Diversity in business ownership can accelerate America’s advanced manufacturing transformation

Enhancing racial diversity in advanced manufacturing company ownership isn’t just the moral thing to do—it’s also smart economics. When more entrepreneurs from different backgrounds have a seat at the table, the manufacturing sector benefits from a wider range of ideas and skills, leading to more innovation and growing the number of manufacturing businesses and jobs here in the U.S. It also drives competition and increases the variety of goods available to consumers, which can help lower prices and improve quality. 

Thanks to a trio of major federal laws—the Infrastructure Investment and Jobs Act (IIJA), CHIPS and Science Act, and Inflation Reduction Act (IRA)—the U.S. has begun laying the groundwork for a more diverse and dynamic industrial landscape. These laws are doing double duty: strengthening critical sectors such as clean energy and semiconductors while also opening the door to more inclusive ownership in key supply chains. This presents the opportunity to align economic revitalization with inclusion. 

That’s why even amid political uncertainty under the Trump administration—including the rollback of federal diversity initiatives, temporary blocks on IIJA and IRA funding, and a potential repeal of portions of the IRA—it’s important to sustain and expand on these laws, building on the framework they created to ensure that the broader goals of economic transformation and inclusion don’t unravel with shifting federal priorities. 

As Brookings Metro has previously pointed out, federal spending has historically catalyzed industrial development, yet has never been sufficient to sustain it. To keep things moving forward, other stakeholders must step up. State and local governments, universities, philanthropic organizations, private investors, and corporations all have a role to play in pushing these goals forward, especially if federal momentum slows. For example, a number of states have their own semiconductor and clean energy incentive programs that are unlikely to disappear regardless of what happens in Washington. 

To aid these efforts by non-federal stakeholders, our organization, the Initiative for a Competitive Inner City (ICIC), took a deep dive into the current landscape of Black and Latino or Hispanic business ownership in some of the most strategic and technologically advanced U.S. manufacturing supply chains supported by the IIJA, CHIPS Act, and IRA. These include key sectors such as electric vehicles, semiconductors, clean energy, and critical minerals, which are shaping the future of the U.S. economy. Regardless of what happens with federal support, these supply chains are likely to continue to grow, although perhaps less rapidly if that support is reduced. 

This piece draws from and expands on our recent report, “Racial Equity in America’s New Industrial Transformation,” which gives a complete description of our research methodology. Our report focuses on original equipment manufacturers (or OEMs, the companies producing end products) and first-tier suppliers, which sell directly to OEMs. These companies are usually larger and more technologically sophisticated than their lower-tier counterparts. For that reason, ownership of OEMs and first-tier suppliers plays an outsized role in wealth generation and technological progress. And unfortunately, these high levels of the supply chain are also where Black and Latino or Hispanic business owners are likely to be most underrepresented. 

Black and Latino or Hispanic Americans own less than 1% of these supply chain businesses 

According to our analysis of 2023 Dun and Bradstreet data and supplementary research on the products and ownership of individual companies, just 107 Black-owned and 151 Latino or Hispanic-owned firms are operating as OEMs or first-tier suppliers in the 13 key manufacturing supply chains we studied. That’s only 0.5% and 0.8%, respectively, of all OEMs and first-tier suppliers in those supply chains—well below Black and Latino or Hispanic Americans’ shares of the national population (13.6% and 19.1%, respectively) and even below their representation in manufacturing more generally. 

Among the 13 supply chains, electric vehicles and critical minerals supply chains have the highest share of Black ownership, though it’s still only 1.2% (see Figure 1).  

Black- and Latino or Hispanic-owned firms punch above their weight 

Despite being underrepresented, many Black- and Latino or Hispanic-owned manufacturers are larger than their white-owned peers. For example, the median Latino or Hispanic-owned company in our analysis had 18 employees and $2.2 million in annual revenue. Black-owned firms had a median of 10 employees and nearly $900,000 in revenue. White-owned companies in the same supply chains are smaller, with a median of eight employees and just under $500,000 in revenue (see Table 1). 

The payoff from more inclusive ownership 

More Black and Latino or Hispanic ownership in these 13 supply chains would mean more manufacturers and more manufacturing jobs, benefiting not just U.S. manufacturing, but also the entire U.S. economy. And as long as demand for the products of these supply chains continues to grow, these benefits can come about without harming businesses owned by white Americans or members of other race and ethnic groups. 

Black- and Latino or Hispanic-owned manufacturers can satisfy a portion of that increased demand while leaving the rest of their product markets open for other businesses. For the U.S. economy as a whole (not just our 13 supply chains), Brookings Metro has shown that rapid growth in the number of minority-owned businesses between 2017 and 2022 was accompanied by growth in revenue, employment, and payroll for white-owned businesses. On both theoretical and empirical grounds, then, it’s reasonable to assume that growth in the representation of Black- and Latino or Hispanic-owned firms doesn’t come at the expense of manufacturers owned by members of other groups. 

