Black Business, the Wealth Gap, and the Case for Reparations

— Dr. Fred McKinney, Ph.D.
– Carlton Highsmith Chair for Innovation and Entrepreneurship and Director, People’s United Center for Innovation and Entrepreneurship at Quinnipiac University

The opinions expressed in this article are solely those of the author.

America is taking a collective course on American history this summer because of the George Floyd murder and the subsequent protests. The subjects covered this summer have been the Tulsa Race Riot of 1921 where Whites destroyed the vibrant African American community known as Black Wall Street. Many Americans have also learned that memorials and statues of Confederate generals and leaders like Jefferson Davis and Robery E. Lee were not constructed before the Civil War or immediately after the Civil War, most were built in the 20th Century during the height of the Jim Crow era of government sponsored American Apartheid. In fact, America was the model for South African Apartheid, and Hitler even acknowledged Jim Crow as a model for his vision of Germany. Americans have also learned that the last Black Americans were freed from slavery on June 19th 1865 (Juneteenth) more than two years after the Emancipation Proclamation. And White Americans have learned that there is deep systematic bias by police departments across the country that have resulted in the deaths of thousands of Black Americans. However, one thing that has not been prominently discussed is the relationship between this history and its connection with the racial wealth gap and state of Black businesses.

According to the Federal Reserve, the typical White household has $171,000 in net worth while the typical Black household has on $17,600 in wealth. Net worth is calculated as the difference between what you own and what you owe. This racial wealth gap manifests itself in lower rates of homeownership, greater levels of poverty that is passed down from one generation to the next. Yes, just as wealth can be passed from one generation to the next, so too can poverty. And because homeownership is one of the primary methods of funding a business, Black entrepreneurs typically start with significantly less capital, resulting in smaller un stable enterprises. A recent report showed that 41 percent of Black businesses have shut down since the start of the pandemic compared to only 17 percent of White businesses. The Minority Business Development Agency of the U.S. Department of Commerce estimates that only 4.2 percent (109,000) Black owned businesses out of the over 2.6 million Black owned businesses have employees. Over 21 percent of White owned businesses have employees. This is the direct result of the lack of household wealth in black communities.

Unfortunately, the racial wealth gap is not going to close “naturally”, in fact, it is only going to get worse. This is not a political statement, this is math. Assuming both Black and White household wealth increases by seven percentage points every year for the next thirty years, White household wealth will grow from $171,000 to $1.3 million by 2050, while Black household wealth will grow from $17,600 to $134,000. The racial wealth gap will increase from $153,400 to $1.17 million in 2050.

The only way to close this wealth gap and give Black entrepreneurs a chance to form businesses and for Black communities to have a chance to experience better schools, better healthcare, better housing, and better public services is for there to be a massive wealth transfer to Black households. In other words, it is time for a national conversation on the case for reparations.

Many opponents bristle at the word reparations. Some argue that they were not party to the crime of slavery and should not have to pay for those historical wrongs. Some state that is nearly impossible to identify who should be eligible for those payments. Some argue that reparations would only heighten tensions between Blacks and Whites. And some even argue it would not make a difference in the material conditions of Black Americans.

My brief response to each of these arguments is that if each of the 14 million Black American households were to receive $100,000 in reparations (for a total cost of $1.4 trillion), it could be completely financed by a one-time 3 percent wealth tax on the wealthiest one percent of Americans who own over $36 trillion of wealth. Therefore, 99 percent of Americans would not have to pay one cent to correct part of the damage caused by the history of slavery and Jim Crow. These resources would make a material difference in the lives of not only every Black American, it would drastically reduce if not eliminate the need for much of the current social welfare system that imperfectly addresses the problems of this wealth gap that do cost most White Americans.

In January of 1865, General William Tecumseh Sherman asked Black leaders in Savanah, Georgia what they wanted. Those leaders had a one-word answer – land. General Sherman then issued Field Order Number 15 that authorized that 400,000 acres of land from Savanah to Jacksonville, Florida to the newly freed slaves. Each former slave household was to receive 40 acres of tillable land. Unfortunately, Lincoln was assassinated on April 15 of that year and Andrew Johnson his successor rescinded General Sherman’s order and gave the land back to the Confederate slaveholders.

If America wants to finally end the Civil War, we must provide reparations to Black Americans. Only then can we as a country move beyond race.