To be a poor man is hard, but to be a poor race in a land of dollars is the very bottom of hardships. As another Black History Month drew to a close in the United States this year, these words by American sociologist W.E.B. Du Bois act as a reminder of the vast racial divide that still propagates in the world’s “most developed nation.”

The black community in the US today owns about one percent of the nation’s total wealth – a number that has not budged much in 150 years, since the Emancipation Proclamation was signed in 1863.

Thomas Shapiro, author of ‘Black Wealth/White Wealth’, says a typical black family owns about a dime in wealth for every dollar that white American families own. “The historical legacy of enslavement meant diminished capacity for homeownership, business development and economic security,” he adds.

In spite of recessions or periods of economic boom, median net worth – a household’s wealth in the middle of distribution – has prospered for white families in the last four decades. Data from the Survey of Consumer Finances, a regular economic release by the Federal Reserve, suggests the ratio of wealth between white and black families is now wider than when the century began.

In addition to income and education, a number of factors have historically left the black community more vulnerable. Black residents in the US have faced significant barriers in owning homes, and when they do, the properties are devalued. They are also more likely to face discriminatory lending practices that impact their credit scores, contributing towards overall racial inequity according to Brookings Institute. Additionally, policymakers have found out that white households are more likely to receive intergenerational inheritances than their black counterparts.

According to a study by The Hamilton Project, for 17 percent of white households expecting to bequeath inheritances, there were only six percent black households. Since most of these are untaxed and account for four percent of the annual household income, the difference can sustain the wealth disparities.

Dorothy Brown, author of ‘The Whiteness of Wealth’ and a leading authority on racial wealth gap says the tax system should be revamped to accommodate more black Americans. Brown, a black woman herself and professor of law at Emory University says: “Income from labour should be taxed the same way as income from capital.”

The role of black entrepreneurship

The US saw a 38 percent rise in the number of black business owners between February 2020 and August 2021, making them the fastest rising cohort of entrepreneurs. But black business owners across America lament that the lack of access to early-stage capital has prevented them from executing their vision vis-à-vis their white counterparts. In an interview with Business Insider, Van Court, a Black entrepreneur recalls investors telling her that her app, Goalsetter – which taught children about investing and managing their money – was “uninvestable” while they funded similar startups by white founders.

Vernon Coleman, co-founder of Realtime, a social networking website points out that “only one per cent of venture capital funding goes to black founders.” The industry, however, hasn’t taken meaningful steps to increase the percentage, in spite of being aware of it, he says.

Black-owned businesses received a flurry of support in the form of increased funding and opportunities for partnership after the death of George Floyd, but it quickly died down once the media attention shifted elsewhere, reports Business Insider. Black entrepreneurs concur that successful black businesses will be key in bridging the racial wealth gap and achieving economic justice.

Let down by the lack of efforts by the American financial system to close the wealth gap, several black entrepreneurs are now taking the lead to help Americans like them generate wealth and gain their financial footing. When 29-year-old Abbey Wemimo experienced hurdles in acquiring a bank loan, he made it his mission to revamp the creditworthiness for black people – a system he describes “disadvantages people of colour”. By helping people build a credit history accurately depicting their worthiness, his startup, Esusu, has become a rare ‘unicorn’ business owned by a black person, according to Forbes.

Melanin Money, a financial platform designed to help people of colour build wealth and improve their financial literacy, is another example. CEO George Acheampong observed how little representation black people had in the financial advisory space. So he decided to embark on his mission, something he calls “a movement designed to help close the wealth gap through education, empowerment and economics.”

Can the US really bridge the wealth gap?

Data from St. Louis Federal Reserve suggests a disconnect between higher income, education and wealth and that these factors haven’t significantly reduced or eliminated the wealth gap. Even with the same education level, black families’ median wealth has been lesser than their white counterparts.

In her book, “The Color of Money”, author Mehersa Baradaran argues that credit policies and the myth of free-market capitalism have been the pillars perpetuating the inequality, and past efforts of economic inclusion have fallen short.  

Thomas Shapiro, who is a professor of social policy at Brandeis University, argues that baby bonds among other measures will help make the U-turn to racial justice. He says: “It takes a social movement to undergird the politics necessary to support these policies.” Baby Bonds are investment accounts seeded with an amount inversely related to the child’s family income and can be accessed when the child turns 18. One analysis estimates this could reduce the average racial wealth gap between white and black young Americans from 16 to a factor of 1.4. Shapiro went on to say that policy is a major source of racial wealth inequality, so it must be a leading edge in reversing the direction and leading the path to equality. 

In her book, Brown has found out – through the lens of the American taxation system – how it impoverishes black members. Brown, who has been researching how tax policy impacts black and white taxpayers differently says: ”Racial inequality in the U.S. will only be solved when the federal government – that was responsible for the gap’s creation – begins serious work of investing in the black community.”

Young black Americans are now emerging from the shadows of Jim Crow’s era where laws dictated their rights. As they move ahead to realize “The American Dream”, it is imperative that policy, politics, tax reforms, and other reparations join hands to alleviate the economic burden of the racial wealth gap.