Enhancing Racial Diversity in Advanced Manufacturing Ownership: A Path to Economic Resilience

The Economic Case for Diversity

Enhancing racial diversity in advanced manufacturing company ownership isn’t just the moral imperative of our time; it’s also a strategic economic move. A diverse set of entrepreneurs contributes to a broader range of ideas and skills, fostering innovation that can lead to growth in manufacturing businesses and jobs across the U.S. This flourishing landscape of diverse ownership stimulates competition, increases the variety of goods available to consumers, and can serve to lower prices while improving quality.

Legislative Foundations for Inclusion

The recent passage of three pivotal federal laws—the Infrastructure Investment and Jobs Act (IIJA), the CHIPS and Science Act, and the Inflation Reduction Act (IRA)—has set the stage for a more inclusive and dynamic industrial landscape. These laws bolster critical sectors, such as clean energy and semiconductors, while simultaneously promoting diverse ownership within key supply chains. This alignment of economic revitalization with inclusivity is timely, especially given the current political climate.

Navigating Political Uncertainty

Despite the challenges posed by political uncertainties—like the rollback of federal diversity initiatives during the Trump administration and potential funding blocks—the opportunities presented by these legislations remain significant. It’s vital to sustain and build on the groundwork that these laws have laid, ensuring that the overarching goals of economic transformation and inclusion are not compromised by shifting federal priorities.

Role of Non-Federal Stakeholders

While federal spending has historically acted as a catalyst for industrial development, maintaining momentum requires action from various stakeholders beyond the federal government. State and local governments, universities, philanthropic organizations, private investors, and corporations all have responsibilities in promoting these goals. For instance, several states have already initiated their own semiconductor and clean energy incentive programs that are likely to persist irrespective of federal actions.

The Landscape of Black and Latino or Hispanic Business Ownership

An analysis conducted by the Initiative for a Competitive Inner City (ICIC) delved into the ownership landscape of Black and Latino or Hispanic businesses operating in strategic U.S. manufacturing sectors. In sectors like electric vehicles, semiconductors, and clean energy—all supported by recent federal laws—Black and Latino ownership remains dismally low. Data from 2023 reveals that only 107 Black-owned and 151 Latino-owned firms operate as original equipment manufacturers (OEMs) or first-tier suppliers, accounting for a mere 0.5% and 0.8%, respectively, of all such firms in the studied supply chains.

Comparing Representation

The representation of Black and Latino Americans in these business realms starkly contrasts with their national population shares. This underrepresentation is particularly alarming, given their more significant presence in the overall manufacturing workforce. Among the supply chains studied, electric vehicles and critical minerals have the highest representation of Black ownership—still only at 1.2%.

The Strength of Diverse Ownership

Despite being underrepresented, many Black- and Latino-owned manufacturers punch above their weight. The median Latino or Hispanic-owned company analyzed had 18 employees and generated $2.2 million in annual revenue. In contrast, the median Black-owned firm had 10 employees and nearly $900,000 in revenue—while their white counterparts averaged only eight employees with less than $500,000 in revenue.

The Economic Payoff of Inclusive Ownership

Increasing Black and Latino ownership in these pivotal supply chains could lead to significant economic benefits. More inclusive ownership would naturally result in a greater number of manufacturers and jobs. Importantly, this growth isn’t a zero-sum game; it won’t siphon business away from existing white-owned firms. Instead, as demand for products from these supply chains continues to rise, increased participation from diverse firms could fulfill part of that demand without displacing others.

For instance, if Black and Latino ownership could rise to reflect their combined population share of 32.7%, we could witness the emergence of approximately 6,321 additional manufacturers and 1.1 million new jobs—equating to a significant rise in overall manufacturing employment across the nation.

Promoting Inclusive Business Ownership

Addressing the ownership imbalance does not solely revolve around equity; it also involves fostering a robust economic environment conducive to innovation and job creation. Here are some strategies for state and local leaders, corporations, and community organizations to promote more inclusive business ownership:

Leverage Federal Laws

State and local governments can maximize the potential of IIJA, CHIPS Act, and IRA funding by prioritizing manufacturers with detailed plans to engage diverse suppliers. Initiatives can tie funding to these meaningful implementations, ensuring accountability and promoting supplier diversity.

Encouraging Inclusive Procurement Practices

Large manufacturers should reward procurement teams for diversifying supply chains, incentivizing smart investments in small, diverse suppliers. Banks concerned with ESG metrics might similarly offer better lending terms to firms that engage in inclusive procurement.

Access to Capital

Providing supply chain financing can help small manufacturers tackle cash flow issues. It’s imperative for private and public entities to use anti-discrimination laws effectively to combat unfair lending practices and advocate for broader access to capital within diverse communities.

Strengthening Technical Assistance

Filling the gaps left by federal cuts to organizations like the Minority Business Development Agency could offer vital support to diverse manufacturers in navigating challenges and expanding into new markets.

Support the STEM-to-Startup Pipeline

Investing in STEM education at historically Black colleges and institutions serving minorities could bolster the creation of manufacturing startups. Cultivating tighter partnerships between large manufacturing firms and educational entities would foster a diverse talent pipeline.

Emphasizing Innovation Through Equity

It’s essential to recognize the connection between racial equity and industrial policy. Enhancing ownership diversity in key supply chains is not merely a matter of fairness; it is vital for revitalizing U.S. manufacturing. The groundwork laid by the IIJA, CHIPS Act, and IRA offers a strong foundation for fostering innovation and economic growth. Even amid changing political landscapes, amplifying the voices and contributions of diverse stakeholders will keep the momentum alive, paving the way for a more resilient and forward-looking economy.