Wanted: More Black Entrepreneurs
As a young black man graduating from the College of the Holy Cross 40 years ago, Ted Wells felt his generation had reason to hope racial barriers to economic advancement would disappear. In many ways he was right. Wells went on to earn both an MBA and a law degree from Harvard before becoming one of the country’s top trial lawyers. His Holy Cross hallmates included Pulitzer Prize-winning author Edward P. Jones and Supreme Court Justice Clarence Thomas. American Express chief Kenneth Chenault and Ken Frazier of Merck are law school friends; his wife, Nina, served as New Jersey’s secretary of state. Yet Wells now sees an economy where obstacles to a middle-class life for many black families are still daunting. “This recession has had a terrible hit, especially on the middle and lower class,” says Wells, now a partner at Paul, Weiss, Rifkind, Wharton & Garrison in New York. “But we’re less willing to talk about economic problems as issues of race.”
Job cuts in the debt-strapped public sector, where one in five black workers is employed, have had an outsize impact on the African American community. Labor Dept. data show some 280,000 public employee positions were cut last year, even as the overall economy added 1.64 million jobs. Black unemployment increased to 15.8 percent in December, more than twice the level for whites. So black business leaders are shifting focus to addressing issues in the small business sector, where most new jobs are created and African Americans haven’t fared well.
When the U.S. Census Bureau last surveyed the landscape in 2007, African Americans owned 1.9 million businesses, about 7 percent of the total. While that was a 60 percent increase from five years earlier, the average revenue at those businesses had decreased 3 percent since 2002, to $72,000 a year, vs. an average of $490,000 at those owned by whites. And that was before the recession wreaked havoc on the black middle class. Median wealth in black households fell 53 percent between 2004 and 2009, to $5,677, according to the Pew Research Center. That’s one reason black entrepreneurs accounted for 9 percent of new ventures in 2010, according to the Kauffman Foundation, which promotes startups. Latino entrepreneurs represented 23 percent of the total. “If you don’t have the resources, it’s much tougher to make it.” says Daryl Williams, Kauffman’s director of research and policy.
For African Americans of Wells’s generation, who came of age during the civil rights movement, the goal wasn’t so much starting companies as getting a shot at the education and jobs long reserved for whites. Consider the experiences of five black men whose lives I chronicle in my new book Fraternity. All lived together on the same residence floor at Holy Cross in Worcester, Mass., and credit a priest named John E. Brooks with helping them thrive.
“Integration distracted us from the benefits of building our own businesses,” says Eddie Jenkins, who played in the National Football League before pursuing a law career. Other ethnic groups are far more entrepreneurial, says Jenkins, now a civil rights officer with the Massachusetts Transportation Dept. “I think Black America has to embrace it again, too.”
Funding for small black enterprises is a challenge. Stan Grayson grew up in Detroit, where his father was part of a generation that found its way into the middle class through unionized jobs in the auto sector. After Holy Cross, Grayson got a law degree at the University of Michigan and spent much of his career in city government and investment banks such as Goldman Sachs. As deputy mayor of New York in the 1980s, he saw how hard it was for black-owned businesses to get seed capital and bank loans. “The obstacle wasn’t just access, but issues like size and audited financial statements,” says Grayson, now chief operating officer of M.R. Beal, the country’s largest minority-owned investment bank.
Black borrowers face “a perception out there that African Americans have an inferior skill set and expectations,” argues R. Donahue “Don” Peebles, chairman and CEO of Peebles Corp., an African American real estate developer. “How do you start a business if banks won’t lend?” asks the Reverend Jesse Jackson. Smaller nonprofit players such as Seedco Financial, which extends money and technical assistance to low-income entrepreneurs, may help some deal with the funding gap. As President James Bason points out: “The biggest challenge is the first 90 days, when there’s a large outflow of capital.”
Nurturing new businesses is only one part of the puzzle in increasing the fortunes of black workers. Deeper issues remain in a country where African Americans are six times as likely to be incarcerated as whites and only 60 percent as likely to have a college degree. The debate continues on what role government should play in improving the economic prospects of black workers. Novelist Ed Jones credits the scholarship he received at Holy Cross with enabling him to realize “how high the sky could be.” What bothers him now is what he perceives to be the current public and political apathy about African Americans who are falling behind. “I don’t see who’s being a champion for them,” he says. For Jones’s former classmate, Supreme Court Justice Thomas, government policies are no substitute for an education and hard work. Achievement, says Thomas, “is an individual act.”
Few appreciate that sentiment better than entrepreneurs such as John Hope Bryant, whose Operation Hope promotes financial literacy. “Economic empowerment is the next wave of civil rights,” says Bryant. “Everyone’s got to understand the language of money.”