AFRICANGLOBE – One of the important aspects in the remembrance of Rev. Dr. Martin Luther King Jr. is that he, like all of us, was an evolving human being who readily admitted that as impactful as his work in the civil rights movement was, it had not reached the root of the problem facing Black Americans.
In interviews of Dr. King featured in the 1966 publication, Negro American by Talcott Parsons and Kenneth B. Clark, Dr. King acknowledged that:
…aren’t we saying, gentlemen, that a program has not yet been worked out to grapple with the magnitude of this problem in the United States both North and South? Isn’t there a need now, because of the urgency and the seriousness of the situation to develop a sort of crash program to lift the standards of the Negro and to get rid of the underlying conditions that produce so many social evils and develop so many social problems?
Dr. King added:
…I think we’ve got to face the fact in this country that because of the legacy of slavery and segregation, and the seeds of injustice planted in the past, we have this harvest of confusion now, and we are going to continue to have it until we get to the root of the problem.
Part of the ‘root of the problem’ was the lack of capital formation in Black America – in the form of accumulated savings, land and financial asset ownership, and business development.
The focus of the civil rights movement on a formulaic, “Jobs and Justice,” delivered a valuable measure of increased liberty and wage income but it has yet to penetrate the arena of wealth creation, as disparities continue to show. And with the Black unemployment rate at the same relative level of the 1950s – double that of Whites, even the effectiveness of a wage and jobs approach to equality must come into question.
This is not any indictment of Dr. King but rather reflective of the ‘harvest of confusion’ in the arena of public policy – from the ‘War on Poverty,’ through the ‘Clinton Boom,’ to President Obama’s current emphasis on income inequality – since his assassination, which has not confronted the economic root of “the legacy of slavery and segregation.”
The modern context of the problem is easier to identify – a continued emphasis on income to the exclusion of wealth.
Income – what one earns in wages and salary in a particular year can become capital, even among the poor, when it is accumulated, but the process is a lengthy one without cultural traditions which funnel pennies, nickels and dimes to a central intermediary. One of the legacies of slavery which few seem sensitive to is that it stripped Black Americans of the kind of informal savings traditions that one will discover among virtually every other ethnic immigrant group in this country – whether it is the ‘partner’ in Jamaican culture; the ‘gye’ among Koreans; the ‘committee’ among Indians; or the ‘hui’ among Chinese. The civil rights movement did not attend to the matter of cultural finance.
By focusing on wages but not how to accumulate them, years of compounded returns, loans, and investments which could have begun to circulate in the bloodstream of Black America’s impoverished urban and rural areas, did not.
And there can be no capital gain without capital formed.
The civil rights movement did recognized that capital was forming in commercial banking institutions where it was often locked away from Blacks by discriminatory policies. The movement soon took this issue on via an assault on redlining but in focusing on debt rather than equity it missed a fundamental fact of capitalism – banks say no to ideas and yes to collateral. Banks are risk-averse and don’t make loans on the basis of talent but rather what that talent owns. With the least amount of capital and collateral, even with the lever of anti-discrimination laws, the pursuit of debt finance by Blacks has always produced unsustainable progress.
So, analysis closer to the root problem – which Dr. King was seeking near the time of his death – reveals that the civil rights movement’s evolved emphasis on wages, government spending and commercial bank debt has ignored the role that capital formation and equity finance could and should have been playing.
A combined look at the thinking of Jude Wanniski and Reuven Brenner puts it in perspective for us today.
Jude once stated:
The only way a worker can get a capital gain is by putting his after-tax labor income at risk. Such income constitutes wealth, and can be consumed, saved, or invested. When saved, it earns a fixed rate of income, which typically produces no capital gain. When invested, it is put at risk with no certainty of any return. If the economy needs more capital, it can get it by increasing the reward to savings, but fixed-income savings generally flow to enterprises that have collateral. These are almost always older enterprises that have accumulated assets and can borrow against them in order to expand….. if an enterprise has few or no assets to collateralize, it can only attract the capital it needs for growth if people who have after-tax income are willing to accept a paper share of the enterprise, i.e., equity. This is why…the people who benefit most from no tax on capital gain are those who have no capital — young Black males, young Black females, Hispanics, etc.
Years later, Reuven Brenner explained in his book The Force of Finance: Triumph of the Capital Markets:
One system that has been pursued with obvious success is the melting pot of the federal U.S. government – an example of a state creating, in the course of time, a new, larger tribe with the most open financial markets in the world. When American financial markets were closed to some groups, such as African Americans, symptoms of the aggressive ‘tribalism’ that was common in eighteenth and nineteenth-century Europe surfaced there too. Militant organizations, whose goal was to rebuild the strength of the marginalized groups soon emerged. But at the same time, events such as the civil rights movement were also helping to restore trust between the many ‘tribes’ living under the U.S. federal umbrella. These new institutions were successful in transforming governments into a source of capital for these groups when private capital markets stayed closed. The debate today in the U.S. asks whether capital markets have now been opened sufficiently to members of these groups, and thus whether governments should no longer single them out for preferential treatment.
Had America granted freed slaves the right to use and own up to 40 acres and a mule, as was originally designed in 1865 when Congress gave the Freedmen’s Bureau the authority to do so – or aggressively homesteaded land – the problem of capital accumulation would have been immediately addressed. Many other issues would have remained but the capital to labor ratio would have reached an early stage equilibrium suitable for a transition period toward improved race relations.
Without that first step, Blacks have turned where they could for access to capital – government, political parties, commercial banks, and unions – but without a mass informal savings culture or a willingness to consider policies which unlock capital from equity markets and even the wealthiest individuals, we have a ratio where labor is in surplus (mass unemployment) and capital remains scarce.
Dr. King was very humbly seeking to identify and articulate all of this just before he died.
As we remember him we should remember that, too.
He could not do everything himself.
By: Cedric Muhammad