Entrepreneurial disparities reflect US economic inequalities in general. The systematic problems surrounding the Economic gap are not new. These were born and perpetuated by Federal policy, social constructs, and business practices over time. With the world becoming global and advanced, all of these issues need to be addressed to close the gap.
So, even though there is a colored wealth divide caused by centuries of segregation and racism, a focus on black entrepreneurship can close this racial wealth divide.
Black Entrepreneurship Challenges
Starting a business is worth the effort, but starting as a minority is easier said than done. The murder of George Floyd in 2020 sparked interest in the economic advancement of black people.
But still, black entrepreneurs continue to lag behind whites and other minority groups regarding market share.
According to the Federal Reserve, black-owned companies got turned down for loans more than twice as often as white-owned companies. And this is a leading cause why minority-owned businesses have been disproportionately affected.
The Need for Black Entrepreneurship
Before the pandemic, last recorded by the US Federal government Census Bureau Survey, white families’ median wealth in the United States was $171,000, while black families’ median wealth was just $17,000. This is a tenfold difference after 150 years of slavery ending.
And now, as the United States faces a global pandemic and a looping recession, inequities are uncovered in nearly every system. With many businesses shutting down, we need to create economic prosperity and more jobs for blacks facing unemployment. That is where entrepreneurship comes in.
Business a Generational Process
Professor Robert Fairlie of the University of California, Santa Cruz, says that having a family background in business is helpful because if your parents own a business today, you are more likely to own one in the future. So it takes generations to build substantial monetary success.
For instance, Jeff Bezos, the owner of Amazon, did not build an empire from the trash. His parents provided him with a $300,000 stimulus package to help start his business. This is also the case with many other white startups that we see and hear about. Wealth has calcified at the top in the case of whites. Their parents support and fund them. As a result, they prosper generation after generation.
Then to appease the minority, when these businesses become million-dollar companies, they portray this as if all this was simply the result of hard work.
How Policy Intersects With Wealth
Financial institutions play an integral role in the lives of individuals, communities, and businesses. Wealth begets wealth.
For example, let’s consider all the new tech companies like Facebook, Google, and Amazon. In their early stages, all of these companies were sole proprietorships with a single employee or a few employees developing a technology that was not yet proven. These companies flourished because they got funds from the start by venture capital.
In contrast, less than 1% of venture capital funds go to black founders. Therefore, black entrepreneurs are unable to grow as they are generally cut off from these networks.
How to Encourage Black Entrepreneurship
- To bring a change, the industry must drive the change itself. Black-owned and founded businesses that go public must be part of this generation’s conversation not only about thriving businesses in black communities but also about seeing more black-owned and established enterprises thrive.
- Financial literacy and awareness is the catalyst to inspire marginalized people to take a step towards changing their own lives. Minorities are seldom taught about financial literacy in schools or discussed as a topic among friends or families. Thus, lacking the knowledge, for years, they considered it a privilege reserved only for whites.
As a result of years of subservience, It never occurred to learn how to become successful from a financial or personal standpoint. Minorities assume that they understand money, but they have no idea how money works.
They do not even know the difference between an index fund and a mutual fund. Many of them do not know the difference between income and net worth. Therefore, having a solid understanding of financial literacy is essential because if we do not know how to handle our finances, no matter how much money we make, it will always fly through our hands.
- Through mentoring programs, we should provide new business aspirants opportunities for partnerships and investments.
- The private sector, which includes corporations and foundations, should also provide Black entrepreneurs with grants to support their businesses throughout the entire business cycle.
We have discussed these economic disparities enough over the years, and now it’s time to act.