“We’ve Never Had a Purely Capitalist Economy—We’ve Had State-Subsidies for Some and Exclusion for Others”

In an interview with ProMarket, UC Irvine law professor Mehrsa Baradaran discussed the connection between the current protest wave and the deep-seated structural inequalities within America’s economy.

The mass protests that have spread over hundreds of American cities in the wake of the murder of George Floyd by a Minneapolis police officer have shone a light on the systemic racism that black communities regularly face in their encounters with law enforcement. 

They’ve also highlighted the disproportionate toll that the Covid-19 crisis has had on communities of color. Recent data show that the share of African-Americans among Covid-19 deaths is more than twice as high as other demographic groups (in Washington, DC, and states like Kansas, the share is much higher). Black Americans have also been disproportionately affected by layoffs. A Pew survey conducted in April found that 61 percent of Hispanic Americans and 44 percent of black Americans said that they or someone in their household had lost their job or experienced wage loss due to the pandemic, compared with 38 percent of white adults; 48 percent of black Americans reported difficulties paying their monthly bills.

The economic devastation has been exacerbated by the fact that many black communities have still not recovered from the 2008 financial crisis. A 2018 study by Moritz Kuhn, Moritz Schularick, and Ulrike Steins found that the median black household owns only 12 percent of the wealth of the median white household, and concluded that “virtually no progress has been made over the past 70 years in reducing wealth inequality between black and white households.” 

In her 2017 book The Color of Money: Black Banks and the Racial Wealth Gap, University of California, Irvine law professor Mehrsa Baradaran explores the roots and causes of racial wealth inequality in the US. Since 1863, she writes, the total share of wealth owned by black Americans has barely grown, from around 0.5 percent at the time of the Emancipation Proclamation to about 1-2 percent today. Baradaran points to the legacy of segregation, particularly in banking, as well as racist policies in housing and credit, as some of the main causes.

In attempt to better understand the roots of America’s persistent racial wealth gap, we recently interviewed Baradaran, whose previous book, How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy, also explored the relationship between inequality and the US credit system. 

In her interview with ProMarket, Baradaran discussed the connection between the current protest wave and the deep-seated structural inequalities within America’s economy, and why, in her view, “we’ve never had a purely capitalist economy—we’ve had state-subsidies for some and exclusion for others.”

[The following interview has been condensed for length and clarity]

Q: Do you see the racial wealth gap in America as a catalyst for the current protests? 

Absolutely, it’s all interrelated. One springs from the other, like symptoms and roots. The roots are inequality in prospects, in wealth, things that stem from the long history of segregation and exclusion from labor markets that I highlight in The Color of Money. Segregated schools, extra policing, increased criminal enforcement, and higher-priced credit—those are all places where the past meets the present. Then you get these sparks, and they turn into what we’re seeing right now. 

If you look back into the 1967-1968 uprising and the commissions and agencies studied the causes of these protests and found that it came down to segregation, poverty, and the cases of police brutality were like a match on tinder. The tinder was joblessness; it was segregation. It was the lack of ability to join the rest of the population. 

You could fix the police and not get at the actual problem, which is that we’ve never fixed this history of racial injustice. Unless we do that, there is going to be a lot of different iterations of this, one of which is these police killings that we still see periodically. 

You saw it with coronavirus, the way that it disproportionately affected the black community, which wasn’t surprising if you knew that we’ve had disparate health outcomes forever. Suddenly there’s this spark, and things like this happen.

Q: In The Color of Money, you have a line that says, “When Wall Street catches a cold, Harlem gets pneumonia.” Now, with the Covid-19 crisis, the whole world has caught pneumonia, and black Americans are bearing much of the brunt. 

Exactly. Black communities are seeing higher rates of death, which isn’t surprising if you look at the roots of this: A lot of black communities were disproportionately front-line workers and were therefore more exposed; there is a lot of research and data that show how these systemic forces affect health outcomes—even in the treatments that blacks are (or aren’t offered) when they have the same disease as whites. 

There is this myth of colorblindness—that we have a society that doesn’t see color, or at least that we should be striving toward that, but here comes this virus that actually doesn’t see color. The way that it affected these black communities so much more strongly shows that colorblind forces can still create race-based outcomes. You don’t necessarily need racism to perpetuate the racial wealth gap or disparate health outcomes once you’ve established the system.

When you have segregation and entrenched poverty, some communities are always going to get hit harder. Black Americans lost 53 percent of their wealth in the 2008 crisis and have yet to recover. We keep talking about this great recovery, which we measure based on the stock market, but the stock market is so far removed from the average person. Only around 20 to 30 percent of people have stock market wealth. The majority of this country doesn’t.

Black communities that have a tenth of the size of the wealth of white communities certainly don’t have the stock wealth of white communities. A third of black families have zero to negative wealth. The stock market recovery did not affect them.

A lot of people lost their homes and are now tenants and rent is due. They’ve lost their jobs and so many people have lost loves ones recently to Covid and there’s this rhetoric that we’re all in this together and everyone’s affected by this and I don’t think that’s true. Wealth can really shield you from a lot of these blows. And you know, we’re all just trying to survive this thing and you see that video of the police officer just mercilessly taking George Floyd’s life and you know, maybe we aren’t in this together after all. 

