The Decline of the Investor Class and the Rise of the Entrepreneur

Part One: The Decline of the Investor Class

For the GOP and conservatives to make more inroads among minorities, we need to pivot out of the debate as it is currently framed by the Democrats and communicate directly to minorities who are entrepreneurs or members of the investor class. Based on past voting data, African American and Hispanic entrepreneurs are more likely to vote for the GOP than their peers and African Americans with investments vote for Republicans at triple the national average. The GOP's message of economic freedom and free market rights resonates with minorities who have taken control of their future by owning a business or investing.

It is time for conservatives to open up a new debate on free market rights, specifically the right of Hispanics and African Americans to take control of their economic future with minimal government interference. As this report shows, it is not just enough to appeal to this group but also to create more successful entrepreneurships and create a wider investment class.  Since 2007, the investor class among most American groups including minorities have declined.   The importance of the investor and entrepreneur class can be seen by surveys.

Surveys conducted by Americas Majority Foundation conducted in 2011 during the high point of the Tea Party movement found that investors with $25,000 or more in their retirement plans were more likely to be members or supporters of the Tea Party by significant margins. Black and Hispanic investor class members were twice more likely to support or be members of the Tea Party than non-investors. (1) The late Richard Nadler, when he was the head of Americas Majority Foundation in 2004 observed, “By the end of the Clinton administration, most Republican politicians were happy to regard the investor class as a force that would work to their inevitable benefit. Few of them considered the matter more deeply or gave any thought to how to expand the investor class or make it more Republican.”(2) Since the beginning of this century, Republicans have thought even less on how to garner this force in particular among minorities much less the general population.  With the rise of Populism movement, little thought is still being given to creating a new generation of investors and entrepreneurs.

After the Great Recession and slow growing economy, the idea of designing a strategy that appealed to the investor class seemed foolish, but the Tea Party movement that sprang up in 2009 showed the way as they pushed the deficit and domestic spending to the top of the electoral agenda. This allowed the Republicans to sweep the House and make significant inroads in the Senate, and the Tea Party could be classified as the revenge of the investor class. The ideas behind of the rise of the investor class in the last third of the twentieth century still provide opportunity for Republicans to move the free market agenda forward

Richard Nadler in his "Worker Capitalism" research found that African American members of the investor class voted Republican at a rate of 21% but still this is lower than what it should be. (3)African Americans who earned more than $100,000 voted Republicans 19% compared to 44% of Hispanics and 58% of whites. In the case of blacks, this has represented nearly triple of what Republicans received since 2008 and Hispanics numbers significantly higher than what Republicans won since 2008. (4) The only time that the GOP won 40% of Hispanic votes in a Presidential election was 2004 with George Bush, who emphasize bread and butter issues. (In Texas, Bush emphasized Republican issues of economic growth, better education and traditional values and many Texans followed his lead as Texas Republicans have done better among Hispanics than the Republicans did on a National level.)

In two separate surveys conducted after the 2010 election, Americas Majority Foundation found that between 37-39% of Hispanics and 20-30% of African Americans had retirement plans $25,000 or more. (5) Pew's Study Wealth Gap Increase Between White, Blacks and Hispanics reviewed data among different demographics and found that among Hispanics, 26% had a 401 K, 11% had an IRA and 5% owned stock for total investment averaging $42,000. Thirty percent of blacks had a 401K, 11% had an IRA and another 7% owned stocks for a net worth of $34,000. While this represented a reduction from the five years previously, it does show that many minorities have significant investments, even in recessionary times. (6) If holding $25,000 or more in investments doubled the likelihood of an African American to support the Tea Party, there is significant potential to bring more African Americans and Hispanics into the GOP. Data mining and specific channel advertising have made communicating a message of economic liberty with these minority investors and entrepreneurs feasible.

Throughout this century, self-employment and businesses among minorities increased faster than the general population with African American business ownership by 60% from 2002 to 2007 before slowing down to 34% from 2007 to 2012.  Hispanics grew by 45%, plus both demographics were involved in more startups than whites. (7)  According to census bureau, there are nearly 4 million Hispanics business formations and there are 2.6 million black business formations in this century, with Hispanics making up 20% of new entrepreneurs and blacks making up 9% of new entrepreneurs in 2016. (8) Chauncey Alcorn in Fortune observed that 40% of new businesses were started by black, Latino and Asian owners compared to 23% two decades ago.  Alcorn observed, “African American entrepreneurs look to new business opportunities out of necessity, because they have lower education levels than their white peers.” (9) For many minorities, forming new businesses is as much due to lack of opportunity where they live and they create their own opportunities.

