Lack of resources stymies black entrepreneurs

black entrepreneur pushes up sleeve

What’s holding back African-American entrepreneurs? Centuries-old racial disadvantage not experienced by other minority groups, according to a new study.

Only 5 percent of blacks are self-employed, compared with 11 percent of whites, and black-owned companies tend to be smaller, have fewer employees, and make less money than white-owned businesses.

Some researchers and politicians have blamed blacks’ low levels of entrepreneurship on a poor work ethic and a lack of interest in and ability for business. But what these theories fail to recognize is that the creation of small business requires resources that blacks, unlike immigrant minority groups, generally lack, says sociologist Steven Gold of Michigan State University.

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“Immigrants—who benefit from skills, investment capital, family labor, imported goods, and wage differentials brought from the country of origin—have higher rates of self-employment than native-born minorities,” Gold says.

“To a large extent, the most entrepreneurially successful immigrants from countries such as Korea, Vietnam, Cuba, China, and Iran came from property-owning upper classes and entered the United States with human capital and money to invest. So it’s no surprise they’ve been successful in small business.”

“Black Americans’ entrepreneurial experiences contrast dramatically with these groups,” Gold adds. “Brought over as slaves, they continue to suffer from a wide array of disadvantages wrought by systematic racial oppression. As such, blacks generally lack the resources that the most entrepreneurially accomplished groups have used to achieve business success.”

Modern disadvantages experienced by blacks include racial segregation, low levels of earnings, lack of wealth, poor education, lack of experience in a family business, employer discrimination, and difficulty in getting a loan, Gold says.

In April 2000, a congressional study found that “Most banks largely ignored African-American neighborhoods, even those with above-average incomes,” forcing many blacks to depend on expensive and abusive lenders, he says.

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In addition, while the average white family’s wealth in 2009 was $113,000, the average black family’s wealth was a fraction of that, $5,700.

“These liabilities make it harder for blacks than other groups to obtain loans, lines of credits, and other financial services which are crucial to running a business,” Gold says.

Gold’s paper appears online in the journal Ethnic and Racial Studies.

Source: Michigan State University

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