The opportunity cost of fear: Underfunding Black founders hurts the US economy

Racism has cost the United States at least $16 trillion, according to a 2020 report from Citibank. Moreover, if racism was eradicated, the report suggested, the US economy could gain an additional $5 trillion. With the US GDP currently around $27 trillion, these dollar amounts are not insignificant.

Yet despite these vast losses, individuals and organizations continue to find ways to marginalize a valuable resource for America — Black founders.

Over 4 million new business applications were filed in 2020, according to the US Census Bureau, almost a million more than the previous year. Women and Black founders overwhelmingly created the new businesses: in 2020, 11% of new business owners were Black or African American, compared with 3% in past years. And in 2021, Black-owned businesses grew by 14.3%, Census data shows, with the highest revenue growth, payroll, and average number of employees of any other demographic group.

These statistics demonstrate the significant economic contribution and impact Black business owners create. Unfortunately, not everyone is supportive of this news. The increase in attacks and lawsuits against Black organizations or those serving people of color signals a scary sentiment.

The American Alliance for Equal Rights and America First Legal, both conservative organizations, have filed lawsuits against progressive organizations that provide grants to Black female business owners. The groups claim discrimination against their non-Black clients. However, the definition of discrimination is the unjust or prejudicial treatment of different categories of people, especially on the grounds of ethnicity, age, sex or disability — and the plaintiffs’ claims overlook historical prejudice against Black people.

White founders have significantly more access to capital as a startup — over three times the amount of Black founders. Couple this with the historical lack of access to capital for Black founders, from venture capital investment to loan declinations, and there is an irony in the case.

If you care about the American economy, it’s actually irrelevant whether you believe the claims in the lawsuit or side with the organizations that fund Black women. The US is forgoing an estimated 1.1 million businesses owned by people of color because of past and present discrimination in American society, according to AEO research via the Tapestry Project. These missing businesses could produce an estimated 9 million more jobs and boost our national income by $300 billion.

As we regularly acknowledge the importance of small business in America, we must focus on entrepreneurship as an economic issue that provides a competitive advantage to communities and the country. It should not be a race issue.