Senate report explores the racial wealth gap

30th September 2013   ·   0 Comments

By Fritz Esker
Contributing Writer

Bridging the wealth gap between races has long been a theoretical goal of American policymakers. To help make this goal a reality, Senator Mary Landrieu (D-LA) held a roundtable discussion and released a 63-page report on ways to address the racial wealth gap.

Statistics released by Landrieu, Chair of the Senate Committee on Small Business and Entrepre­neurship, establish disturbing trends in economic disparity according to race. Between 1983 and 2011, the median net worth among Caucasian families rose 63 percent, but during the same time period the median net worth of African-American families rose only five percent, while dropping seven percent for Hispanic families. The 2011 median net worth was $110,500 for Caucasians, $6,314 for African-Americans, $7,683 for Hispanics, and $89,339 for Asians.

During the roundtable, Sen. Landrieu’s main question to the participants was “What are we doing wrong in regards to solving the wealth gap issue and why isn’t the wealth gap decreasing like other areas, such as income and high school completion?”

The lack of home ownership is one contributing factor. In 2004, 76 percent of Caucasians, 60 percent of Asians and less than 50 percent of African Americans owned a home. The disparity continued through 2010, according to Census data. Homeowners are more likely to start their own business.

A “10 percent annual increase in housing equity increases the mean probability of entrepreneurship by 17 percent,” said Dr. Robert Fairlie, Professor of Economics at University of California at Santa Cruz.

Minorities also suffer from a lack of inherited wealth, which can be used to start, grow, or maintain an existing family business. While 82 percent of minority small business owners open businesses as the sole proprietor, only 71 percent of Caucasians do. Minorities must rely more on personal equity to open a business. And once they start a business, they might not have the skills or experience to maintain it. Dr. Fairlie recommended internships, training programs, and apprenticeships to give aspiring minority entrepreneurs hands-on experience to help them succeed.

Educational debt can also affect minorities’ ability to make money. The Department of Education’s statistics indicate that median and average student debt levels vary by demographic. For bachelor’s degree recipients who borrowed in 2007-08, the median debt for Caucasians is $19,200 and the average debt is $23,700. But for African-Americans, the median debt climbs to $26,200 and the average debt climbs to $29,400. Entering adulthood with a sizable debt hinders the ability to secure loans to open businesses or purchase a home. Dr. Lucy Reuben, Professor of the Practice of Business Administration from Duke University, recommended student loan interest-free deferment programs for entrepreneurs and the development of tax-favored entrepreneurship savings accounts businesses can dip into for the first five years of their business cycle.

While debt can impact lending ability, Dr. Fairlie’s research indicated that minorities also face lender discrimination. Minority-owned businesses were found to have a higher interest rate and a higher loan denial rate than Caucasian-owned businesses. This discrimination creates fear in potential applicants, which makes them less likely to apply. In 2010, 15.2 percent of Caucasians did not apply for a small business loan out of fear, compared to 38.8 percent of African Americans and Hispanics.

Access to a broadband Internet connection is crucial to starting a small business. It can give a small business access to capital, contracting, trade, and counseling. However, numbers released by the U.S. National Telecommunications and Information Administration (NTIA) show that 57 percent of urban African Americans and 41 percent of rural African Americans have broadband access. The numbers for Caucasians are 75 percent in urban areas and 60 percent in rural areas. For Hispanics, it’s 58 percent in urban areas and 46 percent in rural areas.

“High-speed Internet access is critical for all rural communities, but particularly for poor, distressed minority communities that find themselves in rural areas,” Landrieu said.

Other issues include language barriers for Hispanics, which hinder potential small business owners from utilizing government resources (the Small Business Association’s national resource guide is in English) and unemployment, which prevents the accumulation of wealth. June 2013 unemployment rates for Caucasians were at 6.8 percent, but African Americans were at 14.3 percent, Native Americans were at 12.8 percent, and Hispanics were at 9.1 percent.

Letters were also sent to 100 mayors across the United States for potential solutions to bridging the wealth gap. The mayors’ answers, plus the solutions posed in the roundtable, will be released in a follow-up report next year that will detail the solutions, initiatives, and programs needed to address the issue.

“My work on the wealth gap will not end with the report or the roundtable,” Landrieu said. “Closing that wealth gap is a challenge we must meet for America to compete in the 21st-century global economy.”

This article originally published in the September 30, 2013 print edition of The Louisiana Weekly newspaper.