2020 Has Presented Enormous Challenges to Black-Owned Businesses
Black-owned businesses have been harder hit by the COVID-19 pandemic, and by Black Lives Matters protests. Can a renewed effort to patronize these businesses keep them afloat?
Photo by Adeolu Eletu on Unsplash
In its first 6 months, the coronavirus pandemic infected more than six million Americans, claiming the lives of 200,000 and wreaking economic havoc on many millions more. Perhaps no group has felt the economic repercussions more acutely than America’s 30.2 million small business owners who, since the country moved to dramatically restrict economic activity and curtail the virus’s spread in March, have faced temporary closures and depressed revenue streams. And while federal and state relief helped many small businesses bridge the gap to this summer’s limited reopening, the pandemic has already shuttered many others, often taking the life savings of their owners in the process.
COVID-19 has had a devastating effect on Black-owned businesses.
The pandemic has had a more pronounced effect on Black business owners than other racial or ethnic groups, in part because the disease has been more prevalent in predominantly Black geographies. Analysis from the Federal Reserve Bank of New York shows that counties with the highest concentration of COVID-19 are also those with the highest concentration of Black business activity. Business owners in these areas were more likely to see mandated closures and elevated weakness in consumer demand, especially at the beginning of the crisis. Between February and April of this year, an astonishing 41 percent of Black business owners ceased operations, at least temporarily. By June, 19 percent of Black business owners still had not returned to active operations, compared to 8 percent of all owners.
Business losses, and the lifetime savings they decimate, are devastating for the economic futures of their owners. Small business ownership is relatively rare among Black Americans. While they account for 13.1 percent of the U.S. adult population, they represent only 9.4 percent of small business owners and only 2.1 percent of small businesses with employees other than the owner. Yet business ownership is a critical ingredient in Black economic mobility and wealth accumulation. Black entrepreneurs accumulate wealth at three times the rate of black workers, and experience wealth mobility at the same rate as white entrepreneurs.
The unequal impact of COVID-19 on Black business owners reflects and reveals a legacy of inequities.
Like many disproportionate impact stories, the unequal impact of COVID-19 on Black business owners reflects and reveals a legacy of previous inequities, including the legacy of economic and health inequality. In every major U.S. recession for which data are available, Black workers have experienced more significant unemployment increases as the economy slows. And the COVID-19 recession is no different. Enhanced unemployment insurance payments from Congress blunted the impact of these employment losses on household spending through the end of July, but the enhanced payments have expired, even while the unemployment rate among Black Americans remains at 13 percent. Spending by Black households will almost certainly suffer as a result, constraining demand for Black-owned businesses going forward.
Disproportionate COVID-19 impacts are also rooted in a legacy of weaker formal banking attachments among Black Americans. The federal CARES Act provided a lifeline to American small businesses through the Payroll Protection Program (PPP), including the self-employed. However, the program was delivered predominantly through the private banking system. Since only 46 percent of Black Americans have a robust banking relationship, this placed them at a substantial disadvantage for acquiring funds in the first stage of the program. In addition, even if they held an active banking relationship, the CARES Act explicitly excluded Americans with a felony record from accessing relief capital, making America’s racialized history of mass incarceration another factor working against an equitable distribution of funds. While the Small Business Administration worked to correct some of the inequities in the program’s second stage, PPP loan coverage rates were ultimately lower in areas hit the hardest by COVID-19 --- places where concentrations of Black businesses are higher.
Finally, health inequalities matter. Black Americans carry a higher burden of COVID-19 comorbidities, including cardiovascular disease, diabetes, and some cancers. These pre-existing health conditions, which are themselves impacted by reduced access to healthcare and a complicated history of medical mistrust, have led Black Americans to be more cautious in their social and economic interactions. This has implications for the businesses they frequent. A University of Tennessee survey found Black Tennesseans were twice as likely as White residents to be extremely concerned about contracting COVID-19 and about their ability to access medical care if they do, almost certainly constraining consumer demand for Black-owned businesses. These findings are consistent with the results of a national survey of U.S. adults by the Pew Research Center, which found that Black Americans were far more likely to know someone who was hospitalized or died from coronavirus.
The COVID-19 pandemic is not the only challenge facing Black business owners this year.
Sustained protests across the country related to the Black Lives Matter (BLM) movement and the killing of George Floyd are also contributing to economic pain. While the majority of BLM protests have been peaceful, some have been associated with vandalism and looting of businesses. Like COVID-19, these disturbances were more prevalent in areas with more Black-owned businesses. Data on BLM-associated events collected by Princeton’s U.S. Crisis Monitor project show that 11.3 percent of BLM events in the top ten U.S. counties for Black-owned business activity were associated with property damage, compared to 2.6 percent in the rest of the country.
Even peaceful protests can negatively impact businesses through curfews and reduced foot traffic. But history suggests the adverse economic impact of violence associated with protests can persist for decades, lowering income in affected communities and depressing Black-owned property values. One poignant historical example is the race riots of the 1960s. Neighborhoods affected by those riots had suppressed property values through at least the 1980s, and perhaps longer.
Relief requires more than just consumer benevolence. Washington can help.
What will the economic recovery hold for Black-owned businesses? In the wake of George Floyd’s death, BLM organizers and community leaders have worked to capitalize on increased consumer interest in supporting Black businesses. One Black business owner from Detroit credits BLM with helping her boutique triple sales by directing customers to her online store, while the owner of Hakim’s Bookstore, a Black-owned business in Philadelphia, similarly attributes a “sudden increase” in demand for books on race and inequality to the protests and BLM movement. Some corporations and popular social media campaigns, such as #supportblackbusiness and #shopblack, may have also helped steer consumers towards Black-owned businesses.
While these anecdotes are promising, a full return to health for Black-owned businesses will require more than just consumer benevolence. Unless and until the economic health of their local communities regains its footing, Black-owned businesses will remain distressed. With emerging evidence about the link between the areas hit hardest by COVID-19 and the concentration of Black-owned businesses, Congress could consider crafting a more targeted relief package. This would mean providing assistance to business owners facing the greatest pandemic-related obstacles and eliminating criminal history conditions. But even an indiscriminate expansion of support for small businesses or American workers would be beneficial to Black business owners. In the longer-run, the unraveling of structural economic and health inequalities will situate Black businesses to better withstand the next economic crisis, no matter its source.
Hancen Sale is a research assistant at the Howard H. Baker Center for Public Policy and the University of Tennessee’s Coronavirus-19 Outbreak Responses Experts (CORE-19).
Marianne Wanamaker is an associate professor of economics at the University of Tennessee and a research associate at the National Bureau of Economic Research. She is the former chief domestic economist at the White House Council of Economic Advisers.
(c) 2020 Hancen Sale & Marianne Wanamaker