Unblocking the paths to Black prosperity | | phillytrib.com – The Philadelphia Tribune

In the United States there have traditionally been three pathways to prosperity and intergenerational wealth creation: occupational mobility, homeownership, and business formation and growth. As in virtually every other aspect of American life, the distribution of opportunity for each of these pathways varies significantly by race. In this article I will lay out the ways in which these pathways to wealth creation have been blocked for Black Americans both nationally and locally and conclude with some concrete proposals to break down barriers and close the gap.

Occupational mobility, moving "up the career ladder" to attain greater income and job security, is a function of market power. In the ideal world of free and fair labor markets, individuals move up by accruing skills and credentials, leveraging social networks, and gaining experience in a chosen field of endeavor. Blue-collar and some white-collar workers have traditionally climbed the ladder via gaining seniority under collective bargaining agreements or in the civil service. Workers on more stable career trajectories tend to have access to employer-sponsored, tax-advantaged retirement plans such as 401Ks, 403Bs, and on increasingly rare occasion, defined benefits plans like traditional pensions.

Homeownership has been the most prevalent source of wealth generation and transmission for Americans since the mid-20th century when the federal government began subsidizing mortgage lending. In 2020, the aggregate value of residential property was $37.1 trillion, according to Zillow. For middle-income Americans, residential property accounts for 50-70% of household wealth.

Business formation and growth is a third key pathway to wealth creation. Households in which the head of household is self-employed have substantially higher wealth levels than those in which the head works for someone else. Roughly 50% of U.S. GDP and job growth are generated by small businesses.

The first challenge for African Americans in terms of occupational mobility is that labor markets have never truly been free and fair but have been permeated by structural racism since the first slave ships landed in the New World circa 1619. Aside from the obvious barrier represented by enslavement and its immediate legacy, structural racism has severely inhibited the ability of Black workers in the post-Civil War period from climbing the career ladder. For one, a large body of research has demonstrated that a Black worker can submit an identical application as a white worker for a job and the hiring process will favor the latter. Though since the 1970s the U.S. has had laws intended to mitigate discrimination in hiring, the onus is generally on the individual to demonstrate the bias in a particular recruitment process, a difficult and often costly process.

Second, Black adults, especially males, are less likely to command the same market power in terms of credentials or experience as white workers. Since Black rates of poverty are higher and Black rates of college attainment lag that of whites (again, especially for males), on average Black workers have weaker educational credentials. However, African Americans make up a substantial proportion of the contemporary labor movement, especially the public sector unions, and this has been a critical path to middle-income status for tens of thousands of Black workers. As local and state government workforces have stagnated or shrunk in the post-Reagan era, opportunities for career mobility for Black civil service and unionized employees have commensurately constricted. At the same time many of the traditional craft unions in the lucrative building and construction trades, for example, have long had a history of discriminating against Black workers joining their ranks, while the more racially integrated industrial unions have downsized dramatically as the U.S. economy has shifted away from manufacturing and toward service and knowledge.

Compounding the issue is that far too few Black households have sufficient retirement savings. More than half of Black households have no retirement savings at all, compared with less than a third of white households. The median retirement savings for a white household between ages 25 and 61 is $79,500, while Black households have $29,200, according to research by the Economic Policy Institute and others. The legacy of structural racism in the labor market is a profound racial pay gap; nationally, a Black male makes just $0.68 for every white male dollar, according to Economy League research thus there is simply less money to be put away for retirement.

In terms of homeownership, the legacy of redlining has a very long tail. The maps drawn by federal agencies in the 1930s led to the extreme geographical sorting of Americans by race and the denial of billions of dollars in equity to Black homeowners consigned to "bad" neighborhoods by the government and the financial sector. The great wave of homeownership that swept the country in the immediate post-WWII period overwhelmingly benefited whites, who had the freedom to move to new suburban developments, many with race-based covenants designed to maintain racial homogeneity, and to take advantage of government-backed mortgages. In a process known as blockbusting, unscrupulous real estate agents helped to drive down property values in mixed race neighborhoods by persuading whites to sell, transforming once-vibrant, relatively integrated neighborhoods into single-race enclaves stripped of much of their economic reason for existence, with falling property values. Andre Perry has estimated the devaluation of Black-owned property at roughly $160 billion, a massive blow to dreams of capital accumulation and wealth-building. As shown in the figure below, median home equity varies significantly by race, with the median among whites in 2015 about 68% higher than that among Blacks.

