Racial Economics: How White Privilege has led to White Disadvantage
ILLUSTRATION BY ANDRÉ MAYO / BROWN VENTURE GROUP
By Dr. Paul Campbell and Dr. Christopher Brooks Co-founders of Brown Venture Group
Since the death of George Floyd, many of our nation's largest venture capital firms and corporations have made public commitments to fight against systemic disparities and economic injustices. However, for Black and Brown contributors, there is not a lot of confidence that these familiar platitudes and toothless corporate initiatives will not end up in a wastebasket of good intentions alongside many others. Put differently; often, there seems to be a sincere desire to make a meaningful impact regarding equity and inclusion, however, many of these efforts are all but doomed to fail because the solutions are architected "for" communities of Color instead of "with" communities of Color. Moreover, these proposed solutions very rarely deal with the systemic causes of economic injustice; rather, they often end up only addressing the symptoms of structural disparities, which at best are useful press release fodder. Like Bill Murray's character, Phil Connors, in the movie "Groundhog Day," we as a nation appear to be stuck in a cyclical pattern. That is, a publicly filmed injustice is done to communities of Color. Organizational leaders quickly rush out to make statements such as "racism, in any form, will not be tolerated in our institution." Committees are formed, frequently without any significant representation from communities of Color, to develop new programs and initiatives to increase diversity and inclusion. Some organizations even go so far as to "put their money where their mouth is," allocating capital to make investments into Black and Brown communities. Naturally, a sense of optimism begins to form as these new initiatives are rolled out. With great exuberance, leaders begin to implement their plans only to be met with failure after failure. This leads to a return to the status quo and a predictable explanation of having a "fiduciary responsibility to shareholders and the bottom line."
In the postmortem analysis, leaders found that the money their organizations set aside couldn't be invested responsibly. The talent pipeline they have tried to fill with racially diverse candidates could not be filled. Moreover, it turned out that they needed to tolerate just a little unconscious bias after all because it came from their high performing lieutenants. Frustrated by failure and feeling that their plans were foolproof, leaders began to look for the causal factors which led to their failure. To understand where they went wrong, they pulled out their organizational best practice playbook, which historically has been part of their secret sauce. They brought together what they thought were the brightest minds within the organization and paid millions in consulting fees to the Big 4 to work with their executive teams. "It just doesn't seem to make sense," one executive stated "How could it be that by doing everything right, we keep on getting everything wrong when it comes to D&I?" This is a fair question and one that many leaders have asked themselves in recent days. It turns out that their secret sauce wasn't so secret, and their organizational playbook is actually a white-labeled centuries-old institutional playbook. In fact, when leaders finally have decided to pull off the paper-thin cover on this white-labeled playbook, they are shocked to read, "The institutional guide to structural racism."
In this article, we will explore how White privilege has led to White disadvantage. We will also introduce the concept of racial economics, which uses the principles first developed by behavioral economists to better understand how America's national narrative on race formed and the implications that it has had on your organization. Finally, we will unpack three disciplines that leaders can use to reduce the impact of systemic and structural racism on your organization's bottom-line. Let us first begin by exploring how White privilege has led to White disadvantage.
