The American Constitution rests on one founding principle: The idea of a more perfect union. The founders understood that as the American populus changes and evolves, we should have the tools to improve the country along with us. A system of government was created to allow for self-determination and self-government that could create a better society.
Despite this, we still see persistent and intractable problems that limit our ability to create an equitable economy for all. Primary among those challenges has been the racial wealth gap. Overall wealth has been increasing, yet the gap between Black and white wealth continues to grow wider. The narrowing of other racial gaps, such as in college enrollment, graduation, or homeownership, does not necessarily translate to increased wealth for a broad base of people. Even with a greater and more expansive approach to freedom, our country has not been able to translate those gains into economic opportunity. (The gap between white families and other people of color largely tracks the Black-white wealth gap trends.)
This persistent gap has a direct effect on the families who cannot have the same access to security and opportunity that wealth offers, but it also limits our potential as a country. Various studies have shown how inequalities in wealth, income, and capital access have limited the overall productive capacity of our economy. By not investing in all Americans, businesses and financial institutions miss out on tremendous earning opportunities and place an artificial ceiling on their overall revenue. Most notably, Citigroup found that racial discrimination in all its forms led to a loss of $16 trillion for our economy. This includes $13 trillion lost because of underinvestment in Black entrepreneurs, as well as $218 billion lost to disparities in housing credit.
Many leaders, across industries, have begun to understand the missed business opportunities that comes from ignoring the glaring problem is the racial wealth gap. Some have begun to build on the decades of research and numerous initiatives on these issues. Yet, despite all of this effort, progress has been frustratingly slow.
Why? Because much of the work has been focused on highlighting the gaps, and identifying solutions, rather than taking action. When initiatives are created, they are often done in silos without coordination or understanding on how to scale up solutions to this intractable problem.
Living Cities has now introduced a new approach through the Center for Wealth Equity (CWE). The CWE is designed to be a cornerstone in Living Cities’ mission to close racial wealth gaps using the collective power of philanthropy, financial institutions and local governments. The CWE was created to democratize knowledge for the capital markets about what works to close racial gaps. We will identify, codify and share best practices and solutions in creating equitable capital structures and products that create economic opportunity for all.
In short, CWE accelerates closing the racial wealth gap by transforming siloed knowledge, aggregated and synthesized from members, programs and other external sources, into actionable insights and practical tools for those positioned to create impact.
The Knowledge-Action Paradox in Racial Wealth Equity
Research has given us several effective strategies for closing the racial wealth gap. These all focus on identifying the highest leverage points to create economic activity that leads to wealth building opportunities. These include:
For most families, their wealth is in their home. It’s most likely the largest asset they own. Landmark civil rights laws outlawed discrimination in housing and lending, and established a right to fair housing for all Americans. Despite these laws, many communities of color remain underinvested. Programs that can offer some kind of home purchasing assistance (such as down payment support or rent-to-own options) can help individuals and families build wealth through their homes.
There are many programs that facilitate home purchase and protect against predatory lending. Yet, these programs frequently operate at the scale of neighborhoods or possibly cities, and because of their one-to-one nature, have a hard time creating broad-based wealth building activities.
Business ownership is another primary driver for wealth creation. To become a business owner, however, one must have access to capital, either through a “friends and family” network or from a traditional financial institution. Discrimination in lending is illegal, but many entrepreneurs of color still struggle to access capital because of biased notions of risk and overly burdensome credit application processes.
Creating more flexible capital- such as revenue-based financing or other alternative financing options – can help expand the reach of capital markets to more entrepreneurs and grow their businesses. Mentorship and peer network support can also help entrepreneurs of color navigate the challenging process of starting and growing a business. Yet, all of these interventions do not move the overall market towards equity.
One area that has received a significant amount of attention in the last several decades has been community investment. Recognizing the legacy of redlining and discriminatory capital practices, the federal government created the Community Reinvestment Act in the 1970s to allow additional capital to flow to underinvested communities. This led to the development of the affordable housing market (of which an earlier incarnation of Living Cities played a significant role), the expansion of Community Development Financial Institutions, and many other large-scale capital markets to support community outcomes.
Despite many successes, these community capital strategies have also been criticized as being too top-down and not as targeted towards the communities who need them. At their worst, community reinvestment strategies can be leveraged to meet gentrification goals and actually push out marginalized families.
Certainly, progress has been made using these three strategies, yet the combined impact on wealth equity for communities of color in the US remains stagnant. Why is this? Despite research and scholarship on what can improve the conditions of communities in terms of economic activity, and ultimately, wealth building, there have been few to none attempts to take a collective approach to wealth building.
Turning evidence into action requires a level of coordinated effort that individual role players are not incentivized to pursue—it demands forcing collaboration, contextualization, and commitment.
Introducing the Center for Wealth Equity: Catalyzing Action Through Collaboration
This is where the Center for Wealth Equity comes in. We’re aiming to be a collaborative hub designed to transform collective knowledge into tangible action.
Our mission is to break down silos of evidence, synthesize information, identify patterns, and create actionable knowledge products. But what truly sets us apart is our commitment to delivering these insights directly to capital decision-makers, tailored to their specific institutional strategies and contexts. We aim to offer recommendations for products that close gaps, but also make sense from a business perspective. This could include alternative financing options, such as using personal debt as a factor in underwriting, rather than revenue. Similar products have been developed to support all-cash businesses, for example, and have allowed for an expansion of both access to credit as well as business opportunities.
We aim to compel collaboration across three key actors in the space:
We expect that our work will end up moving markets, but we cannot begin at that scale. Instead, we must create test cases through a coalition of the willing who can come to the table with commitments to knowledge sharing and action. From there, we can build on our successes and expand our practices to greater and greater numbers.
Luckily, we already have the beginnings of a coalition of the willing. Our first test case for the Center for Wealth Equity will be to leverage the Living Cities network of philanthropy, financial institutions, local governments, and community-based groups. Using their collective knowledge and expertise, we can create our first proof points.
From Knowledge to Action: A Call for Collective Effort
The Center for Wealth Equity represents more than just a new initiative—it’s a paradigm shift in how we approach the racial wealth gap. By curating both knowledge and action, we’re creating a system of accountability for all parties involved. Fundamentally, we are looking to redefine what should be considered a “risky” investment, and what is worthy of capital. We will deliver not only solutions to prove out that redefinition of risk, but also a gathering hub for those who are committed to tapping to the business potential of an equitable economy.
But we can’t do this alone. We need you—whether you’re a policymaker, a business leader, a community organizer, or a concerned citizen—to engage with us in this process. Share your insights, challenge our assumptions, and most importantly, use the tools we develop to drive real change in your spheres of influence.
In the coming months, we’ll be diving deep into each of the effective strategies mentioned earlier. We’ll explore real-world case studies, analyze the latest research, and most importantly, provide actionable steps that you can take to make a difference.
Read more from Dr. Whitt at ahmedwhitt.substack.com