Investing in Culturally- Significant Businesses and Community Growth
Leveraging Post-Pandemic Community Investment to Ensure Cultural Preservation
November 2022
Funding for this study was provided by the Kresge Foundation.
Joshua Devine, Director of Racial Economic Equity, NCRC
Jason Richardson, Senior Director, Research, NCRC
— Key Takeaways
Small businesses owned by people of color that focus on the arts and reflect the historic culture of their communities are not getting the resources they need to survive.
Culturally-significant Small Businesses (CSBs) are a crucial driver of neighborhood economic prosperity that also provide a bulwark against gentrification and displacement.
Major funders should be more proactive and generous in supporting both large “anchor institutions” like museums and theaters, and reaching out to offer technical assistance and funding resources to CSBs that currently struggle to access such support.
Introduction
Arts and culture are an important component of overall quality of life for every person on earth. Access to cultural resources and connections – or the lack thereof – shapes many aspects of our society. It also influences economic outcomes, as economists who study the role of “human capital” in wealth-building and opportunity creation have identified.
What do we mean by “culturally significant businesses?” It is a far-ranging category that includes everything from locally-owned neighborhood eateries where people can see familiar faces and enjoy something that tastes like home, to music and art spaces that serve as local nightlife hubs, to small independent museums, photography studios, flower shops and the like. It also entails cultural innovation championed by entrepreneurs from fashion designers and techies to service-based businesses of historic legacy like barbershops, salons and main-street mom and pop shops. These are the businesses that help define the line between “a geographic area where many people live” and “a community where neighbors greet one another on the street and support one another in times of need.” Either of these types of places can be accurately labeled a neighborhood. But only the latter is apt to foster the support networks, word-of-mouth job opportunities and other key elements of human capital that facilitate community resilience to crises — whether an acute force of nature like a natural disaster or pandemic, or a slow-moving economic force like gentrification.
Culturally significant businesses also afford people opportunities to find meaning in their lives, and seek pride in their culture and what it offers to the neighborhoods they call home. Such meaning-making opportunities are found in the vast diversity of the American people, in the practices and purposes of our institutions, and woven within the unique identities of our neighborhoods. Despite this prevalence, however, the synergy of art and culture has been absent in the landscape of COVID-19 community and economic recovery and investment. Pandemic impacts and post-pandemic realities reveal missed opportunities to meaningfully center art and cultural preservation in small business resilience. Consequently, businesses and communities continue to fight against historic cultural extraction pressures.
The disproportionate economic impact of the pandemic on small businesses owned by people of color and the subsequent uneven landscape of support to aid in their recovery and growth has revealed a critical need to reexamine how we invest. Private and public funders who are seeking to support solutions to overturning pandemic impacts must expand their frameworks of investment to include culture, and do so in a way that centers equity, race and nontraditional cultural actors. This reimagining can help bridge the gap between diverging issues of minority business development, community revitalization and displacement.
This report seeks to amplify the importance of art and culture (what Kresge Foundation staff sometimes refer to as “small ‘“a’” and big ‘“C’”) to cities in general. Within this broad topic we specifically examine the role of artistic and culturally significant businesses (CSBs) to Black communities in those cities. The report expands upon our initial research of cultural significance to help build a framework that guides the development of investment vehicles, policies and programs supporting CSBs in communities of color.
Culturally Significant Businesses in Post-Pandemic Recovery
With performances and events canceled, and many people unwilling or unable to spend money on tickets, the sector has been hit hard financially. To some extent, the current situation shares some similarities with the 2008 financial crisis. Though there are signs that the arts and culture sector will have difficulty in recovering or returning to its pre-pandemic status, COVID-19’s widespread impact (which differs from the financial crisis) make it difficult to predict how quickly or deeply the arts will regain lost ground. However, there are a few assumptions we can make. Economists are predicting an economic recession that is likely to have a major impact on the arts sector. Three common sources of funding for the sector – government funding, private donations, and income generated by sales and ticketing – are also likely to be affected by a potential recession.
