The Digital Divide and the Racial Wealth Gap: Why Supporting Minority Business Enterprise is an Answer for Both

by David Honig on March 11, 2012

We are currently facing the greatest threat to first class citizenship, competitiveness, economic growth, and moral fiber as a nation since segregation. A deep digital divide – a chasm between those who have and have not yet adopted broadband – exists at a critical point in our nation’s history where we are transitioning from an industrial to a digital society.

Although one-third of American adults still had yet to adopt broadband at home in 2010, nonadopters were disproportionately African American and Hispanic. The Pew Internet and American Life Project reported in 2010, for example, that an 11 point gap existed between white and African American broadband users (67 percent versus 56 percent, respectively).

The spending patterns, geographic footprints, and communications needs of people of color are the keys to success in evolving telecommunications markets, particularly in wireless, where minorities over-index in adoption. In 2010, the Joint Center for Political and Economic Studies published Comparative Trends in Adoption, Acceptance and Use, a study that oversampled African Americans and Hispanic Americans to learn more about broadband adoption trends. The study found that African Americans and Hispanic Americans are more likely to go online to conduct a job search, look for religious and government benefit information, apply for government benefits, research entrepreneurial ideas to begin an online business, and transfer money.

Despite the divide between the digital haves and have-nots, there is some good news: people of color are leading the nation in wireless broadband and smartphone use to close the digital divide. But even this development is threatened by an impending spectrum crunch where demand for wireless spectrum will soon eclipse the supply, resulting in higher prices for mobile broadband users. And it’s not as if minority communities can afford the inevitable price hikes that will come from spectrum shortages – minority communities are facing depression-level unemployment and dramatically reduced household incomes.

The Racial Wealth Gap Fuels the Digital Divide

The racial wealth gap is a key factor that holds millions back from adopting broadband, for a simple reason: in most cases, a computer – and even many smartphones – can’t be bought out of income. Computers have to be bought out of savings – out of wealth. And the racial wealth gap has grown to epic proportions.

It is important that we understand why this unfair and systemic wealth gap exists: As detailed in the Minority Media and Telecommunications Council’s On the Path to the Digital Beloved Community: A Civil Rights Agenda for the Digital Age, historic race-based inequities in public policy were prevalent. These inequities included removing Native Americans from land, then parceling it for white settlers; refusing to protect minorities’ property rights; and passing laws like the 1924 Alien Land Act, which kept Asians from owning land or forming corporations. These public policies have existed since the nation’s founding and only began to be rectified in the mid-20th century – within many of our lifetimes. During their existence, they served to create a stable middle class for whites, while minorities had little to no wealth or savings.

This problem was compounded by the nation’s discriminatory social security policies. Those in certain occupations that included agricultural laborers, maids, and janitors – jobs that two-thirds of African Americans held – were not eligible for social security benefits when they retired. As a result, children and grandchildren were forced to support elders, wealth could not be put toward savings and investments, and minorities therefore relied much more heavily on credit than whites. This created a large disparity in debt to asset ratios between color lines.

By 2009, the gap separating African American households from white households had grown to 20:1, and the gap separating Hispanic from white households had grown to 18:1, according to the Pew Research Center. It is not a coincidence that the citizens who are on the other side of the digital divide – the ones who can’t afford a computer, or who access the Internet using their smartphones out of necessity, rather than choice – are the same citizens who are on the other side of the racial wealth gap. Wealth is a direct factor in determining the level of digital access that you are able to purchase.

This deep and persistent racial wealth gap is the reason our most important and influential industries – media, telecom, and broadband, which comprise one-sixth of our economy – don’t look like America, but instead are disproportionately white. The wealth gap is a significant market entry barrier that we cannot afford to ignore.

To its credit, the FCC has helped launch Connect to Compete, a partnership between corporations and nonprofits to increase broadband adoption, digital literacy, and access to equipment and training tools. But these efforts alone are far from enough to rapidly bring 100 million Americans – 37 percent of whom are people of color – online.

Minority Business Enterprises Can Bridge the Digital Divide and the Wealth Gap

One-third of our population – about 34 percent – are people of color. To put that in context, this means that people of color possess a third of the nation’s intellectual capital, a third of its entrepreneurial initiative, and a third of its inherent managerial capability.

Yet, especially in the telecom and tech industries, most of these human resources are ignored. This waste of talent is uneconomic and inefficient for America. Companies that successfully implement diversity will benefit from a broad array of talents and viewpoints that can help them serve their customers as our nation rapidly becomes majority-minority.

Minority-owned businesses use these human resources – intellectual, managerial, and entrepreneurial – every day, and they understand the needs of minority communities and are willing to invest in their future. Unfortunately, many minority-owned businesses in the telecommunications industry, such as minority broadcasters and publishers, are in crisis. As the Small Business Administration’s 2010 report to the president, The Small Business Economy, notes, “Minority-owned establishments were more likely to close than businesses owned by their nonminority…counterparts. At the same time, the rates of job creation due to the expansion of minority-owned establishments were consistently higher than those businesses owned by Caucasians.”

Minority business enterprises (MBEs) in the communications industries enhance society as a whole. By providing affordable service and equipment, as well as broadband adoption programs, public purpose media, and digital literacy training, MBEs promote first-class digital citizenship and generate wealth that stays in the minority community.

Many companies understand the importance of working with MBEs when it comes to modest subcontracting or procurement opportunities. But this is a limited view. MBEs should not be synonymous with small business. Minority entrepreneurs should have the opportunity to participate fully in the digital economy, as small entrepreneurs, as consultants, as partners with the telecom companies, and as large business owners.

