Racism and the Economy: Focus on Entrepreneurship - Transcript - June 2, 2021

Nicole Childers: Thank you everyone for joining us today. My name is Nicole Childers and I'm the executive producer of the Marketplace Morning Report. I'm thrilled to be your moderator today for this sixth installment of the Racism and the Economy series. It's presented by the 12 regional Federal Reserve banks. This landmark series was launched last fall to address systemic racism through the lens of the United States economy. So far, the series has focused on topics ranging from employment to education to housing. Today, our focus will be on the impact racism has had on entrepreneurship. Our goal will be for us all to emerge with a better understanding of the intersection between race and entrepreneurship in America.

Before we get started and before I introduce our first guest, I want to invite all of you to participate with us. As you listen to the conversations today, I hope you will email any questions you might have to racismandtheeconomy@bos.frb.org. Again, that email address is racismandtheeconomy@bos.frb.org, or you can also follow the hashtag #RacismandTheEconomy on Twitter. I hope you will all engage online during the program. We have a lot of great thinkers today, so we hope that you'll share your thoughts and reactions while they're still fresh. And we'll try to work in some of your questions and responses as we go through the program today.

We will have some time to get reflections from some of the regional Fed presidents closer to the end of the program. So that's definitely something for us all to look forward to. And I want to make one quick note, one quick guest note, for those of you who may be tuning in to hear Glynn Lloyd. Unfortunately, he will be unable to join us today. So now that we have that housekeeping out of the way, let's get started.

It is my pleasure to introduce you to Patrick Harker, the president of the Federal Reserve Bank of Philadelphia, who will offer some prerecorded, welcoming remarks.

Patrick Harker: Good afternoon, and welcome. It is an honor to be here at this, the Federal Reserve's sixth virtual session on Racism and the Economy. The series, sponsored by all 12 Reserve Banks, examines the economic impact of structural racism and advances bold ideas and concrete actions to achieve an economy that makes opportunity available to everyone and that achieves maximum employment. I'm thrilled to be here and delighted that we have such a robust turnout, an indication of how urgent this issue is. But before we begin, I have to give you my standard Fed disclaimer. The views I express today are my own and do not necessarily reflect those of anyone else on the Federal Open Market Committee or in the Federal Reserve system.

So the tragic events of last year threw our country's tortured relationship with racism into stark relief: the COVID-19 crisis through both its health and economic effects disproportionately impacted people and communities of color and the killing of George Floyd spurred civil unrest that illuminated the structural racism that remains stubbornly pervasive in our society. But even though last year's events brought structural racism to the forefront of the country's consciousness, they were hardly novel. They were instead part of a long and painful history that has indelibly stained American history.

Indeed, we are convening one day after the 100-year anniversary of the Tulsa Race Massacre, an act of racial terrorism in which a White mob destroyed a thriving Black neighborhood, the Black Wall Street in that Oklahoma city. In addition to the lives lost, the Tulsa Massacre destroyed scores of small businesses, which are the focus of today's vitally important session, entrepreneurship and small business ownership. They provide opportunities for Americans to generate wealth and to build thriving communities. They're also an essential plank in building an equitable workforce recovery from the COVID-19 pandemic and an economy that works for all Americans. Small businesses are drivers of job growth.

As of 2018, there were more than 30 million American small businesses, meaning they employ fewer than 500 people, those small businesses collectively employing nearly 60 million people, or about half of the country's private workforce. And crucially, small businesses can be an engine for building a more racially equitable economy. More than 8 million small businesses are owned by racial minorities. Here in Philadelphia, we are particularly sensitive to the concerns of these vital businesses. In Philly, the nation's largest predominantly Black city, 99.7 percent of businesses are small businesses. But let's be honest, these statistics, impressive as they are, belie the very real structural barriers that stymie entrepreneurship among racial and ethnic minorities. For instance, despite its large African American population, only 6 percent of small businesses here in Philadelphia are helmed by Black owners, and that includes sole proprietorships.

Now one real problem is a lack of banking relationships. This became painfully obvious during the administration of the Cares Act PPP loans, which were largely funneled through preexisting relationships between lenders and small business owners. PPP loans have been a vital lifeline for small businesses during the pandemic, as local governments shuttered businesses, and we, the consumers, we stayed home. But they weren't distributed equitably. In fact, not even close. According to data submitted by applicants to the Small Business Administration, which managed the program during the height of the pandemic, fully 83 percent of PPP loans went to businesses owned by White entrepreneurs. Black business owners, by contrast, received only 1.9 percent of the loans issued.

A separate study found that not only did Black business owners apply for PPP loans at a lower rate than other groups, their applications were also turned down at higher rates, even when controlling for revenue and credit. It's clear that profound structural barriers are limiting minority entrepreneurs from accessing capital. All too often, shut out from traditional lenders offering favorable rates, Black business owners are forced to turn to predatory lenders. That means that money that could be spent on buying goods and services, renting storefronts, or hiring workers goes toward interest payments. And because of that, the entire economy suffers for it. There are exciting, important efforts underfoot, though, to redress these disparities, which is one of the reasons today's session is so important.

CDFIs [community development financial institutions], for instance, are a crucial tool for channeling capital into minority communities. New venture capital funds that focused specifically on small business owners of color are another really exciting development. But piecemeal efforts cannot and will not be the entire solution to this problem. It will take all of us, state and local governments, the banking community, and yes, we, the Federal Reserve to break down these barriers and build an equitable and durable economic recovery. For our part at the Philadelphia Fed, we are launching our 2021 Reinventing Our Communities cohort program in which community cohorts in nine cities across the country will work together to frame, contextualize, and organize in order to spark an equitable small business recovery and the strength and support for small business owners of color.

Our hope is that through peer learning, the Fed will provide communities with the tools to identify structural racism, and then to create a plan to address it, and address it in a way that's tailored to where they are. Now, you're about to hear from a series of speakers who will illuminate racism, racism's effect on minority entrepreneurs, and this is crucial to how we can work creatively and urgently to disrupt the status quo.

Dr. Robert E Weems Jr., a distinguished professor of business history at Wichita State University and our keynote speaker, will share his insights on impediments to minority small business owners and on solutions to overcome them. Our disruptors panel, featuring three dynamic leaders, will pitch and interrogate radical solutions for addressing racism in entrepreneurship. And then we'll hear from three entrepreneur-activists who will reflect on the solutions discussed and implications for their real-life experiences as business people. And finally, you'll hear reflections from my colleagues, the Reserve Bank presidents from Dallas, Chicago, and Atlanta, on what we've heard today.

I am really excited about today's program. So again, thank you. Thank you so much for joining us today. And now let me turn things over to my Fed colleague, Neel Kashkari, who will introduce Dr. Weems. Neel.

Neel Kashkari: It's my pleasure to introduce our keynote speaker, Dr. Robert E. Weems Jr., the Willard W. Garvey Distinguished Professor of Business History at Wichita State University. He's been at Wichita State since 2011. Previously, he taught at the University of Missouri–Columbia and the University of Iowa and received his PhD in history from the University of Wisconsin–Madison. Weems is a Chicago native and has written four books on African American business history, including the most recent one, The Merchant Prince of Black Chicago: Anthony Overton and the Building of a Financial Empire. Dr. Weems, welcome to our Federal Reserve conference. Thank you for joining us.

Robert Weems Jr.: My pleasure.

Kashkari: Well, Dr. Weems, I think it is great that you are our kickoff because so much of what we're facing today is not just about today. We have to understand the history of how we got here and what we've learned from the past and what that history tells us about the future and how we can address these issues. If it's OK, I'd like to start by asking you to reflect on the history of African American business experience and entrepreneurship in the U.S. Can you talk a bit about how systemic racism historically has inhibited African American entrepreneurs in America?

Weems: Yeah, well, literally from the beginning of the African American experience, there've been a number of impediments, not just in terms of entrepreneurial aspirations, but just aspiration to be a human being. But more specifically, we look at entrepreneurship, we know that slavery obviously represented a serious impediment for African American entrepreneurial activity. Among the many prohibitions that slaves had to cope with was the fact that it was illegal for slaves to legally own a business. Now, notwithstanding that reality, again, in the context of the entrepreneurial spirit, we do see some enslaved Africans that were able to negotiate with their owners to, in fact, engage in a business in their free-time activities. Also, we see a lot of enslaved entrepreneurs who operated in the so-called Black market. Now, we know that not every African that was brought to the Western hemisphere came as a slave. These individuals, like their White counterparts, came as indentured servants and, after they served their time of indenture, they gained their freedom.

But for those individuals who were in the free Black category, who wanted to go into business, there were real restrictions in terms of what type of enterprises they actually could go into. And indeed, the most profitable enterprises of the colonial and early national period were pretty much off limits to free Black entrepreneurs. In fact, we saw free Black entrepreneurs pretty much establishing enterprises, in what we might call niche industry. For instance, we saw African Americans predominating in the food service industry, hairdressing. We saw a lot of individuals who were artisans and crafts persons.

Now at the end of slavery, a lot of African Americans who had entrepreneurial aspirations wanted to go into business. However, even though slavery was over, there were still some impediments for these individuals to really engage in a successful business enterprise. First and foremost, there was a question of access to credit, then as well as now. When we look at the history of African American entrepreneurship, the question of access or lack of access to credit is something that really permeates this experience. Also, when we look at that first generation at the end of slavery, one of the problems that prospective Black entrepreneurs had to face was the relatively impoverished state of their primary consumer market.

At the end of slavery, we know that most enslaved Africans entered freedom with little more than the clothes on their backs. Most did not have disposable income of any significant nature. A lot of people found themselves ensnared in sharecropping, which further inhibited their access to discretionary income. And considering the fact that Whites did not patronize these Black businesses that were founded after the end of slavery, on one level, the odds were extremely against African Americans being able to establish any type of credible business presence in United States. But as I would argue in the context of the African American social tradition or culture tradition of making a way out of no way, we saw entrepreneurially-minded Blacks literally doing the impossible. And by the early 20th century, we do see the African American communities establishing a really credible business presence in this country.

Kashkari: That's great. Thank you for that context. In your research and in your writings, you make a distinction between de jure and de facto policies that were discriminatory. And what that means is, de jure meaning those that are embedded in law, and de facto meaning those are not necessarily law but those are just practices that perpetuate discrimination and racism. Could you speak briefly about some of the de facto activities, not those legally based, but just our practices, the activities, the customs and behaviors that have been barriers for Black entrepreneurs and entrepreneurs of color?

Weems: Yeah. And in fact, I think the African American insurance industry represents a good case study of how de facto discrimination manifested itself in a negative way for these enterprises. And in fact, in looking at Black insurance companies, this gives another lens to look at this broader question of racism in the economy. We look at the late 19th century, and we look at the insurance industry. The young companies at the time, such as Prudential and Metropolitan Life, offered African-America Americans policies similar to what they offered their White clients, but in the context of the growth of Jim Crow, segregation, and others sectors of society, we saw some companies like Prudential, which pretty much cut all ties with African American consumers, and we saw other companies like Metropolitan Life, which continued to insure African Americans but charged them higher premiums than they charged their White clients. It was in this openly discriminatory setting that we saw the rise and growth of African American insurance companies.

And as we move into the 20th century, these Black insurance companies pretty much represented the cornerstone of Black business development in this country. For instance, during the Great Depression, a lot of Black banks were casualties of that era's economic downturn. And we really didn't see a major reappearance of Black banks until a generation later in the fifties, in the sixties. Black insurance companies were able to survive the Great Depression, but they became casualties of what I would call the one-way dynamic of economic desegregation in the mid-20th and late 20th century. And going back to, again, the insurance industry as a case study, by the mid-20th century, it became very clear that the overall status of African Americans in this country was changing. And in that context, we saw companies like Prudential and Metropolitan Life that did a 360 in terms of their attitudes toward African Americans.

