The article below is from our BRIEFINGS newsletter of 24 February 2022
In our recent Black Womenomics: Equalizing Entrepreneurship report, new research from Goldman Sachs delves into the entrepreneurial and economic inequalities facing Black women in the U.S. From access to capital and financial education, to the effects of discrimination and bias, the research paints a daunting picture of the challenges facing Black entrepreneurs. We sat down with Gizelle George-Joseph, global chief operating officer for Goldman Sachs Research and author of this research, to take a closer look.
Gizelle, what was your key takeaway from the new Black Womenomics: Equalizing Entrepreneurship?
Gizelle George-Joseph: The headline is that Black women own less; they make up roughly 6% of the U.S. population but own just 2% of employer businesses. The imbalance is particularly stark for single Black women, just 0.5% of whom own a business — a rate that is 24-times lower than for single white men. This is important because business ownership has a large impact on economic progress. Credit market challenges, low levels of wealth and liquidity constraints all create substantial barriers to entry for Black entrepreneurs. Financial knowledge gaps and structural discrimination compound these issues and impact opportunities for Black women.
What is the impact of unequal access to capital for Black-owned businesses?
Gizelle George-Joseph: The data shows that Black entrepreneurs are 20% less likely to fund their startups with bank business loans; instead they are more likely to rely on more expensive personal credit card debt and personal and family savings. Likely because they’re undercapitalized, Black businesses are overrepresented in sectors with low capital intensity, such as health care and social assistance, and underrepresented in sectors with high capital intensity like real estate and construction. Undercapitalization also impacts profitability and this is corroborated by Black business owners who report (at three times the rate of white entrepreneurs) that access to financial capital and the cost of financial capital negatively impact the profitability of their businesses. On top of that, persistent structural, social and economic inequality have caused Black entrepreneurs to become disillusioned and this impacts their entrepreneurial behavior. For example, many Black business owners won’t even apply for financing because they think their requests are going to be denied. So access to capital impacts a lot — business growth, profitability and overall business sustainability.
How important is financial education in equalizing opportunities for Black women?
Gizelle George-Joseph: Financial education is a cornerstone of financial wellness and consequently, of economic growth. One academic study estimates that financial knowledge accounts for more than 30% of retirement wealth inequality. Yet Black Americans, and especially Black women, lag white Americans on financial knowledge. Financial information gaps contribute to expensive borrowing and frictions on the investment side. The data shows that familiarizing Black women with investment risks and risk tolerance would increase the likelihood of owning high-return assets. And overall, higher levels of financial education would lead to better financial wellness.
To what extent do discrimination and bias play a role in limiting the success of Black women?
Gizelle George-Joseph: The subject of race and prejudice remains a complex and controversial one to navigate, but multiple studies document that high levels of discrimination persist in the labor and credit markets and really impact the opportunities of Black Americans. One remarkable study presented Black and white mystery shoppers as customers seeking credit from traditional banks. The takeaways from this field experiment were striking. First, Black businesses are scrutinized at a much higher level than white-owned businesses. Second, Black business owners are prodded for more personal information than white business owners. In the field experiment, while both Black and white testers were asked about their marital status by loan officers, which is a violation of the fair lending law, Black American testers were asked almost six times more often. And finally, Black business owners receive less customer service help. This is just one example, but it underlines that structural discrimination remains a material factor in the disadvantage faced by Black Americans in the credit markets.
What actions can be taken to address entrepreneurial and economic inequality experienced by Black women?
Gizelle George-Joseph: Closing the gaps requires a commitment across the public and private sectors, and the potential solutions we outline in the research are by no means exhaustive. To help close the capital access and investment gaps for Black entrepreneurs, policymakers could enforce fair lending laws to address discrimination in the credit market and expand access to capital for Black women. For the private sector, providing access to capital for Black women entrepreneurs is also at the top of the list. Easier access to capital would reduce dependence on more expensive forms of credit and the use of personal savings, factors that often inhibit the success of Black women-owned businesses. This would likely increase the number of Black women entrepreneurs, support existing small businesses and grow long-term wealth. When you combine that with mentoring, coaching and providing Black women entrepreneurs with educational frameworks that will expand their financial capabilities, this would really help set a solid foundation for sustained economic mobility.
Finally, can you expand on how this research builds on your report, Black Womenomics, launched last year? What do you see as the ultimate impact of this research?
Gizelle George-Joseph: Black Womenomics: Investing in the Underinvested was our assessment of the 90% wealth gap of Black women and its relationship with the broader economic and social disadvantages Black women face in the U.S. We looked at the earnings gap, the education gap, capital access and its impact on home and business ownership, as well as the role that inheritances and gifts play in perpetuating the wealth gap through generations. And importantly, we also looked at the health gap, as Black women experience significantly less favorable health outcomes. So we really tackled a broad range of issues in our foundational study. In Equalizing Entrepreneurship, we deep dive specifically into business ownership – which is a really important component of wealth. We look at the challenges that Black women have starting and sustaining a business and the impact of accessing capital and financial education in, well, equalizing entrepreneurship. And research and advocacy are so critical in this journey toward racial economic equality. Being able to use our platform as Goldman Sachs Research to elevate awareness and to offer actions to help mobilize change is pretty powerful. We have a long history of writing on the topic of inclusive growth, which started with Womenomics in 1999. The idea behind the research is that investing in women is not just a fair thing to do, but it’s good for business and good for the economy. As a Black woman, I am really proud that we have turned the lens of that research on racial economic inequality as well.