Something’s gone horribly wrong economically in this country, so highly regarded across the globe for its spirit of enterprise and golden opportunity. And while it’s true that from the greatest challenges arise the greatest opportunities, it is also true that things are getting objectively worse for already struggling communities, who for generations have known unemployment and poverty as norms.
Still, even though fewer Americans than ever before are likely to achieve the promise of upward mobility for themselves or their kids, Americas cling to the mythology of meritocracy—or, as comic provocateur George Carlin once quipped, an American Dream that one needs to be asleep to believe in. Entrepreneurship is the most celebrated version of that dream.
“From our first days as a nation, we have put our faith in free markets and free enterprise as the engine of America’s wealth and prosperity,” Obama declared as the opening premise of his deficit-reduction plan last month. “More than citizens of any other country, we are rugged individualists, a self-reliant people.”
If you work hard enough, have a good enough idea and a positive attitude, you have the recipe for success—or so the narrative of American wealth goes.
It’s simply not true. Based on data from a 2010 study by the Kauffman Foundation, it’s easier to get accepted to an Ivy League college than to build a business that lasts four years, generates at least $25,000 in annual revenues and hires at least one full-time employee by its fourth year. Just one in eight businesses achieve all three of these seemingly modest milestones.
But what best gives the lie to the idea that “rugged individualism” somehow creates our wealth is the deep, lasting inequality of the American economy. (Horatio Alger, Jr., the 19th century fiction writer who did so much to promote the ideal, just so happened to be a second-generation graduate of Harvard.) A large portion of wealth in America is inherited; the same is true of poverty. That reality haunts much of American life, all the way from pre-natal health to retirement security. And it shows up in our beloved so-called free markets as well.
Another Kauffman study showed that African-American men and women are each 50 percent more likely to start a business than the national average of men and women. The businesses they start, however, are much less likely to succeed. In 2007, the average black-owned firm earned just $32,770, compared to the national average of $1.1 million. Black businesses with a payroll employed just under nine workers, on average, compared to the national average of nearly 21 employees. Among Latino-owned firms, the average business earned $15,438 and employed fewer than eight people. In fact, only about one in 10 Latino-owned and one in 20 black-owned firms had employees at all, while the national average was one in five.
So, despite the genuine desire to pursue entrepreneurship in some communities of color, our businesses are under-performing and still vastly under-represented.
There are many reasons for this fact, but one is clear: The largely unearned privileges that advantage some entrepreneurs over others. Among many other examples of that privilege is the long-standing wealth gap: the typical black family holds a dime for every dollar of wealth held by the typical white family, a disparity that recurs among Latinos and that economists believe has only worsened during the recent downturn.
If business is to truly play a role in closing these sorts of gaps, as politicians of all political stripes insist they must, then we’ll all have to first rethink business altogether. Indeed, the goals that have come to define success in business—winner take all, growth at all costs—are precisely the things that have have brought on this latest economic crash. And communities of color are precisely the place to begin reversing that greedy, consumption-oriented view of entrepreneurship. We can do so by building what’s become known as commonwealth enterprises—or, businesses that promote the community-centered and holistic form of wealth our nation so desperately needs.
As Americans, we are woefully misguided about entrepreneurship. It is not as much a vocation as it is a process—and a way of thinking. Like anything, you need certain skills to excel at it, but we are badly misinformed about what those skills are.
A basic financial literacy allows us to identify not just the challenges before us, but a range of viable solutions to address these challenges. It also helps us see the previously unseen forces that have so hindered our economic progress in communities of struggle. These unseen forces represent what I call invisible capital—a powerful toolkit of networks, resources, experiences, knowledge, and skills.
Essentially, invisible capital is composed of an ever-changing admixture of human, social and cultural capital.
Human capital most people understand. It is our formal education, training, credentials and skills. We are taught to believe that if we want to start a daycare center, all we need to know is how to take care of children. This is patently false. Business people in the childcare field need to know how to keep their books, market their services, hire and retain good employees, and myriad other things that keep enterprises—for-profit and nonprofit alike—afloat.
Social capital is your connections, your networks. It’s who you know, but more importantly, who knows you and what they think about you. I may claim to know President Obama, but as a businessperson, it’s far more valuable that he knows who I am (and actually values me).