They in fact, began to aggressively target Blacks as potential policy holders. They hired some of the top agents from Black companies to market their policies in the African American community, and Black companies, for their part, in the context of turnabout is fair play beginning in the 1960s, they began to recruit White agents to, in fact, sell their policies in the White community. But unfortunately, this attempt at real economic desegregation turned out to be a failure because when these White agents who were representing Black companies went into the homes of White consumers, and when these consumers figured out that, yeah, this is a White agent, but looks like he's representing a Black company, again, what I was say based upon de facto racism, they were not interested.

The flip side of that when we look at African American consumers and their response to White insurance companies, because Blacks had consciously been denied equitable treatment by industry giants, when these companies now began to aggressively seek Black clients, many African Americans viewed it as a status symbol to say, well, yes, I have the same policy that Prudential was selling its White clients. So again, in terms of de facto racism, what happened to African American insurance companies, again, I think is a classic example of that.

Kashkari: That is extraordinary, fascinating, and relevant history that I didn't know. Thank you for sharing that. I want to go to the Nixon era in a moment, but you mentioned something about the Great Depression hammering Black banks in the 1930s. Can we just fast forward for a moment and you think about the COVID crisis, this pandemic, which has hammered the U.S. economy, Pat Harker in the introduction talked about how many minority-owned businesses were less able to access the government-assistance programs like the PPP. Could you just spend a couple minutes and talk about how you see the pandemic having affected Black entrepreneurs and Black small businesses, and how do you view their ability to come out from this now that we're hopefully putting the pandemic behind us?

Weems: That's a great question, because in fact when we talk about the pandemic, we know that the pandemic has had a horrific impact on small business in general, and especially on African American small businesses in particular. And again, when we look at who has gotten assistance from the government through various programs, unfortunately that's a historic continuation of trends where African Americans tend not to be able to get business assistance as compared to their White counterparts. And in my own looking at how African Americans can respond to this particular moment in history, again, I have to look at history and the fact that as I alluded to in my introductory comments, we see the whole history of African American entrepreneurship in this country as being one based upon overcoming struggles and obstacles, and sometimes accomplishing the near impossible. And one would like to think that considering this historic demonstration of resiliency, that today's African American small businesses will find a way to move forward.

Kashkari: Thank you. Thank you for that. Let's shift gears a little bit. You have looked in depth at political and policy actions designed to improve Black entrepreneurship in America. Specifically, you focused on the 1960s and the Nixon administration's Black capitalism agenda. Can you talk about that agenda? What did you learn from that? What worked, what didn't work and what can we learn from it today?

Weems: Yeah. In looking at the Nixon administration's promotion of Black capitalism, I think one thing needs to be made clear is that we talk about Richard Nixon in the context of Black capitalism because he won the pivotal presidential election of 1968. If in fact, Hubert Humphrey had won in 1968, Humphrey also had his own Black business agenda. And in fact, we look at the Johnson administration, there was several initiatives in place that sought to, in fact, enhance African American entrepreneurship, especially in the wake of the urban rebellions of the late 1960s. But going back to the Nixon administration and accomplishments and the like, shortly after becoming president, Nixon did keep one of his campaign promises in establishing the Office of Minority Business Enterprise that was specifically geared at enhancing the status of African American and other non-White entrepreneurs.

At this point, the jury is still out in terms of just how effective the Office of Minority Business Enterprise was in terms of programmatic efforts, but one thing, and I found this in my research, and this is indisputable, is the fact that because you had the president of the United States giving attention to this particular topic, that generated a widespread national discussion on the question related to African American economic empowerment. This was a discussion that extended above and beyond the African American community. In fact, there was a literal explosion of publications that came out in the late sixties and early 1970s looking at this question of, how can we enhance Black business development?

Various people put forward a variety of strategies related to this and some of these strategies were in fact, very good. Others were a bit faster for it. I would argue that when we look at today's world and the continual quest for seeking ways to enhance African American business development, we don't necessarily have to reinvent the wheel. There were, in fact, a lot of very innovative ideas and things actually put in place during that period 50 years ago that I think would definitely merit a reexamination.

One final point I would like to make in that regard is that, as I alluded to earlier, you have this national interest in the late 1960s in promoting Black business, because this was seen as a means to perhaps mitigate Black anger because during the 1960s, late sixties, again, there were urban rebellions across the country. When you look at what went on in cities across America, a lot of the targets of Black anger in these cities were White-owned businesses. There was a growing belief in government that there were mechanisms put in place to increase the number of Black entrepreneurs that, that would, again, help mitigate Black anger.

Again, looking at this history, to me, it seems clear in retrospect that a lot of the government activities in the late sixties and early seventies were reactive rather than proactive in terms of their impetus. And I say this in that when we get to the mid-1970s, once it appeared that a lot of that Black anger associated with the late 1960s appeared to have subsided, we saw a sort of corresponding diminishment in governmental and policy interest in promoting Black business activity. But again, to me, and bringing us up to the present, is that we still see, when we look at African American enclaves across the country, places that exhibit economic stagnation and underdevelopment, so a lot of those initiatives that were discussed in the late sixties and early seventies are as relevant today as they were 50 years ago.

Kashkari: That's great context. Professor, you talked about in your insurance example, which I found very interesting, that when Prudential and the large White-owned insurance companies started serving Black customers, they viewed it as a sign of, Hey, we're getting a premium product from a premier firm. So there was a desire among Black customers to utilize those firms and it didn't go the reverse. When the Black-owned insurance companies tried to sell to the White communities, there was great resistance. I'm curious, given your lens of history, how do you view programs such as Buy Black? Encouraging African American customers to frequent African American businesses. On one hand, I see the benefit of that. On the other hand, if it goes too far and we say, OK, Asians, you shop with Asians, and then Whites, you shop with Whites. It doesn't seem like it gets in my view it doesn't get us to the ultimate destination of everybody being on a level playing field and being able to compete on their own merits, free of discrimination. I recognize we're a long way from that ideal. I'm just curious how you think about it.

Weems: Well, when we look at African American entrepreneurial experience, it is very unique in that [it is] unlike other entrepreneurs, White entrepreneurs and even some other non-White entrepreneurs. Historically, African American entrepreneurs were relegated to only serving other Blacks. In fact, there was a classic book written in 1940 called An Economic Detour, where the author makes this point that African American entrepreneurs find themselves in an unfortunately unique situation of only being able to cater to their own market. And this became even more serious. As more and more people moved into that market, African American entrepreneurs being unable to move beyond their market or the ultimate destination for many of them was extinction. And just to throw out a couple of numbers in terms of African American insurance companies and the impact of this: as late as the 1960s, there were 50 viable African American insurance companies. Today, that number is down to two. And again, that's a direct consequence of what I would call the one-way economic desegregation that took place in the mid- to late 20th century.

Kashkari: But given where we are today, African American families, we know that there are enormous wealth disparities and economic disparities. Nonetheless, the wealth and the economic power that African American families have today is still meaningful. Would you encourage them today to say, Hey, make this a priority as you're going, and you're shopping for services and goods, make it a priority to focus on those African American owned businesses to try to give them a bigger market share, so to speak?

Weems: Yeah, that's been one of the historic questions when we look at African American business history—this whole question of buying Black or African Americans patronizing African American entrepreneurs. And it really comes down to the basic issue of the good and service being presented by the entrepreneur because, ultimately, Black entrepreneurs, like any entrepreneur, should be about providing the best possible goods and service to their consumer constituency. It doesn't make any economic sense from a consumer standpoint just to patronize somebody because they're Black and if they're not getting a service or quality of merit. But again, over time, a lot of African American entrepreneurs are very well aware that in order to be competitive, they have to offer the best goods and services that they possibly can—not just to African American consumers, but any other consumer that might be interested in their product.

Kashkari: Absolutely. That makes tremendous sense. While I have you, we have a few minutes left, it's a privilege for me to speak to a historian like you, because I'm an amateur, a lover of history. And the more history that I read, the more American history I read, the more my eyes are open to programs where the government gave out support, gave out grants that were either entirely and only to Whites or almost only to Whites. And I'll give you an example: homesteading. I think it was 140 acres if you moved West and settled. That was the government giving away land, basically to Whites only. Fast forward to after World War II and returning GIs—FHA gave out very subsidized homes to literally Whites only, by law. And now you look at the PPP program that Pat talked about—it was intended to benefit everybody equally on equal terms, but of course you had to have an existing banking relationship.

We at the Minneapolis Fed worked very hard with our colleagues around the Federal Reserve System to make sure that the community development financial institutions could participate in that program. But as Pat laid out at the top, the money disproportionally went to White-owned businesses. And so it's frustrating because the more I study history, the more I see example after example where these grants and these support programs disproportionately affected, benefited White populations, even if that was not the literal intent. I'm curious as you think about the arc of history, what do you see? I mean, I imagine what I just said resonates with you. I'm just curious about your historical perspective on these types of programs and how they've been rolled out.

Weems: Going back to the 1960s, again, in the context of a national and policy interest in doing something to enhance African American economic development—we did see the rolling out of various loan programs and the like. And in retrospect, one of the issues and looking at some of these programs is that normally when we talk about a business loan program, there's a certain vetting that takes place that enables someone to get business assistance in that way.

In the 1960s, some of these programs did not have that type of vetting. It had more some sort of social programs, if you will, and that's fine. But again, the terms, a business, there was a predictable, relatively high default rate for some of these programs and some of the critics of these programs. They jumped on the fact—look at these high default rates—that these programs are a waste of time or what have you. But it's interesting how, when we look at this sort of disparity between programs aimed at African Americans, any perceived defect is illuminated and other programs—for instance, the PPP program—that primarily Whites and we're well familiar with all the fraud associated with some of those loan disbursements. That tends not to get the spotlight, that similar issues in terms of African American based programs get.

Kashkari: No, that's a great point. Dr. Weems, I think we could go on for quite a bit longer. You've got, like I said, just a rich knowledge of history and it's so relevant to this discussion. I want to thank you on behalf of all of my colleagues at the Federal Reserve for kicking off this conference and being a wonderful keynote speaker. I really appreciate it. And now I'm going to turn it over to our moderator Nicole, who's going to introduce the next panel.

Childers: Thank you so much, President Kashkari, and thank you, Dr. Weems, for your insightful thoughts on Black entrepreneurship in general. We're going to segue into an entrepreneur's panel. As I mentioned earlier on in the conversation, about Glynn Lloyd—if you're tuning in to hear Glynn, unfortunately, he's not going to be able to join us today, but I'm really excited about the two entrepreneurs who are here to join us.

What we're going to do is I'm going to introduce them one by one. We have two joining us today. What I'm going to ask them to do is share a little bit about their business and then a personal story about how they have experienced racism in the work that they do. I just want to give a quick reminder as you're listening to these conversations, whether it's the conversation you just heard between President Neel Kashkari and Dr. Weems, if you have thoughts, comments, questions, please engage with us. You can send an email to racismintheeconomy@bosdotrb.org, or you can tweet using the hashtag #RacismandtheEconomy. Let's get started. I want to make sure we leave plenty of time for the entrepreneurs to share their story. We're going to start with Carmen Tapio. She is the founder and CEO of North End Teleservices LLC. Carmen, welcome.

Carmen Tapio: Thank you, Nicole. It's a pleasure to be here today.

Childers: Thank you.

Tapio: I'm really honored to be a part of this really important discussion, especially at such a historic time, as we remember what happened in Tulsa. And one of the things that I like to make sure that we understand is its often referred to as a race riot when really it was a massacre. That's what happened. That's what was intended to happen. And that's what actually occurred in a what was called a Black Wall Street business district, where African Americans thrived. My company, North End Teleservices, is an outsource provider of call center services. We're oftentimes confused with telemarketers. We're not the ones that are calling you in the middle of the night. That's not us. We actually do quite complex outsourcing. It's a true business process, outsourcing, supporting state and federal government contracts, as well as commercial contracts. We have over 425 employees as of February of this year.

