Systemic barriers have created long standing inequities for people of color, especially business owners. While these disparities may have historically benefited White entrepreneurs, the economy as a whole and American workers continue to pay a price as long as this inequality continues.
A Center for Global Policy Solutions report estimates that the country is forgoing 1.1 million businesses owned by people of color because of past and present discrimination. That means the U.S. is missing out on an estimated 9 million more jobs and $300 billion in national income.
As the inaugural president of the Black Economic Alliance (BEA) Foundation, Samantha Tweedy leads efforts to address systems of inequity that prevent Black communities from thriving and hold back the broader economy. An attorney with nearly 20 years of experience in nonprofit, philanthropy, and issue advocacy, she brings a combination of on-the-ground and executive leadership experience to her work.
“The truth is that discriminatory financing and underbanking coupled with less wealth in the Black community in the first place have forced the average Black entrepreneur to start out with almost three times less in overall capital when compared to new white-owned businesses,” Samantha said at an event she and I participated in discussing support for business owners of color.
I recently had the opportunity to speak with Samantha about her work as the BEA Foundation’s president. I appreciated her taking the time and below is a readout of our conversation.
Rhett Buttle: Covid-19 showed on a national scale the inequities Black-owned businesses face in starting, operating, and building businesses. But these barriers are not new. Can you describe these challenges prior to the pandemic?
Samantha Tweedy: Covid-19 shone a critical light on the age-old, systemic issues that hold Black people back from starting and sustaining businesses and, in so doing, from building generational wealth. When people think about wealth, they often picture excess. However, true wealth is economic agency and financial security for a family. It’s owning a business that provides jobs and revenue to your community. It’s buying a home and passing it down to your children. As Covid has shown in all too stark terms, it’s also the ability to withstand the economic shock of lost earnings or of unexpected, new healthcare costs.
There are fundamental underlying structures, formal and informal, that make building and sustaining businesses — one of the surest means of creating such generational wealth — more difficult for Black entrepreneurs. Discriminatory financing and underbanking, coupled with having less wealth in the first place, force the average Black entrepreneur to start out with almost three times less in overall capital when compared to new, white-owned businesses. Federal Reserve data from 2020 shows that only 26% of Black business owners received the full amount of financing they sought from banks, compared to 54% of white business owners.
From entrepreneurship and business ownership to every area of our economy, it’s time for systemic change across the public, private, and social sectors to create a new economic infrastructure that is truly inclusive and prioritizes Black wealth-building.
Rhett Buttle: How does this unequal opportunity have negative effects on our economy as a whole?
Samantha Tweedy: There remains a myth that when it comes to wealth, we are facing a zero-sum game. Yet, the data tells a completely different story.
The fact that Black Americans have never been full participants of the U.S. economy has undermined our national strength and global competitiveness. Between 1990 and 2019, the annual gains from equity, including labor and capital, would have amounted to nearly $51 trillion in extra GDP. Instead, a recent study found that systemic racism has cost the U.S. $16 trillion over the last 20 years alone. If this trend were to continue, the racial wealth gap would cost the U.S. economy an estimated, additional $1.5 trillion by 2028.
On the other side of the coin, it is clear that giving Black Americans full economic agency will benefit everyone. Let’s take a look at an example playing out before us in real time, the Child Tax Credit. Numerous studies demonstrate how this policy fosters children’s developmental growth and long-term economic mobility. Yet, for the first 25 years of its existence, half of Black children were excluded from the full benefit due to the income thresholds. The 2021 CTC expansion allowed families with little to no earnings to access the full credit for the first time. If we were to make the CTC fully fundable and expand the amounts per child, we could cut the child poverty rate for Black children by more than 50 percent and for all children by 45 percent. This kind of economic mobility benefits the entire national economy; the estimated $800 billion current and future value of this tax credit to society is roughly eight times the $100 billion initial cost. It is rare that any public policy achieves such a high return on investment.
The same concept holds for Black business ownership. Because of the systemic issues we’ve discussed, America is forgoing an estimated 1.1 million businesses owned by people of color. Those potential businesses are calculated to produce 9 million more jobs, and about $300 billion in workers’ income to the U.S. economy.
The data is clear; unequal opportunity negatively impacts both the wealth-building prospects of Black Americans and the financial health of the entire country.
Rhett Buttle: You are the first President of the BEA Foundation. How have you approached this new role in supporting and elevating Black business leadership?
Samantha Tweedy: I come from a long line of educators, lawyers, social workers, and advocates who have been unrelenting in the dedication of their talent, their voices, and their work to further the prosperity of Black Americans. Following suit, I’ve spent the last nearly two decades leading racial and economic justice initiatives at the intersection of the public, private, and philanthropic sectors.
