Capitalism Reimagined | June 24, 2021

Turning pledges into policies to invest in Black Americans and multi-racial prosperity

David Bank
ImpactAlpha Editor

David Bank

ImpactAlpha, June 24 – Investors and executives can lead in many ways as they seek to fulfill their often heartfelt pledges to do more to advance racial justice and dismantle systemic racism. One of the most effective and scalable: use their voices and lobbying power to advocate for local and national policies that reduce racialized inequality and increase investments in Black communities, businesses, workers and people.

Just as the continuing legacy of racism is a drag on the overall economy, targeted interventions could boost well-being and prosperity for all. McKinsey & Co. estimates that closing racial wealth gaps would boost U.S. consumption and investment by $2-3 trillion, or 8-12% or the gross domestic product. Achieving racial equity and inclusive growth would mean an additional $6,000–$8,500 in annual income per person. “Businesses, families, and communities across the country would benefit.”

PolicyLink, the Oakland, Calif.-based think tank, calls such positive benefits “the curb-cut effect.” Just as ramps and wheelchair access for people with disabilities benefit parents with strollers, travelers with roller-bags, skateboarders and bicyclists, “intentional investments in Black Americans have benefits that cascade out,” the PolicyLink team writes. “Ensuring all people live in a society where they can participate, prosper, and reach their full potential requires recognizing that the path to getting there is different for different groups.”

In “A Racial Equity Governing Agenda,” PolicyLink calls for an audit of federal agencies, regulations, programs and funding formulas to identify policies that are anti-Black “by design or effect.” Also: Measure racial-equity impacts in scoring legislation and regulations. And “partner with the people” to engage groups that historically have been left out of shaping public institutions. 

With Omidyar Network, ImpactAlpha is exploring “Capitalism Reimagined.” That requires, as the Insight Center’s Anne Price put it in a recent podcast, “centering Blackness in the economic liberation of all.” We’ll explore innovative policies for the stakeholder economy in Agents of Impact Call No. 29, Tuesday, June 29 (RSVP here). A sampling of the ideas in play:

Build an inclusive green economy

Investors and entrepreneurs are unlocking opportunities to share climate wealth by driving the wages, savings and health generated by the low-carbon transition to Black and Brown communities hardest hit by pollution and climate change (see, “Solving for climate justice is giving these Black investors an edge in the green economy). A federal infrastructure bill centered on climate justice could turbocharge the effort.

“Environmental justice will be at the center of all we do, addressing the disproportionate health and environmental and economic impacts on communities of color,” U.S. President Joe Biden has said. Northeastern University’s Shalanda Baker, author of Revolutionary Power: An Activist’s Field Guide to the Energy Transition, is now a senior advisor to Energy Secretary Jennifer Granholm. Says Baker: “We need folks who can engage with policymakers as well as connect with these under-represented communities.” 

Support small businesses and entrepreneurs

After a long decline, Americans are starting small businesses at record levels, and neighborhoods with high proportions of Black residents are leading the charge. In Axios, Felix Salmon cites studies that show the largest number of starts last year were “non-store retailers” (think e-commerce) but also lots of openings of laundromats, trucking businesses and restaurants.

To be sure, some of the startups are a reaction to the wave of layoffs at the beginning of the pandemic, as well as dissatisfaction with wages and conditions at many of the jobs on offer. And the new business starts are offset by the 130,000 or so firms that went under last year, according to the Federal Reserve.

Still, “the total number of small businesses may have gone up, not down, over the course of the pandemic,” Salmon says. 

The challenge is to turn a temporary blip into a long-term trend – and to help more of the new businesses survive. A report from the National Community Reinvestment Coalition suggests the increase in Black entrepreneurship has not been matched by an increase in Black revenue, and that Black-led businesses are concentrated in low-income areas with less access to capital. The average Black-owned business starts with $35,000, compared to $107,000 for white-owned businesses, according to McKinsey.

Among the fixes: targeted federal procurement policies, increased capital for Black-led banks and financial institutions and stronger corporate mentorship and support. 

Capitalize community lenders

It took a global pandemic and economic shutdown to finally strengthen and scale the community development financial institutions, or CDFIs, and minority depository institutions that serve predominantly communities of color, rural and low-income areas where big banks cannot, or will not, lend. They finance affordable housing, community centers and small business expansion.

Earlier this month, the Treasury Department awarded the first tranche of $12 billion allocated to community lenders in last December’s COVID relief package. To put that in perspective, the $12 billion is more money than the federal CDFI Fund has distributed since it was created in the 1990s (see, “With billions in fresh capital, community lenders step up to finance a more inclusive economy”)

Each dollar allocated to community loan funds, credit unions and banks can catalyze eight more dollars in private-sector investment. Who can and can’t access credit and capital is “at the root of many long-term structural problems in our economy,” says Treasury Secretary Janet Yellen. “Capital is bottlenecked by race and region.”

Local “community recovery vehicles,” such as those designed by Minneapolis-based Community Reinvestment Fund and Calvert Impact Capital in Bethesda, Md., have helped CDFIs improve their balance sheets by pooling resources and reselling loans to a central trust. A Fed-backed nationwide effort could dramatically scale up CDFI lending. (see, “New York’s $100 million loan fund for small businesses is a model for a $1 billion national fund”).

Repair Black farms

A hundred years ago, there were nearly a million Black farmers in the U.S. Today, 50,000 Black farmers represent less than 2% of American farmers. Decades of racial discriminattion and predatory lending practices that have robbed Black farmers of the ability to build prosperous businesses and multi-generational wealth. Congress approved $5 billion in debt relief and aid to Black farmers as part of a $1.9 trillion Covid relief bill.

Not so fast. The first payments, due to go out this week, were held up by a lawsuit filed on behalf of white farmers who allege the program discriminates against them. Banking groups also object to the early payment of loans, which would cut interest payments and profits.

Sen. Cory Booker has introduced the Justice for Black Farmers Act to expand Black-owned farmland by up to 32 million acres over a decade through land grants. 

Mobilize for policy innovation

The best solutions are likely to come from those closest to the problems. Universal basic income, elimination of student debt, broadband access and food security all can be seen through a racial-justice lens.

Community Change, a national organization based in Washington, D.C., works to “build the power of low-income people, especially people of color, to fight for a society where everyone can thrive,” with campaigns around child care, immigration rights and checks on corporate power.

The nonprofit Liberation in a Generation is researching and ranking dozens of proposals for “dismantling the oppression economy” and “building the liberation economy.”  

“Any progress we see stands on their shoulders,” Omidyar Network’s Chris Jurgens says of the  grassroots and racial justice organizations that for decades have led the fight for a more just and equitable and anti-racist economy. In a recent podcast, Jurgens says Omidyar Network sees opportunities to build bridges across constituencies to knit together racial and economic justice organizations, climate justice organizations, the impact investing community and progressive business networks.

“We agree that things have moved faster, particularly in the last six months than even optimistic proponents of this economic worldview would have predicted,” Jurgens says. But he warned, “We have to be aware that this may be a short window of opportunity, and aware of the forces that will oppose this change.”