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On Monday, June 8, 2020, Lisa Cook joined the Princeton Bendheim Center for Finance to discuss the economic and social implications of racial disparities in the U.S., with a specific focus on research that examines how violence impacts innovation among black Americans. Cook is a Professor of Economics and International Relations at Michigan State University and was previously a senior economist in President Obama’s Council of Economic Advisers.

Watch the full presentation below and download the slides here.  You can also watch all Markus’ Academy webinars on the Markus’ Academy YouTube channel.

Executive Summary

COVID-19 exposed many economic and societal fissures in America, and a common feature of these inequitiesfrom health to wealth gaps to police violenceis systemic racism. There has been a lot of literature on the origins, channels, and implications of systemic racism, but it largely hasn’t examined macro inputs and outcomes like innovation and GDP.

Innovation is a key driver of the economy, contributing to 10% of GDP and, through business investment, driving 20% of GDP. Innovation is a large and important topic for thinking about the growth in living standards for everyone.

In studies on innovation and violence, Cook and co-authors find that violence significantly diminishes innovation and economic activity with persistent effects. See historical chart of black and white utility patents per millions.

  • From 1860-1910, 1899 was the peak year for African American innovation.
  • Lynchings affected patents of African Americans significantly, and segregation laws hurt the most valuable patents of African Americans—electrical patents.
  • Missing patents—those by African Americans that didn’t occur as a result of violence—add up to about the same amount of patents issued by a medium-sized European country at the time.
  • If white inventors had been subjected to similar violence, white patent activity would have fallen significantly and been much more volatile. See chart on predicted white patent activity.

In contemporary settings, commercialization or VC funding, not education or training/lab time, has the biggest impact for the wealth gap in entrepreneurship. There are implications at each stage (Stage 1: Education in STEM; Stage 2: Training/lab time for building social capital, Stage 3: Commercialization), but 1% of founders receiving VC funding are black. The ratio of white to black entrepreneurs is 50:1.

As a result of African Americans not being more engaged in the innovation process, we’re losing 4.4% of GDP each year. This is compared to 2.7% for women not being more engaged in innovation.

To reduce violence, we need to address racism through anti-racist policies and practices. We must also address the many ways white supremacy has infiltrated American society. Cook also shares the following policy prescriptions:

  • Improve the STEM pipeline and the current academic environment for black students.
  • The federal government should make publicly available its report on white supremacist groups and prosecute hate crimes.
  • Military equipment should be returned to the federal government; police forces should be restructured.
  • Congress should address the racial wealth gap, improve opportunities for commercialization, and pursue several pieces of legislation, for example the SUCCESS Act and the IDEA Act.

Big picture, what we really need is structural change and big ideas that address racism. Cook says it’s time for a fundamental reset and we need blue-sky thinking.