Small business owners in urban areas know first-hand the effects of oppressive regulation, licenses, fees and taxation. Most major urban centers are controlled by Democrats and the biggest victims of their policies are minority business owners. Republicans should seize on the issue of Democrat over-regulation of business at every level of government and hold Democrats responsible for those policies at every level own their business stifling policies. Democrat class warfare rhetoric runs counter to the interests of many Hispanics and blacks whose own businesses and investments are threatened by taxes and regulations proposed by Democrat office holders from Alderman to President Obama. Richard Nadler noted, “In 2003, President Bush enacted two more pro-investor policies: reductions in the capital-gains tax and the dividend tax. The dividend tax was a new issue for most people, even in Washington, and was academic for many voters since dividend payments to 401(k)s aren't taxed. But it passed, which it probably would not have done ten years before.” Contrast this to the Obama strategy which increased both capital gain tax and dividend tax which hurt black and Hispanics who saw their own income declined. With the number of Hispanics and blacks who have financial interest in reduced taxes and capital gain taxes increasing, the Republicans have an important wedge issue to use within minority communities. Republicans strategist often detail how they will campaign among minorities every election, but as election-day draws closer, Republicans seem to forget minorities as they use GOTV programs to concentrate on their base. An Illinois state wide candidate in 2010 told a researcher from the Illinois Policy Institute that there was no need to have a minority outreach program since it was waste of time and expensive. But even in a Democratic stronghold like Chicago, there are more nonaffiliated Hispanic voters than registered Democratic Hispanics, representing a quarter of million voters. (10)

Mark Kirk barely won his Senate seat in Illinois Senate race and Bill Brady lost his governor race in 2010 by 30,000 votes but if Brady would have matched what Scott Walker received among black voters in Wisconsin and what Perry won among Hispanics in Texas that year, Brady would be governor and Illinois would have been spared a massive tax increase instituted by Pat Quinn that drove businesses away from Illinois.  Presently, Bruce Rauner is struggling to save the state from past Democratic policies that threatened to bankrupt the state. Rauner received nearly 40% of Hispanic voters in his 2014 election and was able to reduce Democratic votes in Cook County.  He talked bread and butter issues that appealed to many Hispanics voters. (11)

Democratic policy in Illinois hurt many minority business owners throughout the State and Republican failure to court that vote in 2010 allowed that policy to go into effect. African American and Hispanic investors and entrepreneurs cannot be ignored in competitive states and districts. Beyond the investor and entrepreneurial classes, Democrats policies constituted a wedge issue that Republicans could use to increase their share of minority votes. The conservative research group Resurgent Republic produced a study on Hispanic voters’ attitudes in key battleground states and demonstrated a serious flaw in Republican and conservative strategy in dealing with minorities. The Resurgent Republic found that 40-45% of Hispanics consider themselves conservative (12) but Hispanic conservatives in key battleground states Florida, Colorado and New Mexico only gave Republican candidates 45 to 61% of their votes. (13) Only 26% of Hispanics are registered Republicans in Florida and those numbers are even lower in New Mexico and Colorado, showing that Republicans have problems attracting minorities with sympathy for Republican issues. (13). Thirty percent of African American voters view themselves (14) as conservative but African American vote some 30% percentage points behind Hispanics and Republicans have not even attracted 20% of African American voters since 1960 when Richard Nixon received 35%. The American National Election Study found that 90% of black conservatives voted for John Kerry in 2004 and this has been the Republican high point in this century since Republicans were even worse in 2008, 2012, and 2016. If Bush received just 20% of the African American vote in 2000, he would have beaten Al Gore by 1.5% and would have doubled his winning margin over John Kerry in 2004. (14) For Republican strategists, a key to winning Hispanics and African American voters begins with obtaining the support of those within the minority communities who should be natural allies of the GOP. Conservative voters have given the Republican Party their vote 82% of the time over the past three Presidential elections, so is it a logical assumption that Republicans should attract a larger share of conservative Hispanics and African American voters? (15)