We are the largest African American employer in the state of Nebraska. And while we are a for-profit entity, we are a mission-forward organization located in the heart of a historically underutilized business zone, or an enterprise zone. As far as our employees, we have 55 percent of our employees are African American. And about 65 percent of them live in ZIP codes that have been designated as impoverished ZIP codes. We are a part of an economic revitalization effort in our community. We are located on our 24th Street corridor, which also is a historic business corridor in the African American community. We reside within an area that was redlined and intentionally separated from the rest of the greater Omaha area. We are proud to say that we are continuing to grow. We are continuing to thrive, and we made the move to bring our business to the community so that we can help our employees overcome some of the barriers that they face, such as transportation, and daycare.

We really take a holistic approach to the way that we go about our business. I think it's really important that as we think about how we as entrepreneurs really make an impact, it is not just through our employment. It is also through how we care for our employees and how we advance our employees. Part of the work that we do and we believe in is helping our employees to achieve greater choice. It's not just through the job itself. It's through all of the other types of services that we provide tuition assistance to our employees, an onsite social worker for our employees, transportation services for employees. As part of this conversation, I want to make sure that we are talking about economic development from a broad standpoint, but also the economic development of the people that work for our organizations as well.

Nicole, you can let me know how you'd like to have the conversation here, but in terms of the PPP [Paycheck Protection Program] as a small business owner, or now really becoming a medium-sized business owner, I can tell you that my experience with the PPP was such that, I wasn't sure that I was going to have my loan processed. In business for five years at the time when PPP came available last year, a profitable business, but there was not a single bank in my community that would process my PPP, including a banking relationship that I've had for 32 years, a personal banking relationship that I've had for 32 years and a business banking relationship that I've had since the life of my business. Neither one of those entities would process my PPP. And then when I reached out to five other large banks in our community, they would not process my loan for me.

I got a pat on the head that said, love what you're doing, love what you're doing in the community, but we are going to process the loans of our large customers that have existing banking relationships with us A, or B, lines of credit. I can share with you that three years prior when I tried to access credit to grow my company and actually to acquire full ownership of my company, I couldn't get access to credit. When we talk about systemic racism, when we talk about the systems that are in place, three years prior I could not get a line of credit. Therefore, when the pandemic happened three years later and I needed to have my PPP loan processed, my loan would not be processed because I didn't have the credit. As recent as 2021, with that 32-year banking relationship and a perfect credit score of 850, I tried to get a $10,000 line of credit increase with my bank. Immediately denied with no reason.

Childers: Wow.

Tapio: The issue escalated to the top of the organization, conversations happened around it, and a lot of apologies.

Childers: Wow. Carmen.

Tapio: ...post getting the denial.

Childers: Thank you so much for sharing that. I'm going to skip over to Sanjay, and then we're going to have you back, because this is a good conversation. We do know you're raising one of the big issues facing Black entrepreneurs, which is access to capital. Even when it comes to Black banks—Black banks are giving—I think it's like 67, 70 percent of loans to Black entrepreneurs. We also know that Black entrepreneurs have a three times higher rejection rate to accessing capital and loans. We'll get back to that conversation because that's a very important one.

Now I want to move over to Sanjay Singh, who is an advisor for Pack Health and the co-founder of Alabama Capital Network. Sanjay, can you share with us a little bit about your business and then also what you have experienced in terms of race and entrepreneurship?

Sanjay Singh: Nicole, good afternoon. Thanks for having us here. I'm Sanjay Singh and I am speaking from Birmingham, Alabama. I'm originally from India, moved to the U.S. in 1986, and I've lived the true American immigrant story in the deep South, right? Typically, when you hear, Nicole, about Indian Americans you're thinking about Wall Street, you're thinking Silicon Valley—every tech firm has been started by some Indian cofounder. But when you come to the Deep South, you'll see all motel owners, gas stations, package stores, laundromats—all owned by Indian Americans. Even when you go to the malls these days, when you see all the kiosks, a vast majority of them are from Indian American background. I'm telling their story as much as I'm talking about myself, and being a college professor a lot has come to me easily.

Don't get me wrong, but I have two types of businesses. One is Pack Health. We are an idea-based company. We are a digital health coaching company located in Birmingham, Alabama. We take care of people in all the 50 states. Over 50 percent of our employees are minorities. Seventy percent of our employees are women. And we're in downtown Birmingham. My other company besides the Alabama Capital Network is an asset-based lending company called Omega Realty Group. We own affordable housing. In both these companies, Nicole, what I've experienced is something very unusual, which is, who you know is as important as what you know, right? So partly if you are in talking with the new economy, and you have all these ideas and you have good scientists and people who don't have anything but themselves, it is their reputation, it is their right.

How do they get the funding? You know, we talked about CRA [Community Reinvestment Act], we talked about CDI [Cashflow Driven Investment], but when you are talking about two entrepreneurs in the world of scientific endeavor, they're all in the labs working from morning to night. They're not building what I call the informal network. They don't belong to the Rotary Clubs, the Kiwanis Clubs. They don't go to the churches. They're not part of the synagogues. So how do you go find them? And when you are in places like Birmingham, it gets even more difficult. Atlanta as a city is changing, now talking about the Deep South in terms of entrepreneurship, but that is not true for the Birminghams of the world, right? So that is a struggle we are facing here, and I have faced all throughout my life. So as many people as I know, it's still not that easy to go get funding, to be a true entrepreneur, whether it is backed by two assets as collateral, or when you have ideas, which is even worse.

The whole premise of what I know is we have a follow-up to talk about Alabama Capital Network and for some of the solutions, part of the challenge we have in places like Alabama and Mississippi is to educate people. It's not that people are inherently racist, right? So the topic today is structural racism, right? Things that have been built in over the years and that now manifest themselves in the new economy. Part of the thing that we have to do is educate people at scale and help build these safe spaces where you have entrepreneurs of color and people, which generally traditionally the bankers and people with money are not minorities, meet together. And without any difficulties have a pure thought best idea discussion as Dr. Weems said, at the end of the day, nobody's looking for a filler.

All I'm looking for is that honest and good chance to present my thoughts and ideas and have the same response to me, just like what Carmen was talking about. Even with the perfect score, she doesn't get funded. That should not be the case in modern-day America. Right? As I said, we're going to get into more of the discussions around where some of the solutions are. But my only contribution to this country, this panel, is in spite of all the progress we have made and despite the fact that we in the 21st century, who you know is as important as what you know, and that has to change. The only way it's going to change is by changing the incentive system. If lending was perfect, there would be no need for CRS and CDIs. It is not. And neither is investment, right? Now, you're hearing a lot about minority-focused venture capital firms. Well, that should not be the case. My kids are not growing up in that community. They don't understand Blacks and Whites, right? That is something that was superimposed on them. So how do we mentor the next-generation entrepreneurs without thinking about race and color and whether your idea gets funded or not. Thank you.

Childers: Thank you for that wonderful presentation. And now we're going to have a little bit of back-and-forth conversation. One of the things, Sanjay and Carmen, that you both mentioned was access to capital, which is a very important thing for any business owner. Can you share, Sanjay, a little bit about what your experience has been and what you've seen in the community there in Birmingham about what kind of structural things are standing in the way of capital? We heard Carmen talk about, especially now in the COVID, soon to be hopefully post-COVID world, access to PPP. What have you seen there in Alabama?

Singh: Great question, Nicole. I've been here since 1993, so it used to be a city dominated by a very large number of very big companies, including large banks, right? Over the last 20, 25, 30 years, most of them are gone or consolidated. The local banking headquarters have moved somewhere else—probably the big ones, right? You lose all the relationships.

The relationships my own business partner had—one day, the small bank in Birmingham got acquired by a large company out of Charlotte—the banking relationship ended overnight because he no longer fit the credit score and the risk profile. Now over the last 10, 15 years, we have had many more community banks come into play. We have had much more interest from local engineer investors and people who do the seed fundings and things of that nature. But we have a long, long, long way to go, right? I sit in the middle of having a relationship with all these bankers and all these investors, the minority community, and entrepreneurs, and they're all trying to work towards that solution. Nicole, we are not there. We are at least five years away from having a free-flowing discussion of idea-based investments, not based on the color of your skin.

Childers: Wow. And so if the funding was there—and I'm going to ask you the same question, Carmen, so get ready for it—how revolutionary would it be for the businesses that you're talking about now? What would the difference be?

Singh: Nicole, it will explode. There is no dearth of ideas there. I deal with Blacks, Hispanics, Indian Americans, Pakistani, Sri Lankans. They've all, the vast majority from these countries, become an entrepreneur. Nobody works with big companies anymore. OK? Very small minority. So if you are going to be a country, as we heard Neel and other people say, where you have millions and millions of small businesses, they're all struggling and they're all working hard to create something new and different. And now that you have even a larger immigrant population moving into the South, they all want to start businesses. So there is no dearth of ideas or character; what there is a dearth of is capital.

Childers: Wonderful. And so Carmen, same question to you. I'm going to add a little bit of a twist on it for you because you've talked about your own experience, and I anticipate that you're spending quite a bit of time on finding funding. So I guess I have a two-part question for you. First and foremost, talk us through how much of your time is being spent on finding additional funding. And also if the funding appeared, how revolutionary would it be for you and the community that your business serves?

Tapio: My business is not unlike any other business, and a capital strategy is a big part of where I, as a CEO, spend my time along with my leadership team. We are about to build a new building, call us crazy in this environment when we know construction costs are sky high right now, but it's part of our strategic plan to expand our physical presence in the community, along with housing and other services in connection with this development. So our capital strategy is a significant area of focus for us. A recent Federal Small Business report actually came out that said that Black businesses are growing at a rate of 11 percent while other small businesses are growing at a rate of 11 percent. If you think about that growth rate and the potential that it offers, if the capital were there to fund that growth and further spur that growth, then just think about what the impact would mean to job creation and economic development.

In terms of the access to capital, I think that there are unrealistic or inconsistent hurdles that minority businesses have to overcome. And again I can speak from my own experience, working in the federal contracting space, having a contract in hand, a signed contract with the federal government in hand, may work as collateral for a non-minority business, but for a minority business like mine it's insufficient.

There are those types of inconsistencies. Even having a potentially multimillion dollar contract that I may or may not be able to operate because I'm not able to get the access to capital. I will say I have been able to overcome the barriers that I have faced because as an entrepreneur, you have to be persistent. You have to go after it every single day. And I do have a banking relationship where I now have the access to capital that I need. But as Sanjay mentioned, utilizing non-traditional funding mechanisms like new market tax credits was the route that I had to go three years ago when a traditional bank would not provide me with the funding that I needed. If you think about the potential growth rate or the real growth rate of small minority businesses and what funding could do at a rate of 11 percent there's a multiplier there for sure.

Childers: Oh, thank you for that insight. And we'll continue to explore some of these themes as the conversation continues. And one thing that came to mind as you were talking is that we know from, I think it was like 1992 to 2012, total business revenue amongst Black businesses was 0.3 percent, which is very small. It doesn't lend itself to stability, scalability, and certainly doesn't lend itself to accumulation of wealth, and being able to steel a business against something like the COVID pandemic that we saw over the course of the past year. We're going to segue into our disruptor panel. For those of you tuning in, we are going to bring Sanjay and Carmen back a little bit later to respond to the proposals by the disruptor panel.

But first I'm going to introduce who we have. We have three really dynamic disruptors that I'm really excited to introduce you all to. We have Victor Hwang, we have Kelly Burton, we have Monikia Mantilla. I'm going to introduce each of them. I'm going to tell you their title, and they're going to take it away. They're going to present for around seven minutes, so we'll be listening to their presentations. And then at the end, we'll bring the entrepreneurs back in to have, if the first panel was any indication, a lively conversation. Let's segue to Victor Hwang. Victor Hwang is the founder and CEO of Right to Start. He will be presenting today; his presentation is called the "Right to Start Can Expand Entrepreneurial Opportunity in Communities of Color and Beyond." Victor, welcome, take it away. Floor's yours.

