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“Entrepreneurship in the Inner City”

Steve Mariotti
Founder and President, National Foundation for Teaching Entrepreneurship


Steve MariottiSteve Mariotti is the founder and president of the National Foundation for Teaching Entrepreneurship (NFTE), a nonprofit organization with programs in cities across the United States. Since 1988, NFTE has taught more than 20,000 youths how to start their own small businesses. Mr. Mariotti has been the subject of special profiles on virtually all the major news networks and in such publications as the Wall Street Journal, the New York Times, the Boston Globe, Inc. magazine, Success, Entrepreneur, U. S. News & World Report, and Investor’s Business Daily. Among the awards he has received are the Leavey Award for Outstanding Achievement in the Field of Free Enterprise Education, and NFIB’s Best Business Teacher of the Year Award. Mr. Mariotti received an M.B. A. in 1977 from the University of Michigan and has pursued additional studies at Harvard, Stanford, and Brooklyn College. He has coauthored Entrepreneurs in Profile (1990) and The Young Entrepreneur’s Guide to Starting and Running a Business (1996).



Editor’s Preview: These papers were presented during Hillsdale’s 16th annual Ludwig von ’Wises Lectures in April 1989 and have appeared in Vol. 16 of the Champions of Freedom series from the Hillsdale College Press. Other contributors include: Willie D. Davis, Paul L. Pryde, Jr, Charles Murray and Walter Williams.

 


For the past six years, I have been trying to become an expert in a neglected field—that of teaching entrepreneurship and basic free market economics to inner-city black, Hispanic, and disadvantaged youths. My interest in this field came about under unusual circumstances.

Seven years ago, I was a small businessman with an import-export firm on New York’s Lower East Side. One day I went out for a jog and was mugged by four inner-city kids. It was very like the experience of Bernhard Goetz; they approached me and demanded money—five or ten dollars. I didn’t have the money and I asked them to go away. I was assaulted. Needless to say, it was a very traumatic experience.

But while I was recovering, I began to think about the incident from a different perspective. If those kids had come to me for a $10 loan, or had they had something legitimate to sell me, or had they wanted me to invest in a business, I probably would have given them the money. I was troubled that they had to resort to violence when they could have been making a sales pitch.

Putting Entrepreneurship into the Curriculum

I thought about this for about six months, and I began writing letters and making phone calls to a variety of people. What I discovered was that there was virtually nothing being done in order to get inner-city youths involved in business. As you may know, most high school business departments are controlled by typing teachers, so the majority of students go through four years of education without getting any information about finance, marketing, or product development, much less basic economic principles.

So I decided to make a career change. I approached the New York City school board and introduced myself. I requested assignments in the most difficult neighborhoods, and once I was there, I asked for the “worst” students. Of course, I was labelled a nut; after all, there are a lot of schools in New York where teachers just won’t go voluntarily, and lots of “worst” students every teacher wants to avoid. At a school where I was assigned early on, Boys and Girls High School, which lies at the heart of Brooklyn’s Bedford-Stuyvesant area, there were 48 physical assaults in one year, and that was typical. I taught in schools around the New York City area for six years, but I couldn’t convince a single principal to endorse my work or approve a plan for students to start their own companies. I couldn’t get any financing either. Administrators cited fears about handling money, about holdups, liability, and that sort of thing.

Then, finally, I met a remarkable woman in the section of South Bronx called Fort Apache, generally considered the most dangerous area of the city. Her name is Patricia Black and she is the principal of Jane Addams Vocational High School. From our first meeting, she gave her full support to my plan and she put me in charge of the business department in the field of special education.

Special Ed Students

Special ed students have a great many problems dealing with the world around them and they often don’t function very well in a structured environment. But I enjoy working with them because I believe they are indeed special and that God has granted them special gifts to offset their problems. Sometimes, it is just that they don’t fit into the conventional hierarchy of traditional education; Henry Ford and Ray Kroc were such special ed students.

To date, about three hundred students have gone through the program which includes learning all the basic steps of starting and running a small business as well as the fundamentals of a market economy. The companies these students formed have earned more than $100,000 in sales in just the last two years.

The influence of Ludwig von Mises

None of this would have been possible without the help of Barbara Bell and Raymond Chambers of the Boys and Girls Club of Newark (which is doing some of the best educational work in the inner-city today). In addition, I founded my own non-profit group, the National Foundation for Teaching Entrepreneurship. But it also wouldn’t have been possible for me, at least, without an introduction to the writings of one of the great minds of this century, Ludwig von Mises.

When I was sixteen years old, I was a socialist, to the horror of my relatives, especially my grandfather, Lowell R. Mason, a well-known libertarian attorney. He sent me a copy of Mises’s monumental study, Human Action, with a note that said that if I read the book and wrote a report on it, he would pay me $100.

Well, that was the most valuable job I ever had. I will never forget the experience of finding out about the way the free market works. The effect on my thinking was revolutionary. Within a matter of weeks, I went from looking at life as a totalitarian to a classical liberal. The insights of Ludwig von Mises, whom Hillsdale College’s Champions of Freedom series honors, have helped me accomplish what amounts to pioneering work in the inner cities.

