The Privilege of Debt

Pandemic precautions have stretched our socio-economic fabric in many directions, and while it is essentially holding together, we see areas where the weave is growing thin and frayed edges that have been long-neglected. With the George Floyd tragedy and subsequent protests, we are faced with being a citizenry pulling together to reduce the spread of the virus, and also struggling with the painfully destructive lack of fundamental equity in our social and economic structures.

True democracy begins with true economic participation. Race-based restrictions on employment and housing have become less explicit in recent decades, but have effectively limited participation in business formation and home ownership nonetheless.1 With a capitalist, consumer culture, our country depends on economic mobility to support broad-based progress. Nothing is more American than entrepreneurship, and successful entrepreneurship relies on access to capital. The privilege of affordable debt expands the opportunity to build a business.

In the current crisis, Congress made significant money available to support small businesses (with fewer than 500 employees). These publicly funded programs nonetheless relied on private institutions to identify borrowers in need. This in turn favored business owners with existing bank relationships, and disproportionately excluded businesses owned by minorities that had smaller businesses, or no previous experience of borrowing from a bank. In this way, past injustices and patterns lead to current disparities, and the chance for change evaporates.

There is a network of progressive lending institutions that provide an infrastructural beginning for change. They are Community Development Financial Institutions, or CDFIs, and in the second wave of Congress’ funding some money was set aside to be distributed through CDFIs in particular in order to reach unconventional borrowers, including minority borrowers. The success of the program remains to be seen, but anecdotal evidence suggests many business owners of color were still unable to participate.2

The fundamental health of the economy and our social fabric depends upon one another, and as we feel our way through the halting re-opening to our economy, we must pay attention to historic inequities. We need businesses that can not only survive but thrive, and business owners who represent the diversity of our society. An economy unable to innovate and grow, with businesses unable to profitably operate, will eventually weaken outcomes for everyone. A diverse society must have a diversity of business ownership. To address social tensions we must work to reduce the skewed distribution of economic opportunities and benefits; broader availability of capital is an important beginning to do this, and supports true democracy in action.

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1 See Michelle Alexander, “The New Jim Crow” for a discussion of the racial intentions behind the drug “war” initiated in the 1980’s and subsequent sentencing changes. See also NYT Editorial Board, “The Cities We Need” for a good summary of the way that property tax structures, lending practices, school funding, and restrictive covenants created racial segregation in the late 20th century that further enhanced economic segregation as well, reducing access to educational and community-supported opportunities.

2 Ben Popken, “Why are so many black-owned businesses shut out of PPP loans?” NBC News Online, April 29, 2020.

Disclaimer: This commentary on this website reflects the personal opinions, viewpoints, and analyses of the North Berkeley Wealth Management (“North Berkeley”) employees providing such comments, and should not be regarded as a description of advisory services provided by North Berkeley or performance returns of any North Berkeley client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. North Berkeley manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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North Berkeley Wealth Management

North Berkeley Wealth Management

A values-driven wealth management firm helping clients create a sense of calm in their financial lives through responsible investment and thoughtful planning.

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