Victor Hwang: Thank you, Nicole. I come from a family of entrepreneurs. My grandfather ran a retail store in Taiwan. My parents became entrepreneurs and were immigrants from Taiwan, and they arrived in the U.S. with $300 and two bags of laundry. They were educators, and so when I was fortunate enough to get into Harvard coming out of high school, we wanted to go. But there was a big problem, which is they couldn't afford to send me, and so they did do two things. One, they had to take out a second mortgage on their house so they could have lost everything to send me. But the second thing is they started a business. They started a business to be able to send me to Harvard and it actually worked. And they were actually able to make enough to pay the expensive tuition, to send me there.

But I still remember how hard it was—the challenges, the sleepless nights, the challenges of struggling through the process of building businesses. That never left me, even though I ended up going to these institutions for a very fortunate education. I learned that what the institutions think of as economic prosperity actually doesn't take into account the little person or the ordinary people like my parents who were trying to build something and create something and build value in the world.

That's really been my mission ever since. And it goes to this question of, well, why is entrepreneurship important? It's not just to send me to college. It's really around a broad-based prosperity. And here's the thing that kind of shocks a lot of people, which is that if you look at the research coming out in the last decade, it gets louder and louder how important entrepreneurship is. People are often shocked at this, which is almost all net job growth comes from young businesses. Businesses older than five years kind of cancel each other out. They compete against each other, and they tend to shed jobs over time, which is what businesses do. It makes a lot of sense. They tend to get more efficient by cutting out labor costs and cutting out other costs. The new jobs come from young businesses. If you want job growth, then you've got to focus on young businesses. We also know from the research [that] this is where GDP comes from. It's the young businesses that create innovative new products that end up becoming the source of almost all GDP.

We know entrepreneurship correlates to higher lifetime incomes, we know it correlates to higher community incomes, we know it correlates to lower inequality, and we know it correlates to lower poverty. So entrepreneurship seems really, really important. And here's the kicker, which is what surprises a lot of people, which is that the rates of entrepreneurship in this country since the 1970s have actually fallen generally by about half. We had an upswing in the middle of last year due to the pandemic, and a lot of research tends to indicate a lot of people are doing that out of desperation.

But if you look across the broad sweep of the past half-century, we've been in an entrepreneurial decline. We've been in a startup slump, and there's a gap between the entrepreneur aspirations of our society and what people actually do. So 62 percent of Americans say they have a dream business they want to start someday, 41 percent of them say they would start it within six months if they had the means to do it. But in reality, less than 2 percent of them will actually do it within the next six months. There's a huge amount of pent-up entrepreneur ambition in this country that's not getting tapped and realized.

What I did—I used to be the head of entrepreneurship at the Kauffman Foundation and I left that over a year ago to launch this campaign, the Right to Start. Right to Start, as a campaign, focused on elevating entrepreneur opportunity as a fundamental priority, as a public priority in this country. It's a priority that's kind of ignored generally. There's a survey that Kauffman did recently that said that 81 percent of entrepreneurs say that the system favors big companies. And so there is a sense that the entrepreneurs are forgotten within the economy as a whole.

We call it Right to Start because we think of it... We're not just another program. There's a lot of great discussion earlier by Dr. Weems and Neel Kashkari around programs. It's not just another program. You can't just put a little Band-Aid on this problem. This is a fundamental issue. So we call it Right to Start because we think of it as a fundamental right. You have a right to speech, you have a right to worship, you have a right to assemble, but you've also got a fundamental right to start, a right to be entrepreneurial, to create your own value in life, to build something. So as part of Right to Start's work, we're focused on lifting up this issue—changing minds, changing policies, and changing communities.

As a case in point of how this issue gets ignored, think about over the past year. It's been the most devastating year for entrepreneurs in almost a century in this country. There was a lot of talk about preserving existing businesses, but who was talking about, how do you allow people the flexibility and the power to actually create a new path for themselves and to start something new and build something? Almost nonexistent from our debate, and almost nonexistent from the presidential campaign, and almost nonexistent from state and local campaigns across the country. It's an issue that everyone says is cute and pats people on the head and says, "Good for you and we'll give you a program," but they don't actually make it a fundamental issue. And that's actually the core at Right to Start. Let's make this a right.

When it comes to race, this is actually a big issue because the system is disproportionately tilted against certain communities. The best example I can give you is a TV show rather than give you tons and tons of data. The rap artist, Killer Mike, in Atlanta did a TV show, a series on Netflix called Trigger Warning. The first episode will give you more insight into the challenges of Black-owned entrepreneurship and of ordinary entrepreneurs than any other episode because he tries to spend a week living only from Black-owned businesses—eating Black-owned grocery food, restaurants, transportation, etc., and it's so hard. There are so few Black-owned businesses that he can be a customer of to survive. So it's actually hard for him to eat and even to get around.

Why is that important? Because the owners of those businesses are the ones generating wealth. There are not that many Black-owned businesses, even for people that want to be customers of them. Then the communities are not going to be able to generate the wealth. The Tulsa example is a great example. A lot of people talked about the Black Wall Street massacre a hundred years ago. Well, we've got a lot of bankers on the call and they know the value of compounding interests and compounding wealth, which is, if you start from zero, it's much harder to compound from zero than it is to start from a higher level. So over time, that ends up perpetuating the inequalities of a system. So the rich get richer and the poor stay poor, the way that things go naturally in a system.

I had a friend give me a very profound statement recently when he said, "Look, if you have to work in a big company and if you can't leave, you're still owned." That is, you are in a form of servitude. If you have to work in a big company, you have no choice to live a life for yourself. It's fundamentally not a level playing field. We know that minority-owned businesses start smaller, they grow slower. Black-owned businesses start with three times less money, one-tenth of the revenues over time. Black-owned businesses get rejected by loans three times as often. This is controlling for all other observable characteristics.

And we also know that it takes about $30,000 on average for a business to start, and that's very wide ranging. But what that means is when you have... There are studies that show roughly half the country, 40 percent to 70 percent of the country, lives paycheck to paycheck, month to month. Well, who has $30,000 to start, right? So it ends up perpetuating this problem. If you don't have enough money to get out of paycheck-to-paycheck mode, how do you even take a risk to build some independence and wealth for yourself?

We also talked about this earlier. Sanjay Singh talked about this issue around social networks. And the economist, Raj Chetty, has talked about the power of the relationships in your neighborhood and even your block that ends up perpetuating over time. A lot of the research shows that entrepreneurship is not just about capital, it's not just about policy, it's about your social networks as well. And so, those end up perpetuating that the people you know actually end up affecting your whole life prospects. If you can't tap into a customer, open a door, tap into expertise or a mentor along the way, it becomes extremely hard to actually build a business successfully.

We know the system is tilted toward incumbents, and you see this in not just aspects of certain niches, it's actually across all aspects of our economy from workforce training to economic development to government contracting. For instance, in workforce training, there's over $30 billion a year the country has spent on workforce training. Almost all of it is spent on job placement in large corporations. Almost none of it is spent on helping people create their own jobs for themselves. And so, this is just a mindset that we have that we've got to shift, which is if we're trying to build the workforce of the future, which we know should be innovative, we know it should be entrepreneurial, why are we helping people just place jobs in large corporations? That's not wrong, but it shouldn't just be the only thing that we do.

In economic development—over $20 billion a year in this country in economic development, almost all of it towards retention, attraction, recruitment of large corporations. And we know that government contracts tend to go to incumbents. It's hard for new people to break in. So what do we do? I'm going to wrap up quickly, but three things that I suggest. One, think about the Right to Start as a broad-based entrepreneurial issue, which is, how do we elevate this issue across the board? For instance, with economic development, government contracts, workforce training, can we shift 5 percent over from big companies and supporting large incumbents to the little guys that are trying to start new stuff?

Can we reinvent finance? Our banking system is essentially still built today on assets, right? We're built on an industrial model about assets you own, but everyone on this call probably would agree that the model has shifted from an asset-heavy economy to a knowledge-based services industry. If a banking system is based on assets and half the people are living paycheck to paycheck, then how can you possibly create a financial system that actually supports people that are trying to get things started? We need to reinvent the way we think about finance from asset-based to knowledge-based and service-based.

And then, transaction costs, which is an entrepreneurs' death by a million cuts. How do you remove the little tiny things that get in the way of entrepreneurs day to day? A $100 fee for a large corporation means nothing, but a $100 fee for someone starting out from zero is a huge amount of money. Waiting three weeks to get a permit is a huge delay. Difficulty in accessing all sorts of resources becomes mountains, which for other people are just little speed bumps.

Anyway, I'll stop right there. Thank you so much for this opportunity. This is an amazing conference to be at.

Childers: Thank you, Victor, and we look forward to continuing the conversation. Next up, I don't want to waste any time to get over to Kelly Burton. Kelly Burton, thank you for joining us. Kelly is the executive director of the Black Innovation Alliance and her proposal is "Reimagining Supplier Diversity." Kelly, take it away.

Burton: Awesome. Thanks, Nicole. I'm so excited to be here and so excited to dig into this conversation. There are many things across the insights that folks have shared this far. As a couple of the panelists have already referenced, there has been so much conversation in recent days about how we increase access to capital for entrepreneurs of color. It's resulted in some new small grants programs, and new funds ,and new loan products, and figuring out how do we increase access to investors and venture capital. All of that is fantastic and we need more of that.

But there has been surprisingly little discussion about how we increase entrepreneur access to the one capital source that trumps them all, and that's revenue. Revenue, revenue, revenue. Because nobody starts a business because they want to pay back an investor or pay down a loan. People start businesses because they want to make money, and that's a revenue play. The primary means by which small businesses scale and grow is through the acquisition of large multiyear contracts with enterprise-level clients. These are typically corporations and governments. So why does this matter? It enables these small businesses to generate the necessary profit margin and cashflow that allows them to hire, to invest in infrastructure, and to generally achieve economies of scale.

Now, the primary means by which corporations access entrepreneurs, startups, small businesses of color, is through something called supplier diversity. Dr. Weems talked about a lot of initiatives and efforts that came out of the Nixon administration, and one of them was this notion of this model around supplier diversity. It was created to mitigate racial discrimination, being directed to Blacks and procurement, and has since been expanded to other people of color, women, LGBTQ, the disabled, veterans, and even in some instances, small businesses. While most corporations tend to lean on the supplier diversity model to identify and source diverse suppliers, the model is largely ineffective. On average, about 10 percent of corporate spending actually goes to disadvantaged businesses. So again, 10 percent. And let me run down the list of disadvantage, all right? BIPOC [Black, Indigenous, and people of color], women, LGBTQ, veterans, disabled, and in some instances, small business. Ten percent goes to all of those groups on average, which means 90 percent of corporate spending goes to large companies that are led by non-veteran, able-bodied, cisgender, White men, right? And there's not much that has changed in this system as it relates to impact over the years.

What explains this poor performance? Two things, generally. The first is that corporations really... I'm trying to find a nice way to say it, Nicole. There is generally a lack of support within corporations around supplier diversity. One indication of this is that according to one study, 54 percent of supplier diversity programs have one or fewer full-time staff—one or fewer, 54 percent. It's hard to say that you, as a corporation, care about supplier diversity when you can't even dedicate a full-time staff person to it. A lot of supply diversity professionals talk about how challenging it is securing cross-organizational support. It's like pushing a boulder essentially up a hill.

The second challenge that we see around supplier diversity is that there is this lack of access to diverse suppliers, OK? Corporations rely almost exclusively on these things called certifying entities. Certifying entities charge small businesses a fee to certify that they are of a disadvantaged group, and this is an annual fee. Unfortunately, these certifying bodies tend to certify less than 1 percent of the universe of potential diverse suppliers.

