Business and African Americans

Source:

 Africana: The Encyclopedia of the African and African American Experience, Second Edition

Business and African Americans

Long tradition of African Americans in business, from slave entrepreneurs to leaders of billion-dollar corporations.

From the colonial era to the present, black organizations and leaders have promoted business as a route to economic equality, both on an individual basis and through the encouragement of support for black business by black economic nationalists. Other long traditions among blacks include cooperative economic ventures, from the burial societies and mutual benefit societies of the seventeenth and eighteenth centuries to the fraternal organizations and black banks and insurance companies of the nineteenth and early twentieth centuries. The past century saw the development of black business empires built on the black consumer market and, in the late 1900s, competition and integration of black business with white corporate America.

Slavery Era

The origins of the black American business tradition lie in the commercial culture of West and West Central Africa, with its sophisticated trade and marketing activities. African traditions survived to provide the basis for the initial self-propelled economic activities of blacks in America. These activities began among African American slaves with the farming of individual plots, which provided produce to be sold by slave vendors and itinerant peddlers. Slaves also traded with each other, creating an independent slave economy that functioned both by barter and by money exchange

A small percentage of slaves—roughly 5 to 6 percent—hired their time from their owners and established their own business enterprises. These slaves were usually men working as skilled craftsmen. Some slave women also hired their time, working as market vendors, restaurant owners, and dressmakers. The first financial obligation of such slaves was to pay their owners for their time. Whatever remained could be used by the slave to pay for living and business expenses, development capital, and, finally, savings for purchasing freedom for themselves, family, and friends.

More common were the slaves who were granted decision-making authority in their owner's enterprises. Plantation owners and urban businesspeople in the South often found it more profitable to use slaves as managers than to pay substantial wages to white managers. Most slave managers worked in the agricultural sector as drivers, and their responsibilities differed little from those of white overseers. Other slave managers were supervisors in industrial and craft operations. Some owners gave their slave managers the authority to negotiate contracts, extend credit, and collect debts, and paid them cash bonuses as incentives.

An average of 10 percent of the black population was free before slavery was officially abolished in 1865. Among the freedpeople were many former slave entrepreneurs who continued their business activities after purchasing their freedom, especially if they remained in the South. Despite the North's promises of freedom, more business opportunities existed for free blacks in the slave states of the South than in the North. But regardless of geographic location, most self-employed free blacks in antebellum America operated marginal enterprises with only limited profits.

Still, some businesses established by free blacks before the Civil War (1861–1865) were capitalist enterprises in which substantial profits could be made, most commonly in specialized crafts or in personal services such as barbering, catering, and tailoring. Free blacks also owned transportation enterprises, railroad lines, and lake and river steamboats and were mine owners and lumber and coal merchants. They manufactured agricultural machinery, did business as large wholesale and retail merchants and commodity brokers, owned construction companies, developed real estate, and speculated in government bonds and bank stock. Some blacks even owned large sugar and cotton slave plantations.

As the new nation moved westward, free blacks helped to develop the frontier: as town founders, such as the former slave Free Frank McWorter, who founded the town of New Philadelphia, Illinois, in 1836, and as city fathers, such as William Leidesdorff, the first city treasurer of San Francisco, California. Leidesdorff, who died in 1848 leaving an estate worth $1.5 million, headed the list of twenty-one antebellum blacks whose wealth exceeded $100,000.

Reconstruction, Segregation, and Self-Help

Black business activities continued after the Civil War. Under the limited opportunities that became available during Reconstruction (1865–1877), the postwar period of rebuilding in the South, blacks expanded their business activities in three areas of enterprise: commercial farms, small shops primarily for black consumers, and cooperative economic ventures. The increased racial tensions and separation of the era, however, led to a precipitous decline in elite white patronage of black personal services, such as barbers and caterers.