White Privilege or White Disadvantage
If you were one of the executives who ran out and bought Robin DiAngelo’s book “White Fragility (DiAngelio,2019)”in the last year, perhaps you were left feeling powerless at your ability to make a meaningful impact as it pertains to systemic racism. Or maybe the “White Privilege” the book unpacked, had you feeling just a little guilty. As important as it is for White executives to understand their own fragility and privilege, we think it is equally important that executives understand how White fragility and privilege has actually led to the less understood “White Disadvantage.” Unlike White privilege, White disadvantage is subtle and extremely problematic when it comes to hiring top talent, developing high potential leaders, understanding market opportunities and building healthy deal flow. Take hiring for example, as sophisticated as the platforms we have developed in the market for hiring and recruiting talent, a disproportionate number of jobs are still filled from personal networks. This means that your available pool of talent, at best, only extends to the third-tier relationships of your current team. Why is this significant? According to a 2015 pew research study on race and friendships, 81percent of White adults in the study reported that all or most of their friends are White (Paker, Horowitz, Morin, & Lopez, 2015). What this means, unfortunately, is that if your organization continues to rely heavily on referrals to fill its talent pipeline, it is unlikely that your organization will achieve meaningful progress regarding diversity and inclusion anytime soon. The result of this homogeneity of talent also means that your leadership team is at greater risk of groupthink. The implication of this shared cultural bias has resulted in institutional blind spots, causing leaders to fail to recognize profitable emerging market opportunities or potential threats to their organization's competitive advantage. Just think about the missed opportunities created by the biases of record executives in the late 1970s who didn't take the hip-hop industry that created billionaires like Jay-Z and Kanye West seriously. From a venture capital perspective, which relies heavily on relational gatekeepers, this friendship gap has led to a severe lack of deal flow from communities of Color. For example, in 2009 roughly 1% of venture capital was invested in Black founders. The explanation given by venture capitalists is that "unfortunately there is just simply not enough of investable Black and Brown led companies." This point of view makes sense given who is doing the gatekeeping. The question is, are they right? Not according to a February report published by The Kauffman Foundation. The data in their report showed a median multiple realized return from positive exits as 3.3 for Diverse Founders as opposed to the 2.0 of their White counterparts (Nichols, Collin , & Sundaramurthy, 2020). Moreover, a September study recently released by economists at Citigroup suggests that the economic cost of this White Disadvantage over the past 20 years alone has been about a $13 trillion loss in potential business revenue with an additional cost of roughly 122 million unrealized jobs in the United States alone (Peterson, Mann, & McGuire, 2020). The disconnect between capital and high potential talent was the genesis of the idea that led the authors to co-found Brown Venture Group (BVG). Founded in 2018 in Minneapolis, Minnesota BVG is a Black-led venture capital firm focused on Black, Latino, and Native American technology entrepreneurs. What BVG thinks, and our research has substantiated, is that due to racial and gender discounting technological entrepreneurs of Color, in particular, represent the most under-activated group of contributors with the greatest upside in venture capital today.
Before leaders repeat their D&I sins of the past, rushing out with premature half-baked reactionary plans to solve racial disparities, we would like to provide executives with a lens that better equips your teams to overcome the obstacles that have created White disadvantage. Let us now unpack racial economics.
Racial Economics
What is racial economics? It is a set of principles which builds on the groundbreaking work of Amos Tversky and Daniel Kahneman, the fathers of behavioral economics. It provides a useful lens to view the multigenerational impact of structural and systemic racism both on economic and human flourishing within communities of Color in America. Moreover, it provides a set of cognitive tools that expose deficiencies within your organization's current D&I strategies. Take, for example, the "Talent Pipeline" myth. Recently the CEO of Wells Fargo, Charles Scharf, made headlines with his comment stating, "there is a very limited pool of Black talent to recruit from." Scharf later apologized but has nevertheless become easy prey for both the public and media. Suppose we first assume that Scharf is not inherently evil and like Kerry Patterson taught us in his book "Crucial Conversations," withhold judgment long enough to find out what is missing from our narrative about the Wells Fargo CEO. In that case, we must ask ourselves the question. Why would a reasonable and rational person make this insensitive statement during such a racially charged moment in American history? Put differently, assuming the best of Scharf, how could a sincere person be so sincerely wrong?
