Should Black-Owned Businesses Receive Reparations?



With the publication of Ta-Nehisi Coates’s article on reparations in The Atlantic, the discussion on the payment of reparations has moved from an academic, theoretical discussion to a practical one. As a result, cities across America, including Boston, are now discussing the payment of reparations. Jews are deeply divided on the topic, even those whose own family may have received reparations as Holocaust survivors. Some Jews look to the Japanese who were interned during World War I, who also received reparations, as the basis for a similar payment to Blacks. Still others look to Deuteronomy 15:12-15 and see the Jewish faith as a basis for the payment of reparations. Finally, while some see the payment of reparations as a common moral debt, other Jews see no such obligation, while acknowledging there were a small number of Jews who owned slaves.

David W. Blight, the Yale University historian, writes, “In 1860, slaves as an asset were worth more than all of America’s manufacturing, all of the railroads, all of the productive capacity of the United States put together… Slaves were the single largest, financial asset of property in the entire American economy.” The government benefited because the sale of slaves was taxed.

Many misunderstand the case for reparations, thinking it is strictly related to slavery. But slavery was just the beginning of systematic discrimination and outright denial of opportunities to Black Americans. Systemic discrimination has taken many forms, from Andrew Johnson’s reversal of the order to provide formerly enslaved families with 40 acres each of tillable land to the denial of pensions to those same people for their years of hard work building the country. The passage of Jim Crow laws during Reconstruction, the New Deal’s transformative programs that excluded African Americans, the Great Society reforms that failed to change Black America’s fortunes, and the institutional practices that continue to disadvantage Black people to this day. In addition, the centuries of American injustice all make the case for Black-owned businesses to receive reparations.

Segregationist policies

Richard Rothstein’s book “The Color of Law” explains the role the federal government played in segregating America and how its actions have disadvantaged the Black community. Segregation was legislated numerous times in 18th- and 19th-century America. The first step came in the form of Black codes, which in some states denied Black people the ability to rent or buy land. This meant they couldn’t become self-sufficient or start their own businesses. The codes required Black workers to sign annual labor contracts that ensured they received the lowest pay possible. The codes also contained anti-enticement measures to prevent prospective employers from paying Black workers higher wages than their current employers paid them. Failing to sign a labor contract could result in arrest, fines, and being sentenced to unpaid labor. In short, the former states of the Confederacy, with the complicity of the U.S. government, found a way to legally extend the multibillion-dollar slavery franchise.

More recently, the GI Bill systematically disregarded Black veterans. By the time the original bill expired in 1956, 4.3 million World War II veterans had received home loans totaling $33 billion, and nearly 8 million had benefited from government-subsidized education or training. But few of those veterans were Black. “Of the 3,229 GI Bill guaranteed loans for homes, businesses, and farms made in 1947 Mississippi, for example, only two were offered to black veterans,” notes Ira Katznelson, a professor of political science and history at Columbia University.

The programs were structured such that most Black veterans simply could not take advantage of them. As a result, racial disparities in college attendance, employment, homeownership, and wealth grew even wider than they had been before the war.

Discrimination in banking

Mehrsa Baradaran’s book “The Color of Money” is instructive on the topic of Black Americans and the banking system.

While prospective and existing white business owners were historically able to get loans with nothing more than their word and a handshake, the federal government actively discriminated against Black entrepreneurs, first through the Home Owners’ Loan Corporation and later through the Federal Housing Administration. This went beyond individual prejudice and bias; it was government-imposed racism through redlining.

Despite the outlawing of such practices, the damage persists. A study by McKinsey & Company reveals there are fewer banks in Black neighborhoods than in white ones, and the Federal Deposit Insurance Corporation reported that 13.8% of Black households had no account at an insured institution in 2019, compared to 5.4% of American households overall. The lack of neighborhood banks leads many Black families to use exploitative check-cashing services and payday loans instead of basic banking services such as checking and savings accounts. Increasing access to such services could save Black Americans up to $40,000 each over their lifetimes, according to McKinsey.

The dearth of banks in Black neighborhoods also harms Black-owned businesses. A good banking relationship and access to capital is critical to prospective and existing business owners, and not being able to form such relationships places extra burdens on Black-owned businesses.

For example, Black-owned businesses found it difficult to obtain Paycheck Protection Program loans during the pandemic because many banks only made those loans available to their existing customers. Even during the best of times, the Small Business Administration only makes about 3% of its loans to Black Americans. “Based on how the program is structured, we estimate that upwards of 90% of businesses owned by people of color have been, or will likely be, shut out of the Paycheck Protection Program, said Ashley Harrington, director of federal advocacy and senior policy counsel at the Center for Responsible Lending. A nonprofit that combats abusive lending practices, the CRL recently reported on the PPP’s effects on small businesses.

When the federal government recognized the PPP’s mistakes with respect to women- and minority-owned businesses and made changes to provide these businesses preference, three white business owners promptly sued the program. As a result, the Small Business Administration dropped prioritization of women- and minority-owned businesses and rescinded payments promised to almost 3,000 restaurants.

Financial service institutions continue to discriminate against Black-owned businesses in bonding, insurance, and lending, severely and disproportionately limiting access to capital and growth opportunities.

African American inventors and the patent system

America has always had Black inventors, but for many years the patent system did not protect their work. In 1857, the U.S. commissioner of patents officially ruled that slave inventions couldn’t be patented. Enslaved people were not considered American citizens, so they were not legally allowed to hold property, including patents. As a result, Black Americans couldn’t start businesses based on their inventions.

