Closing the minority wealth gap requires CAPITAL, everything else is just noise

2020 will be known as the year coronavirus shut down the world as we knew it. It will also be known as the year when terms like systemic racism and economic disparity rose to the top of the national dialogue like never before. In his first week of presidency, President Joe Biden signed three executive orders aimed at addressing racism. One of them makes it harder for companies to skirt Fair Housing Act laws. Fair housing, equal opportunity employment, and criminal justice reform are all incredibly important issues, but any effort to close the wealth gap in America that does not include a significant amount of capital deployed to education, homeownership and small businesses won’t put a dent into the problem.

I wrote a social media post about this topic and received some interesting responses. In the real estate business, we are trained to be self-starters. We believe that hard work and a positive mindset can overcome almost every obstacle. Latinos are hard workers, and that is probably why we are so successful in the real estate business. However, on average, White families in America have ten times the wealth as Black families and eight times as much as Latino families, and it’s not because we don’t work hard enough. On average, schools in White neighborhoods are superior in resources and overall quality of education. Homeownership rates for Whites are twenty percentage points higher than Blacks and Latinos, even when the data is controlled for income, and less than 2% of all venture capital goes to Black or Latino owned companies. Again, none of these gaps have anything to do with our work ethic; they exist because of systemic barriers that have been in place for generations and only one thing will change them: capital.

A study from the Stanford Latino Entrepreneurship Initiative estimated that if Latino entrepreneurs had the same access to capital as White entrepreneurs do, it would add more than one trillion dollars to the U.S. annual GDP. Latino entrepreneurs account for more than 80% of the net new businesses started in America, but most of those businesses are small and they stay small. When a Latino-owned start-up receives an infusion of capital, and the company is successful, wealth and income cascades into the Latino community in the form of jobs and equity.

A few weeks ago, I wrote about how the concept of community reinvestment should go beyond the banking industry. I think every government body and every major corporation in America needs to dedicate resources to community reinvestment. By the time the pandemic is over, the U.S. government will have invested more than $6 Trillion to support and revitalize our economy. We’ll have the money when we need it. While I appreciate the diversity in our new president’s cabinet, and the executive orders aimed at stemming racism in America, without a massive deployment of capital to Black and Brown communities, I’m afraid progress will be modest and our divisions will remain strong.