Initiative for a Competitive Inner City (ICIC) recommends policies to increase racial equity in manufacturing supply chains

Three pieces of federal legislation enacted in 2021 and 2022—the Infrastructure Investment and Jobs Act (IIJA), CHIPS and Science Act (CHIPS Act), and Inflation Reduction Act (IRA)—collectively authorize nearly $1.5 trillion to reshape America’s industrial landscape. But will this money help the 107 Black-owned and 151 Hispanic-owned companies in the manufacturing supply chains that the legislation is designed to support? 

In the paper, Racial Equity in America’s New Industrial Transformation, Miles Chandler, Peter Eberhardt, and Howard Wial of the Initiative for a Competitive Inner City (ICIC) analyze original equipment manufacturers (OEMs) and first-tier suppliers in 13 key supply chains to understand how the money from the above-mentioned federal legislation could, via their policy recommendations, lead to a racially and ethnically inclusive industrial future.

The authors present data showing the extent of Black and Hispanic owners’ underrepresentation in 13 manufacturing supply chains, including within the semiconductor, wireless technology, electric vehicle, and battery industries. They report that "Black-owned businesses are 0.5 percent, and Hispanic-owned businesses are 0.8 percent of all privately held businesses in these supply chains.” They also found that, across all 13 supply chains, the median revenue was $897,056 for the 107 Black-owned companies they identified, $2.22 million for the 151 Hispanic-owned companies they identified, and $498,530 for the 15,233 white-owned companies they identified.

The research shows that the highest percentage of Black owners are in the electric vehicles and critical minerals supply chains: each has 1.2% of business owners who are Black. Hispanics own more businesses in nuclear energy than in any of the other 12 supply chains. The highest Hispanic ownership percentage is found in nuclear energy; 1.7 percent of business owners in this industry are Hispanic. However, the authors point out that most of these owners are first-tier suppliers rather than OEMs.

The authors present a list of recommendations for government agencies, OEMs, lenders and investors, technical assistance providers, and philanthropic foundations to implement to bring about increased participation of Black and Hispanic business owners in these 13 supply chains. However, they also admit that “many of our recommendations cannot be implemented in time to improve the racial equity impacts of these laws (and so will have only longer-term impacts on racial equity), others can be implemented more quickly and make a difference over the next several years ….” Below is a summary of some of these recommended “quick-win” policies.

• “Firms that receive funding or incentives through these pieces of legislation … should actively seek out minority-owned manufacturing companies ….
• Encourage financial institutions or technical assistance providers … to promote the use of supply chain finance in manufacturing supply chains over traditional asset-based lending to help smaller businesses resolve cash flow issues.
• OEM leadership should emphasize the importance of supplier diversity and incentivize procurement officers to diversify the company’s supplier portfolio.
• … Large OEMs should unbundle large contracts into smaller ones to make their procurement opportunities accessible to smaller companies.
• … State and local governments should … give preference to bids that include an actionable, specific supplier diversity plan ….
• State and local governments should make the provision of additional support to manufacturers that previously received federal funding under the IIJA, CHIPS Act, and IRA contingent on the successful implementation of their supplier diversity plans.”

The authors also note that although they focused only on OEMs and first-tier suppliers, they would expect the benefits of the recent legislation to "extend to lower-tier suppliers (where Black and Hispanic ownership may be more common) and to other supply chains," if their recommendations are enacted.

Racial Equity in America’s New Industrial Transformation: https://icic.org/wp-content/uploads/2024/05/Racial-Equity-in-Americas-New-Industrial-Transformation.pdf