Corporations are Just as Responsible for Closing the Economic Divide as Government

With a contentious election soon to be behind us and a new commander in chief likely to be placed into office, Black Americans and other minorities may have hope for police and prison reform among improvements in other areas that disproportionately impact their communities.

One area that likely won’t be improved upon by a new administration is the economic divide between whites and minorities — a.k.a. economic inequality.

Poverty in America has remained relatively unchanged since 1970. The poverty rate has increased 14 times and decreased 17 times since then — with economic recessions causing the jumps, according to the United States Census Bureau.

Coming off of the Great Recession in the late 2000s, the poverty rate had dropped down to 12.3% in 2017. In 2019, it dropped down to 10.5% — making it five-straight years of declines.

In the midst of another recession, the poverty rate will surely increase in 2020, though we won’t know the data until sometime in 2021.

Before knowing those numbers, though, we can still look at the past five years — which showed declines in poverty across all races.

There are a couple of ways to look at these results. If you are inclined to not give President Donald Trump credit for bringing people out of poverty and want to attribute it to other factors, that’s probably correct. Trump has largely operated within the status quo that has developed in America, establishing relatively minor policy changes that do little to even the playing field and close the class divide.

An American economy will hum under almost any president, no matter the party. Both Democratic and Republican leaders have seen great gains (and losses) in GDP growth. Both parties have also seen success in creating jobs.

Unemployment rates among Blacks and Hispanics also fall or rise at a relatively similar rate no matter who is in office.

That is the sad truth of it: while politicians will go out of their way claiming to fight for struggling minorities, the likelihood is that they won’t do more than their predecessors. That’s not to say a future president can’t get the job done at a quicker pace, but history tells us the numbers won’t change drastically no matter who is in charge.

The American economic system — which is less capitalist than you may think, by the way — is sold as a powerful machine that can change anyone’s life if they are willing to participate. This is true on some levels, but unfairly forgets the poor and blames the less fortunate for being in the hole they were born into.

Minorities aren’t the only people living in poverty; whites make up the largest representation of the poor community by number. This is how it should be, however, as whites make up the largest representation of people in the United States.

In terms of percentages, 9.1% of whites are in poverty. Nearly 19% of Blacks and 16% of Hispanics are impoverished, meanwhile.

The easiest way out of poverty is to attain a job that pays well. To get most of those jobs, you need education. That’s where the impoverished get lost: most inner-city schools struggle to set kids up for success. Funded by the poor families in the district, money is stretched thin and kids don’t get the same schooling available in the wealthier surrounding counties.

From The Atlantic:

Students frequently had substitutes because so many teachers got frustrated and left, they didn’t have as much time to spend on computer projects because they had to share computers, and they were suspended more frequently in the poor district, she said; in the wealthier area, teachers and guidance counselors would have time to work with misbehaving students rather than expelling them right away.

Poor students have little chance of keeping up with their richer counterparts in the suburbs. To escape these communities filled with violence and general uncertainty, post-secondary schooling, or a decent-paying job after earning a high school diploma, is the key. But the lack of funding slims the odds drastically.

Nationally, high-poverty districts spend 15.6 percent less per student than low-poverty districts do, according to U.S. Department of Education. Lower spending can irreparably damage a child’s future, especially for kids from poor families. A 20 percent increase in per-pupil spending a year for poor children can lead to an additional year of completed education, 25 percent higher earnings, and a 20-percentage point reduction in the incidence of poverty in adulthood, according to a paper from the National Bureau of Economic Research.

Giving students in poor communities equal funding to students in rich communities is the best place to start for closing the racial economic divide in America. There are issues minorities face, however, that go beyond the government’s control.

Fleeing residents in Detroit caused the city to go bankrupt in 2013. With mismanagement of funds driving residents to the suburbs and the auto industry slowly leaving town, Detroit had an infrastructure built for way more people than it had and fewer and fewer tax dollars to support it all.

Since then, Detroit has slowly built back, but it is far from being all the way back.

