When entrepreneurship is discussed, it’s often done from a race-neutral perspective. Research, from the University of Texas San Antonio, suggests that this is a mistake and this may be inhibiting our attempts to understand entrepreneurship in the United States.
The authors argue that most research into entrepreneurship has assumed that it’s a process that unfolds in much the same way for everyone, but the reality is that it’s very different for both marginalized and nonmarginalized racial groups.
Racial disparities in America
For instance, according to the 2020 census, 19% of the U.S. population was Hispanic, and yet just 6% of businesses were owned by Hispanic entrepreneurs. The situation was similarly dismal for African Americans, who comprise 12% of the population but just 2% of entrepreneurs.
The fortunes of the businesses that were created painted a similarly dire picture, with the revenues of Hispanic-owned and African-American-owned businesses significantly lower than those of their white counterparts.
“Entrepreneurship is a fundamental mechanism of racial agency in market systems,” the researchers explain. “The United States, one of the most successful market systems in the world, also has one of the most complex racial hierarchies in the world.”
Mixed fortunes
The research found, however, that there were considerable racial disparities in the fortunes of entrepreneurs across America. During the pandemic, 41% of African American-owned small businesses shut down, while 32% of those owned by Hispanic Americans met with the same fate. This compares to just 17% of white-owned businesses.
Similar disparities exist in terms of business finance, with just 7% of venture capital firms having an African American investment partner, and just 4% having a Hispanic American partner. Similarly, while whites make up nearly 60% of leaders in VC firms, the figure drops to just 3% for African Americans and 1% for Hispanic Americans. This is reflected in where investments go, with just 2% going to Hispanic American startups and 1% to African American startups.
“When we talk about supporting entrepreneurship, we talk about access to important resources, right? And for communities that may be underdeveloped, we say, ‘Let’s create programs to provide access to small business funding for education, mentorship, etc.’,” the researchers explain. “We assume that works because if resources are there, then, of course, people are going to take advantage of it. But what we see with underrepresented minorities, as well as female entrepreneurs, is that there’s this hesitancy to access these resources from nonmarginalized counterparts.”
The authors conducted a review of 115 scholarly articles on three underrepresented minorities: African Americans, Hispanic Americans, and Native Americans. Although the review was based on research in the US, the authors believe that their findings are applicable to countries with multiracial populations worldwide.
They pointed out that racial hierarchy is especially significant in the US due to its history of slavery, immigration, and indigenous genocide, which has resulted in reduced access to essential services for minority children.
This leads to their underrepresentation in positions of influence and mobility in adulthood. The authors noted that these differences are not necessarily due to racial animosity, but rather a historical distrust of resources and institutions among marginalized groups.
They caution against assuming that entrepreneurship is the solution to poverty and inequality, as it can reinforce racial inequality even in the absence of overt racial discrimination. The authors concluded that the primary takeaway from their review is that entrepreneurship in racialized societies reproduces racial inequality.
