Ethnicity and the economy: ethnic economies and ethnic enclaves

Ethnic identity and boundaries are cultural, but they can become embedded in economic structures: dense networks of production and exchange limited to a particular ethnic group and the regions they inhabit. When an ethnic group is restricted from access to the mainstream economy because of low skills or prejudice, that minority might be able to create its own economic community called an “ethnic economy” or “ethnic enclave” (Light and Karageorgis 1994). In an ethnic economy, management, ownership, and labor remain within that particular ethnic group, although customers might be outsiders. An “ethnic enclave economy” is a special case of more concentrated and densely connected activity: firms and activities are physically bunched together in a particular locale, there is greater than usual interdependence between firms, and owners and managers generally employ only their own co-ethnics (Light and Karageorgis 1994: 649). Not all ethnic communities develop non-trivial ethnic economies: the various American Chinatowns (NewYork, San Francisco) are ethnic economies, but the distinctly Slavic neighborhoods in Pittsburgh and Chicago did not develop ethnic economies—these immigrants and their children worked in factories. (That they were white Europeans helped integration but not status.) Ethnic minorities outside the labor market have to be entrepreneurial, opening their own businesses and relying on labor from immediate families. Not all ethnic groups are equally entrepreneurial: Arabs, Chinese, Greeks, Italians, Jews, and Japanese are among the more entrepreneurial in the United States; Cubans, Latin Americans, and Western and Central European ethnic groups are less entrepreneurial; and Mexicans, African-Americans,Vietnamese, and Puerto Ricans are less entrepreneurial still, although this is not a mark of lethargy than of integration (no need for entrepreneurship) or structural obstacles (Light and Karageorgis 1994: 649). For example, Jews created an enclave in Manhattan (Lower East Side), while Chinese immigrants flocked to Chinatowns— this created a critical mass that helped provide labor, capital, and general advantages of dense network structures. Ethnic groups that immigrated with or gained social and cultural capital (e.g. European migrants) also had an easier time than other ethnic groups maneuvering within the American economy and setting up their own shops (Aldrich andWaldinger 1990).

Ethnic entrepreneurship has particular characteristics. Firms tend to be small, and in fact only 20% of minority-owned firms in the United States have any employees—that is, four fifths of ethnic entrepreneurship involves self-employment (Light and Karageorgis 1994: 661). Dense networks in ethnic communities and economies provide advantages to businesses. They facilitate raising capital: networks create trust and reciprocity (“helping our own”) for loans, not only from other co-ethnics (friend and family) but also from local banks. Dense networks facilitate cooperation (not necessarily collusion) to overcome the free rider and help entrepreneurs do well. Pakistani clothing makers in

Manchester (UK) once met regularly to discuss prices and exchange, in order to avoid deadly price wars; South Koreans in Los Angeles use networks to control more than one third of the local market for beer and wine (Light and Karageorgis 1994: 661). Ethnic entrepreneurs often survive by providing for co-ethnics’ tastes (something they would know better than other ethnic groups), or they take over niches and sectors that are abandoned: e.g. going into urban food service as larger firms leave the area, opening small shops as white shop owners retire or abandon the fight against Walmart (Aldrich andWaldinger 1990).

Cross-nationally, ethnic economies and enclaves are more prominent in North America and Australia than in Europe. This is because of general state policies. America and Australia have histories of ethnic pluralism, although immigration and labor rights were liberalized only after World War II in the United States, and Australia is experiencing heated political debate over migration. Both American and Australian economic policies are generally pro-free enterprise, which is essential to small-scale entrepreneurship. In contrast, some European countries constrain employment and entrepreneurship by immigrants. For example, more stringent and restrictive labor laws in Europe increase the costs for opening and operating a small business (regardless of one’s ethnic status), and a migrant to Germany must wait eight years to receive a residence permit before he or she can open a business (Aldrich andWaldinger 1990).

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