Craft occupations had provided the base for self-employment activities for antebellum Southern blacks, but whites increasingly dominated those trades after the war. Blacks were relegated to low-paying jobs, most as virtually unpaid farm laborers, so their ability to accumulate wealth, even collectively, was insufficient for the capital needed to develop large profitable enterprises in an industrial economy. Consequently, black enterprises after the Civil War, unlike those in the preindustrial United States, existed on the periphery of mainstream business activity. Most of the few black business success stories in the period were short-lived.

In 1866 former slave Benjamin Montgomery purchased a 2,000-hectare (4,000-acre) Mississippi plantation, which he had managed as a slave, from the family of defeated Confederate president Jefferson Davis for $300,000. In 1881, however, after paying interest of almost $140,000, Montgomery lost the land. In the period after Reconstruction ended in 1877, Junius G. Groves was one of the most successful commercial farmers. Known as “the Negro Potato King,” Groves was also a produce commodity broker and had a private railroad line from his farm in Kansas to the Union Pacific Railroad to transport his produce. Although most blacks in agriculture were impoverished sharecroppers who worked a landlord's land in return for a portion of the crop, by 1910 blacks had acquired property in farmland equivalent to the size of New England.

Blacks also attempted to develop manufacturing enterprises, most through cooperative financing in the sale of corporate shares. One of the most ambitious attempts was the Chesapeake Marine Railroad and Dry Dock Company in Baltimore, Maryland, established in 1865 to build, rebuild, repair, and refit ships. The company grew to employ between 200 and 300 men by 1870 but failed in 1879. Former slave Warren Clay Coleman, considered one of the richest black men in the South at the time, established the Coleman Manufacturing Company, a cotton textile mill incorporated in 1897 and capitalized (valued, in terms of stocks and bonds) at $100,000. Coleman's diverse entrepreneurial activities, especially his real estate acquisitions, made him representative of many successful black businessmen of his era.

Few blacks, however, had disposable capital for investment, and those who did preferred cooperative real estate investments. The most successful cooperative ventures organized by blacks after the Civil War were building and loan associations that enabled blacks to purchase or build homes. Cooperative economic ventures, initially through black fraternal organizations, also provided the basis for the founding of black insurance companies, banks, and other financial institutions. Fraternal orders accumulated capital through membership dues paid to acquire benefits for sickness and burial expenses. The first chartered black bank was the Savings Bank of the Grand Fountain, United Order of True Reformers Bank of Richmond, Virginia, founded in 1888 by William Washington Browne, a former slave.

The founding of Black Towns in the late nineteenth century also reflected a black cooperative economic agenda of keeping black consumer spending and financial resources in the black community. More than 100 such towns were founded, many in the Great Plains. One of the more successful black towns, Mound Bayou, Mississippi, was founded in 1887 and featured a bank and a cottonseed oil mill in addition to its own telephone company.

Migration and Urbanization

The Great Migration of blacks to the cities of the industrial North and the continued urbanization of Southern blacks were important factors in the expansion of black business communities in the early twentieth century. Primarily, these communities featured personal service enterprises: barber shops, beauty shops, restaurants, taverns, pool halls, ice cream parlors, grocery and drug stores, cleaners and shoe repair shops, photographers, printers, florists, and services for small businesses. Blacks operated mortuaries, coal and ice delivery services, and tailor, dress, and millinery shops, as well as secondhand furniture and clothing stores. More than 200 black newspapers were being published at the turn of the century. The market for housing also encouraged the founding of black real estate companies. The successful real estate dealings of Jesse Binga in Chicago, Illinois, provided capital for him to establish black America's first private bank, which later became known as the Binga State Bank, in 1908.

The expansion of Jim Crow laws, which enforced racial segregation, led to the establishment of black hotels, vacation resorts, and transportation enterprises in the South as well as in the large urban ghettos in the North. Segregation and discrimination, along with black cooperative economics, also encouraged the founding of black financial institutions. Between 1888 and 1934, around 134 black banks were founded, including the first bank founded and headed by an American woman (black or white), the St. Luke Penny Savings Bank, founded in Richmond, Virginia in 1903 by Maggie Lena Walker. By the early decades of the century, imposing insurance, bank, and fraternal order buildings anchored thriving urban black business districts known as Black Wall Streets in cities such as Durham, North Carolina, and Tulsa, Oklahoma.