There have been studies to show that wealthier Hispanics and even blacks are more likely to vote Republican. As previously mentioned, Sean Trende noted that 44% of Hispanic and 19% of blacks earning $100,000 vote Republicans which exceeds the average of Hispanic and African Americans voters support the GOP. Republican campaigns should use specific channels to reach conservative Hispanics and African Americans with middle to upper middle-class incomes and investment portfolios while simultaneously using similar channels to reach minority business owners in urban areas. The biggest loss of net worth among blacks and Hispanics occurred from declining home values. The housing crash caused 35% of blacks and 31% Hispanics to have either no or negative net household worth. (16) If anything, government housing programs that encouraged more home ownership backfire as many blacks and Hispanics find their American dream foreclosed. The investor class strategy will show that Republicans want minorities to regain their wealth. Minority voters will provide crucial margins in many battleground states and with the Senate in play and the House up for grabs, every vote will count in 2018.  To ignore minority voters in the future will be to concede many states to the Democrats. Battleground States like New Mexico, Missouri, Wisconsin, Florida, Ohio, Pennsylvania, Nevada, Colorado, Michigan and Virginia are states with heavy minority population and Republicans have opportunity to increase their Senate majority in 2018 plus keep the White House in 2020. One question is: can the Republicans find the right strategy to win? In 2004, George Bush won nearly 40% of Hispanic voters and in the process won the 2004 elections and Donald Trump gain ground among blue-collar white voters in 2016 plus added additional minority voters from 2012.  If Bush had not done as well among Hispanics, John Kerry would have been elected. Trump’s ability to gain a few additional minority voters to go with increases in blue-collar white votes in key Midwest battleground states lead to his victory. (17)

Many Hispanics and blacks are concerned about the budget deficits, higher taxes, higher food prices and the price of gas, issues that favor Republicans. There are many reasons for Republican failures with minorities but this election is an opportunity for Republicans to make inroads as many Hispanic and black communities that are suffering through depression like unemployment. Minority communities that were once home thriving businesses are now littered with closed signs. If you can convince at least 70% of conservative Hispanics and 50% black conservatives who are investors and business owners to vote Republicans, Republicans can make significant inroads into minority communities and knockout one of the Democratic key linchpins for victory in 2018 and beyond. If Republicans follow the right strategy in highlighting these issues among others, we won’t be talking a close election but a rout, similar to 2008 but only in reverse, with the Republicans on the winning end.

Gallup showed the decline of the investor class since 2007.  As the following chart shows, with the exception of those whose income was over 100,000; every other group saw decline.  The middle-class and upper middle-class saw significant drops in participation in the investor class since the Great Recession.  Two thirds of those with incomes between $30,000 to $74,999 were members of the investor class but this was reduced to 54% by 2017 for a drop of 13% and those earning between $75,000 to $99,999 declined from 85% to 75%. (18)

The Stock market lost half of its value during the Great Recession and many investors removed their money from the market or they took money out to survive periods of economic difficulty.  The rise in the stock market has made up the difference in what was lost, many of the middle-class did not reinvest and did not participate in the market’s rise. This has helped in the decline in income and wealth of many within the middle-class during Obama’s recovery.

Both college graduates and those without college degrees saw reduction in investor class participation but those without college graduates saw a bigger drop in participation as members of the middle-class as many blue-collar workers not only saw themselves without jobs but they also saw their nest egg disappear.  83% of college graduates were member of the investor class before the Great Recession but at least 78% of college graduates were members of the investor class but those without college degree went from 53% to 43%.  Many of these workers became Trump Republicans during the last election as Trump made significant inroads among blue-collar and no college graduate voters.

Whites saw a decline from 66% to 60% from the Great Recession and blacks dropped from 40% to 36% but Hispanics saw the biggest drop from slightly over half to only 37% which represents a drop of 14%. As we will see later in this report, Hispanics are starting new business and creating new wealth either by self-employment or small businesses which is rebuilding communities.  

