Black Dollar Recycling

Want better schools, resources, and services in your neighborhood? The first step is supporting businesses that are owned by people who look like you. Studies show that the lack of cooperative economics is killing the Black community — and keeping others smiling all the way to the bank. Here's how to move past fault and toward change.

Economically, Black people have rarely been in better shape. According to a 2015 Nielsen report, the percentage of African-Americans earning more than $50,000 a year increased from 30 to 36 percent from 2005 to 2013, and those earning more than $75,000 increased from 15 to 20 percent. Based on a 2015 report from the University of Georgia’s Selig Center for Economic Growth, that growth has translated to $1.2 trillion in annual buying power for Blacks (for context, that number rivals the gross domestic product of countries such as Australia and Spain).

But the same study shows the average Black dollar lasts only hours within our community, and that lack of reinvestment—i.c., not supporting Black-owned banks and businesses — has bolstered the wealth gap between us and other ethnicities. Staying “community poor” is a choice. We can change our collective financial standing by following the successful models of other racial groups and directing spending into our own pockets via investing in African-American-owned companies, venture capital and private equity firms and high-growth entrepreneurship opportunities. Below, we take a look at the steps to radically change our economic ecosystem.

EBONY spoke with Steven Rogers, the MBA Class of 1957 Senior Lecturer of Business Administration at the Harvard Business School and author of Entrepreneurial Finance: Finance and Business Strategies for the Serious Entrepreneur, about the state of the Black Economy.

Photo of Steven S. Rogers
How do we define the African-American consumer market?

That’s how much money African-Americans are spending on consumer products and other services throughout the country. You have more than 37 million Black people in America spending basically $1 trillion in value annually. Where is most of the money going?

Unfortunately, [it’s spent] with almost anybody and everybody who doesn’t look like us. It goes into the hands of non-African-Americans who do not necessarily have an interest in employing Black people, buying products or services from our companies, investing their money in Black-owned banks that provide financial services to Black people or making charitable donations to HBCUs.

How did this cycle begin?

There was research by a Dartmouth professor in 1998 that showed the loan rejection rates for Blacks were twice as high as those for Whites with a similar kind of credit. The issues include everything from the lack of access to capital to historically working for free … it’s created a legacy where other groups see us as merely consumers or laborers because we don’t have the financial means to create our own institutions.

What kinds of institutions should Blacks look to create?

We must focus on owning large-scale media companies, financial services firms, private equity firms, hedge funds, investment banks and construction firms. These types of businesses employ millions of people and create wealth. Fair access to ownership has been denied to us because generations of our [ancestors] worked for free for more than 250 years [while other groups created wealth]. This free labor helped build America into the strongest economic country in the world, but none of the money from that labor went into the bank accounts of Black people.

How do we start to jump-start this type of enterprise building?

The key to a healthy, vibrant Black community is entrepreneurship, and then more of those companies must grow. We need more enterprises to move out of the small-business category and into the middle-market business category, which is defined as companies with at least $50 million of annual revenue. Entrepreneurs must target sectors with exponential growth potential to create jobs and wealth for themselves, investors and possibly even employees. Two Black-owned companies that experienced growth and are now middle market-sized companies are Loop Capital, an investment bank owned by Jim Reynolds, and Ariel Investments, owned by John Rogers Jr.

There’s also the concern about successful African-American entrepreneurs selling their brands. What are your thoughts?

I believe entrepreneurs should sell their companies if they believe it’s the right thing to do. I would rather see a Black entrepreneur sell his or her enterprise, make millions of dollars and use it to invest in the community. Sheila Johnson, the co-founder of BET, made millions from selling. She has used the money to start new businesses, invest in other opportunities and make philanthropic donations that benefit the race. The monetization of a Black-owned company is not necessarily bad for the Black community.

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