What if I told you there is a simple way to add 1 million businesses to the U.S. economy that could create 9 million new jobs and $300 billion in additional worker income? Seemingly, no one would be against whatever it took to make this occur.

The projections above are based on what would happen if people of color owned businesses proportional to their share of the labor force; the estimates are derived from an analysis of U.S. Census data. The new jobs and additional income are colorblind; these riches would be available to all, and our country would benefit.

Therefore, it’s imperative that we stop sidelining America’s people of color and ensure they join the startup economy.

People of color are indeed interested in being entrepreneurs. In fact, when one looks only at businesses without employees, women of color are more likely to be entrepreneurs than white women. The problem for people of color is growing their businesses up to the size that they need to hire employees.

The major problem for people of color is access to capital. It takes wealth to build wealth. America has had a long history of stripping and suppressing wealth creation among people of color. American Indian wealth was taken and transformed into white wealth. African Americans have been subject to slavery, Jim Crow and de facto exclusion from the GI Bill and other policies that helped whites obtain homes and move into the middle class in the 20th century.

Mexican Americans in the Southwest and West in the 19th and early 20th centuries were subject to extreme prejudice, violence by the Ku Klux Klan and other groups, segregation and separate and unequal schooling. More recently, we have seen these communities targeted for higher-priced subprime loans. This long history of wealth suppression means that a smaller share of entrepreneurs of color has the wealth to start and build businesses.

We need to find ways to increase investments in promising minority businesses. Only 1 percent of venture capitalists are African American, and less than 1 percent are Hispanic.

As the venture capitalist David Teten reports, his peers continue to fund businesses that look too much like businesses they have funded in the past. This pattern of behavior fails to be responsive to demographic change and fails to capitalize on new markets. One idea to encourage venture capitalists to break from their old habits is for policymakers to provide a tax credit for venture capital investments in minority businesses.

While venture capital can help businesses with a large growth potential, venture capital is not suitable for many smaller businesses. The asset-building advocacy organization Corporation for Enterprise Development has proposed that policymakers create a tax credit for low-income entrepreneurs. This would provide a little bit of capital to help microbusinesses grow. This is an important policy idea because most businesses, minority and nonminority, are microbusinesses.

We are also calling on governmental and nongovernmental agencies to do more. The Stanford Latino Entrepreneurship Initiative reports that 22 percent of Latino business owners have never heard of the Small Business Administration, 51 percent have never heard of the Small Business Investment Companies and 56 percent have never heard of the Small Business Innovation Research program. The Small Business Administration and other government business development agencies need to do better outreach to communities of color. The desire to be entrepreneurs is strong among all racial and ethnic groups. 

There are several organizations that provide guidance to entrepreneurs. For example, the SCORE association is an invaluable resource for hands-on business advice and mentorship. Individuals and grassroots organizations should encourage aspiring minority entrepreneurs to utilize these and other similar resources.

The bottom line is the American economy is not quite as healthy as the most popular indicators might suggest. There are about 2 million “missing workers” who have dropped out of the labor force due to the bad economic conditions caused by the Great Recession. There are another 2 million incarcerated individuals who are not counted as unemployed because they are institutionalized. If we want ex-offenders to be employed when they are released, we will need to eventually add at least another 1 million jobs. 

Wage growth also has been weak, not just in the past year or two, but for more than a decade, especially for men and those without a college degree. The hourly wages of most men today are lower than they would have been in the 1970s. For most women, wage growth has stalled since the start of this century. We know that as long as there are too few jobs and employers do not have to compete for workers wages will continue to stagnate.

It is clear that the American economy needs more businesses and more jobs to restore itself to full health. There is great untapped potential among entrepreneurs of color. With relatively minor investments, we can help many more of them succeed, and we can strengthen the American economy at the same time.


Austin is a Senior Research Fellow, Center for Global Policy Solutions