Warren Calls on Banks to Invest in Minority Neighborhoods, Businesses
By Isaac Park | Apr 26, 2016
Senator Elizabeth Warren recently warned that minority families and businesses continue to suffer disproportionately from the lingering effects of the Great Recession and called on the country’s banks to step up to assist local communities.
Warren noted that most Americans experienced severe hardships during the economic downturn. “In 2013, the median income of white households was 13 times that of black households,” she said. But she also underlined the fact that large financial institutions had specifically targeted minority homebuyers with subprime loans that had a devastating impact on their finances.
“The housing collapse destroyed trillions of dollars in family wealth,” the Massachusetts Democrat told the Center for Global Policy Solutions’ “Color of Wealth” summit in Washington last week. “But the crash hit African American families like a punch in the gut.” “White households lost on average 11 percent of their wealth,” she added, “but black households lost over 30 percent of their wealth.” Given these disparities, Warren argued that “the federal government [needs] to make real investments in communities of color.”
The Center has released a study, “The Color of Entrepreneurship,” that documents racial disparities in the business sector. According to the report, racism has blunted the benefits of minority-owned businesses: The U.S. economy continues to forgo about 1.1 million minority-owned businesses due to historic and current instances of discrimination. The report concluded that if those businesses were up and running, they would potentially create nine million jobs and increase the U.S. national income by $300 billion.
The center’s analysis of business ownership survey data from the Census Bureau found that while the overall number of minority-owned businesses grew, the number of firms owned by African American men dropped by 2.3 percent. Black men were the only group to experience a decline.
Minority- and women-owned businesses have also experienced declines in average sales. In 2012, firms owned by men regardless of race had higher average sales than companies owned by women. Among male-owned businesses, white-owned firms saw the highest average sales in 2012, and black-owned firms the lowest. Similarly, firms owned by white women had the highest average sales and those run by black women, the lowest.
Most minority-owned businesses saw a decline in average wages as well. Employees working for companies owned by American Indian women saw a 6 percent drop in average pay, the biggest drop in the survey.
American Indian men and Hispanic men also experienced steep declines in wages, at 5.8 and 5.6 percent respectively. Employees working for firms owned by white women and white men saw a 0.2 percent and 1.3 percent decrease in average wages, respectively. However, workers employed by firms owned by black men saw a 1.2 percent increase in average pay.
The report suggested several ways to close the wealth gap, ranging from tax credits for new minority entrepreneurs (which could attract venture capital) to staving off tuition and fee hikes at state universities so that young entrepreneurs leave college with less debt and more money to invest in a business.
Warren proposed expanding the Community Reinvestment Act, a Carter administration-era reform that encourages commercial banks to invest in low-income communities. Federal officials make “deliberate policy choices that favor those with money and power,” said Warren. “The American people are holding up our end of the bargain. But for too long, many banks have not been holding up their end, and that has got to stop.”
This post has been updated.