Q: Has the CARES Act helped alleviate some of this pain? 

The stimulus payments and unemployment certainly helped, but the CARES Act was colorblind but maybe race-neutral and a little regressive, because all of the PPP loans and the other aid went through banks, and a lot of black businesses don’t have equal access to banks. 

Color of Change did a survey on black and brown businesses showing that they’ve been disproportionately affected [by the crisis]. They were more likely to fail and did not get PPP loans.

Again, that has to do with larger businesses having a longstanding relationship with banks and a lot of black businesses are on the smaller side.

Q: In The Color of Money, you explore one particular legacy of segregation: the creation of two divergent banking and credit systems, a white one and a black one. 

Yes. Slavery, Jim Crow, New Deal-era segregation, redlining: We’ve had law after law, policy after policy that explicitly excluded blacks from gaining access to government-backed loans, to property allocations.

The New Deal HOLC mortgage maps that redlined black communities such that they were not able to get mortgages backed by the Federal government really cemented the racial wealth gap. To this day, we have different community outcomes for whites who were living in wealth-building suburbs and blacks who could not get mortgages and had to live as tenants in the city. In the book, I link that to an ongoing bifurcated credit system where black communities pay way more for all sorts of credit than white ones. And this can be done without actual discrimination. Even AI that does not factor in race will shoot out higher rates for black Americans because there are just so many proxies for race now.

That’s a system that’s really hard to reverse, especially because we have forced a colorblind system where you actually cannot use race anymore even to reverse the damages of this history. We just said, “From now on, no more discrimination.” We didn’t say, “Every black community now has way less wealth than whites. We should fix that.”

Q: Which brings to mind the 2008 financial crisis, when again banks that served black neighborhoods and black communities were allowed to collapse, or were subsumed by big Wall Street banks, leading to further consolidation and black banks being disproportionately affected.

Yeah, like the Carver Bank in Harlem that was not saved by TARP and ShoreBank in Chicago. Those banks did not get TARP money. Half of all black banks were lost because they were too small to save. Meanwhile, the big banks did get saved. And black banks hadn’t even peddled the subprime loans.

Q: Do you see the Covid crisis leading to similar outcomes? 

For sure. Especially for [black-owned] businesses. 

Q: In The Color of Money, you argue that essentially, in the US, there’s capitalism, and then there’s “black capitalism.” What do you mean by that? 

Black Capitalism was the system that Nixon started: a form of black capitalist system that he called his economic agenda for black America. What it meant essentially was that he would maintain a segregated economy and black businesses were supposed to just fix these structural problems. 

Black banks were created at a time of heavy segregation and Jim Crow out of necessity. White institutions were not serving blacks, so black entrepreneurs created black funeral homes, black banks, black insurance, black colleges, and other businesses. That’s always been a separate system that has existed for black communities.

Over the years, the concept of black capitalism has been championed by most black leaders, but they had different purposes for it. Boycotts of white institutions, which was Martin Luther King’s strategy in the South, were ways to organize the community and put economic pressure on white institutions. The Montgomery Bus Boycott was a particularly effective economic pressure point that did yield changes. He also pushed for black communities to put their money in black banks. The BLM movement back in 2015 inspired another wave of protest in the #BankBlack movement that was spearheaded by Killer Mike.

Black capitalism, the way that Nixon did it, is different. He used it as a way to maintain a segregated system.

Q: One argument you make is that “black capitalism” failed to alleviate the racial wealth gap because it wasn’t actually free-market capitalism, since it was blocked by structural inequalities like racism and discrimination.

We’ve had a race-based mixed economy of credit subsidies and housing programs and benefits from the government for whites at the exclusion of black communities. 

We’ve had many instances of bank or corporate bailouts, tons of subsidies for certain industries. These all have shaped markets. As I show in the book, the rhetoric of free-market capitalism has been used at several points in history just to cut down black claims of inclusion. Like, oh, you can’t have land because capitalism and we aren’t going to integrate because capitalism, and no to demands for economic justice. While with the other hand, the state is providing subsidies and giving away property to special interests.

I mean, for most of the years since the passage of the 14^th Amendment, which was supposed to protect blacks from the state, it was used to protect corporations. 

Q: Moving forward, how can the US narrow its racial wealth gap? 

What we need to do is allow the black communities to develop wealth in the way that we’ve allowed white communities to do it. If you want to call it reparations, you can call it reparations. If you want to call it damages, you can call it damages. If you want to call it capital, you can call it capital.

We know how to do this, because we’ve done it for whites. You can do it through homes. You can do it through any sort of capital program that you want, but it just has to be done. 

That’s where we have fallen short, in that once we stopped explicitly racially discriminating, we just said, “OK, now leave it to the market and figure it out.” That’s not how things work. 

I don’t think we have resource constraints against reparations. The Federal Reserve could just as easily buy up municipal bonds from different communities; federal credit guarantees are a third of the market already. Even just simple congressional spending—it’s about priorities: Do we fund defense or cut taxes for high earners or do we fund this? We don’t have financial constraints; we have political constraints.