Significant news events this week include 1) the fifth anniversary of the massacre of nine black people by a white supremacist attending bible study at Emanuel African Methodist Episcopal Church in Charleston, South Carolina; 2) education of America about the 1921 Tulsa, Oklahoma race massacre in which it’s estimated 300 black people were killed; and 3) widespread media discussion of Juneteenth, the holiday celebrating the end of slavery in 1865 (also declaration of Juneteenth as a holiday by New York State, New York City, and several major corporations including Twitter, Target, Nike, and Mastercard).
As is my wont I also see reasons for hope, rays of sunshine, in the announcement by Netflix CEO Reed Hastings that he is donating $120 million to HBCU’s in support of black higher education; and I’m also encouraged by statements from several regional Federal Reserve Bank presidents that racial disparities in quality of education for black Americans not only limit opportunity for them but also constrains the growth potential of the American economy. Finally, I think it’s notable that over 600 New Canaan High School current and former students petitioned the New Canaan Board of Education to pay increased attention to addressing issues of diversity and inclusion in teacher staffing and classroom instruction.
Last week I described economic and moral aspects of what I called Benevolent Capitalism and Winner Take All Capitalism. Today I want to continue on this economic theme and comment on what I call Entrepreneurial Capitalism and Finance Capitalism.
Entrepreneurial Capitalism is the special sauce which makes the American economy the envy of the world. Our capital markets for many years have been the best in the world at providing clever inventors and innovators with funding to create new products and build new companies. Think of Bill Gates and Microsoft creating the personal computer industry, delivering incredible computing and analytic power on the desk of every worker, both in the office and at home. Think of Steve Jobs and Apple reinventing cellphones to become essentially pocket computers, hosting an incredible array of sophisticated communications applications. These inventors have changed the world, and in the process created economic conditions which have enabled literally billions of people around the world to raise their standard of living and improve their quality of life. Who would begrudge the billions of dollars in financial rewards these entrepreneurs often capture, when they have enabled so much benefit for so many others?
It’s notable that the wealthiest black American businessman, billionaire Robert Smith, emerged from this milieu of Entreprenurial Capitalism. Smith founded Vista Equity Partners, the most successful enterprise software investment firm in the country. It’s important to recognize that America is the only country in which success stories like Smith happens, and his story would not have been possible 50 or 100 years ago. This is America at its best, and a powerful example of how our country has changed for the better. I’m proud that Smith is a Cornell graduate, class of 1985, and once told me that I’m one of the trailblazers who made his success possible.
Finance Capitalism, on the other hand, is not always so beneficial. For example, major private equity investors such as KKR and Blackstone took large positions in single family residential rental housing in the aftermath of the 2008 Great Recession. They made these investments when house prices collapsed in the 2008-2012 Great Recession, often by acquiring portfolios of houses in foreclosure from mortgage lenders at fire sale prices. The mortgage lenders were seeking exits and liquidity to protect their capital ratios and solvency. But the other side of the equation was that many of those homeowners, temporarily unemployed or with depressed incomes in the Great Recession, were unable to get the mortgage lenders to offer mortgage restructurings at the same then-current market prices. Many became renters of the homes they previously owned. Fast forward to 2020 as housing prices rebounded, and those former homeowners have lost the capital appreciation they would have captured if they had been able to maintain their home ownership. Their efforts to pursue the American Dream of home ownership, and enhance their net worth through home value appreciation, have been thwarted. Think about how the federal government provided emergency funding to bail-out big banks in the Great Recession. The federal government could have provided funding to help these distressed homeowners by paying-off their mortgage lenders on the same terms as the private equity firms, and then giving the distressed homeowners new mortgages based on the then-current depressed housing market prices. This example illustrates why many middle and lower-income Americans don’t believe that capitalism works for them.
I want to end with six closing observations to our discussion series on Race in America.
Economist magazine reported recently that killings by police is the sixth leading cause of death for black males; one-third of the US prison population is black; and median white household wealth is 7X that of black households (other sources say the ratio is 10X).
The socioeconomic conditions in the black community are born of white supremacy culture which created enormous barriers to black economic progress. White supremacy was manifested in the laws which made it illegal to teach slaves to read and write; white supremacy was manifested in the Ku Klux Klan destruction of schools and other efforts to educate freed slaves after the Civil War; white supremacy was manifested in the continuous denial of access to resources for high quality education in black communities across the country for the entire 155 years from the end of the Civil War to the present.
White America should choose now as the time to repudiate white supremacy.
White America should choose now as the time to support funding for high quality education in black communities.
High quality education and training will unleash the economic potential of black Americans.
The American economy will gain millions of additional contributors, performing at higher levels of productivity, and resulting in higher rates of economic growth. This will benefit all Americans.
What is stopping us from doing it?
Thank you.
