Why Black Families Have Struggled Decades to Get Wealth

by Darrick Hamilton

Black History Month has become the time to reflect on all the progress black Americans have made, but the sobering reality is that when it comes to wealth the paramount indicator of economic security there has been virtually no progress in the last 50 years.

Struggling Against Economic Injustice and for Economic Power

Based on data from the Federal Reserve’s Survey of Consumer Finance, the typical black family has only 10 cents for every dollar held by the typical white family.

While there is no magic bullet for racism, access to wealth, and the security to pass it down from one generation to the next, would go a long way toward changing the economic trajectory for blacks.

As researchers who study historical and contemporary racial inequality, we mostly conceive of wealth as a maker of success, but its true value is functional: the independence and economic security that it provides.

Out of slavery

Until the end of legal slavery in the U.S., enslaved people were considered valuable assets and a form of wealth. In the South, entrepreneurs and slave owners took loans out against the collateral value of their property in the form of people to fund new businesses.

The U.S. government has a long history of facilitating wealth for white Americans. From at least the Land Act of 1785, Congress sought to transfer wealth to citizens on terms that were quite favorable. In some instances, land could be attained by the luck of the draw but only if you were a white man.

While the 1866 Homestead Act sought to include blacks specifically in the transfer of public lands to private farmers, discrimination and poor implementation doomed the policy. Black politicians during Reconstruction attempted to use tax policy to force land on the market, but this was met with violent resistance.

While blacks did make gains in wealth acquisition after chattel slavery ended, the pace was slow and started from a base of essentially nothing. Whites could use violence to force blacks from their property via the terrorism of white-capping, where blacks were literally run out of town and their possessions stolen. 

This includes the race riots, as in Memphis in 1866 and Tulsa in 1921, which systematically destroyed or stole the wealth blacks had acquired, and lowered the rate of black innovation. Black wealth was tenuous without the rule of law to prevent unlawful seizures.

By 1915, black property owners in the South had less than one-tenth of the wealth of white landowners.

This trend remained stable for the next 50 years. In 1965, 100 years after Emancipation, blacks were more than 10% of the population, but held less than 2% of the wealth in the U.S., and less than 0.1% of the wealth in stocks. Wealth had remained fundamentally unchanged and structurally out of reach of the vast majority of blacks.

Housing assistance and education

These racially exclusionary systems endured well into the 20th century. A complicit Federal Housing Administration permitted the use of restrictive covenants, which forbade home sales to blacks; redlining, which defined black communities as hazardous areas, directly reducing property values and increasing rates; and general housing and lending discrimination against African-Americans through the 20th and 21st centuries.

Moreover, blacks were largely excluded from the New Deal and World War II public policies, which were responsible for the asset creation of an American middle class.

The GI Bill is one example of several postwar policies in which the federal government invested heavily in the greatest growth of a white asset-based American middle class, to the exclusion of blacks. 

Historian Ira Katznelson documents that, by 1950, via the GI Bill, the American government spent more on education than the Marshall Plan that rebuilt Europe. But most American colleges and universities were closed to blacks, or open to only but a few in token numbers.

Meanwhile, GI benefits in education, employment, entrepreneurship and housing assistance were all distributed overwhelmingly toward whites. In the Jim Crow segregated South, there was a truncated housing supply. These factors limited the ability of historically black colleges and universities to accommodate the education and housing needs of black veterans.

It is important to note that it was never the case that a white asset-based middle class simply emerged. Rather, it was government policy, and to some extent literal government giveaways, that provided whites the finance, education, land and infrastructure to accumulate and pass down wealth. 

In contrast, blacks were largely excluded from these wealth generating benefits. When they were able to accumulate land and enterprise, it was often stolen, destroyed or seized by government complicit theft, fraud and terror.

Building new wealth

Nonetheless, blacks have still been able to overcome tremendous odds, particularly in acquiring education. Social science research indicates that blacks attain more years of schooling and education credentials than whites from families with comparable resources. In other words, blacks place a premium on education as a means of mobility.

Despite this investment, the racial wealth gap expands at higher levels of education. Black families where the head graduated from college have less wealth than white families where the head dropped out of high school.

Rather than education leading to wealth, it is wealth that facilitates the acquisition of an expensive education. The essential value of wealth is its functional role; the financial security to take risks and the financial agency that wealth affords is transformative.

In our view, education alone cannot address the centuries-long exclusion of blacks from the benefits of wealth-generating policies and the extraction of whatever wealth they may have. 

The most just approach would be a comprehensive reparation program that acknowledges these grievances and offers compensatory restitution, including ownership of land and other means of production.

For generations, many black activists have looked at America’s financial system and said, thanks, but no thanks. As an alternative, they’ve promoted self-sufficiency the creation of black wealth through black-owned banking and entrepreneurship, and patronage of black businesses. 

This idea resurfaces again and again, as it did recently in the #BankBlack movement and in Jay-Z’s “The Story of O.J.”: Black Americans ought to use their economic power to shore up their own community, instead of participating in a broader and more discriminatory system.

A New Emphasis On Building Black Economic Power

In the Post-Civil Rights era a period of '55 years' Blacks believed that electing Barak Obama as president and other Black politicians along with a good education and a decent paying job would level the racial economic playing field but it did not occur. 