The establishment of black insurance companies began to take off in the early 1900s. The leading companies were the North Carolina Mutual Life Insurance Company, led by Charles C. Spaulding, and the Atlanta Life Insurance Company, founded by barber Alonzo Herndon. The early twentieth century also marked the founding of black enterprises with business receipts in the millions of dollars from products sold primarily to black consumers. The leading black entrepreneurs during this era were Annie Minerva Turnbo-Malone, Madame C. J. Walker, and Anthony Overton, all manufacturers of black hair care products and cosmetics. All had sales in the millions, as did the Chicago Defender, the black newspaper founded by Robert Sengstacke Abbott.

Other black manufacturers in the period built factories that produced dolls, apparel, furniture, mortuary supplies and caskets, electrical appliances, and chemicals. Black businesspeople such as filmmaker Oscar Micheaux and Harry Pace of Black Swan Records tried to capitalize on the new motion picture and record industries. Given the diversity and success of these varied enterprises, the first three decades of the twentieth century are considered the golden age of black business. The period marked the first wave in the rise of black corporate America, propelled by what black leaders at the time described as a “separate black economy,” a result of white racism in a free-enterprise economy.

The leading black economic nationalists of the era, including the rivals W. E. B. Du Bois and Booker T. Washington, encouraged black consumer support of black business. While Du Bois focused on the scholarly study of black economic activity with his 1899 Atlanta conference on “The Negro in Business,” Washington in 1900 founded the National Negro Business League. Other black business organizations followed. Black bankers, black insurance executives, black funeral directors, and black merchants all established groups to promote the professionalization and advancement of their business activities. In the 1920s, the Universal Negro Improvement Association (UNIA) of Marcus Garvey established various black nationalist business enterprises, including the Negro Factories Corporation and the Black Star Line, a steamship company.

The Great Depression of the 1930s devastated black business, exacerbating competition for the scarce black consumer dollar. In large Northern urban centers, black leaders, especially ministers, led “Double Duty Dollar” and “Don't Buy Where You Can't Work” campaigns urging blacks not only to spend their money with black businesses but also to boycott white stores in black business districts that did not employ blacks. The Father Divine Peace Movement, organized as an independent church, established cooperative stores, cleaners, and construction and real estate companies. The most successful black enterprise, while illegal, was the Numbers Games, also known as the policy racket. Black “policy kings” provided not only employment for many blacks during the 1930s but also venture capital for a number of legitimate black businesses. While the black insurance industry survived the Depression, by 1940 only five black banks existed.

Despite these difficulties, the black consumer dollar still provided the foundation in the 1930s and 1940s for the second wave in the rise of black corporate America. The leading black entrepreneurs of this era were Sarah Spencer Washington, who manufactured black hair care products; S. B. Fuller, whose home cleaning products were sold door-to-door; and Arthur G. Gaston, whose burial insurance company was the foundation of his subsequent enterprises in insurance, construction, real estate, and banking. In the 1940s John H. Johnson launched the highly successful Johnson Publishing Company.

These businesspeople, however, would be the last generation of black entrepreneurs to produce goods or services limited strictly to a black consumer market. The third wave of black business began with the crossover success of Motown Records, founded by Berry Gordy, Jr., in 1959. Motown Records was the first black company to profit substantially from both white and black consumers.

Civil Rights Era

During the Civil Rights Movement in the 1960s, demands by proponents of Black Power led the federal government to support black capitalism. Through the Small Business Administration and Department of Commerce, the federal government, for the first time, assisted black American business. Increased black control over city governments also had a positive impact on black business, especially for construction companies and suppliers who were able to gain municipal contracts under both federal and municipal set-aside programs, which earmarked a certain percentage of contracts for minority-owned businesses. Corporate set-aside programs in the automobile industry contributed to the founding of black automobile parts manufacturers and an increase in black-owned dealerships.