To simplify this complex issue, I will use the framework to explain causality provided by author Rosetta Stone in her 1975 children's book, "Because a Little Bug went Ka-Choo (Stone, Frith, & Seuss,1975)." Because of the multigenerational implications of Black Codes and Jim Crow laws, poverty was artificially manufactured within communities of Color. Because of this artificial poverty manufactured by the "visible hand" of the market ( i.e., government and financial institutions) at the end of the civil war; the decision was already made for White contributors as to how easy it would be to form organic community building relationships with Black and Brown contributors. Because of the friendship gaps caused by artificially manufactured poverty, leaders such as Charles Scharf cannot easily call to mind contributors of Color with the skills and characteristics necessary for the financial industry. Nor will they observe a robust diverse talent pipeline, precisely because of the way talent has historically been placed in the pipeline, that is, through a personal introduction by a friend or by a friend of a friend. This is not to say that leaders should not be held accountable for making such an insensitive statement, rather, that when one pauses long enough to disentangle the people from the problem, we may find the problem has more to do with the institutional playbook and less to do with the leader.
Now that we have provided the lenses of Racial Economics let us unpack and explore a few prescriptive solutions to White disadvantage within your organization.
Historical Choice Architecture
As corporate leaders and small business owners in Minneapolis and St. Paul watched their brick and mortar stores burn to the ground, a mixed bag of thoughts and emotions began to swirl around in their heads. This cognitive dissonance was understandable. On one hand, the murder of Mr. Floyd by former Minneapolis Police Officer Derek Chauvin was completely repugnant, and on the other hand, the burning and looting of local job-creating institutions vital to the community by protestors felt a little nonsensical. The truth is, both of these events are merely the result of the socioeconomic implications of structural racism which was historically architected by the government, financial, educational, and business institutions. Take, for example, the government authored, and bank executed policy of redlining. This policy has had a multigenerational impact on economic and human flourishing within communities of Color and was a form of choice architecture. That is, the practice of influencing choice by” organizing the context in which people make decisions. How so? It necessarily led to the creation of artificial poverty within Black and Brown communities and also formed man-made obstacles to developing meaningful friendships between races due to their proximity to each other. The context that resulted was a sort of taxation due to the lack of relational representation. Assumptions were made based on second-hand biases, thereby forming a false narrative regarding the causality of the plight observed by poverty tourists. A great example of this was provided by Mehrsa Baradaran in her 2017 book “The Color of Money (Baradaran,2017)." When the brave men and women of the United States Armed Forces returned from World War II, the federal government provided White soldiers with a piece of the American Dream through FHA underwritten and VA-backed loans. Unfortunately, Black and Brown soldiers who fought to preserve the freedoms experience by their White brothers in arms would only return to the American Nightmare. This nightmare started back in the middle passage, continued with slavery, was repackaged as the convict leasing system (slavery 2.0) during reconstruction, and was made all but permanent with the separate and not equal conditions created by Jim Crow laws. How so you ask? When Black and Brown soldiers returned from the war, they were precluded from the same benefits that the FHA and VA provided White soldiers. In fact, the government did little to hide its proclivity to racist ideals stating in the FHA underwriting handbook, that they would not underwrite loans to "racially disharmonious people groups," otherwise known as non-white. This was clearly not the invisible hand of Adam Smith’s free-market capitalism.
Returning to the example of the little bug that went ka-choo; because of the low cost of capital and zero down mortgages provided to White World War II veterans for homeownership, wealth-creating equity was realized. Because of the wealth creation generated by FHA underwritten and VA-backed loans, these veterans could afford to send their kids to college. Because their kids went to college during the transition from the industrial economy to the knowledge economy, they were able to earn degrees that would land higher income earning careers. Because of the higher incomes earned by their descendent and the continued accumulation of equity in their homes, these veterans and their children were better equipped to weather the economic downturns caused by the oil crisis of the 1970s and the recession caused by the Iran and Energy crisis in the 1980s. Because of the advantage created by multigenerational wealth and our national historical amnesia regarding the socioeconomic implications of redlining, a conclusion has been made that communities of Color simply lack the initiative and discipline needed to pull up themselves by the bootstraps. This choice architecture has created the context and notion of “at-risk” communities. At-risk of multigenerational poverty created by the visible hand of oppression, at risk of physical and mental health issues due to proximity to hazardous industrial plants, and at risk of fish in a barrel policing, that is, man-made conditions that necessarily led to crimes of desperation, incarceration and repeat offences. This is not to say that individuals should not take personal responsibility for their actions, rather, as a nation perhaps America has failed to take responsibility for the actions which created “at-risk” communities.
