The decline of black business: and what it means for American democracy.

Author:Feldman, Brian S.
 
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At the new National Museum of African American History and Culture in Washington, D.C., a hallway of glass display cases features more than a century of black entrepreneurial triumphs. In one is a World War II-era mini parachute manufactured by the black-owned Pacific Parachute Company, home to one of the nation's first racially integrated production plants. Another displays a giant time clock from the R. H. Boyd Publishing Company, among the earliest firms to print materials for black churches and schools. Although small, the exhibit recalls a now largely forgotten legacy: by serving their communities when others wouldn't, black-owned independent businesses provided avenues of upward mobility for generations of black Americans and supplied critical leadership and I financial support for the civil rights movement.

This tradition continues today. Last June, Black Enterprise magazine marked the forty-fourth anniversary of the BE 100s, the magazine's annual ranking of the nation's top 100 black-owned businesses. At the top of the list stood World Wide Technology, which, since its founding in 1990, has grown into a global firm with more than $7 billion in revenue and 3,000 employees. Then came companies like Radio One, whose fifty-five radio stations fan out among sixteen national markets. The combined revenues of the BE 100s, which also includes Oprah Winfrey's Harpo Productions, now totals more than $24 billion, a nine-fold increase since 1973, adjusting for inflation.

A closer look at the numbers, however, reveals that these pioneering companies are the exception to a far more alarming trend. The last thirty years also have brought the wholesale collapse of black-owned independent businesses and financial institutions that once anchored black communities across the country. In 1985, sixty black-owned banks were providing financial services to their communities; today, just twenty-three remain. In eleven states that headquartered black-owned banks in 1994, not a single one is still in business. Of the fifty black-owned insurance companies that operated during the 1980s, today just two remain.

Over the same period, tens of thousands of black-owned retail establishments and local service companies also have disappeared, having gone out of business or been acquired by larger companies. Reflecting these developments, working-age black Americans have become far less likely to be their own boss than in the 1990s. The per capita number of black employers, for example, declined by some 12 percent just between 1997 and 2014.

What's behind these trends, and what's the implication for American society as a whole? To be sure, at least some of this entrepreneurial decline reflects positive economic developments. A slowly rising share of black Americans now hold white-collar salaried jobs and have more options for employment beyond running their own businesses. The movement of millions of black families to integrated suburbs over the last forty years also is a welcome trend, even if one effect has been to weaken the viability of the many black-owned independent businesses left behind in historically black neighborhoods.

But the decline in entrepreneurship and business ownership among black Americans also is cause for concern. One reason is that it largely reflects not the opening of new avenues of upward mobility, but rather the foreclosing of opportunity. Rates of business ownership and entrepreneurship are falling among black citizens for much the same reason they are declining among whites and Latinos. As large retailers and financial institutions comprise an ever-bigger slice of the national economy, the possibility of starting and maintaining an independent business has dropped. The Washington Monthly has addressed the role of market concentration in suppressing opportunity and in displacing local economies in depth (see, for example, "The Slow-Motion Collapse of American Entrepreneurship," July/August 2012, and "Bloom and Bust," November/ December 2015). Other studies, including a report published last year by President Obama's Council of Economic Advisors, have substantiated these developments.

The role of market concentration in depressing black-owned businesses is also troubling because of the critical role that such enterprises have played in organizing and financing the struggle for civil rights in America. In the 1950s and '60s, black Americans employed by whites, including professionals like teachers, often faced dismissal if they joined the civil rights movement, whereas those who owned their own independent business had much greater freedom to resist. This is a largely forgotten history, but one that is gaining new urgency for all Americans in the age of Donald Trump. It shows the crucial way in which advancing and protecting basic civil rights can depend not only on moral and physical courage, but also on possessing the economic independence to stand up to concentrated power.

The decline of black-owned independent businesses traces to many causes, but a major one that has been little noted was the decline in the enforcement of anti-monopoly and fair trade laws beginning in the late 1970s. Under both Democratic and Republican administrations, a few firms that in previous decades would never have been allowed to merge or grow so large came to dominate almost every sector of the economy.

This change has hurt all independent businesses, but the effects have disproportionately hit black business owners. Marcellus Andrews, Bucknell University professor of economics, says that pulling back on anti-monopoly enforcement was a "catastrophic intellectual and political policy mistake," and that for the black community, the "presumed price advantages of concentration often do not translate into better economic opportunities."

A case in point is the decline of black-owned financial institutions, including banks and insurance companies. "Mainstream insurers went after black insurance companies for their top personnel to sell their products," says Wichita State professor Robert Weems Jr. When MetLife bought United Mutual Life Insurance Company in 1993, this was the end of the sixty-three-year existence of the last black-owned insurance company in the Northeast...

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