The Cost of Exclusion

By Pratiksha Jena, Edited by Amogh Sangewar


"It is often taken for granted that the person who discriminates against others because of their race, religion, color, or whatever, incurs no costs by doing so but simply imposes costs on others. This view is on par with the very similar fallacy that a country does not hurt itself by imposing tariffs on the products of other countries. Both are equally wrong. The man who objects to buying from or working alongside a Negro, for example, thereby limits his range of choice. He will generally have to pay a higher price for what he buys or receive a lower return for his work. Or, put the other way, those of us who regard color of skin or religion as irrelevant can buy things more cheaply as a result.” - Milton Friedman





Racial discrimination can be defined as any exclusion, restriction, preference, or distinction among individuals on the basis of their complexion, racial or ethnic origin. The purpose of this article is to examine the costs of such discrimination incurred by its victims as well as those who actively practice it. Racism in the United States, though always present, is being increasingly addressed in recent years due to events such as the murder of George Floyd and Breonna Taylor. It is often assumed that the brunt of a racist culture is carried solely by the victims of racial discrimination, such as the African Americans, Latinos, and Hispanics living in the United States; however, this is not entirely true. Racism costs everyone.


Consider the financial crisis of 2008 that sent shock waves across the global economy. While there were multiple factors at play, it can be concluded, after careful scrutiny, that a racist culture entrenched in the 'land of the free' was among the root causes behind the crisis. During this economic catastrophe, many powerful financial firms such as Lehman Brothers and Merrill Lynch were on the brink of collapse from excessively using toxic financial instruments that appeared transparent and straightforward on the surface - a thirty-year fixed rate home loan. These mortgages were developed and aggressively marketed for many years, primarily in middle-class black communities. When homeowners in these communities headed towards foreclosure, their brokers offered to refinance their mortgage, but these brokers did not tell them that this was a new kind of mortgage, with a higher interest rate, a prepayment penalty, and a balloon payment!


News outlets covering the crisis across the world blamed the borrowers for their risky behaviour - buying properties they could never afford, but the real problem wasn't actually the borrowers - it was a stereotype against those who were targets of the risky loan. African Americans and Latinos were three times more likely to get these precarious mortgages sold to them when compared to the Whites. Thus, one could say that the root cause of the financial crisis of 2008 was racism, which not only impacted individuals belonging to racial and ethnic minorities but also those who belonged with the majority across the globe. For instance, five lakh people in India were rendered jobless in 2008 due to the recession and an 11.5 million jobs deficit was created in the United States just six months into the recession.


Another instance of racism affecting not just its victims but also racists can be seen in its ability to destroy workers' bargaining and unionizing power. Racism has divided workers based on their skin tone, and consequently, coming together and fighting for higher wages against unfair laws, and other worker-related issues is a distant dream. In America, the belief held among Whites that the Blacks will surpass them if unions materialize is grievously impacting not just the Blacks but the Whites as well. A classic example of this phenomenon can be seen in the case of workers in Nissan's plant in Canton, Mississippi, in 2017. They were trying to organize a union to fight for better health care, social security, and higher pay. However, their efforts failed to materialize because of the racist mentality - ''If they are for it, I am against it because if you uplift those workers, you are pulling down people in my group.'' Thus, the union vote failed, and even today, wages are still lower - for Blacks and Whites alike, and the workers are still worried about security, health care, and widening wage gaps.

In India, racism can be viewed as a culture propagated by caste - an institutionalized system of social exclusion. Here too, it's not just the members of the lower caste who are disadvantaged but also those belonging to the upper castes. Consider the reservation system prevalent in almost every Indian university to accommodate members of marginalized communities. While it is a strong effort made in the direction of uplifting those who live on the fringes of society, it has caused problems for those who are endowed with a ''favourable'' caste upon birth. For instance, many institutions place different cut-offs for applicants belonging to different levels of the caste hierarchy. Usually, the cut-offs for Bharmins are significantly higher than those to be met by Dalits. Impoverished Brahmins, in this case, are at a disadvantage. With globalization and increased convergence of the four broad categories of the caste system, members of society are ultimately landing in the same boat. By actively practising and promoting caste-based discrimination, both sides are being impacted. The counter-measures passed to deter such social exclusion have also proved to be redundant because they are indirectly exacerbating conflict among different groups in an attempt to alleviate the down-trodden.



This crab-in-the-barrel mentality of individuals who have internalized zero-sum thinking - that what’s suitable for one group is obviously unsuitable for the other, has lowered the overall benefit that could accrue to society in its absence. The consequences of social exclusion have worsened over the recent years, thereby solidifying the need to realize that all human beings, irrespective of caste, creed, colour, sex, or religion, are tied by a common thread. What serves as a disadvantage for one has similar repercussions for the other. Keeping this in mind, policymakers should not focus on finding a solution to the problems created by social exclusion. Instead, they should regard social exclusion as the problem and develop methods to tackle it. This slight shift in perspective can indeed increase the welfare of our global village in its entirety.


Recommended Readings -

https://www.imf.org/external/pubs/ft/fandd/2020/09/the-economic-cost-of-racism-losavio.htm

https://www.npr.org/sections/live-updates-protests-for-racial-justice/2020/09/23/916022472/cost-of-racism-u-s-economy-lost-16-trillion-because-of-discrimination-bank-says

https://cei.org/blog/the-financial-crisis-10-years-later-a-legacy-of-racist-government-housing-policy/

https://www.law.utoronto.ca/documents/globalization/Narula-Paper-EconomicExclusion.pdf

https://puso.pw/krx8qqzdr3.pdf