Biden’s big challenge: A growing racial wealth gap

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When he takes office on Jan. 20, Joe Biden will face a gap between Black and white wealth that has grown into a yawning chasm during the past 10 months.

The pandemic has shuttered tens of thousands of businesses and left millions out of work. And communities of color have borne the brunt of the economic devastation, particularly Black-owned businesses that have failed at a far greater rate during the pandemic than white-owned businesses. Many that remain may not survive the current pandemic wave without significant help from the federal government before effective vaccines finally arrive.

Biden’s presidency may rise or fall on his ability to execute policies — possibly with a GOP majority in the Senate — that address systemic economic inequality, which often leaves Black families and businesses far more vulnerable to economic shocks. Black families have faced a well-documented pattern of financial discrimination that has stymied their ability to accumulate wealth at the same rate as white families, forcing them to live in neighborhoods with fewer resources. For example, they are denied loans at much higher rates than white families with similar credit profiles — and face higher interest rates when they do qualify.

Biden won the White House with enormous help from African American voters, which he acknowledged in his victory speech: “The African American community stood up again for me. They always have my back, and I’ll have yours.”

Now, his supporters say, he must deliver.

“Had it not been for Black people it would have been difficult for [Biden] to win,” said Ron Busby, president, CEO and founder of the U.S. Black Chambers. Busby said the pandemic exposed inequalities that have long existed: Black people were more likely to get the virus and die from it, more likely to be forced to go into work and less likely to be eligible for federal stimulus programs designed to prop up the economy.

“We’ve got to fix that and hold this administration accountable so we can provide opportunities for our own,” he said.

People close to the Biden transition team say targeting the higher rate of Black-owned business failures — and the racial wealth gap more broadly — will be a central focus of the new administration. Early measures to target the problem will likely include language in any new stimulus package aimed at making sure money from the Paycheck Protection Program, which is focused on aiding small businesses, goes to firms that may not have gotten access to previous funds, especially minority-owned businesses.

“The administration really needs to think creatively to make sure aid gets to some of these small businesses that have been hit so hard,” one person close to the transition said on condition they not be identified because they were not authorized to speak publicly. “We can’t leave them behind. It’s got to be better than what happened before.”

Despite Biden’s intentions, he’ll face significant roadblocks, including a divided Congress, a range of pressing priorities and a problem that has deep historical roots. New census data out this week showed white households with median wealth of $171,000 compared with $25,000 for Hispanic households and $9,567 for Black households in 2017. That gap has only widened among people with college education: Families headed by a college-educated Black person saw their wealth decline by nearly half compared with families headed by a college-educated white person between 1989 and 2016, according to the Federal Reserve Bank of St. Louis.

“The Biden administration can certainly begin to do this work and begin to support policies that will eliminate racism and discrimination in our economy,” said Rep. Maxine Waters, (D-Calif.) who chairs the House Financial Services Committee. Waters said that more banks and other financial institutions have been receptive to addressing the wealth gap and ending lending discrimination since George Floyd’s death in May. “But it certainly is not something that in a few months or a few years, all of a sudden, he’s going to be able to wipe away all the instances and ways by which inequality has grown and developed.”

Many federal government programs created in the stimulus package are set to expire at the end of the year including an eviction moratorium, enhanced unemployment benefits and the Paycheck Protection Program. Black business owners and worker groups say they were largely shut out of the $2 trillion CARES Act.

From April to June of this year, 13 percent of jobless Black workers received unemployment benefits, compared with 22 percent for Hispanic workers and 24 percent for white workers, according to analysis from Nyanya Browne and William Spriggs at Howard University. (Their analysis was based on survey data from the National Opinion Research Center at the University of Chicago.)

Spriggs, also chief economist at the AFL-CIO, said Black people are more likely to work in service industry jobs not covered by unemployment assistance programs and live in Southern states that were slow to roll out benefits. He said that to address the imbalance Congress and the new administration would have to redesign unemployment insurance programs instead of just renewing the current program when it lapses at the end of this year.

“We are going to have a long period of a very disrupted labor market,” Spriggs said. “They have to think, ‘Am I just going to patch this up? Or do I conceive of something different.’” If all they do is put it back together, Spriggs said, they’ll just end up replicating existing inequities.

In addition PPP funds haven’t reached Black businesses owners, which have been especially hard hit because of pandemic related shutdowns and a drop in demand. Between February and April of this year, 41 percent of Black-owned businesses closed, compared with 17 percent of white businesses, according to the New York Federal Reserve.

That’s likely because Black-owned businesses often have thinner financial cushions. According to Goldman Sachs, 43 percent of Black-owned businesses expect cash reserves to be gone by the end of this year without more stimulus from Washington. Overall, that number is 30 percent.

But the problem with using PPP is that the program relies on banks as intermediaries to distribute capital. And Black-owned businesses often don’t have relationships with banks participating in the program.

“There are things implicit in PPP that are detrimental to Black businesses,” said Darrick Hamilton, founding director of the Institute for the Study of Race, Stratification, and Political Economy at The New School. “Using banks as an intermediary won’t help if you don’t have a strong relationship with a commercial bank. It’s a justice issue. Black people should have the same access to capital as white people.”

Hamilton suggested the administration focus on direct grants to heavily impacted minority-owned businesses, either through new legislation or through the Small Business Administration.

Breaking up big companies is another area progressive economists want the Biden administration to pursue. Outside of going after big tech giants the president didn’t like, the Trump administration did not prioritize legally targeting some of the nation’s largest and most dominant companies such as Amazon and Facebook. But those who study the racial wealth gap suggest that the concentration of growth in a smaller number of very large companies is a critical factor in driving inequality.

“For small businesses to thrive you need to have a robust antitrust agenda,” said Heather Boushey, president and CEO of the Washington Center for Equitable Growth. “It’s a super important and under-recognized factor. There is lots of empirical evidence that these things are connected.”

The Biden administration can also take steps to address the wealth gap even if Congress doesn’t cooperate. One way to tackle it is through federal contracting. Federal officials could reverse a Trump administration policy of not sharing which firms get federal funds and reinstate an Obama administration policy of paying suppliers upfront for contracts.

John Rogers, co-CEO of Ariel Investments, said there should be more transparency around how federal funds are spent. The federal government should track contracts by race and category to ensure that Black-owned businesses are getting deals for professional services — and not just contracts for janitorial or other low-margin industries. What’s more, Rogers said, the administration should use their bully pulpit to ensure private companies are doing the same.

When the state of Illinois mandated diversity in company boards, more Black executives benefited from new opportunities, Rogers said.

“A lot of companies had a Jackie Robinson moment,” he said. But even forcing companies to be transparent about who gets contracts and sits on boards can create more diversity.

“Then pressure builds to move into the 21st century,” Rogers said. “And do the right thing.”

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