Despite the FCC’s acknowledgement that diverse participation is critical to broadcasting, minority broadcast ownership levels are abysmal and shrinking fast. Between 2007 and 2009, minority full power commercial radio ownership dropped by 9 percent, and minority full power commercial television ownership dropped by one-third. But in a multicultural and multilingual society, minority media ownership is the key to serving all Americans.

Minority ownership initiatives in the communications industries, such as the Tax Certificate Policy, the Distress Sale Policy, and the Telecom Development Fund, have been dismantled. Nonetheless, many new solutions to the minority ownership crisis are on the table, and one that’s especially promising is the Media Incubator Proposal. Under this proposal, a broadcaster that finances or incubates a disadvantaged business – bringing a new voice to the marketplace – would be permitted to obtain a waiver of the ownership limits for one additional station. This race-neutral, win-win proposal has been pending before the FCC, without opposition, in six dockets for 22 years. Hopefully, this year will be the year in which the Incubator Proposal finally finds the support of its champions.

A Lesson from the Past to Direct Our Future

Let’s take a look back at history so we all understand what is at stake if we do nothing to bridge the digital and wealth gaps.

Our society is rapidly transitioning from the Industrial Age to the Digital Age. The last time we went through this type of major transformation was in the 1930s to 1950s, when we went from an agricultural to an industrial society.

During that last transition, people of color were not protected, nor were they prepared. Social indicators like rates of poverty, income disparities, incarceration rates, school dropout rates, and family instability doubled for African Americans and Latinos during a period when they should have had the greatest opportunity to make up the ground they had lost in the Agricultural Age. For more details, see When Affirmative Action Was White: An Untold History of Racial Inequality in Twentieth-Century America, by Ira Katznelson.

What went wrong? The rules and policies were written in a way that – deliberately or not -tended to work to the disadvantage of people of color. For example, for Social Security, the age of eligibility was set at 65 at a time when African American life expectancy was 52. Coupled with the rules barring occupations held by two-thirds of African Americans from eligibility, this created a system whereby African Americans paid in to Social Security, but they couldn’t get money out. It happened because people of good will weren’t paying attention to the disparate impact of these initiatives on certain vulnerable citizens.

And now we have a very real risk that before mid-century, when the nation will be majority-minority, we’ll wake up and see – too late – the opportunities we wasted and the second class citizens we created as we transitioned from an industrial to a digital society.

The answer is right in front of us – in the intellectual and managerial spirits of our minority entrepreneurs, those enterprising individuals who put their time, money, and soul into building a product, meeting payroll, and helping others thrive. Let’s help them help us bridge the digital divide and the racial wealth gap, so that in this lightning-speed transition to the digital age, no one is left behind.

  • David Honig is MMTC’s President and Executive Director. He co-founded the Minority Media and Telecommunications Council (MMTC) in 1986. MMTC has represented over 70 minority, civil rights and religious national organizations in selected proceedings before the FCC, and it operates the nation’s only full service, minority owned media and telecom brokerage.

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  • Tim

    Great article that lays out how we can resolve the racial wealth gap, and why it even exists in the first place. I think a lot of people have forgotten exactly how the “haves” got it and why the “have-nots” don’t.

  • Dan

    The solution to quickly close the wealth gap is e-d-u-c-a-t-i-o-n. You can’t just throw money at people who have been poor for generations, live in a very poor educational system, and are bombarded with heavy negative influences and a lack of mentors in their lives. When people like this get money (athletes, lotto winners, reality tv stars, and the like), they do stupid things, blow their money, and don’t give back to their communities.

    People talk about reparations like it is a very bad word, because slavery was abolished nearly 250 years ago. But they forget that blacks were held down for another TWO CENTURIES. The civil rights movement ended barely 50 years ago, we KNOW people who were forced to call others sir, use separate bathrooms, and above all were given a poor education and started their adult lives far behind their white counterparts. And then there are still people alive who fought tooth and nail against equality for blacks, thought they had the right to be called “sir” and “ma’am.” Hell, some of these people currently sit in Congress. But I digress.

    Sorry for the rant, but I said all this to say that there are millions of people who just don’t understand why the plight of black people still exists, and they seem to fail to realize that institutionalized inequities were only very recently rectified, and their effects are far-reaching, very real, and very alive today.

    Again, the solution is education. Fund educational programs in poor neighborhoods. Pay for a full generation of blacks to go to college. That’s right, a full generation of people, for 20 or 30 years: If they apply and get in, they should get a full scholarship. Sounds radical, I know, but THIS is the way to fix our society: educate us.

  • Anonymous

    This piece is one of the more egregious examples of the woe-be-me industry. Real or imagined, I suspect this so called “divide” is managed by the very people that purport to lament it.

  • John

    Wow you’re right! I’m surprised I’ve never thought of it that way! There IS no difference in wealth between whites and blacks! And if there is, it’s their own fault for their “woe-be-me” mentality! If we stop lamenting the problem, it’ll just go away on its own, despite the fact that it was caused by man-made policies!

    /sarcasm

    Side note: Did you even read the article?

  • John

    Dan – While I admire your optimism, let’s try for a bit more realism – reparations are not coming. Ever. Don’t mention the word because it weakens your point.

    I do agree with you that education is very important. Unfortunately, full scholarships for every black person are also never going to happen.

    I think the main point in the article sounds like one of the best solutions – minority entrepreneurs will help close the wealth gap as they give back to (and educate) their communities. Like the article says, we need to learn from past mistakes. Not forget them like our buddy n230099 commenting up there.

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