COVID-19 also had an immediate and devastating impact on artists and culturally significant businesses, such as forcing businesses to close and leading to job losses. Consumers of art and cultural goods and services still exist, yet the way they engage with the sector may be changing. Gathering in groups for live performances remains problematic for many, due to personal health concerns or public health restrictions. Outdoor events, online performances, curbside pickup and other asymmetrical ways of consuming art and culture have flourished in many ways during this period. Concert halls and museums have been forced to close their doors. Many artists have found themselves out of work. As a result, the art and culture sector faces a long road to recovery from the COVID-19 pandemic.
Pandemic Impacts Give Rise to the Threat of Cultural Displacement
The arts and culture sector’s slow recovery; government failures to emphasize identifying and supporting culturally-significant businesses; and other general demographic trends and COVID-19 impacts has weakened community response to threats of cultural displacement. Cities like Detroit and Baltimore are experiencing a changing demographic landscape – an exodus of their Black populations, unequal pandemic recovery and rising costs of living – that make it difficult to identify and achieve inclusive growth.
Both cities have seen an exodus of people since 2000. Since that time Baltimore has lost 10% of its residents, falling from 651,000 to just under 586,000 people. Detroit has lost a stunning 30% of its population during that 20 year period, falling from 951,000 in 2000 to just 639,000 in 2020.
Both Detroit and Baltimore have long been known as majority Black cities, with 58% of Baltimoreans and 78% of Detroiters identifying as Black in 2020. In both cases the city looks starkly different from the state in which it is located, both racially and by income. While 58% of Baltimore is black and the median income of Baltimorean families is $64,814 the state of Maryland is just 30% Black and the median state income is $105,790. In Detroit the numbers are even more stark, just 13% of Michigan residents are Black. While Michigan’s median family income is $75,470 in Detroit that figure is just $40,138.[1]
COVID-19 has hit Baltimore and Detroit particularly hard. As majority Black cities with large populations of low-income residents, both cities were already struggling with high rates of poverty and unemployment even before the pandemic began. The COVID-19 pandemic has only exacerbated these existing problems, leading to even higher levels of unemployment and poverty.
The economic fallout from the pandemic has been catastrophic, with Detroit’s unemployment rate soaring to 24% by May of 2020. The pandemic has only deepened socioeconomic divides in what was already one of the poorest cities in the nation. Families with low incomes have been hit especially hard, as they are less likely to have access to resources like paid sick leave and health insurance. The crisis has exacerbated existing racial disparities in income and wealth.
With the changing nature of communities today, there is value in deepening the understanding of culture in business and community growth and allowing a new framework to inform how stakeholders invest in them. The existence of culturally significant businesses, the continued advocacy of resource organizations and the catalytic investments made to date in Baltimore and Detroit is a marker of promise and opportunity in the years ahead.
Cultural Significance in Baltimore and Detroit
Baltimore and Detroit are both majority Black cities with rich cultural histories. In each place you’ll find a host of businesses, cultural anchors and neighborhoods reflecting this special human tapestry. Authentic eateries that span the African diaspora anchor neighborhoods in Southwest Detroit while jazz-infused museums and lounges echo the sound of iconic old-school Motown across the City. A collection of urban street art showcases the talent of local artists and the cultural heart beat of Baltimore while neighborhood sidewalks are lined with Black entrepreneurs in the upper northwest of the City, also known as Black Wall Street.
It is cultural assets, coupled with infrastructure and market strengths that make these cities, and those like them, prime for new investment. Baltimore’s Pennsylvania Avenue, a historic and burgeoning Black music and entertainment district, is poised for new housing and business opportunities with catalytic investments to the tune of $10 million. Detroit’s housing opportunity is enabling innovative community finance vehicles to not just deliver affordable units but incentivize private partners to invest in neighborhood innovation. Investments such as the revitalization of warehouse spaces seek to chart a new economic future – and culturally-significant businesses will play a critical role in determining the shape of that future.
