For generations, many black activists have looked at America’s financial system and said, thanks, but no thanks. As an alternative, they’ve promoted self-sufficiency—the creation of black wealth through black-owned banking and entrepreneurship, and patronage of black businesses. This idea resurfaces again and again, as it did recently in the #BankBlack movement and in Jay-Z’s “The Story of O.J.”: Black Americans ought to use their economic power to shore up their own community, instead of participating in a broader and more discriminatory system.
In her new book, The Color of Money: Black Banks and the Racial Wealth Gap, Mehrsa Baradaran, a professor of law at the University of Georgia specializing in banking law, provides a deep accounting of how America got to a point where a median white family has 13 times more wealth than the median black family. Baradaran’s book covers the period of time spanning from Reconstruction—with the promise and subsequent revocation of land, jobs, and economic independence for freed slaves—to the present. Over this expanse of history, Baradaran finds that much of the economic turmoil black Americans have faced has been the direct result of negligence, discrimination, or broken bonds on the part of both government and private entities run mostly by white Americans.
With that history in mind, she interrogates the question of whether or not black Americans can fix the problem on their own, for instance by turning to black-owned banks to spur lending and wealth creation. She determines that, while theoretically promising, the movement in support of black economic self-sufficiency will falter without the type of powerful assistance that helped create white wealth, including government policies promoting jobs, homeownership, education, and access to loans. “The theory behind developing a separate black economy had been that economic power would lead to political power, but perhaps they had it backward,” Baradaran writes.
Worse yet, she argues, is that the spirit and main tenets of black self-sufficiency, as imagined by black activists to include reparations, control over financial infrastructure, and a mandate to support and grow black businesses, were corrupted and repurposed by the Nixon administration and anti-integrationists during the late 1960s. Nixon and other Republicans, Baradaran writes, seized upon the idea of a separate black economy. They came up with a program—“black capitalism,” they called it—that they argued would promote black businesses and the creation of a thriving black economy, via policies such as affirmative-action requirements for private government contractors, bank-deposit transfers to black-owned institutions, and financial support for minority-owned businesses. But, in reality, Baradaran writes, these efforts were more a way to mollify black activists and assure white voters that racial tension and upheaval would soon end than they were an actual effort to erase racial economic inequality.
For example, in 1969, Nixon created the Office of Minority Business Enterprise (OMBE) in the Commerce Department, but didn’t allocate any funding to it. Instead, the office was to solicit funding from private sources and other government agencies in order to do the work of bolstering black businesses. The board that oversaw the OMBE was largely white, and, according to Baradaran’s account, indifferent to the outcome. The head of the black-capitalism program, Maurice Stans, derided an early proposal by one of the highest-ranking black members at OMBE, Abe Venable, to invest $8.6 billion in the creation of 400,000 minority businesses, and then promptly shut it down. In 1979, the OMBE was rebranded as the Minority Business Development Agency by the Carter administration, and still exists with the mission of advancing minority-owned business operations.
Many similar efforts amounted to very little considering the scale of the challenge. By 1971, a Small Business Administration program had doled out $66 million to minority firms, but that accounted for one-tenth of 1 percent of the government contracts granted that year. And still, the programs that set aside contracts for minority businesses were deemed controversial by white business owners and conservatives, making it difficult to allocate any more funding to bridge the gap. Similarly, the OMBE founded the Minority Bank Capital Program in 1969, with the goal of encouraging federal agencies to deposit $100 million of their total account holdings into minority banks. By 1971, only $35 million had been transferred.
With little investment or enforcement, these so-called pro-black-capitalism programs and others were set up to fail. “All the black capitalism programs, including affirmative action, relied primarily on the voluntary participation of private firms and government agencies,” Baradaran writes. During his campaign, Nixon promoted the idea that blacks, especially poor blacks, need “a hand up,” not “a handout.” His policies put little money or political weight behind actually alleviating poverty and boosting the black economy. With weak incentives and little pressure to diversify business practices and customer bases, few companies, lenders, and agencies made anything more than the most meager of efforts to help black businesses thrive or to put black Americans in a more secure economic position.
Black capitalism came at a particularly dangerous time, in the aftermath of so many civil-rights victories. The promises made by the government regarding the advancement of black economic security through black capitalism created just enough of a diversion to what was ultimately halted progress toward real economic equality. “Particularly relevant are failed integration efforts and demands by black leaders for reparation—both of which were being actively pursued in 1968. By 1970, the administration had scuttled each of these plans without fanfare,” she writes.
The effects of these policies are still felt by black families today. “Black capitalism delegated the responsibility to solve the racial wealth gap to the black community without the help of the white political establishment who had always held power and the purse strings, and who continued to do so,” Baradaran says. “If the rollout of the black capitalism program had demonstrated anything, it was that economic power could not be achieved without government help.”
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