Cultural capital is how well we navigate different environments and learn to speak in the language of them. The language of business, for instance, is numbers. Not knowing how to communicate effectively with the loan officer at a bank by not understanding financial statements and the jargon associated with them effectively reduces your ability to create opportunity for yourself. Often times that language is unspoken—so how you talk, walk, dress, and otherwise comport yourself are as important as your verbal skills.
These intertwined forms of capital are all things we can change. But they are closely related to the components of invisible capital that are not alterable. We do not choose the bodies, families or communities we were born into. While rarely a liability, the invisible capital afforded to a man has far less value if he wants to start a childcare center, for instance. Meanwhile, it is an unfortunate but realistic assumption that a young woman seeking a bank loan to start an auto repair shop may confront undue barriers despite her competency, experience and strong business plan.
But even if these barriers dissolved overnight, broad inclusion—which is so often touted as paramount—is simply not enough. That’s because inherited inequity also adds several new hurdles to entrepreneurship.
Among the things that most highly correlate with conventional business viability, according to researchers Alicia Robb and Rob Fairlie, are access to sufficient start-up capital, formal education, choice of industry, previous work experience in a relevant field and work experience in a family-owned business. So while race, gender, and class aren’t explicitly related to what it takes to it excel in business, access to the platforms that lead to such viability are still very much segregated.
So what do we do about this? How do we leverage our own invisible capital rather than remain trapped by the deficits we’ve inherited?
We need to embrace a model of shared prosperity centered on the creation and support of commonwealth enterprises—that subset of social entrepreneurship that builds sustainable organizations that create value beyond the wealth of their immediate stakeholders.
Commonwealth enterprises, by nature of their day-to-day operation, benefit all of society. High quality childcare centers, for instance, have an inherent benefit to society. Or take many of the sorts of businesses that could be born from a green econony—urban farms, wind farms and car-sharing services. These types of enterprises help not just local economies, but civil society overall, because they do four important, interrelated things.
First , commonwealth enterprises offer products or services that create community assets—and assets that disproportionately benefit people with the least invisible capital. This communal wealth may take the form of a cleaner environment, safer neighborhoods or better educated toddlers. They could cultivate more engaged residents, more artistically inclined students, healthier elders, you name it.
Second, commonwealth entrepreneurship demands a diversity of stakeholders. At its best, it embodies a democratic governance that lives up to the truest, most equitable form of inclusion. Business co-operatives and credit unions, which are certainly not new ideas, illustrate what this kind of organizational structure can look like.
Third, commonwealth enterprises build for their stakeholders something called influence capital—or, invisible capital that is leveraged in service of meaningful social change.
Fourth, commonwealth entrepreneurship helps level the playing field. It’s not about putting solar panels on the roofs payday lending outfits; it’s about reducing the cost of energy in households such that low-wealth families in particular have one less reason to seek predatory credit in the first place.
Too much of the policy that seeks to create equal opportunity in the marketplace has focused on including people of color in spheres that produce wealth and influence among a privileged few. Instead, we should be rethinking and rebuilding the marketplace altogether. We should be challenging the dangerous assumption that scarcity is at the heart of all economic considerations and start, instead, from an unwavering belief in abundance.
The racial justice movement must have as one of its cornerstones a commitment to commonwealth entrepreneurship not because we believe that individuals from all ethnic backgrounds deserve the right to become multi-millionaires through business. Rather, everyone deserves to live in a society whose public and private institutions foster democracy of opportunity to participate in and grow shared prosperity, irrespective of the bodies, families or communities we were born into.
As Martin Luther King, Jr. once wrote, “Everything that we see is a shadow cast by that which we do not see.” This sage metaphor illustrates the power of structural inequality that tilts the playing field in favor of the people with the greatest invisible capital. By advocating for and supporting inclusive, sustainable, community-centered enterprises we can revitalize our neighborhoods, our communities and our society at-large, for the common good.
Chris Rabb is the author of Invisible Capital: How Unseen Forces Shape Entrepreneurial Opportunity and a board member of the Applied Research Center, which publishes Colorlines.com.