Societal Availability Heuristic
You might be thinking, “this race issue” is getting blown out of proportion. The showy wealth by professional athletes and entertainers combined with a few business professionals of Color has many saying, "look how far we have come since the 1940s and 1950s." "We even elected a Black President of the United States." Although significant and meaningful progress has been made since the ’40s and ’50s, when taken as a whole, we still have a long way to go. The fact that we can easily call to mind the successes of Oprah Winfrey or President Obama is known as an availability heuristic. A heuristic is a quick cognitive mental shortcut (rule of thumb) that allows people to solve problems and make a quick judgment. This particular heuristic is a cognitive judgment about the likelihood of an event based on how easily an example, instance, or case comes to mind. The success of a few Black and Brown professionals, or what W.E.B Dubois referred to as, "the talented tenth,” has caused many in our nation to prematurely declare victory over the economic implications of racial ideals, such as the doctrine of separate but equal. In fact, the extraordinary success of this talented tenth has reinforced our national false doctrine of the “rugged individualist," putting the onus on contributors of Color who have been unable to pick themselves up by strapless boots to achieve this elusive "American Dream." The relevance of this societal availability heuristic is important to understand for several reasons. First, it has led many White contributors to overinflate their own abilities. Meaning, they easily confuse the opportunity provided to them by the historical visible hand of racial oppression, that is, to turn their capabilities into abilities, with their actual competitive advantage they mistakenly thought was given to them by the "invisible hand of the market." Put differently, they have confused their historical cheat code as a sign of their actual skill. Secondly, despite the economic gains made by communities of Color since the '50s and '60s, the middle class and affluent Black or Brown professionals are the exceptions, not the rule. Furthermore, these middle class or affluent professionals often do not have the same economic prospects as their white counterparts, needing to send back remittance payments to loved ones who have not yet been able to escape the American slum. Lastly, as we shall soon see, it has caused some to stop trying to solve the problem of racial inequality. If we now, as some have claimed, live in a post-racial color-blind society, where one is supposed to be judged by the content of one's character, why then would anyone keep trying to solve the problem that has already been solved? Yes, we have come a long way, nevertheless, we have a long way to go.
Organizational Bounded Rationality
Before executives start setting S.M.A.R.T (specific, measurable, achievable, realistic and time-bound) goals around diversity, inclusion, and systemic racism, perhaps we should pause for a moment to consider the implication of bounded rationality on your organization's historical response to racial disparities. That is, the limitations of your leadership team's thinking regarding the issues, availability of inclusive as well as relevant information and the time frame in which you and your team have been given by shareholders in which to form and execute effective organizational diversity strategies. For example, as a result of the historical choice architecture mentioned above, more often than not diversity and inclusion are not tied to executive compensation. This is because leaders have failed to calculate the economic opportunity cost of racial bias to their organization and therefore view effective D&I strategies as nice to have and not necessarily a bottom-line priority. Furthermore, as a result of productivity gains brought on by technologies such as mobile handsets (mobile computing devices) organizational leaders more and more are experiencing the effects of information overload and decision fatigue. This fatigue has increased the frequency and vulnerability of leaders to satisficing, that is, making a good enough decision rather than the most optimal one. Why is this important? If executives continue to fail to bring diverse and inclusive leadership to the tables of decision, they will most certainly miss out on additional bottom-line results that diverse led organizations have been proven to deliver. This is because, without racially diverse leadership, organizations will continue to miss out on growth opportunities and revenue due to cultural illiteracy and biases formed by historical choice architecture as well as societal availability heuristics. Like the late Peter Drucker said so eloquently, “efficiency is doing things right while effectiveness is doing the right thing.”