While the stock market is performing well in 2017, fewer Americans have benefited from this bull market compared to bull markets before the financial crisis.  Many have not returned to the market but part of the reason is the change in the job market.   Labor participation among men in those prime age (25-54), in particular the less-educated, declined falling from 96% in 1967 to only 88% in 2016 and men with high school degree or less than education to 83%.   Seven million or more working age men are outside the labor force and this has hurt many of the communities they live in.  And if they are not working, they are unable to save or participate in the investor class.  Not only are we looking at constraints on our productive capacity but will lead to labor shortages.  The construction industry will require 500,000 to 600,000 construction workers over the next several years. (19)  With these workers, the ability to save for the future will be crippled and worse, they will have to be dependent upon a social security system that is starting to implode financially as more workers are retiring with fewer workers supporting the system.

The past century has seen economic and wage growth and in a report for Americas Majority Foundation on Forces affecting future coalitions, JD Johannes polled voters in Kansas votes in the General elections and 48% of his respondent answer that they were just treading water and 38% stated they were falling behind. 47% of United States walk a tight financial tightrope with very little to cover unexpected expenses. (20) JD Johannes observed, “Voters are disillusioned by the current slow economic growth because their reference point is the Post World War II economic boom. Failure of the prevailing economic agreement to increase economic growth and wage growth could cause voters to look for a different solution and even reject the underlying tradeoff. The Post War expansion was an anomaly within a larger historical anomaly. WWII devastated the industrial capacity of Europe and Soviet expansion along with other countries tipping socialist/communist limited their economic competitiveness. The US and Canada were among the few major market economies ready to resume business in 1946. Thirty years later, Europe and Japan caught up.” (21) The recent slowdown has made it more difficult for many Americans to save for the future and the impact of this will be seen within the next three decades as our social security system become overburdened as many Americans will depend upon social security and less on their investments and savings.

There are competing theories about the current low-growth era with George Mason Donald Boudreaux seeing small incremental changes in innovation that leads to steady but slower growth, resulting in improve quality of life.  Northwestern University Economist Robert Gordon is more negative as he views the past growth of the industrial revolution and unlikely to be replicated.  His pessimistic view is starting to take hold as we are constantly told to accept of the new norm of slow growth.  The past administration was the first administration since the Hoover’s administration to have no year with growth exceeding 3%.  The third theory is from John Tamny who sees continued growth through classical market economic solutions as tax reduction, reduced regulations and a stable dollar.  The big debate is where we go and right now, we are living in a world of Keynesian theories on steroids with an administrative state controlling much of the economy and slowing growth down. EU in Europe and our own administrative state has been instrumental in slowing growth but there are forces outside of the state that is prospering in spite of government policies.  The fracking revolution in the United States has released fossil fuels, in the past thought untouchable due to cost and making the United States a leading energy producer. This threatens OPEC domination but as the Obama administration showed, the administrative is equally determined to end the fracking revolution and make it more difficult for fossil fuels companies to be profitable.  The fate of this battle of entrepreneurs versus the bureaucracy will determine whether we continue on the path of slow growth or enter into the world of John Tamny or even Donald Boudreaux world of sustain growth that improves our daily lives.

The Great Recession and the slow recovery afterwards saw many Americas going month to month and 61% of eligible workers dipped into their 401K and one third of Americans have no savings. (22)  With the rise of the investor class, Americans took control of their retirement savings and everyone knows that Social Security and Medicare are unstainable and insolvent.  With the decline of many workers no longer in the work force during their prime years will ensure that Social Security and Medicare become broke even quicker.  JD Johannes noted, “The voters who are not so keen on accepting the consequences of bad decisions will gladly have the government solve it for them. Even people who were somewhat prudent, but still short will be susceptible to having government solve the problem. The progressives have already made some moves in this arena with the DOL issuing regulations that make it more difficult for Financial Advisors to provide services to savers just starting out, 12 regulations that would allow states to create and mandate participation by small businesses and the ‘myRA’ program managed by the Federal Treasury Department. By making it more difficult for Advisors to work with small clients, people will default into using the State administered programs.” (23)

The result will be a government control plan similar to what many states have for their employees and the track record of many States retirement plan so give one pause in going into this direction.  If conservatives and Republicans don’t have a strategy to rebuild the investor class, the left will design an alternative plan that will relieve workers of investing and do it for them. As Richard Nadler observed, when voters have skin in the game, they are more likely to vote Republican but what happens if government is the final guarantor of savings?  JD Johannes wrote, “Retirement savers don’t care much about quarterly returns, they care about growth over 15, 20 or 30 years. The market cap of the NYSE and NASDAQ is $25.8 Trillion. According to the Federal Reserve, $7 Trillion in equities are held by mutual funds and $13 Trillion is held by Households and Not for-Profits.” For many in the investor class, the long term is what matters and while there have been a significant reduction in the investor class, 54% of Americans are still part of the investor class.

