A mid-1990’s “Wall Street Journal Reports” on Black Entrepreneurship explored the availability of financing for Black businesses. The start-up phase of a new business requires solid financing to ensure initial stability, attract potential employees, establish vendor relations, and provide a foundation for long-term growth. The Reports stated “minority owned businesses account for an estimated $100 billion in sales annually, in industries ranging from communications to health care.” The Reports, however, acknowledges the scarcity of financing through banks or venture capital, available for these businesses.
The Reports relegates blame for the shortage of available cash support for minority businesses to Blacks; the shortage exists because, “Black entrepreneurs tend to focus on slow-growing, low-tech businesses, largely in the service sector. Most of them, too, have spent little or no time in the ranks of corporate management; much of their experience comes instead from operating neighborhood-oriented businesses that cater to predominantly Black clientele.”
To substantiate this claim, the Reports quotes a director of the Joint Center for Political and Economic Studies as saying, “Blacks don’t have sufficient assets to put up as collateral. There’s not a lot of liquidity to take advantage of.” A managing partner of a major regional venture capital fund provides additional validation: “We’re trying to do the best deal possible. And in the 20 years or so I’ve been in business, I’ve yet to see a proposal from a minority management team that even came close to the criteria we establish for investing.” According to the Reports, “venture capitalists say that most of the entrepreneurs they back have key management or scientific jobs at big technology concerns-positions in which Blacks are scarce.” The same managing partner concludes that without the corporate experience, it’s hard for minorities to attract investors.
An article in the December 2003/January 2004 issue of “Fortune Small Business” reports “there’s still one area in which few minorities have broken through-access to financing.” The article quoted a recent survey, which “showed that people of color are denied credit more often, and pay higher interest rates when compared with white business owners.” The article also cited The National Association of Investment Companies, “which estimates that as little as 2% of all venture capital goes to entrepreneurs of color.”
Saying that Blacks are deficient in the experience needed to successfully manage a commercial business is a convenient answer to why Blacks don’t deserve to get financing from major lending and investment institutions. Since Reconstruction, there has been a perception among members of the financial community that Blacks do not have the skills required to ensure profitable management of a business. Why is this?
Many Blacks, even before the Civil War, were successful American small business entrepreneurs, even some located in the South. Blacks manufactured carriages, cabinets and furniture, shoes and clothing. They opened blacksmith shops, barbershops, restaurants and shoeshine stands. Blacks tilled the soil and managed the production of food for themselves, as well as, commodity crops. The results of these endeavors helped to enrich the southern aristocracy, northern merchant and European manufacturer.
Blacks have not remained inexperienced by choice. Millions of Blacks have finished high school; many thousands have finished college and graduate schools. Millions of Blacks stand in line for job applications, go on job interviews, and take entrance exams for admission to training and apprenticeship programs. An indication of the human capital possessed by Blacks is amply related in the two-fold growth rate of Black middle class Americans over the last thirty years. This human capital, when unhindered and equally accepted, has enabled many Blacks to move, in less than one generation, from poverty to middle class status.
Yet, Blacks are still not considered a sound financial investment. Blacks are thought to have no assets, mental or physical, which are considered acceptable criteria for financial funding from the many sources that are available. African American entrepreneurs are considered ill equipped and lacking in the business acumen required to manage employees, payrolls, bank accounts, and Wall Street. African Americans are perceived as unfamiliar with distribution and warehousing systems. African Americans are viewed as incapable of building relationships and effectively interfacing with suppliers, regulatory and governmental agencies.
The exclusion of 13% of the U.S. population from the highly touted capitalistic marketplace is not, alone, a result of Blacks’ ignorance or lack of skills. This exclusion is primarily an effect of whites acting in concert to limit the impact of Black produced goods and services on a free market system. This unwritten and unspoken conspiracy dictates the amount and number of Blacks who have access to equal standing in the marketplace. Laissez-faire, free-market policy abhors such a combination. Free and unencumbered access to the market is essential to the well being of the people who make up a society. If a group is denied equal access to the marketplace, that group will suffer in comparison to those who have equal access.
At the beginning of the twentieth century, Blacks were not considered ready for full citizenship in the United States. This was true even though Blacks had been given specific constitutional rights that reversed any burdens of prior servitude and guaranteed due process in interactions with other citizens. Because of these feelings, Blacks received little or no financing from banks or investors, as whites were focused on insuring their own economic survival. Laborers also were organizing to offset the negative economic effect of emerging business corporations. But white labor groups and businesses had no interest in promoting equal economic treatment of a Black minority recently freed from slavery.
Black business pioneers of this period were harassed or burned out if they did not adhere to the rigid economic and social codes: nationally recognized and instituted for Blacks at the end of Reconstruction. Blacks who became too financially independent and powerful were scrutinized and duly cautioned by the surrounding white community.
