After his research showed huge gaps in the pandemic’s effect on white-owned versus minority-owned businesses, UC Santa Cruz economics professor Rob Fairlie caught the attention of Congress, which used his findings to guide policies on the road to economic recovery. Now, as Santa Cruz pushes to get more small, women- and minority-owned businesses into downtown storefronts, Fairlie sits down with Lookout to discuss options to achieve this goal.
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Testifying in front of Congress from his laundry room was not something Rob Fairlie ever expected to do. However, while stuck in the great indoors during the early months of the COVID-19 pandemic, that’s exactly what Fairlie found himself doing.
After writing his dissertation at Northwestern University in the early 1990s on business development as a way of reducing inequality, Fairlie has gone on to conduct quite a bit of research around racial and gender inequality, labor economics, entrepreneurship and more over the course of his career. He is a regular interviewee for national media outlets like the New York Times, Wall Street Journal, NPR, CNN and more.
Even with that level of experience, what he found during his 2020 research was “incredibly alarming.”
Soon after the shutdown, in April 2020, Fairlie was the first to release information on the severity of the pandemic’s impact on Black-, Asian-, and Latino-owned businesses. The numbers spoke for themselves.
“Seventeen percent of white business owners shut down in April across all industries, across the entire U.S. For Black-owned businesses, that number was 41%,” he said. “You’ll see that one number everywhere, if you do a Google search, because it’s been cited over and over and over.”
Fairlie’s research is focused on the countrywide situation rather than a Santa Cruz-specific one. Still, the nation-spanning implications of his findings have helped him identify many of the problems, both obvious and obscure. Those findings might prove just as valuable in efforts by the city of Santa Cruz to get more small businesses — particularly women- and minority-owned ones — into downtown storefronts, as they did for Congress in its efforts to help businesses recover, and fast.
Fairlie, 57, says information from this research and testimony, which took place around late summer 2020, is what lawmakers used to argue for more funding for the Minority Business Development Agency and to put more funding into local agency offices.
“I’ve been told that my findings on that initial hit to minority-owned businesses were crucial for members of Congress to use to argue that this is really unequal,” he said.
Later in 2020, Fairlie testified again, regarding his research on the Paycheck Protection Program (PPP) — loans backed by the Small Business Administration that helped businesses keep their workforce employed during the pandemic. This time, Fairlie’s testimony highlighted the issue of more established, largely white-owned businesses getting most of the first round of PPP loans, due to their deeper connections with large banks. He said the second round showed a big reversal in this trend.
Now, as the city of Santa Cruz looks to promote and increase access to retail storefronts for women- and minority-owned businesses, Fairlie sees a familiar problem as the top challenge: money.
“The biggest constraint over all the research I’ve done and studies I’ve seen is financing, the ability to get capital, your ability to finance a startup, your ability to get it to the right scale,” he said.
Fairlie isn’t consulting the city on how to go about this endeavor, at least not yet. However, as a San Jose native and 20-plus-year Santa Cruzan, he has plenty to say about the current state of business and retail, the unique challenges Santa Cruz poses for those businesses, and ideas for promoting small business.
Fairlie sat down with Lookout on the back porch of his Upper Westside home to dive into those topics and more.
This interview has been edited for clarity.
Lookout: Take me through the 2020 research that led to you testifying in front of Congress.
Rob Fairlie: I do a lot of research on issues around racial inequality, and one of the areas that I’ve studied throughout my career, starting with my dissertation back in grad school, was looking at business development as a way of reducing inequality. There are these big patterns in ownership; we know that certain minority groups have much lower levels of ownership and that’s tied to wealth, income and basically everything we think of economically.
I’ve done a lot of work developing data sets with the Census Bureau and the Bureau of Labor Statistics, and when the pandemic hit, I knew there would be very little information coming out quickly. Some researchers were using credit card data to look at purchases at local businesses or foot traffic on cellphones to get a sense of who was shutting down. So I thought of using official data from the Bureau of Labor Statistics where you can measure who is working in their business actively that month. I was the first to come out with information on how bad the impact was in April 2020 broken down by race. What I found was incredibly alarming.
Seventeen percent of white business owners shut down in April across all industries, across the entire U.S. For Black-owned businesses, that number was 41%. You’ll see that one number everywhere, if you do a Google search, because it’s been cited over and over and over. I think it was Cory Booker, Chuck Schumer and Kamala Harris who used that information to argue for more funding for the Minority Business Development Agency and localize it more.
Then the PPP came out, and Congress rushed it out. They had to get it out fast, and weren’t sure how to do it, so they worked with large banks like Wells Fargo, Bank of America and Citibank. Now, the business owners with the closest connections to large banks are mostly white, established, longer-running businesses, so they were the ones who got all the PPP up front. I did research that showed this would wipe out businesses and communities, so Congress knew they had to fix this.
I found that, in the second round of PPP, there was an incredible reversal of the loans going out much more likely to minority-owned businesses and minority communities. That was kind of reassuring. The 2021 program was just focused on minority businesses, and provided material in Spanish to Latinx communities and worked hard to figure out ways they could get this information through these loan applications. So there wasn’t just a reversal, but an incredible change in the structure of the program, and it was exciting to see that. It’s been a pretty wild ride.
