06/15/2021 | by
Thomas Shapiro

Thomas Shapiro is the David R. Pokross professor of law and social policy at The Heller School for Social Policy and Management at Brandeis University. He co-authored Black Wealth/White Wealth with Melvin Oliver, president of Pitzer College in California and a former vice president of the Asset Building and Community Development Program at the Ford Foundation.

More than two decades after it was first published, Black Wealth/White Wealth: A New Perspective on Racial Inequality continues to speak to the enduring factors impacting the creation of wealth and its unequal distribution in the United States.

REIT magazine recently spoke with co-author Thomas Shapiro about the history of wealth creation, social inequality, and racial division in America, and the potential to level the playing field and engender prosperity for all in the future.

You indicate that you wrote Black Wealth/White Wealth to better understand racial inequality in America. What are some of the key findings?

I would start with a key metric of where we stand in terms of racial inequality today. I think if there’s any single indicator to look at, it’s rooted in the history of the accumulation of wealth in this country. Unlike income, wealth accumulation is something that opens a window to our past as a culture and we are able to research and analyze how wealth has been, and continues to be, accumulated generationally in our culture today. 

Wealth is something that can be passed along from generation to generation. And so, when we look at wealth in relationship to racial inequality, it allows us to look at both the past and current conditions under which different races, cultures, and genders might have larger barriers set in front of them for accumulating wealth. That is generally the larger framework that we need to look at here to better understand how to stem or possibly end wealth inequality in America altogether.

Can you drill down further on this concept of the varying barriers and opportunities to building wealth that are dependent on race in the U.S.? 

It’s clear that our federal and state governments and institutions have provided ample opportunities for wealth accumulation, mostly for white populations. Conversely, there are often barriers that have been put in front of people of color and African Americans. 

Historically, we can trace back to a couple of years before the Civil War ended, when President Lincoln and the government enacted the Homestead Act and later the Southern Homestead Act (SHA), which were reconstruction, expansionist land-grab policies that implied that, arguably, any person, white, Black, female, or immigrant could apply for free land grants. Of course, certain criteria had to be met prior to, and for a period after, assuming ownership of that land. 

Unfortunately, the SHA lasted only a decade, ending with nearly 28,000 individuals having been awarded land. When the Homestead Act terminated in 1934, almost 70 years later, more than 1.6 million white families had succeeded in becoming landowners. Meanwhile, only about 6,000 African American claimants ever received final land patents from these programs. This created a historically based wealth chasm in this country that remains a troubling legacy. 

Skip to today, and we still see instances of red lining, the discriminatory practice where accessibility to mortgages and other financial services are often out of reach for residents of certain area codes or are biased, based on race or ethnicity. 

This all leads to a philosophically liberal paradigm that continues to create wealth disparity in America. Further, it indicates to me that by removing these kinds of systemic barriers, opportunities could then become relatively equal, notwithstanding different skillsets and different motivations that people might have. 

There will always be some level of inequality, but the assumption is that if we remove the barriers to accessing opportunities—whether it be higher education, true equal opportunity financing, home and business ownership, or jobs—then we’ve got a chance to get to relative parity in wealth creation that is absent bias. 

Unfortunately, the empirical work that Dr. Oliver and I have done in our research shows that if we look at African Americans and whites with relatively equal education, jobs, and somewhat equal income, that the wealth difference is still staggering between races. So, there’s something more that needs to be addressed. 

We need continued access to a sort of “historical black box” of information that allows us to first identify the patterns and then ultimately break the cycles. We know that it’s wealth equality that will get us there.

What’s the difference between a high income earner and a wealthy person, and what are the general demographics pertaining to each category in the U.S.?

If we were to look at the Forbes List of the 25 Wealthiest People in America, generally that tends to be predominantly white. Whereas, if you look at a list of the 25 highest income earners in the U.S., there’s probably going to be a majority of people of color, including sports and entertainment stars. 

High income earners dominate dynamic labor markets. Even though we are talking about people that earn remarkably high incomes, it doesn’t necessarily translate into wealth. A metaphor that I often use is that income is like a stream that runs by our homes. Most families take away from that stream every month for necessities like shelter, utilities, food, clothing, and hopefully some entertainment. Whereas wealth is a deep reservoir of resources that’s stored and used first in terms of emergencies. It’s also used for moving ahead, for opportunities like starting a business or paying for higher education.

Black Wealth / White Wealth book cover

And so, the demographics of wealth and income look quite different. There are very few African Americans or Latinx individuals or families that make any list of the top wealth accumulators in the U.S. In simpler terms, the median wealth of African American families equates to about a dime for every dollar of the median wealth of white families. Wealth provides an accessible pathway to the things that we often talk about in terms of the American dream, like home ownership, business development, higher education, and philanthropical giving. If you don’t have wealth, getting to those places can be a lot more challenging.