In order to bring property values up, Detroit’s homes need residents. Hopeful Black homeowners — who make up almost 80% of the city’s population — have had a much tougher time accessing financing to purchase the homes, however.

A story done by the Wall Street Journal on this issue displayed a perfect example of systemic racism.

The mortgages that are made inside Detroit’s borders go disproportionately to white borrowers. Whites, who make up less than 10% of the city’s population but often are concentrated in areas like downtown where investment in reviving property values, obtained 39% of mortgages last year. Black people make up roughly 80% of the population and got 51% of the city’s mortgages.

Black people in Detroit do have a chance to own homes through cheap housing auctions. Houses could be bought as cheap as $1,000 with the promise to fix the homes up in order to increase property values.

This takes away the opportunity for Black residents to build their credit — further limiting their ability to seek future wealth-building opportunities.

The lack of financing opportunities is clearly racial: fewer than 1,700 loans were handed out in Detroit last year — again, 80% Black — about a sixth as many as cities like Oklahoma City and Las Vegas, which both have fewer people than Detroit’s 670,000.

The lenders claim that the low property values are the reason; with houses so cheap, lenders see little opportunity for profit and therefore little reason to make the loans. Because profit is a concern in a $30 trillion industry, of course.

Withholding loans in Detroit all but guarantees the city never returning to prosperity and keeping its Black citizens down with it.

Credit plays a large part in American society, especially when it comes to wealth-building opportunities. To own homes, as mentioned, a good credit score is needed to receive a mortgage. To receive business loans, a good credit score is needed.

Small business loans are another area where Blacks get the short end of the stick — more than half of African-American loan applicants are denied funding, a rate twice as much as white applicants. Black applicants also have a much higher chance of receiving less than full funding.

As The Guardian details here, part of the reasoning behind such differences in funding opportunities comes down to our poor education system.

Dell Gines, a senior community development adviser with the Federal Reserve Bank of Kansas City believes that the lack of intergenerational wealth and “insufficient knowledge” about the banking system are also significant obstacles. “Let’s say, hypothetically, there’s no discrimination in the banking industry, we would still probably have disparate outcomes because the system itself hasn’t prepared us to utilize the banking system effectively,” said Gines, who is black.

Banking, credit, and education always seem to find their impacts on minorities in one way or another.

Imprisonment is obviously a government issue. But the impacts of imprisonment seep into corporate society once inmates become free citizens once again.

Black inmates represent 38.5% of prison populations, according to the Federal Bureau of Prisons — an obvious over-representation, considering Black people make up just 13.4% of the U.S. population.

Once released, ex-inmates aren’t truly free — they are strapped with court debts that could so much as cost them the right to vote in states like Florida. To pay off these debts, ex-convicts need jobs. Most of the jobs willing to hire an ex-convict don’t pay well or offer many benefits if any at all.

A study of Arkansas prisoners showed that once released, these prisoners were much less likely to have a bank account, credit or debit card, and were more likely to turn to pawn shops or payday lenders — which charge ridiculously high-interest rates.

Prison convictions also send credit scores down by 50 points on average, as inmates are not using credit while in prison (because, of course, they aren’t allowed to). They are also more vulnerable to identity theft, which could hurt their credit scores even more.

An unbanked ex-convict with limited access to credit and a good job has very few options to dig themselves out of the hole. Many just end up turning back to crime.

While the government must play its part in enacting prison reform and increasing funding for inner-city schools, credit unions and banks must give minorities equal treatment if there is any hope for a truly just financial ecosystem in America.

Some large corporations are starting to do their part. Citi Group is pledging over $1 billion to support Black homeownership, better opportunities for Black business owners, and better opportunities for banking and credit for Black Americans. JPMorgan Chase is seeking to hire ex-convicts.

These are the type of small steps that large corporations can take to ensure America lives up to its word of supplying anyone with the chance to succeed.

Proper education can help the impoverished dig out of those holes they were born into. Having access to the same banking and financing opportunities of the privileged ensures a more equal — and therefore better — United States of America.