Hispanic Entrepreneurship Is Alive and Well But Should Be Better

North America is one of the world’s most dynamic regions d, with almost 500 million people and US$22.6 trillion in GDP. In 2021, Mexico, Canada, and the US traded more than US$2.4 trillion in goods and services. The last few years have shown the importance of consolidating a shared vision so that we can become stronger and increase the region's competitive advantage. This suggests an exciting panorama for Hispanic entrepreneurship.

Let’s begin with some important facts about America’s Hispanics. Four out of five are US citizens; people of Mexican origin account for 60 percent (37.2 million people) of them, with Puerto Ricans a distant second (9.3 percent). In California and Texas, Hispanics are the largest single demographic group, and they are an absolute majority in Miami, Chicago, El Paso, San Antonio, Phoenix, and San Bernardino. Almost three-quarters of those aged 5 and up speak English well. 

These statistics are interesting in and of themselves, but they hint at something important — that this is a complicated cohort. Hispanics are defined by the Census Bureau as those of Cuban, Mexican, Puerto Rican, South or Central American, or other Spanish culture or origin, regardless of race. It includes those whose families have been in the country for hundreds of years or a few weeks. Hispanics are rocket scientists and engineers, athletes and entertainers; workers and executives. Sixteen of them, including Mexico-born Mauricio Gutierrez, lead S&P 500 companies. 

So, clearly, America’s Hispanics are not homogeneous. That said, there are broad characteristics that are also worth thinking about. 

On the positive side, this group, 62 million strong, is younger, more entrepreneurial, and more upwardly mobile than the American population as a whole. Children of foreign-born Latino parents demonstrate greater economic mobility than the US-born. The share of Latinos in skilled and higher-paid occupations has increased by almost 5 percentage points in the past decade. Latino wealth has grown 7 percent a year for the past 20 years, more than twice the national rate.

On the negative side, McKinsey has estimated that Hispanics make just 73 cents for every dollar earned by white Americans. A wage gap exists even in the same occupational categories, and among those born in the US. Hispanics are more likely to be in low-wage jobs and are under-represented in high-wage employment. They have only one-fifth of the wealth of white households, and hold  only 4 percent of board seats. Finally, the pandemic hit America’s Hispanics particularly hard, with two-thirds of them employed in the five worst-hit sectors.

Entrepreneurship captures both the lights and shadows of the Hispanic experience in the US. They start more businesses per capita than any other group, and over the past five years, the number of Latino-owned employer firms has grown more than twice as fast as their white counterparts. Over the last 10 years, the number of Latino-owned employer firms — meaning those that have at least one hire other than the founder — has grown 35 percent over the past decade, compared to just 4.5 percent for everyone else. These tend to be high-quality companies, whose workers get benefits and rate them well. And while these firms are concentrated in places like Los Angeles and New York that are home to many Hispanics, it’s interesting that 45 of the 50 US states saw an increase in Latino-owned businesses.

While the rate of growth is striking, and heartening, the fact remains that only 6 percent of US businesses are Latino-owned. These also tend to be smaller than average, and their survival rate is lower. One critical issue is capital. Almost three-quarters use their own credit or savings to start a business; only one in three who try to get funding receive approval, and those who do are more likely to be asked to put up collateral — even though their credit scores are about the same. Only 2 percent of venture capital goes to Hispanic- or Black-owned enterprises. 

The bottom line: Latinos are the fastest-growing small-business segment in the US. The problem is not that there isn’t progress but that there is not enough of it. McKinsey has estimated that closing the capital gap could translate into almost 800,000 new businesses, 7 million jobs, and an additional US$2.3 trillion in additional revenues to the US economy.

America needs the resilience, optimism, and work ethic that Hispanics are known for: As the saying goes, Al mal tiempo, buena cara — in bad times, a good face. We believe that there is a market opportunity for banks, investors, and the financial industry, by ensuring their systems are fair and open. There is also room for greater professional development, through mentorship programs and by forging connections with established businesses. 

Hispanics are critical to the future of the US; by 2060, they could account for almost 1 in 3 workers. And they matter for Mexico because we need the US, which is our largest trading partner and investor, to continue thriving. America’s Hispanic entrepreneurs are a bridge between our countries and the stronger they are, the better for all of us.