JD Johannes added this threat, “Voters see executive compensation increase and upper management rewarded while voter’s wages and portfolio’s muddle along, they may be more willing to accept the position of the Progressive Populists or the stagnant corporatism of Democrat Party because it will appear like they are addressing a problem to be solved. It may take only one more serious bear market where savers watch their accounts decline while executives escape unscathed for a new Progressive Prevailing Economic agreement to take hold.” (24)

Republicans need to advance programs that move economic growths and re-energized the American dream of workers.  If the Trump administration fails, many of his supporters will move left toward Bernie Sanders populist socialism and that will include many Trump Republicans.  37% of Hispanics and blacks are part of the investor class and economic policies that raise their income and will increase the numbers of the investor class.  In the case of Hispanics, over half were already members of the investor class before the Great Recession but the 14% drop in Hispanics as members of investor class may prove an additional obstacles in Republican efforts to attract Hispanic voters.  

On the political aspect of increasing the investor class, Richard Nadler concluded, “Portfolio ownership is associated with higher margins of support for a capital-gains tax cut among blacks and whites; among retirees, private-sector workers, and government employees; among men and women, both married and unmarried; and among Democrats and Republicans, rich and poor…Because of Americans’ increased experience with markets, policymakers must rethink their traditional aversion to policy models that include personal capital accumulation. Tax-free savings for education, health care, first-time home ownership, and small business start-ups are increasingly popular among a rising population of worker capitalists.”(25) Create capitalists and you can create supporters of capitalism.

Footnotes
1. Americas Majority Foundation data collected January 2011
2. Richard Nadler Feb 9 2004 National Review
3. Richard Nadler Feb 9 2004 National Review
4. Sean Trende, The Lost Majority page 154
5. Americas Majority Foundation data collected January 2011
6. Pew Study Wealth Gap Increase Between White, Blacks and Hispanics, July, 2011
7. EJ Reedy, Kaufmann Institute
8. Kaufmann Institute 2016 data, Census Bureau
9. Black Businesses are on the Rise in The U.S. by Chauncey L. Alcorn Fortune Sept 1, 2016
10. Data, Chicago voter information Univision data
11. Winning in 2014 and Setting the Stage for Winning in 2016 Americas Majority Foundation page 8
12. Resurgent Republican September 2011
13. Resurgent Republican September 2011
14. Resurgent Republican September 2011, and After the Storm, How the American Electorate Views Conservatives Issues in the Aftermath of the 2006 Midterm Elections by Richard Nadler 2007
15. Based on the average of exit polls, 2000, 2004, 2008.
16.  Winning in 2016 and Moving Forward To 2018, American Majority Foundation Report
17. Pew Study Wealth Gap Increase Between White, Blacks and Hispanics, July, 2011
18. Gallup May 24, 2017
19. American Enterprise Institute, Getting Men Back to Work April 2017.
20. FORCES AFFECTING FUTURE COALITIONS Prepared by JD Johannes, Principal pollster VCreek/AMG for Americas Majority
21. FORCES AFFECTING FUTURE COALITIONS Prepared by JD Johannes, Principal pollster VCreek/AMG for Americas Majority
22. http://time.com/money/4258451/retirement-savings-survey
23. FORCES AFFECTING FUTURE COALITIONS Prepared by JD Johannes, Principal pollster VCreek/AMG for Americas Majority
24. FORCES AFFECTING FUTURE COALITIONS Prepared by JD Johannes, Principal pollster VCreek/AMG for Americas Majority
25. The Rise of Worker Capitalism By Richard Nadler, Cato Institute November 1st, 1999.

 

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