Brookings Institution issued a report titled “Black-owned businesses..The challenges, solutions, and opportunities for prosperity.” Here's Why It's Wrong...
Recently, the Brookings Institution issued a report titled “Black-owned businesses in U.S. cities: The challenges, solutions, and opportunities for prosperity.” While we appreciate the effort, the report is flawed in several significant ways. It opens with Treasury Secretary Janet Yellen’s statement at a MLK day event in 2017. She indicated:
“From Reconstruction, to Jim Crow, to the present day, our economy has never worked fairly for Black Americans—or, really, for any American of color.”
This is, of course, not accurate. As the chart below indicates, the economy has worked well for Asian Americans
and is improving the economic standing of Hispanics at a rapid rate.
It is only Blacks the economy has failed.
The Brookings report focused on building Black relative
to white wealth via the growth of Black-owned firms that employ many
people. Unfortunately, this strategy is unlikely to be successful. As the
report notes, Black-owned businesses are much more likely to be sole
proprietorships, (firms that employ one or two persons) and goes on to note
that “in 2019, only 4.1% of Black-owned businesses were employer firms,
compared to 19% of white-owned businesses.” To be impactful, we suggest policy
efforts start where Black businesses are now.
The problem is money. Banks, venture capital
(VC) and community development financial institutions depend on the same
discriminatory financial institution regulatory system (specifically the US
Treasury Department) and capital allocation standards that created the
wealth gap. Our 2020 survey on the Paycheck Protection Program and the
Economic Injury Disaster Loan Emergency Advance (EIDL) Program revealed how
ineffective these programs were (See: https://www.blackenterprise.com/black-american-business-owners-sound-off-in-new-survey-of-ppp-programs/).
In 2021, Yellen announced a $9 billion allocation to the
Emergency Capital Investment Program, an effort “designed to provide capital to
community development financial institutions and minority depository
institutions—entities that have a better track record of working with the
conditions surrounding Black borrowers,” but, the true impact and effectiveness
of this effort on Black businesses has yet to be demonstrated.
The Brookings report suggests the Commerce Department’s
Minority Business Development Agency (MBDA) should be expanded. We agree, but
suggest the Agency be given the ability to actually make loans to Black
businesses. Currently, MBDA does everything but make loans directly to minority
businesses, a curious lack of authority, given the clear need for capital in the
Black business community.
Brookings also suggests the Federal Government “commit to
opportunities for Black-owned businesses in infrastructure spending.” We agree,
and suggest a singular focus: last year, Creative Investment Research (CIR)
posted several articles on the opportunities and outlook of the seaweed farming
industry. (See:
https://www.impactinvesting.online/2023/02/seaweed-cultivation-as-alternative-to.html).
Finally, the Brookings report suggests a focus on diversity
in asset management. While important, opportunities for employment and impact
are far too limited for this to be a viable, meaningful policy option. This type
of narrow effort has been shown to be ineffective in the past, making a few already well off Black people even wealthier, but doing nothing for the majority.
We have seen a number of recent studies purporting to
analyze the Black business environment and community. These include reports
from Intuit QuickBooks (https://quickbooks.intuit.com/r/small-business-data/black-history-month-survey-2023/
) and Bank of America (https://about.bankofamerica.com/content/dam/about/report-center/sbor/2022/Women-Minority-Business-Owner-Spotlight.pdf). While these efforts are helpful, their impact will be limited unless they are able to honestly approach this sector.