Doubly Divided: The Racial Wealth Gap

Race has always been a basis on which U.S. society metes out access to wealth and power. Both in times when the overall wealth gap has grown and in times when a rising tide has managed to lift both rich and poor boats, a pernicious wealth gap between whites and nonwhite minorities has persisted.

Let’s cut the cake by race. If you lined up all African-American families by the amount of assets they owned minus their debts and then looked at the family in the middle, that median family in 2001 had a net worth of $10,700 (excluding the value of automobiles). Line up all whites, and that median family had a net worth of $106,400, almost 10 times more.

Less than half of African-American families own their own homes, while three out of four white families do. Almost 40 years after the passage of the 20th century’s major civil rights legislation, huge wealth disparities persist. However, the myth that the playing field was leveled by those laws is widespread. For anyone who accepts the myth, it follows that if families of color are not on an economic par with whites today, the problem must lie with them.

CAUSES OF INEQUALITY

But the racial wealth gap has nothing to do with individual behaviors or cultural deficits. Throughout U.S. history, deliberate government policies transferred wealth from nonwhites to whites—essentially, affirmative action for whites.

The specific mechanisms of the transfer have varied, as have the processes by which people have been put into racial categories in the first place. But a brief review of American history, viewed through the lens of wealth, reveals a consistent pattern of race-based obstacles that have prevented people of color from building wealth at all comparable to whites.

SLAVERY’S LEGACY

From the earliest years of European settlement until the 1860s, African Americans were assets to be tallied in the financial records of their owners. They could be bought and sold, they created more wealth for their owners in the form of children, they had no rights even over their own bodies, and they worked without receiving any wages.

Slaves and their labor became the basis of wealth creation for plantation owners, people who owned and operated slave ships, and companies that insured them. This was the most fundamental of wealth divides in American history.

At the end of the Civil War, there was an opportunity to create a new starting line. In the first few years, the Freedmen’s Bureau and the occupying Union army actually began to distribute land to newly freed slaves: the famous “40 acres and a mule,” a modest enough way to begin.

But the Freedmen’s Bureau was disbanded after only seven years, and the overwhelming majority of land that freed slaves had been allotted was returned to its former white owners. Unable to get a foothold as self-employed farmers, African Americans were forced to accept sharecropping arrangements.

While sharecroppers kept some part of the fruits of their labor as in-kind income, the system kept them perpetually in debt and unable to accumulate any assets.

In 1883, the Supreme Court overturned the Civil Rights Act of 1875, which had given blacks the right to protect themselves and their property. By 1900, the Southern states had passed laws that kept African Americans separate and unequal, at the bottom of the economy. They began migrating to the North and West in search of opportunity.

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Amazingly, some African-American families did prosper as farmers and businesspeople in the early 20th century. Some African-American communities thrived, even establishing their own banks to build savings and investment within the community.

However, there was particular resentment against successful African Americans, and they were often targets of the vigilante violence common in this period. State and local governments helped vigilantes destroy their homes, run them out of town, and lynch those “uppity” enough to resist, and the federal government turned a blind eye. Sometimes entire black communities were targeted.

TARGETED VIOLENCE

For example, the African-American business district in north Tulsa, known as the “Black Wall Street” for its size and success, was torched on the night of June 21, 1921 by white rioters, who destroyed as many as 600 black-owned businesses.

The Depression wiped out black progress, which did not resume at all until the New Deal period. Even then, African Americans were often barred from the new asset-building programs that benefited whites. Under Social Security, workers paid into the system and were guaranteed money in retirement.

However, domestic and agricultural work—two of the most significant black occupations—were excluded from the program. Unemployment insurance and the minimum wage didn’t apply to domestic workers or farm workers either.

Other programs were also tilted toward white people. The Home Owners’ Loan Corporation was created in 1933 to help homeowners avoid foreclosure, but not a single loan went to a black homeowner.

Following World War II, a number of new programs provided a ladder into the middle class—for whites. The GI Bill of Rights and low-interest home mortgages provided tax-funded support for higher education and for homeownership, two keys to family wealth building. The GI Bill provided little benefit to black veterans, however, because a recipient had to be accepted into a college—and many colleges did not accept African-American students.

Likewise, housing discrimination meant that homeownership opportunities were greater for white families; subsidized mortgages were often simply denied for home purchases in black neighborhoods.

In The Cost of Being African American, sociologist Thomas Shapiro shows how, because of this history, even black families whose incomes are equal to whites’ generally have unequal economic standing. Whites are more likely to have parents who benefited from the land grants of the Homestead Act, who have Social Security or retirement benefits, or who own their own homes.

With their far greater average assets, whites can transfer advantage from parents to children in the form of college tuition payments, down payments on homes, or simply self-sufficient parents who do not need their children to support them in old age.

These are the invisible underpinnings of the black-white wealth gap: wealth legally but inhumanely created from the unpaid labor of blacks, the use of violence—often backed up by government power—to stop black wealth-creating activities, tax-funded asset building programs closed to blacks even as they, too, paid taxes. The playing field is not level today. For example, recent studies demonstrate that blatant race discrimination in hiring persists. But even if the playing field were level, the black/white wealth gap would still be with us.

Meizhu Lui, formerly the president of AFSCME Local 1489 in Boston, is now the executive director of the Boston-based nonprofit United for a Fair Economy. The full version of this report is on the UFE website.