Finance

Bridging the Racial Wealth Gap Could Infuse $1.5 Trillion Into the U.S. GDP

Dan Nicholson

Addressing the racial wealth gap is more than a moral imperative—it's a strategic business move. Forward-thinking companies are spearheading initiatives to foster equality, from bolstering Black-owned businesses to championing educational and housing reforms. These efforts promise profound societal benefits and carry significant economic weight, with the potential to inject an additional $1.5 trillion into the U.S. GDP over the next decade, a recent McKinsey & Company report finds.

Some major companies have already taken action, revealing potential steps forward for entrepreneurs looking to make their workplaces more equitable. But business leaders at every level can actively work to even out the wealth distribution of this country. Here’s how.

The Rise of ‘Firm Inequality’ and Corporate Segregation

The data is clear: unfair wealth distributions along racial lines are holding everyone back. Racial inequality has cost the U.S. approximately $16 trillion over the last 20 years, according to Citigroup. Income inequality within companies and between companies has sharply risen since 1980. Traditional forms of building intergenerational wealth such as home ownership or accessing higher education are becoming more and more expensive. The median wealth for white households, for instance, is about eight times greater than for Black households, according to the Center for American Progress. In short, there are societal barriers blocking Black and brown employees from closing the wealth gap without company intervention. 

However, income inequality extends beyond individuals to the corporate landscape. The real driver behind rising income inequality is "firm inequality," where the best-educated and most skilled employees cluster inside successful companies, exacerbating the income disparity between firms. Factors such as outsourcing, IT adoption, and winner-take-most competition contribute to this corporate segregation. Recognizing and addressing these corporate dynamics is crucial in the quest for economic equity.

Strategies for Companies to Address Wealth Inequality

Companies play a crucial role in driving economic fate, emphasizes Lisa Wise, Founder and CEO of Flock DC. Flock DC’s birdSEED Foundation, which offers down payment grants to qualifying Black and Brown first-time homebuyers in Washington, D.C. is one success story in challenging the status quo of wealth distribution. Homeownership has been a traditional path to building intergenerational wealth. Homeownership by white Americans, for example, was already 30 percentage points higher than Black Americans before the pandemic. “It's up to all of us to repair the damages that have been done in the past,” says Wise. 

Other national companies, including Starbucks, Goldman Sachs, and The Wharton School, are part of the collaborative NinetyToZero Initiative, which helps companies set internal goals for hiring Black talent and supporting Black-owned businesses to diversify the corporate landscape. PepsiCo, meanwhile has honed in on education: Its $40 million scholarship and mentoring program focuses on supporting Black and Hispanic community college students, with a goal to assist 4,000 students over five years. 

"Every business has a responsibility—and can influence others—to advance racial equity, create opportunities for others, and strengthen the communities it serves," says Kevin Johnson, Starbucks President, and CEO.

Whatever the lever of change, it’s essential business leaders activate the one they can to address wealth inequality. Corporations can take immediate steps, such as reassessing policies through the lens of firm inequality, reframing decision-making and hiring practices, and investing in education to equip individuals with the skills needed for the evolving job market. Antitrust issues should also be refocused to address competition dynamics that exacerbate winner-take-most scenarios.

Conclusion

Companies wield significant influence in driving economic fate, and as the awareness of the growing wealth gap increases, business leaders’ responsibility in creating change is more apparent. Shifting the focus from individual fortunes to understanding and addressing the role of companies in income inequality is crucial. Both policy changes and corporate influence can be used to mitigate the impacts of firm inequality and create a more just and inclusive future.

Sources

Forbes

Harvard Business Review

birdSEED 

Ninety to Zero

NPR

Center for American Progress

Dan Nicholson is the author of “Rigging the Game: How to Achieve Financial Certainty, Navigate Risk and Make Money on Your Own Terms,” deemed a best-seller by USA Today and The Wall Street Journal. In addition to founding the award-winning accounting and financial consulting firm Nth Degree CPAs, Dan has created and run multiple small businesses, including Certainty U and the Certified Certainty Advisor program.

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