Blacks were forbidden to open stores and shops in non-black communities. Black agricultural workers had to submit the products of their labors to white merchants for compensation that was determined without regard to established open market values. Additionally, farm supplies, food and household products had to be acquired from these same merchants. Books of accounts were not made available to Black farmers and workers. Because they were not allowed to participate in an adequate educational system, and consequently could barely read or compute their own economic activities, many Blacks were at the mercy of the white merchant.
Blacks who knew the fair rates for the crops they grew and the merchandise they manufactured were subject to the brutality of a social-justice system enforced by the white community, from private citizens to judge and jailer. Blacks, who spoke up or tried to circumvent the established market, were subject to the destruction of their property and land. And, in many cases, they forfeited their lives, as well as the lives of their families and neighbors, for ignoring the dictates of the established system.
In October 1919, a race riot occurred in Elaine, Phillips County, Arkansas. Whites joined together in mob action to prevent the organization of a Black self-help cooperative. Blacks in Phillips County had endured years of economic abuse imposed by the Southern sharecropping system. Tired of being subjected to the whim of the white financial market in all of their commercial dealings, a group of Blacks came together in an effort to maximize profits from their labors and preempt further exploitation.
A mob of white farmers and workers was supported by the local police force. They descended upon the small group of Black entrepreneurs. In a heated confrontation, where the whites demanded the Blacks discontinue their economic struggle, two whites were killed. The Blacks were accused of massacring whites, and armed bands of whites proceeded to inflict over two hundred Black deaths as revenge. Twelve Blacks were sentenced to death for murder and sixty-seven were imprisoned for plotting the massacre of white people. No whites were arrested in this matter.
In addition to the lost of life and property, the opportunity for Blacks to organize and control their economic destiny, was destroyed in Elaine, Phillips County, Arkansas.
In June of 1921 in Tulsa, Oklahoma, another race riot occurred. An economically successful Black township of Tulsa, known as Black Wall Street, was destroyed in this riot.
The riot started when opposing groups of Blacks and whites gathered in front of a downtown police station. Inside the station was a Black alleged rapist. The whites wanted to impose their usual quick justice system- lynching and mutilation. The Blacks wanted to protect one of their people, who they believed to be innocent. Six other Black men had been, for various spurious reasons, lynched and mutilated over the preceding three months.
During the initial confrontation, one shot lead to another. Groups of Blacks and whites squared off to fight and kill each other. Whites cut off the telegraph wires and sealed off the town, thereby preventing communication of the riot to the governor’s office and the National Guard. Public officials from surrounding towns prevented Black reinforcements from entering Tulsa.
The Tulsa whites received military strategy pointers from a U.S. Army officer who also told them to take arms and ammunition from the local Armory. Airplanes loaded with bottles of gasoline were also obtained. The Blacks were easily outnumbered and outgunned. They were driven back to Black Wall Street. As the planes bombed Black Wall Street, men, women and children were being gunned down by machine gun fire. Thousands of Blacks either died or were confined to prison camps.
Black Wall Street was completely destroyed by the bombs and resulting fires. Even though the motive for the riot was suspect, the achieved result destroyed a successful, thriving Black economic community.
Over 3,000 lynchings and mutilations of Blacks have been reported in the United States during the sixty-year period between the end of Reconstruction and the start of the Second World War. Accused of everything from stealing to murder and rape, Black men, and some women, were subjected to a swift and brutal justice system. Some Blacks died for no crime other than violation of established social or economic controls. Encouraged by religious, legal and government officials, white mobs used the terror of lynching, burning, and mutilation to control the economic and social aspirations of Blacks in America.
In the early 1900’s whites supported their treatment of Blacks with a variety of religious, moral and philosophical arguments. Not among the least of which was God’s denial of Black equality as told in the Bible story about Noah. Science also lent support of Black inferiority with charts, graphs and skeletons. The ultimate result was that whites believed that Blacks were inferior to them and did not have any rights that needed protection. Therefore, Blacks did not need to be accorded the same rights of U.S. citizenship as whites. Blacks were considered to be too stupid to vote; too dumb to be educated; and too lazy to work. Accordingly, Blacks were given limited access to the tools, skills, and experiences needed to be successful in the United States during the industrial expansion that occurred at the start of the Twentieth Century.
Over a century later, during the time of another great economic and technological revolution, African Americans are still considered unprepared for and unworthy of equal treatment in our free enterprise system. Today’s argument is not based on innate inferiority. Instead, the argument is inadequate preparation and resources. Today, the lynch mob does not leverage control; economic control and circumvention is inherent in the negative outlook of Blacks held by bankers, insurance agents, credit services, realtors, investors and many others. Today, Blacks don’t lose their lives. They just don’t get a real chance to start an independent economic life.
A few decades ago, an explanation would have been the generally accepted opinion that Blacks were mentally and physically inferior, thereby lacking in those attributes required of good citizens and business partners. To say, today, that Blacks are unprepared for equal treatment in the business world, especially the credit market, is to repeat a 400 year-old tragic tale.