Alongside these governmental efforts, various private initiatives during the civil rights era worked both to increase self-sufficient black business communities and to improve black participation in the mainstream economy. The Nation of Islam, a black nationalist religious movement, established a $50 million business empire with stores, farms, newspapers, restaurants, clothing factories, and real estate acquisitions. In Philadelphia, Pennsylvania, in the early 1960s, the Selective Patronage Program, founded by Leon Sullivan and some 400 other black ministers, revived the 1930s “Don't Buy Where You Can't Work” campaigns. In 1962 civil rights leader Martin Luther King, Jr., and the Southern Christian Leadership Conference launched Operation Breadbasket to push for better economic opportunities for blacks, a program expanded by Jesse Jackson in the late 1960s.

Post–Civil Rights Era

The post–civil rights era, from the 1970s through the 1990s, saw the third wave in the growth of black corporate America, which had been heralded by the rise of Gordy's Motown. Black entrepreneurs developed businesses that paralleled and competed with mainstream white corporate America. Structural changes in finance capitalism also led to new forms of business ownership by blacks. In the 1980s, African American business expanded through acquisitions, joint ventures, mergers, and leveraged buyouts. Indeed, TLC Beatrice International became the first billion-dollar black business when it was acquired by Reginald Lewis in 1987 through a leveraged buyout.

At the same time, white corporations began to compete for the black consumer dollar. The black hair care products market, propelled by the success of Soft Sheen and Johnson Products was targeted especially. Along with Motown, these were three of the leading black businesses in the 1970s and 1980s, and all were subsequently purchased by giant white corporations. Johnson Publishing, however, sustained its leadership as the ranking black business. Johnson's success with Ebony encouraged black magazine entrepreneurs, such as Earl Graves of Black Enterprise and Edward Lewis of Essence.

After the success of Motown's crossover sound, white record companies quickly eclipsed black ones in the production of records by black entertainers. In the 1980s and 1990s, however, with the rise of Hip-Hop, a new generation of black recording artists expanded their participation to the business side of the recording industry and to other enterprises, such as clothing manufacturing and movie production.

In the television industry, two of the most successful entertainers, comedian Bill Cosby and talk show host Oprah Winfrey, acquired distribution rights to their own shows and used their profits to expand their business activities. By 1998 Winfrey had emerged as the wealthiest black person in America, worth an estimated $675 million. And as the salaries of professional athletes skyrocketed, an increasing number of black superstars, including basketball greats Michael Jordan and Magic Johnson, developed similarly wide-ranging business interests, often as joint ventures with white corporations. Johnson, for instance, teamed up with Loews Cineplex Entertainment, Starbucks, and T.G.I. Friday's to open movie theaters, coffee shops, and restaurants in black neighborhoods.

The third wave was also distinguished by a significant increase in the number of blacks in white corporate America, although by the close of the century only a few black managers had advanced to top executive positions. The persistence of a “glass ceiling” for black executives in many corporations led to a number of lawsuits. In 1999, however, Franklin Raines became the first black chief executive officer (CEO) to lead one of Fortune magazine's top 100 U.S. companies when he took over Fannie Mae, the giant mortgage company. That same year American Express tapped black executive Ken Chenault to take over as its CEO in 2001.

Despite these gains, black businesses have lagged behind the growth of other minority-owned businesses. In 1992 black business revenues amounted to only 1 percent of the $3.3 trillion earned by all U.S. firms, the same as in 1987, while the revenues of Hispanic and Asian American businesses nearly doubled in the same period. The number of black-owned firms increased from 424,165 in 1987 to 620,912 in 1992, but most of these businesses were very small—over 50 percent of black businesses in the 1990s had gross profits less than $10,000. Nevertheless, many of the set-aside programs designed to help black businesses were challenged and overturned in the courts in the 1980s and 1990s.

See also Affirmative Action; Free Blacks in the United States; Hair and Beauty Culture; Press, Black, in the United States; Segregation in the United States; Slavery in the United States; Television and African Americans; Tulsa Riot of 1921.

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