Culture

Elizabeth Warren Wants To Close The Racial Wealth Gap — Here’s How


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Despite a crowded primary field, Massachusetts Senator Elizabeth Warren is steadily gaining ground in the polls, even surpassing progressive darling Senator Bernie Sanders in two recent measures of candidate popularity. She’s doing so not by relying on pithy soundbites or going tete-a-tete with President Donald Trump in a battle of insults. Rather, she’s built her campaign around releasing detailed policies. From an ultra-wealth tax to comprehensive education reform, Elizabeth Warren has a plan.

Warren’s latest policy roll-out came on the morning of June 14, just ahead of a weekend forum with the Black Economic Alliance which will be broadcast by BET. Warren announced her policy to eliminate the racial wealth gap on Twitter, stating, “The racial wealth gap tilts the playing field against entrepreneurs of color, holding back our economy. The government helped create that wealth gap, and the government has an obligation to address it.”

Unlike her plans to tackle student loans or her LGBTQ rights policy, the racial wealth gap isn’t exactly at the forefront of the public consciousness — but it should be. Here’s why.

What is the racial wealth gap?

In her announcement, Warren said of the racial wealth gap, “On average, Black, Latinx, Native American, and other minority households have significantly less wealth than white households.” But what exactly does that mean?

First, there’s a difference between income and wealth. According to the Duke University Center on Social Equity, “While income primarily is earned in the labor market, wealth is built primarily by the transfer of resources across generations, locking-in the deep divides we observe across racial groups.” So we’re talking about the long-term ability to make money and create intergenerational economic security when we talk about wealth.

As for racial differences in wealth, according to a joint policy paper from Brandeis University’s Institute for Assets and Social Policy and public policy organization Demos, “[I]n 2011 the median white household had $111,146 in wealth holdings, compared to just $7,113 for the median Black household and $8,348 for the median Latino household.” (There’s no mention of Native Americans in this paper, but according to Racial Equity tools, the wealth gap for Indigenous people might be even worse than it is for Black and Latinx Americans: “We do not know how much Native Americans have in assets because so little data has been collected, but their poverty rate is 26% compared to 8% for whites.”)

What contributes to the racial wealth gap? There are three main components:

  • Homeownership
  • Education
  • Labor markets

Homeownership.

Nothing builds wealth in the U.S. quite like owning a home. But the story of homeownership for people of color is the story of discriminatory practices like redlining, wherein government surveyors in the 1930s marked “hazardous” neighborhoods in red, deeming them credit risks largely due to residents’ racial and ethnic makeup. Loans in those redlined neighborhoods were “unavailable or very expensive, making it more difficult for low-income minorities to buy homes.” These discriminatory loans were institutionalized by the Federal Housing Administration. And though redlining was made illegal by 1968’s Fair Housing Act, studies show that not only are previously redlined neighborhoods still predominantly populated by racial and ethnic minorities, but that redlining still persists as a practice.

According to the Washington Post, “A study by the National Fair Housing Alliance found that real estate discrimination was pervasive in at least a dozen major metropolitan areas, including the District.”

That means that the most reliable way of building wealth is still purposefully kept out of reach of people of color.

Education.

The conventional wisdom goes something like this: you go to college, you can earn more money. While the return on investment today isn’t as high as it was even a generation ago (thanks in large part to the student debt crisis), the conventional wisdom still holds — but not equally across the board. According to Brandeis and Demos, “In 2011, 34 percent of whites had completed four-year college degrees compared to just 20 percent of Blacks and 13 percent of Latinos. In addition, Black and Latino college graduates saw a lower return on their degrees than white graduates: for every $1 in wealth that accrues to median Black households associated with a college degree, median white households accrue $11.49. Meanwhile, for every $1 in wealth that accrues to median Latino households associated with a college degree, median white households accrue $13.33.”

Public policy has played a central part in preventing people of color from gaining the same educational opportunities as white Americans since slavery was legal. To examine this, let’s focus on post-Brown vs. Board of Education education — which is supposed to be integrated and fully equal by law. Research from UCLA’s Civil Rights Project shows that, as of 2014, segregation has actually dramatically increased since the 1980s, erasing almost all of the post-Brown desegregation efforts, and leaving black and latinx students in disproportionately “low-quality, under-resourced schools” which do not receive equitable federal funding and leave students ill-prepared for college.

