Elizabeth Warren's New Plan to Close the Racial Wealth Gap - Rolling Stone
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Elizabeth Warren’s New Plan to Close the Racial Wealth Gap

The surging Democrat is proposing a Small Business Equity Fund to help entrepreneurs of color

Democratic presidential candidate Sen. Elizabeth Warren, D-Mass., during an American Federation of Teachers town hall event, at the Plumbers Local 690 Union Hall in PhiladelphiaElection 2020 Warren, Philadelphia, USA - 13 May 2019

Democratic presidential candidate Sen. Elizabeth Warren is proposing the creation of a Small Business Equity Fund, a new $7 billion initiative to help level the playing field for entrepreneurs of color.

Matt Rourke/AP/Shutterstock

When Sen. Elizabeth Warren came forward in March to propose breaking up tech giants like Facebook and Google, the words “small business” were not necessarily at the tip of her tongue. She spoke of “freeloading billionaires” and “giant corporations,” but made no direct mention of their most immediate victims: the people running and working in smaller businesses. But those people have been the focus of her critique of monopolism throughout her campaign, positioned to benefit from the closing of corporate tax loopholes and reforms to the banking industry. As she said in the February speech announcing her run for the presidency, one of her main goals is to “change the rules to put more economic power in the hands of the American people — workers and small businesses.”

In the very next line of that speech, Warren said something that resonates differently in light of the new plan that her campaign released Friday morning in advance of an event with the Black Economic Alliance in South Carolina, where she and several other candidates will participate in a forum broadcast on BET this weekend. “Middle-class families and people of color who have been shut out of their chance to build wealth for generations. Again, that requires real, structural change.”

As part of her new “economic patriotism” agenda, Warren proposed the creation of a Small Business Equity Fund, a new $7 billion initiative to help level the playing field for entrepreneurs of color. Funded by her Ultra-Millionaire Tax — a 2 percent annual tax on households with a net worth of $50 million or more, plus an additional 1 percent levied on any amounts above $1 billion — and operating through states and municipalities with federal oversight, the Equity Fund would support 100,000 new minority-owned businesses that she expects will provide 1.1 million new jobs. Should she be elected president, the program would be run under her new Department of Economic Development — a consolidated Cabinet-level bureaucracy that would replace the Commerce Department and fold in various other smaller agencies.

Per the details shared with Rolling Stone prior to the unveiling of the policy, grants 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.”

The Equity Fund’s $7 billion in funding would come in the form of grants to entrepreneurs, not loans or loan guarantees that could leave new businesses at risk of defaulting on a loan. As Warren notes in her Medium post explaining the policy, the typical black entrepreneur starts a business with $35,000 in capital, a third of what her or his white counterpart usually has. Nonwhite small business owners usually have less collateral to establish credit lines and secure bank loans, as well.

This is a principal way that the systemic racial income gap sustains itself. Another reason, as Warren notes, is the lack of diversity in venture capitalism. With studies illustrating that investors are more likely to help entrepreneurs who share their gender and race, it doesn’t help that, per a 2017 Harvard study, less than 3 percent of venture capitalists are Hispanic or African American. It makes the American Dream a little more difficult to believe in for a great many people when not only do you see fewer small businesses owned by people who look like you, but virtually no one who looks like you willing to invest in those businesses.

That is why Warren feels that the government needs to step in. “The small business gap is another example of how the racial wealth gap in America holds back our economy and hurts Black, Latinx, Native American, and other minority families and communities,” Warren wrote. “And because the government helped create that wealth gap with decades of sanctioned discrimination, the government has an obligation to address it head on — with bold policies that go right at the heart of the problem.”

Warren’s plan, therefore, doesn’t merely address funding entrepreneurs. It seeks to seed the black and brown financial experts and venture capitalists of the future. “On day one of my presidency,” she wrote, “I will direct all federal pension and retirement funds to seek out a more diverse set of investment managers, building on successful programs like the Smaller Asset Managers Pilot Program.” Warren also plans to require that the states and localities administering the $7 billion in funding work with investment management firms owned by women and people of color. She also plans to triple the budget of the Minority Business Development Agency, which administers the 8(a) program and has seen its own funding targeted by President Trump.

This is consistent with Warren’s 2015 statement during a summit she co-hosted that summer with Reps. Maxine Waters and Gregory Meeks and her now-primary rival, Sen. Cory Booker. Aiming to spotlight the underutilization of federal asset management firms owned by people of color, Warren noted that “studies show that minority- and female-owned private equity firms and hedge funds consistently outperform their peers. It’s time for federal agency retirement plans to get with the program and begin recruiting a generation of asset managers that looks more like the workers in their agencies.”

 

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