I'll give you an example. There are 6 million small businesses that are led by people of color, 6 million. Of those 6 million, NMSDC [National Minority Supplier Development Council], which is the national certifying body for small businesses led by people of color, tends to certify 11,000 to 13,000 small businesses. When you do the math, that's 0.002 percent, 0.002 percent. Seventy-plus percent of corporations rely almost exclusively on certifying bodies which, again, access 0.002 percent. Is there any wonder why supplier diversity as a model is not performing? So where's the outrage, right? Where's the outrage? If these numbers are accurate, then when we're talking about entrepreneurs or small businesses led by people of color, that's low single digits, right? One percent, 2 percent, 3 percent.

What we know is that within this model, diverse suppliers go largely voiceless. I couldn't find one study that asked them for their feedback in terms of their experience on how they interface the system. Certifying bodies are corporate led. Their boards are exclusively made up of high-level corporate executives. And would-be advocates rely heavily on corporate sponsorship. With no one holding these corporations accountable, little ever changes.

What's the answer? I submit that we really must reimagine supplier diversity, and not from the standpoint of fixing a broken solution or a broken system, but really going back to what Angela Glover Blackwell said in a previous session. We have to bring some radical imagination to say, "OK, so what is the problem that we're trying to solve?" which is lack of access to these corporate level opportunities, and how do we create a solution that can solve that problem instead of leaning on a system that was over 50 years old and has experienced very little reform since its creation?

I suggest that we create a commission, a national commission whose responsibility is to offer up recommendations on how corporations better do business with small businesses, entrepreneurs, and startups of color. This commission should not be government-led but should be funded by corporate America and facilitated by a neutral broker, a think tank, an intermediary in order to hold space. It should be comprised of representatives from both corporations and the small business community, stakeholders including certifying bodies, small businesses, startup, diverse suppliers. And it should focus on BIPOC-led small businesses and filtered through a racial equity lens, because by placing a focus on the area for which there is the greatest resistance, we're going to be able to create a solution for everyone.

I recommend that the commission take up questions like how do we increase transparency and reporting? How do we build out our metrics? Do we still need certification or is that a relic of the past, and do we need to create new ways of making sure that there's no misrepresentation? How do we really identify the right brokers and create the proper pipelines that enable us to connect small business owners of color to these corporate opportunities?

In closing, in preparing for today's talk, I practiced using a teleprompter app called Streamflow. It was created by an engineer named Corey Griffin. As the founder of Founders of Color and the executive director of Black Innovation Alliance, I get to work with the Coreys of the world every single day and I see all the ways that they are regularly and systematically shut out from opportunity. It would be a shame if we would exit this moment of intense focus and commitment on small businesses of color and not address the one broken system that is most capable of unlocking the greatest opportunity, and that is supplier diversity. If you want to continue the conversation, I encourage you to check out doingbusinessbetter.co, doingbusinessbetter.co. Thanks, Nicole.

Childers: Wonderful. Thank you so much, Kelly. And just a quick reminder please, we're getting some really good questions in and I'm going to start working them in. So just as a reminder, if you're on Twitter, use the hashtag, #RacismandtheEconomy, and you can ask your question or pose a comment that way, or you can email racismandtheeconomy@bos.frb.org. Again, that's racismandtheeconomy@bos.frb.org. Now, I want to get right over to Monika Mantilla. Monika Mantilla is the president and CEO of Altura Capital and managing partner of the Small Business Community Capital. Go ahead, Monika. Take it away.

Monika Mantilla: Thank you, Nicole, for the opportunity to be here today and connect and engage with policy makers and financial institutions, corporations, entrepreneurs, here together to create ladders of opportunity to maximize human capital potential. I'm very excited and grateful for the comments of Kelly and Victor and look forward to continuing the dialogue.

The name of my proposal is "The UMPC: Underserved Capital Markets Program Solution." I believe it has the potential to be an elegant public-private multi-stakeholder comprehensive solution to put together a solution for the capital needs of scaled and scalable minority companies to allow them to maximize their potential and build these ladders of opportunity. We're living in a time of a unique historical moment: the ending of the pandemic, unprecedented calls to action on racial equity, a rapidly growing global investment movement, accelerated demands from institutional investors and policy makers when it comes to ESG (environmental, social, and governance goals), which includes supplier diversity and talent inclusion, and also consumer expectations for social and environmental impact efforts coming from businesses. All of these forces, in my estimation, are inspiring and are compelling, and we must, as market players, come together to build the necessary architecture to continue to maximize, or to begin to maximize, human potential and bolster disadvantaged communities and lay the foundation for a new country and a new economic order.

Our firms, Altura Capital and Small Business Community Capital, our investment firms, we manage private equity and private debt, institutional funds, institutional solutions. We have a long history of working closely with institutional investors and economic agencies, public policy agencies, delivering both strong impact and financial returns. We are committed to three impact goals, the goal of investing with diverse businesses, investing in LMI [Low and Middle Income] areas, and investing in high-quality job creation. We always say our goal is to ultimately transform societies through entrepreneurial success. We believe there's enormous power in the entrepreneurial community that needs to continue to be harnessed. And having supported many diverse businesses in their growth journey and having teamed up with institutional investors and financial institutions because our vehicles are [Community Reinvestment Act] CRA-qualified vehicles and corporations to build value, I can tell you that flexible capital solutions are important and ecosystems are important and public policy is important.

So what problem are we seeking to solve? Our proposal aims to fill a capital architecture void and provide what we believe is an elegant public-private market solution to the capital needs of a significant part of the U.S. economy, which is what we describe as scaled or scalable minority companies, to allow them to maximize their potential. Our estimate is that the total need of scaled minority companies due to COVID is at least $560 billion in both debt and equity solutions, plus another $140 billion of lost revenue that we believe somehow has been already addressed by PPP, but that would be a total of $700 billion.

According to the NBDA [National Business Development Association], there's 8 million minority-owned businesses which have experienced a 38 percent increase since 2007. And these businesses generate $1.4 trillion in annual gross receipts. And just assuming a 40 percent loss of revenues over a three-month period during the pandemic, and we all know that was much more than that, these companies would have lost $140 billion. So if we assume an EBITDA margin of around 10 percent on the low end, the aggregate yearly EBITDA of these companies would be at around $140 billion. And if we assume a two times EBITDA debt capacity and a two times EBITDA equity capacity, these firms would need around $560 billion in addition to the $140 billion that the PPP program was able to somehow provide.

Despite this remarkable growth of minority businesses and the increasing significance that they have in the U.S. economy and the social fabric, minority businesses have flourished, as many of the panelists have shared today, on the sidelines of capital structures and have lacked the appropriate capital structure to thrive. The pandemic has only exacerbated these already existing conditions, existing problems. We are proposing a lasting and systematic solution that brings together public, private and nonprofit sector.

To the question of who are the key stakeholders, in our estimation there are a number of them, but there are three that are very important ones. One, public policy. In our estimation, public policy plays and can play and should continue to play a pivotal role. Many of the programs and laws created to provide relief to small and diverse businesses have focused on MDIs [Minority Depository Institutions] and CDFIs [Community Development Financial Institutions Funds], and we are going to share a little bit more of that in a moment. We have a graphic in our proposal that explains that MDIs and CDFIs play a critical role providing minority business access to capital, however these institutions do typically not focus on the segment that the program we're trying to build, which is scalable or scaled businesses with north of $2 million in capital needs. These firms are not the largest percentage of the minority segment yet they hold immense economic value, both in terms of economic output and high-quality job creation.

The next important key stakeholder in this quest for a new market order, we believe, in line with what Kelly was sharing, are corporations, and not only the heads of supplier diversity, but very importantly, corporate boards and CEOs. Corporations have the opportunity to elevate their diverse supplier efforts and include bold partnership goals with minority enterprises with investment managers that provide capital to diverse suppliers. In my estimation, diversity and inclusion efforts should extend to investment departments. And corporations can take a step forward by accelerating proven models, such as the Billion Dollar, BDR Triad model, a strategic outcomes theory of scaling women and minority-owned business enterprises by aligning corporate supplier goals with capable minority enterprises and capital providers.

Finally, corporations can align their business leaders and their innovative spirits to diversity goals. Hence, enabling teams inside corporations to invent new models. I believe entrepreneurs also play a fundamental role and it is imperative to continue to support organizations that train entrepreneurial talent, and capital moves in tandem with talent. And so, we need to continue to nurture both.

Let me share a little bit about the proposal. The proposal is the creation of what we call The UMCP: Underserved Markets Capital Program, an investment program to fully mobilize and deploy at least $10 billion to invest in small and middle market businesses with an emphasis on women, minority, and diverse-owned businesses. This program would be run by Treasury and the Federal Reserve, who could issue an RFP [Request for Proposal] to seek program asset managers and fiduciaries, and hopefully utilize minority-owned asset management firms who will have a specific expertise here. The program would work closely with federal and state government and corporate supplier diversity programs to ensure full utilization of the products and services produced by the companies they work with. And this program would seek to be a coalition and utilize a wide variety of key stakeholders.

Some of the characteristics we are looking for are developing short, mid- and long-term capital solutions, both debt and equity, implemented by proven asset managers with links and knowledge to these diverse and underserved markets. And we would have pricing and valuations to follow lower middle-market standards. This is a market-driven solution, and some capital may serve as bridge facility, some others may serve as growth facility. It ultimately would be a sustainable, profitable, and repeatable model that will serve to recycle capital and help businesses grow. It would also have a budget for a robust technical assistance program so the formula would include a proactive support with participation of a wide variety of diverse businesses and corporate industry associations. And the program would actively engage with the rest of the ecosystem very importantly, including CDFIs and MDIs and community banks to create an efficient pipeline of business opportunities and technical assistance.

To the question of what route does the proposal address, what route cost does a proposal address, as mentioned before, despite the impressive growth and increasing significance to the U.S. economy and the social fabric of scaled and minority businesses, these businesses have been disconnected to capital, a reality that the COVID-19 has just simply exacerbated. So capital providers from banks to private equity funds operate on the premise of relationship and on the premise of affinity. So for diverse communities to flourish, they must be architects, in my mind, of their own solutions.

The proposal offers a lasting and systemic solution bringing together both public and private and the nonprofit sector. It's rooted also in some of the solutions that we had the opportunity to be part of during the last recession. We believe that the Federal Reserve and Treasury have the existing toolset to stand up a solution like the one we described following the three-to-one public-to-private assets that was followed during the PPIP [Public-Private Investment Program] program, which we had an opportunity to be part of, and included equity provisions. And similarly, to what happened to PPIP, Treasury and the Federal Reserve could provide a window to raise the matching private capital, and Treasury originally in this PPIP program committed $22 billion of equity and debt financing and provided that to nine financial institutions.

On those days, it was to salvage the CMBS/RMBS [commercial mortgage backed securities/ residential mortgage backed securities] market. Today it's to salvage small and very specially diverse businesses. I must say that Treasury fully recovered its original investment of $18.6 billion in PPIP and had a net positive return of $3.9 billion in interest and proceeds and accessible original equity capital, including warrant proceeds. These formulas work, and it is time now to create, in my estimation, some of these. We stand ready to continue to collaborate and are immensely grateful to the Federal Reserve and to all the presidents who are utilizing their voice and their power to create the market solutions that our market needs. Thank you.

Childers: Wonderful. Thank you so much, Monika, for that wonderful presentation. A quick note, as you were going through your proposal, rather, you mentioned CDFIs, and I just wanted to provide some clarity for those in the audience who may not be aware that's community, development, financial institutions. They're private institutions that exist to provide funding for disadvantaged communities and businesses.

Mantilla: Right, because minority depository institutions that I also mentioned, MDIs, that in my estimation play an important pivotal role. And that stands for minority depository institutions. Yes.