The passage of the Fair Housing Act in 1968 outlawed many of the most egregious practices and served to level the playing field somewhat, but more than a century of discriminatory practices in the period since Emancipation is a very tough legacy to overcome via market forces alone. To this day, the net worth of an average African-American family is one-eighth that of an average white family, in large measure due to the large residential property equity gap. Black rates of homeownership have also plummeted, with fewer than 41% of African Americans owning homes as of 2019, versus 73% of white Americans the largest gap since the passage of the federal housing act in 1934.

And finally, in terms of business formation and growth, Black Americans lag whites and other racial and ethnic groups. Of the roughly 5 million firms in the U.S. in 2019 with at least one employee, just 2.3% were owned by Black Americans, though they comprise 14% of the population. Black-owned firms also tend to be smaller and generate less revenue than white-owned firms. According to the American Business Survey, white-owned sole proprietorships averaged $404,000 in revenue in 2019, while Black-owned firms with no employees averaged just under $300,000 in revenue. Black owned-firms with one to four employees averaged $337,000 in revenues while similarly sized white-owned firms averaged $442,000.

Due in part to the devaluation of Black-owned properties as a legacy of redlining and well-documented discrimination in lending by banks, African Americans have had less access to equity capital to start businesses and a harder time accessing loans and credits than non-Blacks. Additionally, unlike immigrants, who tend to agglomerate with fellow countrymen largely in urban areas, and who are able to tap into giving circles and other informal and formal communal financial infrastructure, African Americans were manumitted from slavery with little or no property the broken 40 acres and a mule promise to leverage in order to capitalize business formation. While federal programs like Small Business Administration loans and the Community Reinvestment Act have been enormously helpful to those Black entrepreneurs who manage to create and sustain viable businesses despite tremendous obstacles, they have also left many if not most Black entrepreneurs working to pay off debt rather than building equity and expanding their firms. Nevertheless, as scholars such as Juliet Walker, Robert Weems and John Sibley Butler have shown, Black business thrived in the period between the end of slavery and the 1960s, as de jure and de facto segregation compelled the creation of separate but equal Black economies across the country. A paradoxical impact of the Civil Rights Movements focus on the integration of public accommodations like retail establishments was the precipitous decline of Black-owned firms in the 1970s and '80s; once Black consumers were able to shop in non-Black stores, they did so, as Maggie Anderson details in her important book, "Our Black Year." Scholars also cite the rise of large chains and lax enforcement of anti-trust laws since the 1980s as another significant factor in the decline of small business in general and Black-owned business in particular.

Median net worth for Black business owners is 12 times higher than for Black nonbusiness owners, according to research by the Association for Enterprise Opportunity and the Federal Reserve Bank of St Louis. But while Black families are about as likely as white families to own wealth in the form of equity in a closely held business, the level of wealth they hold is about 50% lower. There are many reasons for this, but chief among them is lack of access to capital, which tends to steer Black entrepreneurs toward industries with low capital requirements and commensurately low margins.

Philadelphiaspersistently high poverty rate derivesdirectlyfroma legacy of racialized policy and planning decisions.For centuries, policy has been wieldedas a weaponto marginalize African Americansin the U.S.,whichtheBrookingsInstitutionsAndre Perry refers to as policy violence.The map below showsthe concentration ofPhiladelphias racial and ethnic groups in specific neighborhoods and sections of the city. It also showsthat the legacy of redlininghas kept manyminority neighborhoodspoor.

The chart above details the economic impacts of racial concentration and segregation.Median household incomes in majority-Black census tracts are48% of the median household income in white-majority tracts (a difference of $35,838).The poverty rate is 2.6 times higher in majority-Black tracts versus majority-white.

