A History of Anti-Black Bias in America and the Financial Impact of the Black Tax with Shawn D. Rochester

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What is the financial cost of the history of discrimination against Black people in America? How is it that after 400 years over 40 million African Americans own, just two percent of America's wealth? We'll examine the path to why and how we got to where we are fiscally today and lay the groundwork for Part Two of this series when we'll offer solutions and a plan to offset the adverse monetary effects of a history of discrimination.

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Welcome to Changing the Trajectory, where we focus on multicultural markets and communities and the deliberate actions we can take to change the arc of our wealth, impact, and influence. I'm James Seth Thompson, Bernstein's Head of diverse market strategy.

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I'm joined today by Shawn Rochester, who is the CEO of Good Steward LLC and founder of PHD Enterprises and the Idea Institute. Shawn is a former global strategy executive with an MBA from the University of Chicago's Booth School of Business and is a celebrated public speaker.

01:02 - 01:25

He is also the author of The Black Tax: The Cost of Being Black in America. Today, Shawn and I will share staggering findings he's uncovered about how anti-Black bias has imposed a tax on Black Americans, reducing our ability to invest in new business development, education, housing, employment, and other avenues that lead to wealth accumulation.

01:26 - 01:44

Shawn is also a good friend and, personally speaking, inspires me in the work I do. So thanks, bro, for joining me today. James, thank you very much for having me on the program. I'm super excited and looking forward to the conversation. Awesome. This is a, this has been in the works for a while and I'm glad we're able to pull this together.

01:45 - 02:17

Look, at the end of the day, this is Black History Month, and I strongly believe we need to hone in on the important issues aligned with the Black tax, and that the themes align perfectly with the overall mission of this podcast, Changing the Trajectory, which is to really understand how, one, how to change the trajectory of wealth, impact, and influence, but two, to really understand accumulating assets, to eventually allocating and deploying those assets. You know, will be tempting to jump into kind of solving for the challenges that we know that exist today.

02:17 - 02:47

But I really believe, you know, it's hard for us to solution for something when we don't know what we're solving for. So with that in mind, Shawn, why don't you kind of talk us through this idea of the Black tax? Yeah. So the Black tax is the financial cost of discrimination against Black people in America, either by individuals or institutions. That comes through a mode of conscious or unconscious anti-Black bias. Anti-Black bias levels in the country are particularly high.

02:47 - 03:20

They range from anywhere to six in 10 to approaching eight in 10 Americans have some form of anti-Black bias and that generally tends to show up where decisions are being made, whether it is the application process, the promotion processes, applying for loans, or a host of other areas. A lot of the work that I've done has been to not only look at how, you know, anti-Black bias plays out in our economy, but more importantly, when it shows up.

03:20 - 03:31

To what extent is there a financial effect? Right. Is there effect on cash flow? And it turns out that is considerable even in the present time and has been extraordinary from the history up until this point.

03:32 - 04:06

And in the book, I take a look at that, the tax today, what it's been like over time. So we understand how we got here and then positioning us to take a look at, you know, what we can do going forward with that knowledge as part of what we going to use to create solutions. So I know in the book, you know, you really talk about, what we've talked about a lot is, what are the contours of context. Right. So when you think about the work you put into the book and the research you've conducted, what are the most influential contributors to where we stand today in terms of Black tax and, of course, of being Black in America?

04:07 - 04:33

I think the two largest impacts are the financial costs of slavery in America and then the period of Jim Crow following that. Now we talk about this quite often. Like, people often say, we're still dealing with and living through the legacies of slavery and Jim Crow. What people haven't really done is put that into like financial or quantitative terms because otherwise we can just kind of agree to disagree.

04:34 - 04:41

I think it was, you know, not that long ago. Somebody else thinks it was long ago. I think it was a bigger deal. Somebody else doesn't think it was that big a deal.

04:41 - 05:13

Let's kind of really look at, you know, what economists say. So if you go back to the time of slavery and you start to look at, you know, what you could price from that time, there's many things that you could never, ever price, like what it cost to be an individual that didn't have life, that didn't have liberty to protect yourself or your wife or your kids, or husband, so on and so forth. But the things you can look at, what are the financial costs of the labor, right, that was extracted from millions of people over 250-year period, a quarter of a millennia, which they didn't get to participate in.

