Black entrepreneurship in the United States has a remarkable history. Even during the inhospitable climate of Southern slavery, both enslaved and free blacks managed to establish lucrative ventures. Research on black entrepreneurship has revealed that in the Antebellum South black entrepreneurs’ pursuits spanned the entire gamut of industry, ranging from merchandising to transportation.
Indeed, the success of some black entrepreneurs was so astounding that the demand for their services transcended the boundaries of race and class. The case of Archy Carey, a black slave who acquired his freedom, merits attention. Carey was the proprietor of a successful hack-driving business, owner of several investment properties, and was even revered by eminent whites. “He is a person of Good character, honest deportment, and without exception in his behavior,” they noted in a petition.
Notwithstanding the illustrious pedigree of black entrepreneurship, researchers have observed that black businesses are failing to attain parity with their white counterparts. Experts cite numerous factors to illuminate the underperformance of black businesses, but the relevance of human capital is insufficiently explored. In their research on disparities in business performance, Robert Fairlie and Alicia Robb posit that sizeable variations in the inheritances of business are unable to explain the weaker performance of black businesses relative to white businesses.
Instead, they argue that “the lack of prior work experience in a family business among black business owners, perhaps by limiting their acquisition of general and specific business human capital, negatively affects black business outcomes.” Working in a family business equips youngsters with the work ethic and human capital to launch scalable businesses, and invariably blacks are missing out on opportunities to hone human capital by failing to get involved in family enterprises.
Although blacks are entrepreneurial, black businesses are constrained by cultural dynamics. The black social theorist Elizabeth Wright once noted that black Americans express strong preferences for white-collar employment at the expense of entrepreneurship. Wright submits that in black intellectual circles from the era of W.E.B. Du Bois there has been a tendency to belittle commerce and what some would describe as menial work:
A highbrow snob, Du Bois dismissed as unworthy the labor of craftsmen, farmers, and business owners. In his zeal to drag all blacks through his beloved halls of ivy, he talked of “turning carpenters into men.” For, in that peculiar world into which he had assimilated, one who labored or was bereft of a college degree could hardly be considered a man. It is this pretentious spirit that was to become the hallmark of the black elite, whose overriding influence would shape the thinking and behavior of future generations of blacks.
As a result, blacks might start trades, but rather than encouraging their children to embrace the mantle of entrepreneurship, they implore them to become professionals. Due to the disdain assigned to petty trades, these businesses are never transformed into power players by the second generation. Such ventures are started to generate income for the family so that funds will be available to finance the children’s tertiary education. In sum, the goal is for children to matriculate in the professional class rather than to become entrepreneurs.
Cultural economists would characterize blacks as having an “aristocratic mindset,” emphasizing status signaling instead of accumulating wealth through entrepreneurship. For instance, in his survey of the black elite in America, Lawrence Otis Graham reveals a group obsessed with status and producing the next generation of doctors and lawyers. Unfortunately, intellectual elites fail to appreciate that although doctors and lawyers can become rich, the most sustainable path to wealth is to own a business.
Additionally, another barrier to the success of black enterprises is financial illiteracy. Sourcing capital and investment partners requires an understanding of company finances and performance metrics. Business people who are incognizant of the criteria financial institutions employ to gauge business prospects will be unlikely to secure loans or receive equity financing.
According to a study published by the Congressional Black Caucus Foundation, 82 percent of respondents in the 18–30 category failed to display financial literacy. Lead researcher Dr. Tiffany Howard observed that respondents
didn’t demonstrate … knowledge of one’s own credit score, basic knowledge of the Minority Business Development Agency or Small Business Administration, and knowledge of the minimum years of operation typically required for a business owner to apply for a small business loan from a traditional bank.
Even more serious is that the Financial Literacy and Wellness among African Americans report shows that blacks trail whites on the Personal Finance Index by double digits. Financial literacy makes black Americans better entrepreneurs, and entrepreneurship can narrow the wealth gap. Hence closing the financial literacy gap is a laudable goal, however it is quite surprising that racial gaps in financial literacy are observed in the information age.
A possible explanation could be that the thirst for financial information is not embedded in black culture. In fact, many argue that black culture is marred by conspicuous consumption. Therefore, to remedy the problem, policy makers should not only build institutions to sell financial literacy and entrepreneurship in black communities, but also incorporate the star power of influencers to promote positive messages to black people. Entertainers are the thought leaders in the black community, so using them to advertise financial literacy is likely to garner success.
Linking the misfortunes of black Americans to racism is fashionable, but a more sober argument is that problems afflicting blacks in entrepreneurship and other areas can be solved by a positive transformation of black culture.
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