Childers: Absolutely. And we're going to, once we get a little bit further on, we have questions about CDFIs and PPPs for the Fed presidents. But I want to now that we've heard from our disruptors, bring back Carmen and Sanjay to respond and to respond to the disruptors' proposal presentations. Sanjay, I want to start with you. What is your general response? We heard from Kelly about suppliers. We heard about supplier diversity and the importance of that. We just heard from Monika about the interest, the importance of capital we heard from Victor about... I love, by the way, Victor, the idea of Right to Start. Because I think that this is at the core of it. But enough for me, Sanjay, what is your gut response to what you just heard?

Singh: Nicole, and all the presenters in Birmingham, we are involving all three, what Victor had to say, what Kelly had to say, what Monika had to say, but I'm going to focus in interest upon just Victor's ideas. I personally decided that I'm going to dedicate the rest of my professional career on startups and entrepreneurs. That is the second chance I got. I tell people, America is a country of second chance, and that's what I got, so that's what we are doing. That was the genesis of Alabama Capital Network. As a former college professor, I realized, Nicole, it's all about education. You have to educate people. It takes a village to raise a child—the same thing with entrepreneurs. Entrepreneurs are like kids. You have to educate; you've got the entire ecosystem where there's the policymakers. It starts from there. University officials.

Most of the ideas that come from research foundations, they don't know how to commercialize ideas. Investors, bankers, entrepreneurs, large companies, supply diversity, all listed people. If you look at successful cities, they have figured out the triangle. The big companies determine the dollars. If it flows down to the bottom, how does it go up and down? You have to build those bridges between the vendor management and people who are doing the supply chain relationships. None of those things are easy. They're all looking for a safe space where they can come and talk. Alabama Capital Network is a community development organization. That'd be a pattern against many other successful cities like Nashville. We'll be bringing all these people regularly. During the pandemic, Nicole, we had every two weeks, we had a panel, we had over hundreds of people logging in and listening to all the stories.

We want to break the barriers, and it's going to continue. Next week, we are launching a major organization in Birmingham called Prosper. We have been working with Brookings Institute for the last two years. Brookings has understood that you need successful stories like Birmingham to take as a city of hope for the rest of the country. Nicole today, 60 percent of all GDP is controlled by five cities. Those five cities do not determine the United States. What about the other 95 metropolitan areas? Those are the morals that are being perfected in Birmingham. And hopefully, there'll be a lot of lessons learned for the rest of the country.

Childers: Wonderful. Carmen, what was your response to our disruptor panel?

Tapio: I enjoyed the proposals that were put forth and the conversation from the disruptor panel. I'll start with Victor's comments. I think something that often gets lost in this conversation is personal accountability. When we talk about networks, when we talk about not enough minority businesses or capable minority businesses, one of the things that we have to realize as leaders, as business owners, wherever it is that we're conducting business is that there isn't an element of personal accountability. Outside of operating my business, I spend probably 50 percent of my time on the issue of diversity, equity, and inclusion, and helping our community through my work with the chamber. I lead our diversity, equity, and inclusion council and our task force that was specifically put together to help ensure an inclusive and equitable recovery from the pandemic, but then the ongoing efforts of the community at large.

In those conversations that I'm having with corporate leaders and bankers, and I'll talk about the bankers in specific. Specifically, one of the banks that I'm working with simply does not have relationships with minority businesses. It has to be intentional, right? It is not that they're not out there. There has to be concerted efforts to make outreach and to have relationships like the banks would have with any other customers as they pursue other customer segments. They have to pursue in earnest minority communities, conduct the outreach, build relationships, and invite businesses to do business with their bank. In my view, if you're not inviting people in, you're excluding them out. The issue of personality or personal accountability and network building, I think, is something that we need to talk about. In terms of supplier diversity and we also, as a community, are working very hard on supplier diversity, which I think is absolutely necessary.

But I think a couple of things are missing from the efforts being made at large in terms of supplier diversity. Because the number of capable suppliers, that's the term that's used, capable minority suppliers is relatively small. We have to look at that tier one 90 percent spend that Kelly talked about. There are tier two spend opportunities that say, if you were a tier-one major supplier to an entity, to an organization, there should be small business or minority business supplier plans so that those tier-two suppliers can participate in those very large contracts or medium-sized contracts. That helps to build up their capability to then become a tier one supplier themselves. I think that that is a part of the conversation that is oftentimes left out. Those contracts continued to be awarded.

I absolutely agree with one of the ways in which we can make a significant economic impact is to do more business with minority businesses, and tier two supplier diversity is one of the ways in which to do that. And then the third, I want to address something that's been talked about generally, and that is Black businesses, Black people doing business with Black businesses. I do encourage that effort to do business with minority-owned businesses, but it's not just within the Black community. It goes both ways. As we're working in Omaha, Nebraska, to help build an economy in North Omaha, it has traditionally been Black businesses doing business with each other. We know that the economy is much greater than a five-mile radius, and there's only so many ways and so many times a single dollar can exchange hands within a very small geographic area.

It's helping to build capacity of those businesses to work with other enterprises with large enterprises outside of the geographic area. That's when supplier diversity comes in. But as Sanjay said, it's also educating those businesses and making sure that they are ready to do business on a larger scale. Those are some of my comments around the proposals that are put forth. I think they're all great. Sometimes I think we want to boil the ocean, and we forget the role that we play in this. One of the things that I do is I mentor at any given time about 20 small businesses, minority businesses, and otherwise as well because I have gotten to a place where I have access. I'm going to go back to the PPP for just a minute. It was small businesses in general. The Black business experience with the PPP and accessibility to it was one experience and the non-minority experience with something else.

I have access as an entrepreneur. I have access as a leader and a member of the business community, and it's extending that access to other individuals, to other businesses and through a part of our networking and our relationships. Introducing bringing along, Sanjay mentioned that minority businesses, oftentimes they're not members of the country clubs. They're not members of the golf clubs, but business happens through chambers and through other entities. It's bringing those businesses into our networks and giving them the access that's needed as well.

Singh: Nicole, can I give an example?

Childers: Yes. Go for it.

Singh: The first billion-dollar unicorn in Birmingham and in the state of Alabama was done by a Nigerian Black immigrant, Shegun Otulana. The rest of the state is now wondering, heck, how did this happen? Who is this guy? Where did he come from? Now everybody wants a piece of Shegun, but nobody knew who he was for the last 10 years. He just sold his company for $1.2 billion. Now you're using that as an example: if Shegun could do it, it can be done. Saying that it cannot be done is not an excuse anymore. Now the question is, let's find out what did you do and how we can replicate it across society.

Childers: Wonderful. Thank you. Thank you for contributing that example. What I'd like to do now is bring our disruptors back. We'll have Victor, Kelly, and Monika join us because now I want to have a free-flowing conversation. I'm going to start with a question that came through, and Victor, I'm going to toss it to you because you mentioned Killer Mike and his Netflix show Trigger Warning. For those of you who haven't seen it, it is compelling TV. To see the challenges of just buying Black-owned. To that end, the question that came through, I'm going to start with Victor and then open it up for any number of you who want to also respond. The question is, given our conversation, should the emphasis be on local versus specific movements like Buy Black or other people of color? I ask this because, in many diverse communities, the purchasing power is lower on average by people of color, which would affect both the spend rate and growth rate of the diverse businesses. So, Victor, we'll start with you.

Hwang: I think I was saying earlier; we're not just about a program. Entrepreneurship, the challenge of entrepreneurship, and the decline in entrepreneurship, especially for minority communities, it's a 360-degree problem. Buy local is good, buy small is good, all these things are good and add up. I think of the issue around entrepreneurship, like pebbles in a stream, like every additional pebble that gets into a stream doesn't seem like it's a big deal, but after you do it for decades and decades and decades, there's now a dam that's dammed up that river. And so, all that entrepreneurial energy that's trying to flow through has been dammed up by all these pebbles that seemed like small barriers at the time. I think a lot of the challenge is thinking about this holistically, and all these initiatives are good, but we want to look really across everything.

It's a multifaceted problem from issues around health care to capital access, to wealth creation, to government contracting, to supplier diversity, to non-compete agreements. There was a question someone had asked around. I saw this come through about health care, 20 percent of people who don't start a business say it's because of health care, 20 percent of people that want to start a business are locked out by non-compete agreements because of a former employer. So they actually can't start a business in the area they're specialized at. It's issues around career services, around access to training and knowledge. You think about all these issues: they add up, and eventually, you end up not getting the entrepreneurial energy you want, and people have a hard time breaking through. A 360 problem requires a 360 response. That means we need to, as an entrepreneurial community, rise up and say this matters. We need to make noise about this issue and say this should be a public priority because right now, it's not.

Childers: Wonderful. Does anybody else want to weigh in on this topic of largely it's about where consumers should be spending their dollars? Is it local? Is it to specific communities like Buy Black? Does anybody else want to weigh in before we move to the next question? I'll give folks a second.

Singh: Nicole, in every community, people always focused on that. We need to recirculate our dollars, but that only goes so far. If you look at economic theory, that never expands the part. It's always tradable versus nontradable jobs. Communities are dependent on local circulation of dollars downtown. They are the most impacted. We are spending a lot of time in Birmingham right now thinking about how can we create jobs that expands our services, not just locally but nationally and globally.

Childers: Right. So I have a question that I want to throw out specifically to Kelly. You talked your proposal focused on supplier diversity. Can you expand a little bit more with regard to transparency and the need for transparency around how decisions are made in terms of supplier diversity?

Burton: Within supplier diversity, it's a very interesting system when you compare it to other aspects of business. There's a tendency to focus on the corporations that are the best practice. There are a lot of top 10 awards, top 20 awards, top 30 awards. It forces us to not pay attention to the hundreds of corporations who are not doing much in supply diversity at all. What happens is the corporations that are doing great publish their results because they're very proud of it. The corporations that are not doing great publish nothing. We suspect we have assumptions about how these corporations are performing because we never see their numbers, but we don't know for a fact. There is a dearth of research. There is a dearth of data when it comes to supplier diversity; if there was some standardized expectation about corporations across the board, whether you're a high performer or a low performer sharing your data, that will provide us a better understanding of what we need to do in order to fix the system and solve the problem.

Childers: Wonderful. Thank you so much for that. Carmen, did you want to weigh in?

Tapio: I would like to add to the supplier diversity discussion that I think oftentimes, there is an expectation that businesses are ready to do business on a large scale and the need for mentorship programs as a part of the supplier diversity to help build an organization's capacity to do business. I would go so far as to say certain things that supplier diversity or procurement organizations can't do or can't make a decision. I'll give you an example, payment terms. When you're a small business, you are often asked to sign up to 60 days net payment terms, and you enter the supplier diversity program. We know that if a small business isn't able to get access to capital, invest in the business, or float expenses, the carrying expenses to execute upon a contract, then a 60-day payment term may not be feasible.

I think in our supplier diversity programs, there are decisions that only CEOs can make to change. For example, those payment terms to something much less than 60 days, as an example. That's one of the ways that you can help a small business build its capacity, build its cash flow to execute upon a contract. That is part of the mentoring process. I believe we need to also rethink our standard contracting engagements that we have with small and minority-owned businesses in order to help build the capacity. I wanted to add that. I've done a lot of work in this area as well, and I think as we continue to make progress, that's one of the things that we need to look at next is.

Childers: Yeah.

Tapio: How do we remove the barriers of doing business in the first place? And that's one of the ways we can do that.

Mantilla: Nicole, if I can make a quick comment.

Childers: Of course.

Mantilla: Supplier diversity, I'm so much in agreement with the comments. I would invite every CEO, every board member of corporate America, who is listening to us today to do the connection that is the necessary connection in the world of today, which is the connection between the ESG demands of institutional investors and supplier diversity. There is a deep call to action to reimagine and recreate supplier diversity, take it from a reactive compliance back office, check the box approach to really building partnership proactive. What is that strategic intent that could and should go? Because the reality is that in my estimation, corporate America is sitting in an enormous amount of potential to be activated assets, and they're not being used today, but they could be. At times I think it's part of the conversation is corporations might be saying that our role is only to vet existing suppliers, and to every opportunity, we're just going to see if there's a diverse supplier.