When people of color do attend college, they are disproportionately hurt by student loan debt. Because wealth is intergenerational, black and latinx students are less likely to have financial support from their families and more likely to turn to loans in order to complete their educations. This also means students of color are more likely to have to work while attending school and spend less time studying — the stress of which is part of the reason behind lower graduation rates for students of color. Further, if students of color do graduate, they have the aforementioned higher student debt to pay off, which means less economic mobility than their white peers.

Segregation, less per-student spending, and high student loan debt: these are three chief drivers behind how higher education exacerbates the racial wealth gap.

Finally, labor markets.

Steady incomes, health benefits, long-term savings and retirement accounts: boring though this may sound, these three components of the labor market are essential for building wealth. According to Brandeis and Demos, three ways in which the labor market prevents people of color from building wealth are “employment discrimination, lack of geographic access to jobs, and disparate social capital.”

Take, for example, this hiring manager who proudly wrote that she won’t hire someone who doesn’t write a thank-you e-mail after an interview. Thank-you e-mails have nothing to do with a given skill-set necessary to complete a job and everything to do with a “learned social behavior” that unfairly targets people who are less likely to have grown up in certain social/cultural contexts — people of color most of all. Attitudes like that one lock people of color out of higher earning jobs.

Even when people of color do earn similar income as their white peers, “Blacks and Latinos are less likely to have jobs that include core employer-provided benefits such as health coverage, a retirement plan, or paid time off.” That means more money that they have to spend day-to-day, less money that they can turn into long-term investments, therefore building wealth.

What is Warren’s plan to close to racial wealth gap?

One way in which Warren plans to tackle the wealth gap is through her student loan forgiveness program and some of the educational programs she has proposed which will focus on funding Historically Black Colleges and Universities and Pell Grants for low-income students. As we stated above, education is one of the chief means by which the racial wealth gap is maintained, and Warren’s attention to guaranteeing affordable education for people of color is the definition of an intersectional policy.

A more targeted, specific policy to address the racial wealth gap is a grant program for entrepreneurs. Because of the wealth gap, Warren explains, people of color “have less to put into their small businesses, and less collateral to get outside credit. That disparity in startup capital is creating a small business gap that costs us millions of jobs & billions in economic growth. And it’s another example of how the racial wealth gap in America hurts Black, Latinx, Native American, and other minority families & communities.”

Here’s what she’s proposing: $7 billion in funding to provide grants to entrepreneurs under what she’s calling a Small Business Equity Fund . By providing grants instead of loans or access to credit, entrepreneurs of color will be able to fund their businesses without going into debt or risking defaulting on a loan.

Why that exact figure? Per Warren: “$7 billion ensures that if Black, Latinx, & Native American entrepreneurs start businesses at the same rate as white entrepreneurs, we could fully close the startup capital gap for the next ten years—supporting over 100,000 new businesses and 1.1 million new jobs.”

According to Rolling Stone, “[G]rants would only be made available to entrepreneurs who both have less than $100,000 in household wealth and who qualify under the government’s 8(a) program for businesses ‘owned and controlled at least 51 percent by socially and economically disadvantaged individuals.'”

It’s not just about throwing money at the problem in Warren’s plan. Money won’t fix the internalized racism that helps fuel the entrepreneurial gap. She writes, “But even if we fully close the startup capital gap, deep systemic issues will continue to tilt the playing field. 86% of venture capitalists are white, and studies show that investors are more likely to partner with entrepreneurs who look like them.

How to solve this problem? Oh, she has a plan: for states and cities using her new equity fund, she’ll requite governments to “work with diverse investment managers—putting $7 billion in the hands of minority-and women-owned managers.”

Will it work?

Warren promises the following: “The Small Business Equity Fund will create jobs, spur economic growth, and move us closer to an America where everyone has a fair shot to succeed. And the entire cost of this plan will be paid for by my Ultra-Millionaire Tax.”

But is that the case? Will this really close the racial wealth gap?

Yes and no. The Small Business Equity Fund will certainly help ameliorate existing problems in the labor market which prevent people of color from building wealth through entrepreneurship. That said, it’s not a magic bullet. The fact is that the racial wealth gap — particularly between black and white Americans — has been projected to take at least 225 years to fully close.

Still, it’s a start. Better yet, it works in conjunction with her other economic plans, which take special care to outline how people of color — who make up a little less than 40 percent of the U.S. population, counting Hispanic whites — have been unfairly targeted in numerous ways, and how she plans on addressing that history.

One thing is for certain about Warren: you can’t say she isn’t thorough. We’re left wondering what’s next from the Massachusetts politician. Expect more plans as the first Democratic debate approaches.

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