Indeed the average white family today has 13 times the wealth as an average Black family. As Black folks there must be a new emphasis on economic empowerment.

The emphasis on building Black economic power has been put forth by Us Lifting Us Economic Development Cooperative whose developed a comprehensive 10-point plan. Us Lifting Us believes that the security and welfare of Black people depends on controlling our economics and practicing group economics. 

The 10-points reflect the desire to be free from chattel slavery, and an impulse that led Black people to form mutual aid societies and engage in group ownership once we were emancipated from slavery.

The Unfulfilled Promise of Black Capitalism

by Gillian B. White

In her new book, The Color of Money: Black Banks and the Racial Wealth Gap, Mehrsa Baradaran, a professor of law at the University of Georgia specializing in banking law, provides a deep accounting of how America got to a point where a median white family has 13 times more wealth than the median black family. 

Baradaran’s book covers the period of time spanning from Reconstruction with the promise and subsequent revocation of land, jobs, and economic independence for freed slaves to the present. 

Over this expanse of history, Baradaran finds that much of the economic turmoil black Americans have faced has been the direct result of negligence, discrimination, or broken bonds on the part of both government and private entities run mostly by white Americans.

With that history in mind, she interrogates the question of whether or not black Americans can fix the problem on their own, for instance by turning to black-owned banks to spur lending and wealth creation. 

Baradaran determines that, while theoretically promising, the movement in support of black economic self-sufficiency will falter without the type of powerful assistance that helped create white wealth, including government policies promoting jobs, home ownership, education, and access to loans. 

“The theory behind developing a separate black economy had been that economic power would lead to political power, but perhaps they had it backward,” Baradaran writes.

Worse yet, she argues, is that the spirit and main tenets of black self-sufficiency, as imagined by black activists to include reparations, control over financial infrastructure, and a mandate to support and grow black businesses, were corrupted and repurposed by the Nixon administration and anti-integrationists during the late 1960s.

Nixon and other Republicans, Baradaran writes, seized upon the idea of a separate black economy. They came up with a program“black capitalism,” they called it that they argued would promote black businesses and the creation of a thriving black economy, via policies such as affirmative-action requirements for private government contractors, bank-deposit transfers to black-owned institutions, and financial support for minority-owned businesses. 

President Nixon used Black capitalism as deceptive economic development

But, in reality, Baradaran writes, these efforts were more a way to mollify black activists and assure white voters that racial tension and upheaval would soon end than they were an actual effort to erase racial economic inequality. 

For example, in 1969, Nixon created the Office of Minority Business Enterprise (OMBE) in the Commerce Department, but didn’t allocate any funding to it. 

Instead, the office was to solicit funding from private sources and other government agencies in order to do the work of bolstering black businesses. The board that oversaw the OMBE was largely white, and, according to Baradaran’s account, indifferent to the outcome.

The head of the black-capitalism program, Maurice Stans, derided an early proposal by one of the highest-ranking black members at OMBE, Abe Venable, to invest $8.6 billion in the creation of 400,000 minority businesses, and then promptly shut it down. 

In 1979, the OMBE was rebranded as the Minority Business Development Agency by the Carter administration, and still exists with the mission of advancing minority-owned business operations.

Many similar efforts amounted to very little considering the scale of the challenge. By 1971, a Small Business Administration program had doled out $66 million to minority firms, but that accounted for one-tenth of 1 percent of the government contracts granted that year. 

And still, the programs that set aside contracts for minority businesses were deemed controversial by white business owners and conservatives, making it difficult to allocate any more funding to bridge the gap. 

Similarly, the OMBE founded the Minority Bank Capital Program in 1969, with the goal of encouraging federal agencies to deposit $100 million of their total account holdings into minority banks. By 1971, only $35 million had been transferred.

With little investment or enforcement, these so-called pro-black-capitalism programs and others were set up to fail. “All the black capitalism programs, including affirmative action, relied primarily on the voluntary participation of private firms and government agencies,” Baradaran writes. 

During his campaign, Nixon promoted the idea that blacks, especially poor blacks, need “a hand up,” not “a handout.” His policies put little money or political weight behind actually alleviating poverty and boosting the black economy. 

With weak incentives and little pressure to diversify business practices and customer bases, few companies, lenders, and agencies made anything more than the most meager of efforts to help black businesses thrive or to put black Americans in a more secure economic position.

Black capitalism came at a particularly dangerous time, in the aftermath of so many civil-rights victories. The promises made by the government regarding the advancement of black economic security through black capitalism created just enough of a diversion to what was ultimately halted progress toward real economic equality. 

“Particularly relevant are failed integration efforts and demands by black leaders for reparation both of which were being actively pursued in 1968. By 1970, the administration had scuttled each of these plans without fanfare,” she writes.

The effects of these policies are still felt by black families today. “Black capitalism delegated the responsibility to solve the racial wealth gap to the black community without the help of the white political establishment who had always held power and the purse strings, and who continued to do so,” Baradaran says. 

“If the roll-out of the black capitalism program had demonstrated anything, it was that economic power could not be achieved without government help.”