Policy Spotlight: Supporting Black Small Businesses By Improving Social Trust
As we celebrate Black History Month, we salute our customers and clients, Black business owners and employees, who inspire us everyday. Together, we refuse to accept the Black-white wealth gap and explore recommendations to support the growth of Black-owned businesses as a way to close it.
Pre-pandemic, the median wealth for a white family was $188,200 in 2019, compared to $24,100 for Black families and $36,100 for Hispanic families. The wealth gap among business owners is smaller suggesting successful business ownership is one path to personal wealth and to reducing the wealth gap. Indeed, Dr. Tiffiany Howard, a UNLV political science professor and recent Congressional Black Caucus Foundation (CBCF) senior research fellow, goes as far as saying business ownership “more so than even education…is a tangible pathway for African Americans to achieve economic parity and close the racial wealth gap.”
Obstacles to success along this business ownership path include systemic racism and COVID-19, which together are killing Black-owned small businesses at more than twice the rate of white businesses. 41 percent shuttered from February to April 2020, part of the largest dip on record when the number of active business owners dropped 3.3 million or 22 percent. White-owned businesses declined 17 percent during the same period.
These obstacles yield low levels of wealth, barriers to credit, growing levels of student debt, and perhaps most importantly, low levels of social trust among African Americans. Dr. Howard calls social trust “a core element lacking within the African American community,” and says its absence hampers aspiring Black business owners.
The task before us then is in building social trust, in overcoming the legacy of slavery, Jim Crow laws, and civil rights violations that prevent Black entrepreneurs from realizing their full potential.
To unleash this potential, Dr. Howard suggests, the public and private sector, businesses, governments, and nonprofits should take the following steps:
- Leverage existing familial and relational networks, which are prominent in the African American community, to foster greater social trust.
- Build upon the growing network of professional entrepreneurial linkages, associations, and organizations which have been successful in increasing Black business ownership as a pathway to establishing a communal sense of social trust, which is essential to social capital development.
- Partner with the federal government through agencies such as the Minority Business Development Agency and the Small Business Administration to help improve the relationship between financial institutions and Black entrepreneurs.
“As social trust continues to grow, and subsequently social capital, so too will there be more equitable opportunities for African American entrepreneurs in the areas of financial capital generation, investment, mentorship, and ultimately business creation.”