The BIPOC Anchoring Heuristic
The terms ghetto, thug, and at-risk youth are frequently used as political rhetoric when describing communities of Color. These 21st-Century linguistic weapons of mass destruction are subtle but nevertheless, have had a similarly devastating effect as did the Sambo imaging used during post-reconstruction America in the early 20th Century. In fact, this rhetoric has had such a devastating effect as it pertains to the national narrative on race, that an anchoring heuristic has formed regarding BIPOC communities. In other words, instead of starting from the same place as White contributors, the burden of proof for Black and Brown contributors has rested solely on their shoulders. That is, to prove that they are not lazy criminals with no moral compass who have a desperate need for patriarchal intervention in order to make any meaningful contribution to the vitality of our nation. Moreover, in addition to having this burden of proof, when contributors of Color do manage to make it into significant roles within corporate America, there is an ongoing implicit expectation that they provide continuous evidence that they have been properly assimilated in “business professionalism,” or in other words, White culture. The combination of these burdens has resulted in the persistent and consistent experience of symptoms of post-traumatic stress disorder (PTSD) within the community (Williams, 2015)
Worse still, the trauma caused by this anchoring heuristic has led many BIPOC professionals to develop the coping mechanism of extricating themselves from their culture, community and heritage in order to survive. Put differently, the advantage White contributors have in organizations over contributors of Color, may have more to do with the lack of cognitive strain that naturally comes from having to daily suppress their culture, than it does with the capabilities or capacity of the individual professional.
Shift from Paternalism to Partnership
Given the historical impact of systemic and structural racism in America, it is easy to see how many contributors could have mistaken the difference between opportunity and capability. Opportunity is the event. Capability is the potential that one can make of the event. This confusion has led contributors to assume that the reason they were given said opportunity had something to do with the capacity or limitations of those who did not. Naturally, this has led to the paternalistic treatment by the haves, to the have nots. As it pertains to race, the opportunity afforded to White contributors by structural racism has resulted in the deterministic response by well-intended leaders to do things “for” communities of Color as opposed to doing things “with” communities of Color. Why is this distinction important? When leaders do things “for” communities of Color, the engagement is often viewed as a “project” and the outcomes limited by secondhand bias. On the other hand, when leaders do things “with” communities of Color, Black and Brown contributors are viewed as partners, which necessarily brings representation to the table of decisions so that co-created solutions can be formed and executed. Moreover, as a result of doing things “with,” new markets will be identified, inclusive top talent is easier to spot, and inclusive deal flow is realized by partnering up with inclusive fund managers.
Neutralize Bias
In recent times, the solution to structural racism has been to send leaders to implicit bias training. Although we think this is an important first step, until the knowledge travels the short distance from their head to heart, we have seen leaders quickly return to past norms under the pressures that come with running their organizations. Therefore, we recommend neutralizing implicit bias before it even occurs. We are not implying that it is possible to eliminate all bias from your organization altogether. Rather, we are advocating that leaders think through the areas where the implicit bias may have the greatest adverse impact on your organization and then create solutions that neutralize its effect. Take, for example, the idea of eliminating racial and gender indicators such as names early on in the selection process. This would then cause leaders to focus more on the potential ability of contributors to add value to their organization thereby increasing the probability of having a more inclusive talent pool in which to select their next hire. We understand that your context may not allow you to do this, however, the idea here is that leaders spend more time thinking through solutions that neutralize bias rather than relying on imperfect people to unlearn unconscious cultural biases which they been inculcated in for years.
