Are Investors The Real Racists?

If divestment is racism’s primary problem, then biased investors are its primary proponent.

In response to the Black Lives Matter movement, criticisms of racial bias that were once limited to police departments are now being extended into professional athletics, the academy, and the arts. Yet even in this era of heightened national introspection, some industries continue to deny any practice of bias. Of these, perhaps the most consequential is the investment industry.

Investment is a sprawling sector that touches every aspect of people’s lives. Without financing, most people wouldn’t be able to complete any capital intensive task — think of buying a car, starting a business, or purchasing a house. Loans allow people to acquire these things without having to be independently wealthy or saving the entire cost in advance.

When things go smoothly, investors provide credit without regard to race, and they are in turn rewarded with the profit they make from interest. If investors discriminate, it prevents minorities from acquiring the basic building blocks of stability and wealth, and it decreases the profits investors make from interest.

Now because of this link between profit and equal opportunity, most investors claim to abstain from racial bias. “I don’t care what color you are, as long as the money is green,” they say.

To accuse investors of anything contrary is to say they are acting against their own profit margin. So surely, whatever, if any, racial disparities exist in investment patterns, they are justified by the risk of those investments, right?

Well not so much. After looking at the data, it appears investors aren’t the good capitalist they think themselves to be.

Investors, Bias to Their Detriment

According to studies by the Small Business Administration and the Federal Reserve, when black entrepreneurs apply for small business loans, they “are less likely to be approved than whites, even after controlling for characteristics like credit score or the type of business.” Another study conducted by Utah State University, Brigham Young University and Rutgers University found that loan officers discriminate against black entrepreneurs “even when all other variables — their credentials, their companies, even their clothes — are identical.”

An entire canon of academic reports finds the same conclusion — profit motives do not supersede racist thinking. And, these small business loans are only the beginning. Reports from Zillow and CB Insights show that racial disparities persist in real estate and venture capital too. In nearly any capital intensive project, investors skimp blacks, but they are doing so at their own expense.

Blacks represent one of America’s largest potential growth markets. At 40,000,000 strong, their collective spending power is 1.2 trillion dollars, and studies show that black markets are severely lacking retail, financial, and housing services.

The data is clear. Investors should be clamoring to develop these areas. But their bias is preventing them from seeing the value of financing black commerce, and as a result, they are losing billions.

When Investors Discriminate, Blacks Pay the Price

Investors aren’t the only ones missing out. Without credit, black entrepreneurs and families are more reliant on self-financing. But because blacks are the poorest demographic in the US , bootstrapping is frequently not an option. It is in this trap, without fair access to credit or personal wealth, that blacks’ dreams languish.

This deprivation of capital isn’t new. From the 1930’s to 1970 banks redlined blacks, by systematically denying them mortgages and preventing them from building equity. Yet even as insidious as it was, this kind of racism was par for the course of mid-20th-century America. But, the continuation of loan discrimination in today’s “post-racist” society is crippling. Investors’ bias creates unequal lives — smaller houses, inferior schools, and even dirtier tap water.

Divestment, the Cornerstone of Modern Racism

Last month, when speaking about the status of these divested black neighborhoods, President Obama said:

“…we choose to underinvest in decent schools. We allow poverty to fester, so that entire neighborhoods offer no prospect for gainful employment. We refuse to fund drug treatment and mental health programs.”

Here, President Obama pins racism as an issue of underinvestment, underemployment, and underfunding. And in his refrain, he says “We” are the ones supporting these inequities. Which begs the question, “who is the ‘we’?”

“It’s not the blue-collar civil servants in law enforcement or the working-class and poor communities, which are aggressively patrolled.” Writes New York Times Journalist Charles Blow, “No. The ‘we’ is the middle and moneyed classes.”

These “middle and moneyed classes” are the groups of people who control the capital. These are the investors who claim to be colorblind but are actually colorphobic. They perpetually divest from black businesses, black neighborhoods, and black people.

In the past, most Americans discussed racism as a problem of disenfranchisement, bigotry, and segregation, but today, in line with President Obama’s recent speech, the nation’s leading academics, politicians, and journalists identify anti-black divestment as the marquee driver of racial inequality. And so it should follow, that as Americans begin to conceptualize divestment as racism’s primary problem, they must also start identifying racially biased investors as racism’s primary proponent. Until Americans begin addressing the problem of racism, as a problem of capital, the inequality that plagues the country will surely persist.

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