In our work to make visible the contribution of cultural significance for small business investment in Baltimore and Detroit, participants interviewed for this report often noted some of the major challenges to maintaining and growing their businesses. Often this includes the need for capital, both to operate and to expand. In both Detroit and Baltimore efforts have been launched to help Black business owners connect with sources of capital and identify Black-owned businesses explicitly. It remains to be seen just how effective these programs and other efforts such as community benefits agreements and pandemic relief spending will be in helping sustain the art and cultural businesses of those cities. Yet there are tensions each community faces that can be mitigated through timely and wisely targeted investment.
Business growth is creating unique opportunities for cultural preservation and advancement, but stifled by misaligned resource systems
Baltimore and Detroit are home to some of the most eclectic culturally significant businesses. These businesses have become anchors and flagships of ‘opportunity’ corridors and neighborhoods as well as community third-spaces for the exchange of ideas and social community connection and engagement. Even beyond the goods and services that they sell, these businesses are cementing their economic value through local hiring, wealth generation for the owners and, in some cases, tourism dollars.
Since the beginning of the pandemic, data has shown many new businesses are being formed nationwide. Baltimore and Detroit are no exceptions.
Among those new businesses will be a segment that are focused on art and the culture of their community. This report aims to understand the barriers those new businesses face and identify how to best target those business owners for financial or technical support.
The cultural significance of these for-profit entities does not exclude them from being subject to the same structural barriers that plague all minority-owned businesses. As of 2018, just 2.2% of the 5.7 million employer businesses in the US are owned by the 14.2% of the population who are Black, according to a Brookings Institution analysis of Census data. It is no surprise that even in cities that are majority Black, like Detroit and Baltimore, those same structural barriers impact Black owned artistic and culturally significant businesses. In the Baltimore metro area, over 31% of the population is Black but just 5% of businesses are owned by Black people, according to the Annual Business Survey.In the city of Detroit the gap is even wider: Just 10% of businesses are owned by a Black person in a city that is 78% Black.
Nonprofit actors are championing culturally significant business growth, but are unable to resource transformational change alone.
For Baltimore and Detroit, incubating and growing culturally significant businesses requires a strong ecosystem of both nonprofit resource providers and cultural anchors. Cultural anchors – such as museums, theaters, entertainment venues – are the engines of innovation. Resource providers – such as community development corporations, local government bodies, business associations and private lenders – are its fuel.
There are a host of resource providers supporting arts and cultural business development in Baltimore and Detroit. The Greater Baltimore Cultural Alliance – serving Baltimore City and the five surrounding counties – exists to ensure art and culture is accessible by providing funding, training and advocacy support for arts-based organizations. Global Detroit, similar in scope, takes on the role of direct service provider, focusing on direct resource deployment to spur growth for immigrant entrepreneurs. Lastly, organizations like Baltimore Arts Realty Corporation’s Motorhouse – a nonprofit arts hub, gallery and performance space – is providing affordable avenues for artists to reach targeted markets, grow their consumer base and sell their products and services.
These organizations are doing critical work to foster a climate for business growth. They would benefit greatly from significant partnership work and investment models that lead to transformational change. The impact of this work, however, is marginal and small-scale due to commonly experienced budget and capacity constraints. Direct capital providers like CDFIs, private investors and federal supplements to limited local funding programs are critical to this work.
Investments to Advance Culturally Significant Business Growth
The impacts of the COVID-19 pandemic, existing racial demographic challenges as well as historic trends in gentrification and displacement paint a gruesome picture of what the future of these cities can look like without the intention of investing in cultural significance.
Historic investments in traditional arts and culture development relied heavily on sources such as state and regional legislative appropriations; tax incentives or public and private philanthropic dollars that were earmarked primarily for tourism; and/or historic preservation and cultural and community activities. These investments focus broadly on community development, seeing culture as an economic engine for community growth. But this mentality tends to bypass direct linkages to culturally-significant businesses. New avenues of investment must confront the synergy between traditional community and economic development financing and cultural preservation, particularly for communities challenged with neighborhood investment that is leading to cultural displacement.
