks view minority markets as areas of opportunity. The Federal Reserve released data recently showing that qualified minorities are rejected twice as often for mortgage loans as non-minorities. This report followed other studies released over the last year that had similar findings.

When it comes to fair treatment by lenders, James Miller, president of Boston's AB&W Manufacturing, learned the hard way that he was not on a level playing field.

As one of the few minority-owned manufacturing companies in the city, AB&W ships parts to Ford, General Motors, and Chrysler assembly plants across the country.

The company has earned Ford's "Q1" award given to its highest-quality suppliers.

In the mid-1980s, Mr. Miller wanted to reduce his dependence on the auto industry. He won a $1 million order from Digital Equipment Corporation (DEC) to produce a new keyboard. He then applied for a loan to buy necessary tooling and equipment. Despite a pristine credit history, more than double the amount of collateral needed, and a signed contract by DEC to purchase the new products, the big banks in town were simply not interested. The loan and the project eventually moved ahead, however, when the mino rity-owned Boston Bank of Commerce approved the loan.

For Cruz Construction, however, "it's back to the 1970s as far as relationships between black businesses and banks," Cruz says. His bank was one of the many local banks to fail. "So you have to go and try to establish new lines [of credit]. It's like your previous 20 years did not count."

One of Boston's big banks has started to take a new look at the minority community.

Early in 1990, after the release of the Boston Community Redevelopment study of disinvestment in the inner city, senior officials at the Bank of Boston decided that they would "look at the Community Redevelopment Act as a market opportunity," says Gail Snowden, a division executive of Bank of Boston. The Bank of Boston established 14 branches in minority areas, each called First Community Bank.

Starting with a staff of 65 people, Ms. Snowden has expanded to 113 employees, 50 percent of whom are from the neighborhood.

"We are going against the grain," Snowden says. "We are making an investment at the same time the bank is undergoing stringent cost-cutting reductions in staff."

Each First Community Bank branch did not have to be immediately profitable, but as a group the "business was profitable in the first year," Snowden says.

Community activists, bankers, and minority business leaders here point to a number of strategies to arrest urban decay:

* Forming a plan to rebuild urban infrastructure similar to the approach used for military programs after World War II.

* Giving contracts for the urban buildup to minority-owned firms that would recycle dollars in minority communities.

* Using federal dollars to support inner-city lending by banks.

* Developing partnerships between large corporations and small minority-owned businesses located in the inner city.

"The best idea is capitalism," says developer Cruz. "That's what built up every other community."