In terms of employment, Black workers earning power in Philadelphia is significantly lower than that of white workers. A Black male in 2019 earned roughly 64 cents for every white male dollar, while Black females earned 61 cents; Philadelphia performs at or slightly below the national average, but the pay gap is smaller in Philadelphia than in peer cities like New York City, Boston and Washington, D.C. However, between 2006 and 2019, the proportion of Black Philadelphians living in poverty dropped nearly 6 points, from 32.5% to 26.7%. Though at its lowest level in 15 years, the Black poverty rate in 2019 still surpassed the citys average poverty rate by 3.4%. Between 2011 and 2019, the number of jobs in Philadelphia increased by an annual average rate of 1.4% while Black employment grew by 2.6% annually, as the graph below illustrates. It remains to be seen whether the pandemic-induced economic downturn wiped out those gains.

In terms of homeownership, trends for Black Philadelphians mirror those for whites, though Black homeownership rates lag whites by about 10 percentage points. From 2005 through 2019, white homeownership declined about 5%, from roughly 62% to 57%; during the same period Black rates dropped 4% from 52% to 48%. In terms of differential property values, the Economy League is currently undertaking an analysis of 70 years of property valuation data by neighborhood. In terms of housing affordability, the home-price-to-income ratio for Philadelphias Black population stood at 5.0, meaning it would take over five years of income for at least 50% of Black Philadelphians to afford the citys median home value about double the rule of thumb ratio of 2.6 used by mortgage bankers to determine whether a family can afford a home.

In terms of business formation and growth, quality local-level data disaggregated by race are surprisingly hard to come by. According to the 2012 small business census, summarized in the table below, of the roughly 105,000 businesses in the City of Philadelphia, 80% were sole proprietorships; among Black-owned firms, the proportion is far higher, around 96%. Of the roughly 21,000 firms with paid employees, 64% were white-owned while only about 5% were Black-owned in a city that is 43% Black and about 40% white.

Moving outward from the city to the region, where data is somewhat more robust, the number of Black-owned businesses in Greater Philadelphia is disproportionately low, mirroring the nation as a whole. In 2017, 20.3% of the regions population identified as non-Hispanic Black, but only 2.5% of all employer firms were non-Hispanic-Black-owned. These firms generated $2.5 billion in revenue (0.3% of the total revenue generated in Greater Philadelphia), employed approximately 31,837 workers (1.1% of Greater Philadelphias 2017 total nonfarm employment), and generated $862 million in annual payroll (accounting for 0.6% of Greater Philadelphias total annual payroll). It should be noted, however, that this data from the U.S. Census includes only businesses with employees and payrolls. It fails to account for sole proprietors like caterers, artists, daycare providers, construction workers and or other gig economy businesses. According to Pew, accounting for sole proprietors pushes Greater Philadelphias non-Hispanic Black-owned business representation closer to 25.1%.

With this sketch of the impact of centuries of structural racism along three critical dimensions of wealth generation, what is to be done? In his book "From Here to Equality," the Duke economist William Darity has made the case powerfully and I think incontrovertibly for reparations for the descendants of slavery. Only the federal government truly has the resources for a comprehensive reparations program, which ought to include provisions for ensuring that every Black child has sufficient funds to achieve the post-secondary credential of their choosing; programs to help Black homeowners recapture the billions of dollars of lost equity in their homes and neighborhoods, as well as for helping more become homeowners; and a massive fund for investing in Black business formation and growth, along with strictly enforced policies to ensure that such businesses have a fair shot at capturing opportunities under federally funded contracts.

But what can we do on the local level here in Philadelphia?