As communities continue to build the capacity of their organizations and respond to the needs of culturally-significant businesses and assets – and to do so in the context of community development – investors can ensure a more favorable and equitable investment climate that accelerates this work. Expanding investment vehicles that specifically target culturally-significant businesses, building better funding frameworks to sustain cultural assets in communities of color, and reimagining financing for arts and main street district development is a helpful start.
Expanding Investment Vehicles Targeting Culturally-Significant Small Businesses (CSB) Enterprises and BIPOC Entrepreneurs
“Few funding opportunities today and during COVID were targeted to local, emerging artists and solopreneurs.”
“Banks don’t see my business as a ‘growing and viable investment’ despite records showing record growth.”
From the barbershop, bakery or clothing store along the local main street to the cultural lounge and social clubs anchoring a neighborhood, culturally significant businesses are bedrocks to communities of color. For Baltimore and Detroit, these businesses continue to face significant barriers to maintaining operations. The lack of resources available across all businesses’ life cycles hinder their ability to accelerate and scale opportunities for future growth. Technical assistance and business opportunities are needed to plan for future growth.
Business growth also requires access to capital, which was the number one priority reported by owners of CSB’s in Detroit and Baltimore. There are not as many grants available today than at the start of the pandemic for businesses who are still challenged in maintaining their operations. Grants that are available are often capped and limited. Food establishments are disqualified from loans due to restrictive cash flow or business tenure requirements. Many are also hesitant to take on considerable debt to manage the additional and unforeseen costs of doing business. Cost challenges are even more pronounced for the emerging and creative artist and solopreneur who sees available funding as competitive due to its limited availability. These actors are also often left out of local relief funding.
Equally challenging to funding availability is a misaligned investment structure that fails to accommodate unconventional business models found within the arts and culture sector. From a slow growth trajectory to the development of niche products that narrow the market or reliance on the evolving nature of technology, investors must adapt their risk framework to align with the needs of these businesses.
Creative Solutions to Achieve Impact
- Expand low-cost and flexible financing options geared specifically toward culturally-significant businesses and entrepreneurs
- Fund tech assistance, startup and apprenticeship programs that remove barriers to scaling businesses navigating post-COVID economic and consumer dynamics
- Create and streamline consistent capital, with match funding, for an artist funding pool that is not attached to foundations and with no restrictive requirement
- Fund guidance and consultation for mission-driven community lenders and large banking institutions on underwriting investments in cultural-significance businesses
Ensuring the Growth and Sustainability of Historic Cultural Assets and Community Anchors Resourcing CSBs
“COVID impacts on revenue has placed an overreliance on nonprofit fiscal agents to offset revenue loss, creating an unsustainable model for all.”
“Cultural centers and museums are anchor institutions in communities, essential assets created to preserve and catalyze culture.”
In the cultural sector, nonprofit providers of arts programs are often not viewed as businesses, but they are. These organizations put assets on the front lines supporting culturally significant businesses who are in need of capital investment and technical assistance. Specifically in Baltimore and Detroit, many CSBs lamented challenges in navigating local ecosystems of resources. Particularly for businesses pivoting their business models, requiring them to seek out a new set of partners, many do not know where to turn to for help and assistance. Cultural associations are vital partners primed to help strengthen gaps within these ecosystems.
Cultural anchors in Baltimore and Detroit – public museums, galleries, etc. – share common experiences with private businesses in their lack of capital for building renovations and technology enhancements. Without the necessary financing, renovations and/or equipment acquisition, these cultural anchors can not operate at full capacity. The COVID-19 pandemic has changed the way many of these cultural anchors are funded, as the nature of consumer behavior and how people engage with art has changed. Some have shifted to seeking grant opportunities and nonprofit fiduciary partners to offset the lack of revenue generation. This funding model is a temporary fix while anchors recover but unsustainable when considering long-term growth.
