Racial Disparities in the Business World

Racial injustice throughout the world is a social matter that affects many different parts of minorities lives. For example in the business world there are many different barriers that set minorities behind their white counterparts. These barriers are intentionally set in place to limit the success of all the minority groups in the United States. Although, don’t get it twisted, with legislative efforts to improve minority business owners success rates, have fallen short. The lower levels of business wealth among people of color — particularly among Latinos and African Americans — have historically resulted from two factors: lower rates of business ownership and the fact that businesses owned by Latinos and African Americans are also smaller, on average, than those owned by cacausion counterparts. In regards to the first factor, there is good news: there is an emerging class of minority entrepreneurs who have started firms. However, the second factor contributing to lower levels of business wealth, the smaller size of businesses owned by Latinos and African-Americans, remains a challenge. Recent data from the Annual Survey of Entrepreneurs, which covers firms with employees, found that African American- and Hispanic-owned firms were less likely to be profitable than those owned by whites. In 2014, 63.4 percent of white-owned employer firms indicated that they were profitable, compared to 57.7 percent of Hispanic-owned firms and 45.6 percent of African American-owned firms.One of the reasons that African-American and Latino-owned firms are smaller is that the size of African-American and Latino-owned firms has been historically limited by industry sectors and the type of markets in which they operated. In the early 1970s, most minority business enterprises were service and retail establishments, many serving low-income and minority communities. That pattern remains in place, but industry concentrations mask significant growth in the construction and business services sectors relative to white-owned firms.

In the article, “Understanding the barriers to and strategies for success for African American small businesses: An exploratory qualitative study”, by Stroud does an in depth survey on African American business owners. She explains the different issues that surface when African Americans enter the business field; such as colorism, lack of outside support, and not being financially educated. Obstacles like these impede African American business owners to have consistency or longevity to have a successful business. For example, “... the establishment of programs such as Affirmative Action, Proposition 209, and Empowerment Zones should have significantly improved or corrected a problem a long time ago” (Stroud, 2016, p.1). These different programs designed to help small business owners of color, although no evidence of change has been presented since the development of these programs. After reading Stroud’s report, she goes underneath the surface of the major issue in the enterpriship in our society. She digs up the hidden secrets of the racial disparities African Americans face is the world of business. Her research was filled with great topics to inform the public of how big of an issue this has become. She points out how difficult it can be to not only be a successful businessman and being of color but also how difficult it is to be consistently a good businessman. Being socially a minority makes it harder to many things positive in our economy because of the lack of support minorities receive. The major problem is that the issue is so prevalent that people have become accustomed to set up for success based on the color of your skin. Overall, Trina Stroud did an excellent job of addressing the issues that have been concerning our society for quite some time. In order to rearrange the way our business world views people of color, we need to create plans of action that actual work to help the people in need.

In this article the author discusses the many different factors that play a role in business when concerning minorities and non minorities. She puts emphasis on how big of a disadvantage there is in the business field. We examine various approaches to explaining ethnic enterprise, using a framework based on three dimensions: an ethnic group's access to opportunities, the characteristics of a group, and emergent strategies. A common theme pervades research on ethnic business: Ethnic groups adapt to the resources made available by their environments, which vary substantially across societies and over time. Four issues emerge as requiring greater attention: the reciprocal relation between ethnicity and entrepreneurship, more careful use of ethnic labels and categories in research, a need for more multigroup, comparative research, and more process-oriented research designs. Lower levels of financial and business assets among African American and Latino households are contributing factors to the racial wealth gap. Micro- and small-business development strategies and programs could be an integral factor for entrepreneurs of color to access the capital, education, experience, and markets needed to start and grow businesses. By researching the connection among business ownership, wealth creation, and the racial wealth gap, BOI aims to provide funders, policymakers, and potential entrepreneurs with effective tools and strategies that will strengthen access to and effectiveness of business ownership as an economic opportunity strategy. That gap can be ameliorated, though, by closing the earnings gulf between black and white workers, according to new research from two economists at the Federal Reserve Bank of Cleveland. In a commentary recently published in the Cleveland Fed website, economists Dionissi Aliprantis and Daniel Carroll argue that racial differences in income drive the wealth gap more than any other factor, including differences in financial savings practices, rates of return on investments, or even intergenerational transfers of wealth.

This runs counter to loads of scholarship pointing to a different explanation of black-white wealth disparities in the U.S.: That narrative holds that white wealth accumulated from the trading and enslavement of Africans, and from the taking of black-owned property was passed down to white children and grandchildren. Government policies such as racial housing covenants, redlining, financial handouts for white war veterans, and highway expansions provided additional wealth expansion for white families while providing net-zero wealth opportunities for African Americans. Aliprantis and Carroll acknowledge this narrative as the initial conditions for how wealth began developing across divergent black and white paths.But it only explains “snapshot(s) in time,” reads their commentary. For their current study, they examined the “dynamic nature of wealth accumulation” over time. Using these dynamics, they argue that starting in the 1960s, the initial conditions that birthed the black-white gap—slavery, redlining, etc.

Banks were twice as likely to offer white entrepreneurs help with their small business loan applications compared to black entrepreneurs, a new “mystery shopping” study found. The study, conducted by a team of researchers from the National Community Reinvestment Coalition, Utah State University, Brigham Young University, Rutgers University and Lubin Research, also found that bankers were three times more likely to invite follow-up appointments with white borrowers than better-qualified black borrowers. Overall, black entrepreneurs seeking loans for their businesses were subjected to far more scrutiny compared to their equal or less creditworthy white counterparts.“This research provides us with a new lens through which to look at disparities faced by African American business owners,” said Stella Adams, Chief of Equity and Inclusion at NCRC and one of the lead researchers in the study. “The study shows that it’s access, not assets, that serve as a barrier to the capital and credit necessary to grow a business.”While discrimination experienced by minorities seeking home ownership has been studied and addressed in a variety of federal laws designed to prevent it, this new research focused on how discrimination impacts minorities seeking business loans, which has not been documented as thoroughly. 

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