To illustrate the benefits, suppose that combined Black and Latino or Hispanic ownership rose to 32.7% (their combined population share) of all OEMs and first-tier suppliers in our 13 supply chains; that the new manufacturers had the same average employment as existing manufacturers in those supply chains owned by members of their respective group; and that no manufacturers owned by members of other groups were displaced by this growth. In that scenario, we’d see 6,321 additional manufacturers and 1.1 million new jobs. That would mean 31.4% more manufacturers and 31.3% more jobs in the 13 supply chains, and 8.2% more manufacturing jobs nationwide. 

Less dramatic growth in Black and Latino or Hispanic ownership would still yield big results. Raising ownership to match each group’s ownership share across all U.S. employer business (2.7% for Black-owned and 6.9% for Latino or Hispanic-owned) would add 1,673 manufacturers (an increase of 8.3%) and 153,525 jobs (an increase of 4.5%) to the 13 supply chains. That would grow total U.S. manufacturing employment by 1.2%. 

And keep in mind, these are just direct effects. The new manufacturers would not only create jobs at their own firms—their businesses’ activities would also lead to more jobs at lower-tier manufacturers and service-providing firms in the same supply chains, including companies owned by white Americans and members of other groups. And when the employees of the new OEMs and first-tier suppliers spend their earnings, they would support even more jobs throughout the economy. 

How non-federal actors can promote inclusive business ownership 

The current ownership imbalance isn’t just inequitable. It also harms the U.S. economy by hindering innovation and limiting the number of manufacturers and manufacturing jobs. If we’re serious about building a resilient and forward-looking economy, then we have to broaden who gets to participate in its growth. 

Even if the federal government wavers, the momentum doesn’t have to stop. Here’s how state governments, local leaders, corporations, universities, and foundations can pick up the baton: 

1. Leverage the IIJA, CHIPS Act, and IRA to institutionalize supplier diversity

• As they use their own funds to supplement or replace federal IIJA, CHIPS Act, and IRA support, state and local governments should prioritize assistance to manufacturers that have detailed plans to work with diverse suppliers. As a model, they should use the business inclusion criteria the Commerce Department attached to CHIPS Act funding for semiconductor manufacturers. 

• State and local governments should tie additional funding to meaningful implementation of those plans. 

• Manufacturers receiving support under the IIJA, CHIPS Act, IRA, and their state-level counterparts should seek to partner with minority-owned businesses. 

• State and local governments should offer public contracting preferences and additional incentives to OEMs that diversify their supplier portfolios.  

2. Encourage more inclusive procurement practices

• Large manufacturers should reward procurement teams for diversifying supply chains. 

• Banks and investors using environmental, social, and governance (ESG) metrics should offer better terms to firms that reform procurement to benefit smaller and diverse suppliers. 

• Where possible, large OEMs should break large contracts into smaller ones to make them more accessible to small, diverse suppliers. 

3. Improve access to capital

• Lenders and technical assistance providers should offer supply chain financing to help small manufacturers solve cash flow problems. 

• State and local governments should use existing anti-discrimination laws to crack down on discriminatory lending. 

• Business leaders and technical assistance providers should advocate for protecting Minority Depository Institutions from takeovers by non-minority-owned banks and support greater diversity in angel investing and venture capital. 

4. Bolster technical assistance and training for diverse-owned suppliers

• Fill gaps left by federal cuts to the Minority Business Development Agency by increasing state and private support for technical assistance organizations serving diverse manufacturers. 

• Une non-federal funding to enable operators of APEX Accelerators (which currently assist companies that want to become government suppliers) to include private sector supply chains and tailor curricula to companies that wish to become suppliers to large manufacturers.  

• Technical assistance providers should help diverse-owned suppliers expand into new markets, including those that are related to the ones they currently serve. 

5. Strengthen the STEM-to-startup pipeline.

• Boost state and private funding for STEM graduate education at historically Black colleges and other minority-serving institutions. (These educational programs are a source of manufacturing startups.)  

• Support further research into barriers that Black and Latino or Hispanic students face in completing these programs and implement programs to help them graduate. 

• Build tighter partnerships between large manufacturing firms and minority-serving institutions to diversify the talent pipeline and startup ecosystem in advanced manufacturing, especially in the high-tech, renewable energy, and infrastructure-related manufacturing fields that are the focus of the IIJA, CHIPS Act, and IRA. 

Equity and innovation go hand in hand 

Racial equity and industrial policy are often treated as totally separate concerns, but they’re deeply intertwined. Ensuring more inclusive ownership in our key supply chains isn’t just a matter of fairness. It’s essential for revitalizing U.S. manufacturing and building a more innovative, competitive, and resilient economy. More diverse ownership in advanced manufacturing strengthens supply chains, fuels job creation, and expands innovation. 

The IIJA, CHIPS Act, and IRA laid the foundation. Even if the political winds shift, that groundwork remains. It’s up to other players—governments, investors, educators, and business leaders—to carry the torch forward.