Sadly, most Black inventors of the time never profited from their inventions, despite their significant contributions to America’s economic growth. Instead, it was their enslavers who largely reaped the rewards. Those who did succeed, such as Benjamin Montgomery, inventor of a steamboat propeller for use in shallow water, had to do so without patent protection.

Destruction of Black Wall Streets

Despite leaving slavery with little education, few if any financial resources, and no restitution or pensions, Black Americans established thriving business districts across America following the Civil War, often called Black Wall Streets. Earlier this year, we marked the 100th anniversary of the destruction of the Black Wall Street in the Greenwood district of Tulsa, Oklahoma. Few people know that at least seven other Black Wall Streets were similarly destroyed in the United States.

From the 1898 Wilmington Massacre in North Carolina to the 1923 Rosewood Massacre in Florida, white mobs destroyed Black-owned businesses and property throughout the South. The ravaged Black Wall Streets included Jackson Ward in Richmond, Virginia; Parrish Street in Durham, North Carolina; the Black business district in Knoxville, Tennessee; the Fourth Avenue district in Birmingham, Alabama; and others in cities such as Atlanta and Washington, D.C. After a lynching and massacre in Ocoee, Florida, white residents terrorized the entire Black community into leaving town. These and many other attacks by whites in the late 19th and early 20th centuries resulted in incalculable losses. Black Americans who had pulled themselves up by their bootstraps saw their hard-earned wealth destroyed.

Municipal contracting

Later in the 20th century, in an effort to promote racial equity and make up for past discrimination, many cities, states, and federal government agencies took steps to increase procurement from Black-owned businesses. The success of these programs led to a backlash: lawsuits alleging that such practices were unconstitutional. In 1989, the U.S. Supreme Court ruled in City of Richmond v. J.A. Croson Co. that Richmond’s Minority Business Utilization Plan, which required municipal contractors to subcontract at least 30% of each contract to minority business enterprises (MBEs), violated the equal protection clause of the 14th Amendment.

Essentially, the court held that minority set-asides and goals were discriminatory against white people. The court said municipalities had to document the need for such programs with disparity studies.

Boston, like many municipalities across Massachusetts and the commonwealth itself, conducted such studies, informed by public hearings reminiscent of the South African Truth and Reconciliation Commission hearings. People waited hours to testify about the discrimination they’d experienced when attempting to do business with the government. I remember one official leaning over and saying to me: “They are coming forward because they think we are going to address the wrongdoing. Unfortunately, we are just gathering evidence for a report.”

Although the disparity studies justified the MBE set-asides and goals, they’ve never been enforced. Boston’s latest commissioned report shows that although the city spent $2.1 billion on contracts over five years, only 0.4% of that money went to Black-owned businesses. Similarly, the Massachusetts Supplier Diversity Office reported that state agencies spent $4.8 billion in 2020, yet Black-owned businesses received only $11 million in state contracts.

These numbers are so low that they could not have occurred by accident. The lack of enforcement alone should be cause for a class action suit to obtain restitution for Black-owned businesses. Or the municipalities and state could pay restitution voluntarily—in other words, reparations.

The pandemic’s disproportionate impact

The COVID-19 pandemic has been the most recent shock to the Black community. Black-owned businesses were already more vulnerable than their white counterparts, with about 58% at risk of financial distress before the pandemic, compared with about 27% of white-owned businesses, according to the Federal Reserve Bank of New York.

The pandemic exacerbated the situation. Between February and April of 2020, Black business ownership declined more than 40%, the largest drop for any ethnic group, according to the House Committee on Small Business. One reason was that many Black-owned businesses couldn’t get loans until the third round of the PPP, which was too late for some. Overall, white applicants had a 60% success rate in obtaining PPP loans compared to only 29% for Black business owners. Between the SBA policies governing the PPP and bank discrimination, Black-owned businesses received far less financial assistance than they should have, so more of them went out of business than necessary.

Reparations, not sanctions

When the United States wants to punish a country, we launch economic sanctions against it. In other words, we don’t trade with the country and we block or restrict its banking transactions. Based on the numbers, the federal government’s actions have had the effect of economic sanctions on the Black community. It feels as though the United States does more illegal business with enemies such as North Korea, Iran, and Russia than it does legal business with Black America.

Moreover, the government favors big businesses over small ones, much to the detriment of Black business owners. PPP funds first went to large companies, even ones that didn’t need the money, before smaller businesses could even apply. When the predatory subprime loans made to the Black community collapsed, the government bailed out financial institutions that were “too big to fail,” leaving the Black community with billions in losses. The American Civil Liberties Union reported that the typical Black household lost 40% of its non-home-equity wealth during the 2008 financial crisis. Once again, Black wealth was destroyed.

When Black-owned businesses can’t participate in government contracts, can’t receive government financing to grow their businesses like their white counterparts, and aren’t protected from angry mobs that burn their businesses to the ground, fewer dollars circulate in the Black community.

Over the last few centuries, the federal government has taken actions that have hurt Black-owned businesses and/or made it more difficult for Blacks to succeed in business.

It’s time to build our economic infrastructure to help people of color succeed. Since the commonwealth has the money, now is the time to use it to benefit Black-owned businesses. This is important not only to rectify past wrongs but to build a foundation for future economic growth.

Economic growth means national strength, and it’s not a zero-sum game. Through reparations, wealth can be distributed from large, “too big to fail” enterprises—those that hoard capital and have prospered due to the same government policies that have hindered the growth of Black-owned businesses.

The Black community perpetually toils, invents, builds, and innovates, even under the harshest circumstances. Imagine what we could all do together with the right resources and opportunities.

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