If not, we're going to waive it because we couldn't find any. I think the big change and the big invitation is to think about how will we build the valuable high-growth, high-margin, solid, sustainable, diverse suppliers of the future. We're going to have to go into conversions, acquisitions, and divestiture opportunities. The tool set needs to be radically expanded. I think it's something that is doable, and a number of corporations are doing these types of initiatives. But I think it's the right time to be able to think about these things and reformulate the way supplier diversity is thought inside organizations. This is a role that CEOs and board members are the ones who are going to have to readdress.

Burton: I agree, a hundred percent. Can I piggyback off of that really quickly, Nicole?

Childers: Go for it.

Burton: We have a system that is over 50 years old, and the world has changed in ways that are not reflected in the supplier diversity system. As a result, there are all of these disconnects. We talk a lot about the startup space, but the startup space does not talk to the supplier diversity space. We're going back to Sanjay's anecdote about a Nigerian entrepreneur who was able to be the first billionaire. I'm sorry, create the first unicorn with a billion-dollar evaluation. That's fantastic, but chances are, there is somewhere in his journey where he was no longer available to access supply diversity opportunities because scaling at that level is an equity investment play. But as soon as your business is no longer 51 percent owned by a person who fits under a disadvantaged group, you no longer qualify for opportunities that are set aside for supplier diversity.

And so, do we want those to go after venture capital, or do we not? Going back to Monika's point about creating these businesses that are able to scale, we have to figure that out. We have to reimagine what is necessary for these businesses to grow in scale, because certain aspects of the supply diversity system are broken. One last thing that I'll mention is the certifying bodies are corporate-led. They're corporate-led. Corporations are relying on this corporate-led entity to source diverse suppliers. That just doesn't make a whole lot of sense. And when we talk about whether or not suppliers are capable, when you're certified, there is no vetting of your capabilities. It's to certify that you fit a particular disadvantage label. And so who is left to do the vetting? It's left to corporations who have a supplier diversity staff made of one. How does that work? It doesn't. What happens is the entrepreneurs get ghosted. The supplier diversity professional is overwhelmed, and there's a whole lot of discontent within the system.

Childers: Wonderful. Thank you so much. What I want to do now is gosh, I feel like we could continue this conversation for the next hour. I want to give a thank you to our entrepreneur panel. So Carmen and Sanjay, Carmen Tapio and Sanjay Singh. Thank you so much. I want to give a thank you to our disruptor panel, Victor Hwang, Kelly Burton, and Monika Mantilla. Thank you so much for joining us. Before we move along to hear from our fed presidents, there's a question that has come in that, Dr. Weems, I'd love for you to be able to address from the audience. The question is, what does research and experience over the past 50 years suggest about what changes we could make that would make the biggest difference for entrepreneurs? What have we learned about what works and what doesn't and making a lasting difference and expanding and sustaining Black entrepreneurship? So, Dr. Weems, we would love to get your thoughts on that.

Weems: Yeah. Looking at the past 50 years, it appears to be very clear that in order for substantive change to take place in the realm of assisting African American entrepreneurship, there has to be some programs in place that are literally there for the long haul, not the short-haul. I made a reference in my earlier presentation about how programs that arose in the late 1960s were a response to the urban rebellions of that era and how literally, by the middle of the next decade, that interest had pretty much dissipated. In fact, an interesting graphic way to look at the lack of sustainability in some of these earlier efforts. Before Google, there was an index of information called the Reader's Guide to Periodical Literature. When you look at the reader's guide for the late 1960s and early 1970s, there were a significant number of references to articles related to what they then called Negro business and Negro businessmen, and there are an increasing number of references to Black capitalism.

By the mid-1970s, in fact, the 1975 issue, in particular, there were no articles related to Black capitalists. In five years, you saw this initiative pretty much disappear from public discourse. Also, going back to the late 1960s, a commission was called to investigate what happened during the summer of 1967. And one of the solutions that was proposed is that the U.S. needed to engage in sustained efforts to address the negative effects of racism over time. And unfortunately, a historical record is very clear that we see a lot of short-term efforts to address issues related to improving African American entrepreneurship, but in terms of that long-term sustained effort, it has been very lacking.

Childers: Wonderful. Thank you so much. Thank you so much for your thoughts there. I'm going to introduce our Fed presidents in a moment, but one thing I wanted to add in there to your comments, Dr. Weems, is that we also know that COVID had quite an impact on that. There are numbers that show that out of the 30 areas where Black businesses are heavily concentrated, 19 of those were especially hit hard by COVID. So thank you. Thank you for joining us. Thank you for sticking around and answering that question from an audience member. Now what I'd like to do is do a quick reminder. We're still gathering questions. We're continuing the conversation online.

Please, if you're on Twitter, hashtag #Racismintheeconomy, if you'd like to send an email, there's still time; we're going to have close to half an hour with our Fed presidents. You can email racismandtheeconomy@bos.frb.org. Without further delay, I'd like to welcome three Federal Reserve bank presidents with us. I'd like to welcome Raphael Bostic, who is the president of the Federal Reserve Bank of Atlanta. We have Charles Evans here with us, who's the president of the Federal Reserve Bank of Chicago. And we have Robert Kaplan, who is the president of the Federal Reserve Bank of Dallas. Gentlemen, thank you so much for joining the conversation. We had a robust group of entrepreneurs and disruptors, so maybe I will call on somebody. President Evans, what were your thoughts about the presentations and conversation today? What stuck out for you?

Charles Evans: I thought it was very engaging conversation. I was heartbroken to hear about Carmen Tapio's experience with the PPP and having relationships with banks for, in some cases, 30 years and not gaining access to the PPP loan process. I think experience with corporate, there's just so much that's important. The entrepreneurship, Black-owned enterprises, being able to do business with a wide variety of companies and corporations. Whereas professor Weems said very well, the insurance companies where White insurance companies could enjoy business from Whites and Blacks, but Blacks only from Blacks, that story goes on and on. I think that there are just so many challenges. I think that the proposals were really very good, right to start. Working hard to forge these relationships. I've got some more things I can talk about, but let me let my colleagues step in.

Childers: Actually, let's go to President Kaplan next.

Robert Kaplan: OK.

Childers: President Kaplan. Any thoughts?

Kaplan: Yes. As did Charlie, I thought this was an excellent session, and I learned a lot. It strikes me, and we've known this in our work. There are a number of aspects to creating more diverse entrepreneurship. It was interesting. We started off talking mainly about capital, and I agree, like Charlie, it was chilling, and it's been chilling to look at the PPP data and the stories. But also, I think as we got further into it, I liked there was differentiation. There needs to be solutions, not just on debt capital line of credit capital, but also equity capital. They are used for different purposes, in particular equity for growth. But the bigger thing that came out later that I think almost Victor, Monica, Kelly, Carmen talked to, is the need in addition, for more mentorship. Mentorship, coaching, everything from strategy to marketing, to capital strategy, make introductions, relationships. And the reason this is so poignant, I think many business leaders want to get involved in our communities in mentoring and coaching. And I think maybe at the Fed, in our outreach efforts we can do more to channel that, but I think a lot of these ingredients go to mobilizing all of that talent.

And then the last thing that struck me is what's lost unless we do better here, GDP growth. This is a shared problem all of us are worse off if we are not able to channel capital, mentoring, coaching, and business support services, and create more entrepreneurship among these groups, we're just going to all be worse off for it. So I thought it was an excellent discussion and I think there's a lot for us to follow up on.

Childers: Thank you so much, President Kaplan. And just to stick with you for one moment, one of the things that I started talking to Dr. Weems about was just the impact COVID has had on entrepreneurship and then on Black entrepreneurship in particular. What are you seeing there in the local Dallas community with regard to how Black entrepreneurs are faring?

Kaplan: Yeah. So our statistics, again, on PPP... similarly discouraging as the way President Harker started off. There's two aspects, one of them is there's a lot of entrepreneurship since the start of the pandemic, but a lot of it is out of necessity. Where someone lost their job, they haven't gone for skills training, and they've had to out of necessity start their own business. And probably the best thing as we come out of this is for them to go back and get into skills training. But we're finding that Black, and Hispanic, and minority-owned businesses have fared worse, and I think a lot of it is the point that we heard in this, is the access to capital. They've been disadvantaged for a whole range of reasons and they probably don't have the access to coaching, mentoring, relationship advice that could help connect them to where they need to go. We can do something about this, but that is what we're hearing in our communities.

Childers: Thank you for sharing that. So we have a question from an audience member about PPP, and just in general, access to credit. And so I'll ask the question and then I'll go to you, President Evans, and then I'll come back to you, President Kaplan. And we're going to have President Bostic from Atlanta joining us soon, so that's why we haven't heard from him just yet.

The question is, "the story of not being able to get a PPP loan from banks is exactly why we need to significantly grow the mission lending industry, which includes MDI, CDFIs, SBA CDCs, and micro lenders, Community Credit Union, et cetera. However, efforts to build this infrastructure is siloed and not approach comprehensively or systematically. What is the Fed doing to dramatically grow all of the mission lending community?"

I think the key question there for both of you is what is the Fed doing to dramatically grow all of the mission lending community? President Evans, I'm going to kick that question over to you to address first.

Evans: OK, thank you. That's a very important issue. Obviously, we heard a lot already about whether or not minority firms have access to capital. And growing the sources of that capital, I think is going to be very important. We have a number of efforts at the community development and economic development area where we meet with entrepreneurs, community people and talk about neighborhood issues and educational issues, skill acquisition, like Rob was talking about.

In terms of actually providing the needed capital that was mentioned so much, the Fed is really hamstrung in our ability to do that as the Monetary Authorities Central Bank. We really need the fiscal authorities, the government to come in. And with our expertise to help in partnership with businesses, we could help provide some of that technical assistance. But the capital access is really fundamental, and I think all the institutions that you mentioned are going to be very important.

One issue that wasn't mentioned quite as much, although it was touched on, I think Kelly might've mentioned it, or somebody, about the red tape that's involved in getting capital and the additional... it's the cost differentials. Even if minority businesses gain access to capital, it comes at very high difficult terms. And if you just look at the history of wealth accumulation in the post–World War II period, households that have been privileged to have access to FHA lending, like professor Weems was talking about, and the GI Bill, and buying a house and compounding that. The interest differentials, the costs are way less. And so it doesn't necessarily help that the capital comes at onerous terms and we need to be working on that more.

Childers: Excellent. Thank you, President Evans. President Kaplan, do you want to weigh in?

Kaplan: Yeah, I agree with what Charlie said. One of the things I'd comment on, why this is so challenging, money coming from Washington, let's say, probably doesn't have the insight, and we saw this a little bit with PPP, to get into the details. We're seeing locally between our local bank efforts, CRA efforts, but community leaders who want to find a way to help it are not sure how. I think the challenge for us is to figure out how to mobilize partnerships between, again, banks, local leaders, business, community leaders, and get actively involved in the communities. The motivation, I think is there, what needs to happen is more organization, but the most potent kind of help, particularly, again, the capital, but mentoring and coaching in addition, it's got to happen locally, and we all have to take ownership of our local communities.

Childers: That's great. And now I want to officially introduce, we were having some technical issues bringing him up earlier, so apologies to everyone for that, but I want to introduce Raphael Bostic who is the president of the Federal Reserve Bank of Atlanta. Thank you for joining us, President Bostic. I want to first and foremost get just your initial thoughts and observations of both the entrepreneurial panel and also the panel of disruptors.

Raphael Bostic: Thanks, Nicole. And it's really good to see you, sorry for the little difficulty. Listening to the panelists and the earlier discussions that I thought were quite interesting, there were three themes that jumped out at me. One was really about this issue of being judged because of relationships as opposed to technical standards. And this came out in Dr. Weems' discussion of the history, but also it came very clearly through just about all the speakers, how they needed to have personal relationships in order to get the things that they might've otherwise been able to get. And that's something to really think about.