Lookout: What kinds of tools or efforts would the city of Santa Cruz need to achieve its goal of populating downtown with small businesses?
Fairlie: The biggest constraint over all the research I’ve done and studies I’ve seen is financing, the ability to get capital, your ability to finance a startup, your ability to get it to the right scale. If you’re underfunded, then you start at the wrong scale and maybe you never really get the business to take off. During the pandemic, the fintech [financial technology] industry helped a lot of minority businesses that didn’t have access to capital before, so that’s something we could certainly benefit from.
Another constraint is the market. Does the business have customers? What does the supply chain look like? A lot of cities will have contracting programs where they’re very aggressive about trying to get a diverse set of small businesses into a project in progress. I’ve done research on that, showing that those kinds of programs can really make a big difference.
One big thing that was accelerated by the pandemic is this shift away from brick-and-mortar stores. Even large retailers have struggled with this. Some small businesses have taken advantage of this by having good web pages, especially for food. Cities don’t usually intervene much in that area, but I think they could since it’s really important. It’s going to be really crucial for small businesses to have a good online presence going forward. It was already growing before the pandemic, then during the pandemic that growth just exploded and it’s not going to go all the way back down.
I don’t know if cities have done this much, but there have certainly been programs that work on apprenticeships or have mentors for those looking to start a business. So, say, if you want to get a diverse set of businesses in downtown Santa Cruz, the city could look for some volunteer mentors, or maybe there’s some retired business owners that would want to help out and give advice for finances and business models to answer that question of how you deal with this strange market.
That’s incredibly invaluable. Someone who can tell you all the experiences they went through and all the problems they ran into. Businesses that don’t have that are thrown other there on their own and, like, you don’t have a boss and you don’t have a mentor at work, right? That’s sort of the nature of the beast, and it’s the kind of thing that can really make a difference.
Lookout: How is the Santa Cruz market strange? What are the unique challenges of the area?
Fairlie: We have massive tourist waves paired with a kind of a dead winter. We don’t have a financial downtown where we’re all working and eating and staying after for drinks. It’s much more cyclical here than in other, bigger cities, and that’s something a lot of small businesses have to deal with.
Businesses don’t like uncertainty — they want a steady stream of customers that they can predict because it just makes life so much easier and stable. On the flip side, I think we do have an area with a lot of awareness. I think a lot of customers here would actually value having a diverse set of restaurants and places to go to enjoy, while knowing something about the owner.
Nowadays, many customers don’t want to buy from just big corporations. They care about the owner and what kind of a business they’re buying from. Because of that, I think a lot of smaller, locally owned businesses would do really well with that opportunity.
Lookout: Do you think that’s a recent shift in consumer habits?
Fairlie: I do. I think that the pandemic largely made this big shift. The killing of George Floyd also made a huge difference in consumer awareness. Unfortunately, it’s possible that it’s fading somewhat now, but I still think it’s made a change in the minds of a lot of people in terms of where they’re purchasing from.
Lookout: So what has worked where?
Fairlie: I lived in Chicago for a while and the city had a festival called “Taste of Chicago” where each restaurant had its own little stand and you could go and get something for really cheap. Sure, we have the farmers markets, but another thing like this could bring all of the area’s food experiences together.
Baltimore was a pretty economically distressed city. What they did is kind of develop their waterfront by putting restaurants and other retail business there, and it worked. It’s kind of incredible, and you wouldn’t have expected it.
Cleveland is another one that developed a space that was right next to their basketball stadium. Now, it helped that the Cavaliers were good when LeBron [James] was there, but making that concerted effort to make a place lively and draw people to it can be a huge difference-maker.
We already have a lot of it from tourists, but it seems like we could do a lot more. California has this huge advantage on diversity. People here want that.
Lookout: How can Santa Cruz better incorporate these ideas?
Fairlie: The combination of different things in one space is definitely important. To be able to go look at some clothes, then walk down the street for dinner, then head to another place for a drink or a movie is huge, and the ability to do a lot of different things in one place is incredibly valuable. I think people really miss that. They’re longing for that ability to walk down the street and run into someone they know, because everything now is very deliberate. You set up an appointment or meeting to meet a friend to do something. There aren’t those chance interactions as much as there once was.
Imagine something like Abbott Square. You could repeat that down on lower Pacific [Avenue] or something like that. It doesn’t even have to be specifically like an Abbott Square, either. It could be used as a way for a handful of restaurant storefronts to bring all of their food to the middle of the space to create a marketplace for people to browse in. Having things similar to that could do downtown a huge favor, because as it stands, the area seems a bit disjointed.
More and more, people are looking for experiences. They’re not as much interested in a good or other materialistic thing. They want to look around, see the variety of stores, have drinks, go to the stadium, and so on. We’ve got this huge group of people coming to go to the beaches, and they’ll always come. It’s like a captive audience.