Arts and cultural business incubation is seen as a unique model to support the growth and advancement of culturally-significant businesses, particularly emerging artists and entrepreneurs contributing significantly to a community’s sense of place and identity. Incubators at the intersection of arts, technology and equity prove valuable and increase the potential for social, cultural and economic impact. Investors should not only seek to fund the sustainability of traditional cultural anchors, but seed the growth of new cultural innovation that’s catalyzing new business opportunities for CSB’s and BIPOC entrepreneurs.
Creative Solutions for Impact
- Develop a new ROI framework for grant administrators to better understand the impact that nonprofit grant recipients can have within their scope of work
- Strategically align anchor institutions funding with priorities that center the support of cultural economic development (invest beyond research) in underserved neighborhoods
- Strengthen capacity of local arts organizations to advocate for state and federal policy on new financing and investments models impacting cultural significance locally
Reimagining Community Development Financing to Catalyze the Growth of CSB’s in Communities of Color
“Our bakery serves as a meeting place, not just for food but also entertainment, and initiatives that are authentically black.”
“Rebuilding arts districts serves as a retention strategy for creative artists, particularly those who plant roots in low-wealth communities.”
Culturally significant businesses are often the anchors and, unknowingly, early investors in arts district development in communities of color. Therefore, it is imperative that we are investing in small business development with cultural preservation in mind, and vice-versa. The most common form of place-based support that allows for both businesses and cultural preservation to exist is revitalization projects targeting Main Street and/or business districts. Historically, arts districts – mainly downtown urban cores – are financed by a variety of sources, a mix of public and private investments such as tax credits or revenue streams, direct granting via development corporations, local government funding and/or charitable foundation support. These sources have little guidance around their impact on arts and cultural development.
Additionally, there are opportunities ahead to position the development of arts and culture in communities and culturally-significant businesses with investments at the intersection of small business and housing. The growing affordable housing crisis is impacting artists and entrepreneurs of color, which has become a huge deterrent to artist retention for cities like Baltimore and Detroit. As housing authorities and private developers compete and/or collaborate for affordable housing funding, carve outs for artist housing can anchor culturally-significant communities of color and ensure a vibrant, inclusive creative economy.
This is why NCRC has called for a greatly expanded Community Reinvestment Act. The law was passed in 1977 to ensure that banks invested in low income communities. However, in 2022 banks are not the only source of investment. Mortgage companies make the majority of home loans now and fintechs are growing in importance and scale. Critically, the CRA does not address race. Modern day redlining is still the norm in many minority communities. Modernizing this 40 year old law to take into account the modern banking and investment landscape, and acknowledging that race plays a major role in community investment, is critical to supporting culturally significant businesses.
Creative Solutions for Impact
Investing in arts and cultural development in low-wealth communities of color to catalyze economic activity requires a bold reimagining of existing capital resources to support broad community revitalization efforts. Stakeholders should consider:
- Encourage federal oversight and accelerate private investment to augment existing funding streams for arts and cultural designated districts
- Invest in cultural hotspots/corridors in underserved areas to facilitate/advance cultural hubs that drive economic activity to the area
Conclusion
Artistic and culturally significant businesses fulfill many roles in the community. They define and reflect the community they serve. Businesses that celebrate and exemplify the culture of the community that they spring from are critical to replicating and preserving that culture. However, these businesses are still subject to the larger economic landscape and struggles common to all businesses. Black-owned businesses also contend with structural barriers to a financial and regulatory space that traditionally has discouraged Black entrepreneurs in a variety of ways.
It is important that the unique structures and needs of artistic and culturally significant businesses be considered. Anchor institutions within arts districts and culturally significant businesses located outside of those areas have different needs and concerns. When considering how to best support these businesses local communities, governments and other stakeholders should consider the difference between the nature of the assistance they require.
These institutions, and the communities they support, are critical to both our pandemic recovery and to maintain local cultural resources that maintain and grow human capital. Without them, we risk losing the places that define each city as a unique home to its residents. Any effort at community investment should take into consideration the cultural significance of the businesses and nonprofits where that investment is routed.
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[1] Population data comes from the 2020 Census while income data is from the 2016-2020 American Community Survey.