A second thing that really jumped out at me was the notion of intentionality and the idea that big corporations, lenders, policymakers, they all actually have to have entrepreneurs and small businesses in the radar, in their radar screen, and target things specifically to them. And one thing that I think Carmen Tapio said that I actually say a lot here in Atlanta is that small things can actually make a big difference, small actions. If we all do things that are very attractable we can start to see a real change.

And then the third thing that really jumped out at me, and I've really come to appreciate this going through this series, but also talking more broadly about disadvantage is that history matters. And that decisions that were made decades ago in some instances, in some instances five years before, can put real constraints on the ability of entrepreneurs of particular races from participating in the systems and the programs that are out there. So all of these things are things really to think about and to be mindful of as we consider what new kinds of solutions might overcome them.

Childers: Any other thoughts that that brought up for either President Evans or President Kaplan?

Kaplan: Charlie, you want to ...

Evans: I would say the history matters comment is just so fundamental to that. Dr. Weems talked about that, the lack of access to the FHA. Mehrsa Baradaran talks in The Color of Money about just the ability of White workers in Manhattan and in New York being able to trade in their $50 a month rent for $35 a month in Levittown because they have the FHA access and that wasn't available to Blacks and in inner-city communities, it's much more expensive too. History really matters.

Kaplan: And just building on that, it strikes me, there's not much history of institutionally organized efforts to get at this issue. And we're still grappling with how to improve early childhood literacy, skills training, and the whole educational ecosystem. And even there, we at least have some history of some institutions that are geared to do that. And we've had Head Start now for many years. For entrepreneurship, we don't have an institutional organized history and I think the challenge is going to be to create one. And again, it has to be done in local communities to get at these issues. And I think the Fed may be well situated to, and help facilitate it, and be a convener and help organize it.

Bostic: Rob, just on that point, I totally agree. There are two things that jumped out to me listening to you guys, one is that the local context really matters and that a prospect for a new business in one community could look very different than another. So having that on the ground local knowledge is really important. It's one of the reasons why having CDFIs, having minority depository institutions that are of the community, they'll be much better able to really understand what risk looks like and what a good credit looks like.

But then the other thing, and I think this needs to be widely recognized, entrepreneurship is hard. Small businesses fail far more than they succeed, and so the amount of risk capital that is required to be present in this space is significant. But then this then flips back to notions of what does risk look like in terms of a business model, in terms of the community the people operate in? And is there that equivalent so that communities that are more minority, that have the exact same characteristics, do they get perceived as being higher risk which then in turn means that they're going to get less capital?

I think that's something else to explore. I think Victor Hwang talked about this a little bit, to note that controlling for neighborhood characteristics, capital is flowing less to minority communities. To me, there's something implied about perceptions or risk that needs to be unpacked.

Kaplan: On that, I just say to Raphael's point, which is there's an inherent fragility to small business and we just have to face it. Small businesses, they're a great source of jobs and they fail more frequently. They probably need to be equity financed rather than debt financed. And so having said that... it means it takes extra effort and nurturing to develop them. And you have to accept that you still, even when you do everything perfectly, you're going to have a high failure rate. And we're not doing anything remotely close to perfect, and so we've got to just improve this ecosystem.

Childers: And so are there particular things that within your respective roles you could see doing? President Kaplan, you talked a bit about part of it is getting out in front of the public and bringing voice to the importance of things like making sure that people in the business community, especially entrepreneurs have mentors. Are there other things that fall under your purviews that you could be doing to help turn around some of these numbers that we're seeing and that we've been talking about today?

Kaplan: I'll just comment and then I'll... I think our role as a convener, it can be very powerful. As an example, business leaders we talk to every week want to do something. So what's an example? How could we help connect business leaders as individuals, not necessarily to be mentors and coaches, and pair them with small minority-owned businesses? I think there's something there that we've already been talking about here and trying to explore, and we're doing it in a program which we borrowed from Boston called Advanced Together where we create that mentorship. I think there's probably more for us to do here and figure out how we can energize this given our convening power.

Childers: That's great. Same question to you, President Evans.

Evans: We talked to a lot of businesses, a lot of communities, leaders, and I'm always impressed that the business community really wants to be doing more on this front in our own outreach efforts, our Project Hometown efforts to highlight the COVID crisis and how it's affecting neighborhoods, and communities, and businesses. One question that I always have on my mind, I don't always say it explicitly, it's how can you guys help lower income areas on the south side and west side of Chicago? How do you get more business in there? And an answer that you hear back when you talk about that is, "businesses want to do more, but they need easy. They somehow need easy, something that can work. If there's a program, if there's a consortium, a group that..." Now I heard very carefully, I think it was Kelly who described the certification effort and how, boy, that's really onerous and really small, and things like that. So something that's broad bandwidth and can really hit a lot of people.

Now I know in Chicago, and I'm not leading this, I'm just listening to others like ourselves who want to do more, the civic community is a collection of the largest corporations headquartered in Chicago and other business people. They've really taken on a business diversity initiative and they brought on consultants. And they've identified that with the number of large headquartered corporations in Chicago, they have scale to move the needle and bring in more business minority diversity. At the service level too, it's not just the goods and professional services, business services, and the higher income generating parts. They're working very hard on that. They've just begun that initiative.

Also, Allstate Corporation, just last year, floated financing issuance entirely with minority banks. I think it was $1.2 billion. And it shows that it can be done. You have to work a little harder. It may not be easy, but we need to do more of that so that it is easy. Helping out as best we can to facilitate those efforts and participate ourselves, that's really important.

Childers: President Bostic, what would you say? What are some outreach efforts that can help, that fall under your purview?

Bostic: I'm actually going to piggyback on what Charlie just said, which is when I talk to a lot of businesses they say, "I'd love to help. I want to do more; I really don't know what to do." And so I think that one of the things that we are focusing on here in Atlanta is trying to make a list of things to do. And I call them playbooks, I'm a sports fan, so that's kind of the metric I use or the allusion. But it's really the idea that there are some simple direct actions that every business can take, there are actions that every corporation might be able to take in terms if they want to improve their supplier diversity. There are actions that minority owned businesses need to take to present themselves in a more advantageous light when they're pursuing supplier relationships.

For me, I just think we need to step back and start to have the conversations, build those lists. I'm on the Chamber of Commerce, I'm working with the Metro Atlanta Chamber of Commerce and they're putting out a series of these playbooks to try to help advance racial equity here in this city. Because at the end of the day, the key realization or recognition we only need to have is that change here is actually going to require establishing new relationships, doing new things that haven't been done before, and doing them at a level of intensity that hasn't been done before. And for any business person or any minority owned business to jump out there on their own and do that, the likelihood of success is going to be far lower than if they can do it either with a lot of other people going together or with some data and experienced tested practices that can make change. So that's the kind of conversation we're having.

Another thing I would just say is we are working with minority small businesses all the time. In our bank we've done a series of webinars to help minority businesses cope and weather the COVID crisis. It's been said many times in this webinar that the COVID crises hit minority small businesses harder. We're trying to be there for them, giving them things that we've seen and understand as to ways that they might survive and pivot from survival to thriving. I think that's a critical thing.

Childers: Wonderful. Thank you so much for that. As our program is coming to a close, I could talk to the three of you all day, as it's coming to a close, what I'd like to do is I'd like to go to presidents Evans and Kaplan with just a couple of minutes of last thoughts and then I'll segue. And then I'll pass the baton, since you like the sports references, President Bostic, I'll pass the baton one last time over to you. Let's start with President Kaplan.

Kaplan: I think sessions like the one today go a long way to highlighting these issues because, as Charlie and Raphael said, I think community leaders, business leaders are highly motivated to act, take action to help. And one of the speeches we give regularly to business leaders in our community, we're not telling you to get involved in this, we're offering to partner with you and help you and be your partner in this. And I think we're basically saying we will take ownership with you, but we need to take ownership of our local communities. And I think that mindset is where it is critical to make progress. This is all of our challenge, we'll be all better off if we address it. And at the regional Fed banks, I think we're very well positioned to help improve and make progress.

Childers: Wonderful. Thank you so much, President Robert Kaplan, thank you for your participation today and carving out the time to listen and reflect. President Charles Evans, what are your final thoughts here?

Evans: I agree completely with what Rob just said, having continuous conversations about what's important and actually never stopping that conversation, just working very hard at that, is really important. I think today's session has done a great job of emphasizing the importance of networks for successful business people. And I think minority businesses don't have access to those networks at the scale that they really need to, we need to all work on that. I think capital is very important.

And one thing that I really worry about, I've sort of talked to more people in preparation for this session and everything that we've been doing, is that the cost of that capital is just very, very high for minorities. And the way to be successful in businesses is to have low costs, low financing. And so I think at some level grants are really important. I think Rob is exactly right, you need equity, not just debt financing. And you need equity that is affordable and things like that.

I'm highlighting the importance of that. I don't know where the answer is because grants really need to come from somewhere else. But if you look at so many successful business people, at one point in their life they had a break like that, and we need to provide that for just more businesses throughout the country and in minorities neighborhoods in particular.

Childers: Wonderful. Thank you, President Evans, and thank you also for joining us. Before I pass things along to President Bostic I just wanted to thank everyone in the audience for joining. I wanted to thank again, the entrepreneur panel, the disruptor panel. I wanted to send a reminder: the hashtags are still going to be live. This is just the sixth installment of this series, so please don't be shy about continuing to engage on Twitter.

Also, for those of you who want more information about any of the panelists or any of the guests today you can head over to minneapolisfed.org. There are additional resources on there as well, and additional information about everybody you've heard from. I want to thank everyone, the various representatives of the regional Fed banks for their support and getting this together. And again, thank you to our three Fed Bank presidents. And so I'm going to now officially pass the baton over to you, President Bostic.

Bostic: Well, thank you, Nicole. Thank you for your wonderful moderation. I think we put you through some paces today, but you were nimble, and agile, and weathered all of that. So really thank you for that and the great questions. I also want to thank all of you who have been watching. This has been a really important conversation, and I hope you found interesting things out of it. I know I certainly did. And I also want to thank you for the things that you do in your communities to advance these issues and make progress over the challenges that we all face in this space.

Now, when I think about today, I want to just close by saying a couple things. One, a number of the speakers made it very clear that entrepreneurship and innovation is really a key part of the lifeblood of our economy. And that without a robust entrepreneurial energy, and philosophy, and approach to life, our society will be smaller than it is. Our economy will be less robust, and we'll have fewer jobs, and be less resilient than we might otherwise be. The solutions that were proposed here are interesting ones and I hope you'd take them forward.

I'll just note two other things on the program before I sign off, one is that this is really an everywhere issue. The speakers that we had today, the entrepreneurs came from Birmingham, Alabama, in my district, and Omaha, Nebraska. And one of the proposers was in Kansas City. These are not the usual suspect places, but I think the point to be made here is that there's something that's really important for everyone, and that we all need to step up and take a stab at improving this.

And then the second thing, which is a subtle thing that went through the discussion, but I want to make it more explicit, is that this isn't a partisan issue. And a number of the speakers noted that in Republican administrations and in Democratic administrations this issue of entrepreneurship in minority communities has been something that has been of particular interest and importance. And so this is an everyone issue. It's an everybody issue, and so we all need to lock arms together, move forward, and make progress in this.

Let's close by sending you off with a teaser for our next segment. That will be the seventh installment, and it will focus on an issue that a lot of scholars have noted is actually a labor market issue as much as it is a social issue, and that's the criminal legal system. The next session will happen in July and will focus on race and the criminal legal system, and in particular, its implications on the U.S. economy. I hope that you join us for that. And with this, I'll close our seminar and wish you all a great rest of the day. Thank you.