The link between structural racism, the coronavirus recession, and economic inequality: Weak institutions

The voices of protesters on the streets of cities and towns across the United States over the past few weeks reverberate a message Black Americans have spoken out about for generations: They cannot trust and have never been able to trust government to act on their behalf, whether it’s addressing police and state-sponsored violence, a deadly disease, economic inequality, or the day-to-day racism that presses on them throughout their lives. In short, our public institutions have failed Black Americans.

These failures of our institutions of governance pose a fundamental challenge to our nation. In order to have an economy where growth is strong, stable, and broadly shared, we need institutions capable of ensuring that the rules are fair and fairly enforced. We need institutions that can ensure inequality is contained and those at the top of the wealth and income ladders are not allowed to run away with all the gains. We need institutions capable of providing counterweights to concentrated economic power so that it does not transform into concentrated social and political power.

None of this can happen if government institutions are structured to oppress rather than support. That is, if government does not work for Black Americans, it doesn’t work.

There is, of course, plenty of blame to lay at the steps of the White House, but the current moment isn’t about one president or one administration. Instead, it’s about a governing ideology, where institutions of governance too often serve only those with economic or political power, who are able to subvert the process of governing to disproportionately benefit themselves.

Michigan State University economist Lisa Cook’s pathbreaking research shows, for example, that lynching and other violence against Black Americans in the late 1800s and early 1900s limited their applications for patents. She found that between 1870 and 1940, “violent acts account for more than 1,100 missing patents compared to 726 actual patents among African American inventors over this period.” In addition to inflicting trauma on generations of Black Americans, Cook’s research shows how violence reduced “the level, direction, and quality” of U.S. productivity and growth.

When institutions terrorize the population, they limit the potential of every citizen to be a full participant in our society and our economy. We cannot benefit from our nation’s capacity for growth unless we understand how institutions affect the ability of people to participate in public life — and take action to ensure equal access, influence, and control.

The costs of our nation’s failure to ensure effective and inclusive institutions are clear. The coronavirus crisis has laid bare our economy’s profound vulnerability, a result of decades of rampant inequality, attacks on public institutions, and blind faith in markets to solve public problems. When the novel coronavirus hit our shores, we were uniquely ill-prepared, being alone among our economic competitors for not having in place policies guaranteeing workers the right to stay home when sick, ensuring that all have access to healthcare, providing robust workplace safety protections, and requiring employers to pay into social insurance programs to guarantee wage replacement when unemployment rises.

The virus exposed these and other major structural weaknesses in our economy and society — weaknesses that are making the resulting recession far worse than it needed to be and will make recovery all that much harder, unless we address them.

Despite what the American public has been told time and time again, neither individuals nor markets nor state and local governments on their own can solve either the health crisis or the economic crisis. Our current challenges underscore that we’ve disinvested or simply never prioritized equal access and control of public institutions. A vital federal government with robust institutions that can act with intention, effectiveness, and accountability, and that ensure racial justice must emerge from this moment. Only then can America deliver on its promise of opportunity and prosperity for all.

Yet the attitude expressed by this administration and many in congressional leadership is, “we’ve done enough — you’re on your own.” Revenue-strapped states and localities are on their own maintaining health and education and fire and police departments, and securing the necessary tests, tracking, and protective gear to combat the coronavirus. If they cannot afford it, they should just declare bankruptcy.

Small businesses are on their own to deal with faceless banks and bureaucracies while big business bailouts are fast, efficient, and at a massive scale. Workers are on their own, struggling to access benefits from overwhelmed agencies that are deliberately underfunded, understaffed, and hamstrung by dated technology. Too many of those required to go to work — disproportionately people of color — still often lack proper protective gear, even in medical and other care settings. And supply chains are ill-managed, leading to food being discarded, even as millions go hungry, while states have had to compete for necessary medical supplies as the federal government neglects its coordination responsibilities.

This is the moment to reorient both our ideas and actions. Economics is being transformed by empirical research based on increasingly sophisticated data. The evidence from that research exposes the “you’re-on-your-own” economic ideology — the conventional wisdom that has largely governed economic policy for decades — for what it is: empty and wrong. This thinking obstructs the ability of every child, family, and worker to achieve their full economic and social potential, limiting the potential of our economy writ large.

By insisting on tax cuts and constraining federal spending, the proponents of this ideology subvert the effectiveness of government institutions at all levels. This outdated ideology reinforces inequality and distorts the macroeconomy by putting excessive resources in the hands of the wealthiest corporations and individuals, who channel it into financial speculation, resulting in lackluster investment in the “real economy” and stalled productivity to show for it.

The evidence that inequality harms is all around us. The vulnerability of communities of low-income, as well as Black, Latinx, and Native American families to the effects of the coronavirus and the recession is stark. The same living and working conditions that obstruct people’s economic opportunities — the lack of access to affordable housing, inadequate healthcare, unsafe working conditions, the lack of paid sick leave — expose them in greater numbers to sickness and death from COVID-19. The failure to have effective institutions that protect all workers means our entire economy is less resilient — and more economically unstable as a result.

This is no surprise. Only a decade has passed since the end of the previous global financial crisis, and the empirical evidence shows us that the benefits of the recovery went largely to the wealthiest, who emerged strong as ever while too many working families never recovered. Even before this new recession, gains in Gross Domestic Product and reduced unemployment — the conventional measures of economic success — masked the reality that growth has been disproportionately benefiting those at the very top of the income ladder.

In order to have economic growth that is strong, stable, and broadly shared, we cannot rely on markets to carry out the work of government. Allowing markets to determine outcomes while pretending that the rules that govern markets are always neutral, fair, and race-blind shifts economic risk toward people and families and away from institutions that could better bear them.

Paul Romer won a Nobel Prize for developing the idea that we could spur economic growth through promoting innovation. Key to this was the idea that government must ensure that people can claim the financial gains from their inventions through setting up a patent office and enforcing patent rights. What his idea didn’t take into account was that all the institutions that undergird the ability to develop a new idea and gain patent rights have to work in practice.

As Lisa Cook recently said in a Planet Money episode, ensuring innovation is not as simple as saying you have a patent system: “That’s not how it works. You can have laws on the books and not enforce them and never have growth.”

This brings us back to trust. Government must work on behalf of low-income, Black, Latinx, and Native American people and make sure their needs are truly reflected in the policy agenda. People must see that they can both develop and deploy their talents and skills in the economy and that those at the top are not encouraged to subvert outcomes to benefit themselves rather than our economy and society writ large. People must have both confidence and proof that they are protected from oppression and state-sanctioned violence.

As we look to strengthening our democracy and recovering from this coronavirus recession in the years to come, core to any economic agenda must be to confront the role that effective institutions play in fostering growth that is strong, stable, and broadly shared. If large portions of our population can’t trust the government to act on their behalves, then we need to acknowledge our government isn’t working the way it needs to.

Unbound: How Inequality Constricts Our Economy and What We Can Do About It.

I’m president & CEO and co-founder of the Washington Center for Equitable Growth.

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