What is really ironic, however, is that with all the emphasis on the study of entrepreneurship which goes on at the college level in America, and with the worldwide intellectual movement toward classical liberalism, Ludwig von Mises’s name is rarely mentioned outside of places like Hillsdale College. Of all the “crimes” of academia which can be attributed to Keynesian socialism and communism, one of the greatest is that the Austrian school of economics has never gotten the credit it deserves. My debt to Ludwig von Mises and his followers, like my old friend Richard Ebeling who now holds the Mises chair at Hillsdale, is incalculable. And so is my debt to Hillsdale College, which I consider to be one of the finest liberal arts schools in this country. This school, with its dedication to human liberty—both political and economic—is a beacon to all of those who must stand alone in defense of freedom.

Positive Results

There are six basic findings which I have discovered in teaching free enterprise and entrepreneurship to inner-city youths.

Improved Attitude

The first finding is that the students who go through the program display marked improvement in their general attitude and their level of courteous behavior toward others. A big problem with inner-city students is that they can be very, very rude. But when a student is treated well and, moreover, treated as a professional entrepreneur, he begins to act the role. It reminds me of a scene from One Flew Over the Cuckoo’s Nest in which Jack Nicholson and a group of inmates escape from an insane asylum. When the police catch up with them and ask who they are, Nicholson answers, “We’re doctors.” He introduces the inmates who begin to act just like doctors.

Yet it is still difficult to work with special ed students who are severely troubled. The threats, the swearing, the anti-social behavior used to bother me a great deal and it is natural to become worn out in such a situation. Then about three years ago, I began to pay attention to a condition I hadn’t really considered before: “post-traumatic stress disorder,” Rape victims, abused children, Vietnam veterans, those who have suffered from an automobile accident or other injury may have such a condition. When a person is subjected to very intense stress, especially over a long period of time, the brain may undergo chemical changes. I suspect that many special ed students in the inner city exhibit post-trauma behavior or an ongoing traumatic stress disorder.

A few statistics help tell the story. Of every 21 black teenagers who are now 13, one will be murdered by the age of 20. In some Newark neighborhoods, the figure is closer to one out of every 13 and in Detroit it is one in 10. (Keep in mind that during World War II, the Russians lost about one-tenth of their population and you will have an idea of the kind of carnage this represents.) It is not hard to believe that growing up in the inner city is traumatic and that inner-city kids may have a great deal of trouble with social relations and in school.

Improved Academic Skills

The second major finding is that many inner-city students who have never learned basic math have an incentive to do so when running their own business. By basic math, I don’t mean algebra or geometry, but addition, subtraction, and multiplication. The average student in our program sees his or her math skills improve from a second-grade to a seventh-grade level in less than a month—that is the highest level Winston Churchill ever achieved, and it is about all most people ever need. Their communication skills are also refined and they learn how to read better and to follow instructions carefully.

Developing Initiative

The third finding is that the program draws on the students’ natural inclinations toward entrepreneurship. They develop the ability to take risks; they develop initative; they develop mental toughness. This is important because it provides a glimmer of hope for our inner cities, all of which whether it be Washington, D.C., the South Bronx, the South Side of Chicago, Watts, or Detroit—have seen their problems become significantly worse: rising murder rates, teenage pregnancy, drug abuse, violence, crimes against people and property. The catalyst for turning things around is this group of kids I work with. Even growing up with tragedy all around them, they can develop entrepreneurial skills. They have no fear in sales; they get knocked down, but they come right back. This is a positive trait that can be developed in legitimate ways.

Reduced Pregnancy Rate

The fourth finding surfaced only a few years ago. I was teaching typing and entrepreneurship at the same time and on one occasion when I was grading the students’ work, I started circling the names of pregnant teenage girls in the typing classes as opposed to those in the entrepreneurship classes. The ratio was three to one! I went over my old records and was amazed that I hadn’t noticed this trend before, but it was clear.

The young women who had been exposed to the concept of creating a business were much less likely to get pregnant. Giving them a vision, a long-term goal, and a sense of self-esteem through their own success are the keys that the entrepreneurship classes provide and this is critical when you realize that half of all inner-city women, who are largely black or Hispanic, will become pregnant before the age of 20. Of this number, half will give birth, so for every 100 inner-city teenagers, 25 will have at least one child and 90 percent will be born out of wedlock.

(To be honest, I question the 90 percent; during all my years in the New York inner-city school system, I have seen hundreds of pregnant girls and am aware of only two who married.)

The Adverse Effect of Regulation

The fifth finding is that government regulation, particularly in regard to entrepreneurial activity, can have a significant adverse effect. It is an established classical economic principle that there are costs to any form of government intervention in the marketplace. As has been pointed out by many free-market economists, these costs usually fall on people who have little or no financial capital. Wealthy and middle-class targets can hire lawyers and accountants to shield themselves; the poor cannot. When the government makes it difficult to start a business by adding regulations or paperwork to the process, poor and low-income people in the inner city give up.

“Ideas Have Consequences”

The sixth finding relates to a well-known concept: “ideas have consequences,” but it needs to be applied more often to inner-city problems. Most people are negative about the inner city and blame lack of funds or some other cause. But it is in the realm of ideas where we need to look for help.

Look at the remarkable transformation that has taken place in modern Japan. In the 1950s to 1960s, “Made in Japan” was synonymous with junk. Japanese goods stood for cheap and shoddy workmanship. But then an Oklahoma professor by the name of Deming went to Japan and introduced a thirteen-point program on quality control. These points were just basic ideas, but the Japanese took them very seriously and today “Made in Japan” stands for excellence.

Inner-city entrepreneurship is an idea that can have consequences just as dramatic. I am optimistic about the future. I think that we are within a generation of a renaissance in our inner cities. There is nothing wrong with inner-city youths—they surely prove that ideas have consequences and that we ought to redouble