Closing the occupational mobility gap requires workforce development programs that draw disenfranchised workers back into the labor market and provide career-ladder jobs at the end of a period of competency-based training. Employers need to be integral partners in this work. The West Philly Skills Initiative and the Lenfest North Philadelphia Workforce Initiative represent promising models of employer-engaged workforce development that need to be scaled and expanded to include a wider array of industries and employers. The Octavius Catto and 50th Anniversary PROMISE scholarship programs at the Community College of Philadelphia have virtually eliminated tuition barriers to post-secondary education for most Philadelphians. City policies that require the payment of 150% of federal minimum wage on City contracts or City-assisted development projects are important, especially since it seems unlikely that the Commonwealth of Pennsylvania will raise the states minimum wage beyond the federal $7.25 an hour anytime soon. City policies that facilitate collective bargaining among low-wage service workers in large employment sectors with low wages and low union density, such as retail and hospitality, with disproportionate numbers of Black workers, ought to be explored. Organizations such as Philadelphia Lawyers for Social Equity have been working on expunging criminal records and obtaining pardons for those who have done time in prison, a major barrier to occupational mobility. And finally, strategies that promote retirement savings, like a city-sponsored retirement savings plan promoted by Councilmember Cherelle Parker and former City Controller Alan Butkovitz could serve as both an aid to small businesses in retaining employees and help workers at small businesses prepare for retirement.

In terms of helping Black homeowners recapture some of the lost value of their property, incentivizing what might be called responsible gentrification or development without displacement, through the promotion of workforce housing to increase the number of households with disposable incomes in poor, depopulated parts of the city and increase socioeconomic as well as racial integration, would likely help. Roughly one-third of Philadelphias neighborhoods have seen growth in the past two decades, while most others have experienced decline or stagnation, and most of these are areas that are primarily Black or Latinx. A few private development projects are taking the mixed-income approach, notably the North 10 Philadelphia initiative in Hunting Park, TPP Capitals Tioga District, and Shift Capitals efforts in Kensington. At the same time, strategies for boosting equity and opportunities for homeownership in ways that are sheltered from displacement, such as large-scale land trust projects like those proposed by Esperanza and others, modeled after Bostons Dudley Street Neighborhood Initiative, could build wealth and preserve affordability. The $1 million challenge announced in January by Brookings scholar Andre Perry in partnership with the Ashoka Foundation aims to surface innovative approaches to revaluing Black-owned properties.

Closing the business scale gap will require a variety of strategies. In the public sector, local leaders need to increase the resources available to the Commerce Department and the Office of Economic Opportunity to ensure that diversity and inclusion goals are actually met on public projects and that there are consequences for noncompliance. This will be particularly important as the Biden administration prepares to unleash a flood of infrastructure funds in cities like ours. The Philadelphia Equity Alliance is taking the lead on shepherding that process.

In the private sector, initiatives like the Economy Leagues Philadelphia Anchors for Growth & Equity need to be scaled so that Black-owned firms have the connections, capacity and capital to win large contracts in the institutional supply chain across the economy. The Enterprise Centers Innovate Capital Fund must meet and surpass its $50 million fundraising goal, so that there will be sufficient equity capital for Black-owned firms to form and grow; civic leaders and elected officials need to use the leverage they have with individual and institutional investors, including the citys own pension fund, to create local capital pools dedicated specifically to Black business growth. City Council should move forward with the creation of a city-backed public bank, which could help fill in financing gaps that traditional institutions arent always able to provide, like providing initial lines of credit to underbanked businesses, or seeding the growth of minority developers. Promising and innovative strategies for bolstering commercial corridors, like the Kensington Corridor Trust, need to be scaled and replicated.

City leaders need to hold large institutions accountable to the promises and pledges they make to support supplier diversity, and measure outcomes not simply in terms of contract dollars awarded but in terms of the number of Black-owned businesses that demonstrate year-over-year growth something that can be readily tracked using the citys wage and business income tax data. And of course, with the huge number of cranes dotting the skyline, city leaders need to hold the building and construction trade unions and the contractors that are signatory to their collective bargaining agreements accountable for diversifying the composition of the workforce and its thousands of family-sustaining jobs. A first step here is to require the unions to provide verifiable data about the demographic composition of their memberships. We cannot manage what we cannot measure.

While the above set of proposals will neither end poverty nor completely close the racial wealth gap, they will demonstrate serious resolve toward this goal. There are numerous organizations working on their respective pieces of the puzzle. What is often lacking in Philadelphia is coordination, which in other cities is catalyzed by the convening power of a major local foundation or via a broad-based civic alliance (like the Philadelphia Equity Alliance hopes to become). The time is now 2022 must be the Year of Action and Accountability.

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Unblocking the paths to Black prosperity | | phillytrib.com - The Philadelphia Tribune