Cultural Residency
When it comes to systemic racism, we understand that as a nation we did not get here overnight. As such, it is somewhat irrational to assume that reading a few books, taking a few seminars or volunteering a few hours a week after work to help “at-risk youth” is going to undo what took centuries to create. This is not to say that these activities are not important, rather, that it is going to collectively take a significate investment of time by leaders in order to develop meaningful cultural literacy. Similar to medical doctors in training, after the books, seminars and implicit bias training we think that leaders need to invest a significate amount of time in "Cultural Residency." What this means is placing yourself in an uncomfortable cultural setting in which you wouldn’t normally find yourself. Listening to perspectives, experiences and opinions divergent than your own and doing so without rushing out to commit cultural malpractice by prematurely diagnosing issues. It requires leaders to feel the discomfort of being culturally outnumbered. Moreover, to capture how they think this feeling of discomfort would impact their ability to be their full selves in a work setting. It also requires leaders to think through how these experiences and perspectives as well as the opinions by elders in their community, would have shaped their own view of the world. What we have observed, is that leaders who have invested the time to do a cultural residency, often are better able to identify their own cultural illiteracy. Furthermore, as a result of this experiential learning, it tends to lead to better outcomes than does hiring a D&I consultant to provide a report on gaps in your organization.
Conclusion
In this article, we have explored how White privilege has led to White disadvantage. We have unpacked the concepts of racial economics, which builds on the work of Amos Tversky and Daniel Kahneman, the fathers of behavioral economics. Finally, we provided three disciplines that leaders could use to reduce the impact of systemic and structural racism on your organization's bottom-line. As we have seen, the work still to be done is tough, however, we think that when leaders engage this work “with” as opposed to “for” communities of Color, we will both unlock and unleash the full innovative capacity of America that exists in underrepresented contributors in our country.
Like, share, and engage in the conversation
About the Authors:
Dr. Paul Campbell and Dr. Christopher Brooks are the co-founders of Brown Venture Group, LLC. Launched in 2018, Brown Venture Group, LLC is a venture studio venture capital firm exclusively for Black, Latino, and Native American technology startups. Brown Venture Group is writing a new playbook for both those interested in launching a minority-owned technology startup and those interested in investing in new technologies. For more information go to brownventuregroup.com.
References:
DiAngelo, R. J. (2019). White fragility: Why it's so hard for white people to talk about racism.
Paker, K., Horowitz, J. M., Morin, R., & Lopez, M. H. (2015). Chapter 5: Race and Social Connections—Friends, Family and Neighborhoods. Multiracial in America Proud, Diverse and Growing in Numbers, 5(Race and Social Connections—Friends, Family and Neighborhoods), 72-72. (Paker, Horowitz, Morin, & Lopez, 2015)
Nichols, M., Collin, C., & Sundaramurthy, G. (2020). Deconstructing the Pipeline Myth and the Case for More Diverse Fund Managers (2nd ed., Vol. 7, Kauffman Fellows & MaC Venture Capital, pp. 7-19, Rep.). Kansas City, MO: Kauffman Fellows Research Center.
Peterson, D. M., Mann, C. L., & McGuire, R. J. (2020). CLOSING THE RACIAL INEQUALITY GAPS The Economic Cost of Black Inequality in the U.S. (Citi GPS ed., Global Perspectives & Solutions, p. 4, Rep.). New York, NY.
Stone, R., Frith, M. K., & Seuss, . (1975). Because a little bug went ka-choo!. London: Collins.
Baradaran, M. (2017). Color of money - black banks and the racial wealth gap.
Williams, M. T., PH.D. (2015, September 06). The Link Between Racism and PTSD: A psychologist explains race-based stress and trauma in Black Americans. Retrieved 2020, from https://www.psychologytoday.com/us/blog/culturally-speaking/201509/the-link-between-racism-and-ptsd
https://hbr.org/2020/06/a-vcs-guide-to-investing-in-black-founders
https://www.citivelocity.com/citigps/closing-the-racial-inequality-gaps/
https://www.kauffmanfellows.org/journal_posts/the-pipeline-myth-ethnicity-fund-managers
