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Black entrepreneurship in the United States has a remarkable history. Even during the inhospitable climate of southern slavery, both enslaved and free blacks were able to create lucrative ventures. Studies of black entrepreneurship have revealed that in the Antebellum South, the occupations of black entrepreneurs ran the 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 race and class. The case of Archie Carey, a black slave who gained his freedom, deserves attention. Kerry owned a successful hacking business, owned several investment properties, and was even revered by prominent whites (pdf). “He is a man of good character, honest character and without exception in his conduct,” they noted in a petition.
Despite the remarkable pedigree of black entrepreneurship, researchers have observed that black businesses fail to achieve parity with their white counterparts. Experts cite numerous factors to explain the poor performance of black businesses, but the importance of human capital is understudied. In their study of disparities in business performance, Robert Fairley and Alicia Robb postulate (pdf) that significant variation in business heritage cannot explain the underperformance of black businesses compared to white businesses.
Instead, they argue that “the lack of prior family business work experience among black business owners, perhaps by limiting their acquisition of general and business-specific human capital, negatively affects black business outcomes.” Working in a family business gives young people the work ethic and human capital to start scalable businesses, and blacks invariably miss out on opportunities to hone human capital by failing to get involved in family businesses.
Although blacks are entrepreneurs, black business is constrained by cultural dynamics. Black social theorist Elizabeth Wright once noted that black Americans express a strong preference for white-collar work at the expense of entrepreneurship. Wright argues that in black intellectual circles of WEB Du Bois’s era there was a tendency to disparage commerce and what some would describe as menial work:
“A high-strung snob, Du Bois dismissed as unworthy the labor of artisans, farmers, and business owners. In his zeal to drag all blacks through his favorite ivy halls, he spoke of “turning carpenters into men.” For in this particular world into which he had assimilated, a man who labored or lacked a college degree could hardly be considered a man. It was this pretentious spirit that was to become the hallmark of the black elite, whose overwhelming influence would shape the thinking and behavior of future generations https://doc.epochbase.com/Products/Files/DocEditor.aspx?fileid=6577blacks .”
As a result, blacks may start a trade, but instead of encouraging their children to embrace the mantle of entrepreneurship, they implore them to become professionals. Because of the neglect of small transactions, these businesses never transform into second-generation power players. Such ventures begin to generate income for the family so that there are funds to finance the children’s higher education. In short, the goal is for children to enroll in the professional class, not to become entrepreneurs.
Cultural economists would characterize blacks as having an “aristocratic mindset,” emphasizing status signaling rather than the accumulation of wealth through entrepreneurship. For example, in his study of America’s black elite, Lawrence Otis Graham reveals a status-obsessed group producing the next generation of doctors and lawyers. Unfortunately, the intellectual elites fail to appreciate that although doctors and lawyers can become rich, the most sustainable path to wealth is to own a business.
In addition, another barrier to the success of black businesses is financial illiteracy. Raising capital and investment partners requires an understanding of company finances and performance metrics. Businessmen who are not familiar with the criteria that financial institutions use to evaluate business prospects are unlikely to secure loans or receive equity financing.
According to a survey published by the Congressional Black Caucus Foundation, 82 percent of respondents in the 18-30 category failed to demonstrate financial literacy. Lead researcher Dr. Tiffany Howard noted that respondents “did not demonstrate … knowledge of their own credit score, basic knowledge of the Minority Business Development Agency or the Small Business Administration, and knowledge of the minimum years of work typically required for business owner apply for a small business loan from a traditional bank.
It is even more serious that Financial literacy and health among African Americans The report shows that blacks lag behind whites on the Personal Finance Index by double digits. Financial literacy makes black Americans better entrepreneurs, and entrepreneurship can reduce the wealth gap. Therefore, closing the financial literacy gap is a laudable goal, but it is quite surprising that racial gaps in financial literacy are observed in the information age.
A possible explanation could be that a thirst for financial information is not embedded in black culture. In fact, many argue that black culture is tainted by conspicuous consumption. Therefore, to solve the problem, policymakers must not only build institutions to sell financial literacy and entrepreneurship in black communities, but also enlist the star power of influencers to promote positive messages to black people. Animators are thought leaders in the black community, so using them to promote financial literacy is likely to be successful.
It is fashionable to link the misfortunes of black Americans to racism, but the more sober argument is that the problems affecting blacks in entrepreneurship and other fields can be solved by a positive transformation of black culture.
The views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.
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