If you look at a dollar-for-dollar comparison between the median income of whites and Blacks, not just the middle-class, but everybody, historically, it’s closer to 55 to 60 cents to the dollar ratio between Black and white incomes. There’s an increase added for specific occupations that raises it to a 75 cents to the dollar ratio, which is obviously an improvement.

This tells us that work and occupations and choosing our professions matters greatly, but it doesn’t entirely close the gap. This is a “black box” question that we need to continually be asking to formulate new and disruptive solutions for wealth equality. How come, if occupations are relatively equal between Blacks and whites, aren’t incomes equal too? 

You refer to the “racialization of state” as having a devastating impact on African Americans. What do you mean by this?

The word racialization refers to how race is implicitly considered when structuring opportunities like the ones inherent in public policies. A good example is social security. When social security was passed in the 1930’s it was not a law that said that “all workers and employers are to be mandated into this system, except for Black workers.” However, it did say that all workers are mandated into this system, except those that are employed in agricultural and domestic work. 

At that time, agricultural and domestic workers were predominantly African American. So, we set up this wonderful universal pipeline of lifelong social security, and assistance for those children of workers who died on the job, or families that are raising children with disabilities, or they themselves have disabilities, except unfortunately we initially excluded African Americans and Latinx workers from the program.

It wasn’t until the 1960s that those occupations became part of the system too. And even today there remain contrasting issues in social security benefits that still need to be addressed. 

Is there any difference to how Blacks and whites accumulate assets?

About 25% of whites in the U.S. inherit money compared with about 7% of African Americans. But when we compare Black to white inheritances it roughly translates to a 10:1 dollar ratio of white inherited dollars to Black inherited dollars. The difference is remarkable, especially if we are thinking about inheritance in terms of transferring wealth to the next generation. 

Another difference is that most of the financial assets that African Americans have are in the form of home equity. Homes are not a discretionary value. You can’t sell your home without replacing where you live somehow. The portability of assets is much more encumbered for lower and middle-income families. Answers to questions like who pays for college or who helps with the down payment on the first home continue to impact wealth distribution in this country.

We often don’t think of a transfer of inheritance as a transfer of wealth, but in its simplest terms it’s the difference between a young person graduating college that’s able to start building wealth from their very first paycheck, or that same graduate starting off by servicing the debt of large education loans before they even can begin to build up their own wealth. In both instances the gap widens all the way around. 

What are some examples of institutional policy factors that continue to contribute to wealth inequality, and are there any immediate changes that could start decreasing the gap?

Dr. Oliver and I are currently involved in student debt, wealth inequality, and race conversations that are going on in our country, on our college campuses, and in our government. Studies show that African Americans have college and higher education costs and student loans that are considerably higher than other demographics. So, canceling or forgiving a portion of student debt would be a huge advance and could have an immediate impact, not just for Black and white students, but for everybody. It would also be a good step toward narrowing racial wealth inequality.

Another area is home ownership and the ways in which the federal government subsidizes home ownership through federal programs and allows mortgage interest deductions. Undoubtedly these deductions favor the wealthy. Obviously, you must be a homeowner to be eligible for mortgage interest deduction, but it also means that there’s a dramatic difference in home ownership rates regarding whites and Blacks. 

Significantly fewer African Americans qualify for federal programs for housing too. So that’s another area that we could certainly benefit from with a lot more transformative reform related to home ownership qualifications and the current mortgage interest deductions allowed by the federal government. 

We are starting to see some prevailing research on the property and home appraisal business in this country and how that contributes to discrimination and the lowering of home appraisal values for African Americans by keeping equity values in certain neighborhoods lower than they otherwise would be. 

We’ve also seen a significant widening of the wealth inequality gap due to measures that we took in our society during the pandemic, including work disruptions, quarantining, and essentially shutting down certain industries entirely. In most instances, the lowest paid workers and the disenfranchised felt the most pain during this time, while the wealthiest 1% increased their net incomes at staggering percentages. 

So, where do we go from here to decrease the ever-widening gap and try to ensure that America remains a land of opportunity, not just for wealthy people, but for all people of all races and socio-economic backgrounds? I think it starts with continuing to understand better the plight of what we now term essential workers.

 The pandemic has shown us how functionally necessary these jobs are to modern living. I think the way to go from here is to build up the structures of economic security around this incredibly large society of essential workers and around those occupations going forward. There should be a significant increase in the minimum wage, tax credits and social program assistance and workplace-based programs for working parents and their children. We should not be living in a society today where people are working 40 hours a week and still living in poverty. 

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