There’s an industrial revolution underway. Unless we act, it will make the racial wealth gap even worse
The U.S. economy is now navigating not one but two industrial revolutions. The first was catalyzed by digital technology, wireless broadband, and now generative AI. The second is being fueled by massive public and private investments spanning infrastructure upgrades, the net-zero transition, and a domestic reshoring of advanced manufacturing from computer chips to electric vehicles and batteries. Media and policymakers alike are focused on the location and investment decisions of large companies. However, the revolution is not just about big companies like Intel or Siemens–it’s also about thousands of small and medium-sized enterprises that supply goods and services to the government or major firms receiving government contracts or subsidies. This is the promise and challenge of what has been labeled the “ new procurement economy .” A familiar cast of large firms While much has been said about the job opportunities America’s industrial shift presents, far too little attention is being paid to the once-in-a-lifetime opportunity to build a new generation of dynamic and successful small businesses with diverse ownership in sectors that will dominate the next economy. Take the energy transition, which will implicate a vast number and range of small and medium-sized enterprises. Public and private utilities will be looking to local construction firms to complete grid and transmission line modernization projects and new solar and wind farms to support electrification. Vehicle and battery manufacturers are building and restructuring their supply chains to support the production of electric vehicles. A huge stock of commercial, residential, and public buildings will require energy efficiency retrofits. These shifts represent many billions of dollars in business opportunities in the years ahead. The new industrial moment implicates construction, design, engineering, and technology firms of all sizes, along with software and other service businesses. Yet public infrastructure projects are dominated by a familiar cast of large firms. In 2022, the top 20 contracting firms in the transportation, power, and industrial construction sectors captured between 56% and 82% of market share by revenue, according to industry data . Beyond the issue of fairness, this overreliance on a small number of major suppliers poses longer-term risks, as the pandemic reminded us, including added costs and delays for vital projects nationwide. Market forces and unprecedented federal spending have placed a renewed focus on using public and private investments to grow small businesses of all kinds, particularly Black and Hispanic-owned businesses. However, this important goal will not be achieved without addressing serious economic realities. The COVID-19 pandemic decimated small businesses, and not just those in the retail or hospitality sectors. Due to supply chain disruptions, material and labor shortages, and the added costs of inflation, small and medium-sized construction and manufacturing firms are still recovering from pandemic-related stop-gap measures and financial losses. Pandemic setbacks and closures also reminded us of stark racial disparities in business ownership. According to the Census Bureau, in 2020, Black and Hispanic-owned employer firms represented just 2% and 8% of all employer firms, respectively. Minority-owned firms are even more under-represented in the construction, manufacturing, and utility industries that are projected for huge growth. Black firms are particularly scarce, representing less than 1% of all employer firms across these three sectors. The racial gaps in business wealth are already far larger than gaps in ownership of real estate or financial investments, wide and persistent as those are. White households have about a dozen times more real estate wealth than Black or Hispanic households, but more than three dozen times as much wealth in private business assets. Conversely, viewed in terms of opportunity, Black households with an entrepreneur have twelve times the wealth of those without one. Getting this right is even more important in light of the recent Supreme Court decision on affirmative action in higher education and the subsequent ruling by a federal district court in July limiting a federal program meant to help minority-owned businesses in the competition for government contracts. We have a big supplier pipeline challenge. The new procurement economy requires serious reforms, in addition to capital that’s fit to purpose. Federal investments flow to a fragmented set of public authorities and agencies, each with its own hard-to-navigate rules, definitions, and practices, which put substantial burdens on small enterprises. Collaboration is rare between public entities and the business chambers, financial institutions, and entrepreneurial support groups that help firms grow. Supplier diversity efforts have traditionally focused on legalistic compliance rather than business building or inclusive growth. Financial products do not address the well-documented disadvantages of minority and women business owners, such […]
