A Racial Gap in Business Success

By Makenna Adams
In most industries, Black businesses lag far behind white-owned businesses in sales, profit, and employment. The reason: systemic racism is prevalent in the process of producing and consuming, and in the establishment of businesses. For example, only 13.9 percent of Black-owned firms have annual profits of $10,000 or more; in comparison, 30.4 percent of white-owned firms make upwards of this amount. Because Black business owners are much less likely than white owners to have been self-employed prior to starting their business, have relatively disadvantaged family business backgrounds compared to white business owners, and are less likely to inherit already-established businesses, there exists a massive racial gap in business success. 

The lack of prior self-employment work among Black business owners negatively affects Black business outcomes. Before establishing their business, Black business owners are less likely to have experience with self-employment  than white business owners. This is in part due to the fact that money for schools has been devoted to historically white neighborhoods, which gives white students an academic leg up over Black students. Because white students are given more educational opportunities, they are able to pursue self-employment careers more easily. With fewer chances to gain experience with self-employment than white business owners, Black business owners have a harder time succeeding. 

Secondly, Black business owners are much less likely than white business owners to have had a self-employed family member owner prior to starting their business and are less likely to have work experience in that family member’s business. Many Black entrepreneurs enter the business world alone, which sets them behind, unfairly. A study from Duke M’Balou Camara, Khaing Zaw, Darrick Hamilton, and William Darity titled “Entering Entrepreneurship: Racial Disparities in the Pathways into Business Ownership” reveals that only 12.6 percent of Black business owners had prior work experience in a family member’s business, whereas 23.3 percent of white business owners had experience working in a family business.  With a lack of family ties in business, it is harder for businesses to operate. As a result, Black-owned firms are far less likely to survive than white-owned firms. Due to the hardships of Coronavirus, the Washington Post reports that over 40% of Black businesses in the U.S. have been forced to close. 

Finally, Blacks are less likely to receive business inheritances. When they do receive inheritances, they tend to receive much smaller ones than whites. Evidence from 2002 suggests that the lack of bequests among Blacks is one reason behind why Blacks have profit levels that are substantially lower than those of whites (Avery and Rendall 2002). The inheritance of a business greatly affects how well a business starts up. The most successful businesses are generations-old. Because Blacks face more adversity in establishing businesses in the first place, there are fewer businesses to pass down to help Blacks remain competitive in the market. Lower levels of inheritance among Black business owners contributes to overall lower rates of business ownership and success. 

In conclusion, a disturbingly vast racial gap exists between Black-owned firms and white-owned firms. The expanse of these differences in business outcomes is striking, and it is a result of the systemic racism ingrained in society which prevents many Blacks from gaining experience with self-employment and establishing a family history of business ownership. Because both factors prevent Blacks from establishing trades as successful as those of whites, Blacks are less unable to pass down said businesses to family because they do not exist.