Yet the data has consistently made clear to me that we need a different approach. As just two examples, I spent much of my career in the education equity and poverty-fighting space. What does the data there tell us? That Black college graduates, on average, earn less and have less wealth than white Americans who have dropped out of high school. Furthermore, that white households near the poverty line have an average net worth of $18,000, while Black households at the same income level have an average net worth at or below zero.
The challenges cut across all sectors, so our work must as well. The policies and decisions that built the systems holding Black people back were made deliberately and intentionally and our solutions must be as deliberate and intentional in the other direction. We must increase national understanding of the inextricable link between improving economic outcomes for the Black community and growing the whole American economy. Fundamentally, I approach this role by putting a simple question first, “will this policy, program, or investment drive generational wealth across the Black community?”
Rhett Buttle: Last year, the BEA Foundation, Spelman College, and Morehouse College launched the Center for Black Entrepreneurship to produce, train, and support Black entrepreneurial talent through education, mentorship, and access to capital. What are you looking to achieve through this effort?
Samantha Tweedy: The Center for Black Entrepreneurship, or the CBE, is the first-ever academic center of its kind to produce, train, and support a new generation of Black entrepreneurial talent. Launched as a partnership amongst the Black Economic Alliance Foundation, Spelman College, and Morehouse College, the CBE seeks to eliminate Black entrepreneurs’ access barrier to professional investors and business leaders by leveraging education, mentorship, connections to capital, and opportunity. A global audience of entrepreneurs will also be able to access the CBE’s courses and certificate programs online.
A hallmark of the CBE will be the ecosystem we build of awareness, opportunity, and investment. Before 2020, Black founders only received 1% of venture capital funding. Even following the racial justice movement of 2020 and corresponding commitments to change across sectors, only 3% of the $147.6 billion venture capital deal volume in 2020 went to Black founded companies. In partnership with the BEA Foundation, the CBE will engage successful entrepreneurs and leaders from venture capital, private equity, tech, finance, and other industries to serve as adjunct faculty, guest lecturers, and mentors.
An exciting complementary initiative is the BEA Foundation’s $50 million evergreen Black Economic Alliance Entrepreneurs Fund, which will provide seed, start-up, and early-stage capital to businesses founded and led by Black entrepreneurs. Anchored by a $20 million investment from Wells Fargo, a portion of the fund is earmarked to invest in CBE participants.
We are excited about all we are learning. Ultimately, our goal is to achieve the multiplier effect of this talent pipeline in launching and sustaining successful businesses that will build generational wealth for the Black community.
Rhett Buttle: In the wake of the murder of George Floyd, some companies across a range of industries announced commitments to Black entrepreneurs and racial equity. This week, you and I participated in an event discussing this support. More than a year later, how would you characterize the impact of these commitments?
Samantha Tweedy: In 2020, we witnessed a once-in-a-generation push for racial equity across sectors, including in the corporate sector, and we must continue to build on that momentum to make sure that its end-result is real, structural change. It is critical that this outpouring of support not simply invest in efforts focused on the old ways of doing things, when the data tells us that the old ways will never improve the economic prosperity of Black Americans.
As one example, a significant focus area of the corporate sector to support racial equity has been the creation or expansion of supplier diversity programs with explicit commitments to work with Black-owned companies. However, these programs have typically only focused on construction, catering, janitorial services, and other commodity-related fields rather than high-margin, high-growth businesses (e.g., professional services, technology, advertising, financial services) that create wealth for families, and enable business owners to bring along people from their communities. Thus, it will take making adjustments to include this wider ecosystem of businesses for the programs to be as transformative as intended.
By prioritizing generational wealth building for the Black community in the shifts taking place within the corporate sector, and across all sectors, we have a tremendous opportunity to right historical wrongs in a way that grows our entire economy.
Rhett Buttle: Is there anything else that you would like to add?
Samantha Tweedy: We’re having this conversation during Black History Month, at a time where there is significant effort underway across our country to prevent the telling of the truth about our history. That truth is, under America’s current economic structure, the gap between Black and white homeownership rates remains wider today than it was under Jim Crow, the typical white family has over eight times the wealth of the typical Black family, and almost 70% of middle-class Black children are projected to fall out of the middle class as adults.
These staggering disparities are a result of both unintentional and intentional structural policies created and sustained over generations across the private, public, and social sectors. It’s time for leaders across these sectors to embrace a new economic infrastructure that prioritizes generational wealth-building for Black Americans and, in so doing, benefits the entire economy.
Rhett Buttle is the founder of Public Private Strategies and senior adviser to Small Business for America’s Future.