05:13 - 05:46

And those numbers are quite large, right? Some, you know, economists put the numbers as high as 24 trillion and others put it as high as 97 trillion. Right. There are different estimates associated with it. If you kind of split the difference, we're talking somewhere around 50 trillion dollars in today's equivalent. Right. It was a mind-bogglingly large portion of the economic progress of of the country. And even if you look at the value of people in 1860, and it seems like a strange thing to say, right.

05:46 - 06:21

What's the economic value of enslaved people? Economists put the number somewhere between, in terms of wealth, 16 and 20 percent of US wealth. Right. So you're talking about somewhere between 14 to 17 trillion dollars. US wealth is about 85 trillion in total. Others look at it from a national income or GDP standpoint, and they say that the value was somewhere between one and two years of GDP. Well, US income, GDP, is about 19 trillion. So if you take an average of those two points, you're at 28.5 trillion.

06:21 - 06:38

And I think the point there is the economic impact, no matter how you look at it, is really hard to comprehend in its scope and its magnitude. And these are things as a foundation that we need to understand. When we say it was a long time ago, the implication is that the impact wasn't that significant.

06:38 - 07:05

Right. You know, if we have 20 million dollars and we lose a dollar, it's not that big a deal. Right. We can recover. But if you have 20 million dollars and you lose 20 million dollars, it's huge. The impact, what is the number? Right. And how do we put that in context? Because those resources were reinvested into other people and then the people from whom those resources were taken were never invested back into themselves. That has a huge impact.

07:05 - 07:19

Well, you know, I think the interesting thing is the cost of discrimination, regardless of how we define it, is typically a feeling. I feel discriminated against. It feels like I'm not getting my fair share.

07:19 - 07:52

Yeah. You know, being able to quantify that with numbers and data along the lines of these contours of context, along the lines of labor and education as an example, I think  is awesome. And it brings a different level of transparency to what the challenges really are. You know, one thing I think you did very well in the book, and kind of setting up the challenge for us to eventually solve for, you know, you use a lot of examples in the book that really quantifies the impact of bias.

07:52 - 08:03

And I'll ask you to talk about a couple of those. But one of them, as it relates to labor is, you know, the contrast between that of a White lawyer and a Black lawyer.

08:03 - 08:36

Why don't you take a few seconds to kind of talk us through that thought process? Yeah. So there was a company that wanted to take a look at levels of discrimination, you know, in the labor market, but the legal field in particular. So what they did was they created a legal memo. Right. And they said it was from an associate and they sent the memo out to 60 different partners at major law firms. Right. So 30 groups of 30. And on the one hand, the group that they sent it to, they told the person that it was written by a Black person, a Black lawyer.

08:36 - 08:54

On the other hand, they told the other group that it was written by, you know, a White lawyer. Now, inside of this memo, they had intentionally put, I think it was about 21 different errors into the memo. So errors in the facts and the analysis of the facts, in grammar, a whole host of things.

08:54 - 09:22

Right. So when the law partners thought that it was written by a White person, they gave it a score about four out of five. So roughly 80 percent, not a terrific score, but still a passing score, particularly for something with 21 different types of errors in it. But when they thought that was written by a Black lawyer, right. They gave it a score of about three out of five, which is 60 percent, which in every district is a fail. Right.

09:22 - 09:48

And not only did they rate it lower with the same exact memo, but they also thought that this person's prospects for being a partner was very limited and negative, again, all things being the same. And even when you looked at the level of grammar, right, issues, which were about seven of the 21 when it was a White person, they only found three out of the seven when it was a Black person. They found six out of the seven.

09:48 - 10:16

Right. So 100 percent more detected. So what's problematic there is, when bias shows up, your work product, even though it's the same, is being evaluated differently, there is much more scrutiny associated with it. The other thing for us to consider is, you know, the difference between, you know, partner and non- partner track is substantial. Right? You can still live a terrific life as an attorney, as a lawyer and not become a partner. Right.

10:16 - 10:44

But we're talking about people who are as capable. The only difference is who is actually interpreting it and who they believed had written it. And the difference over a career of earnings could be up to 11 million dollars post-tax. So we got to think about what that means for that person's family, what it means for that person's community, what it means for the churches or houses of worship that they may be a part of, the nonprofit boards that they may serve on and be a part of.

10:45 - 11:04

It has a massive rippling effect. And again, we're talking about an instance where the product itself is the same. The only thing that's different is who you believe actually, you know, wrote it. The unfortunate part of all of this is that the bias creates an environment where we don't even have a shot in many instances.

11:04 - 11:27

Right. So it's one thing to look at that test and look at the errors that are embedded. But when you look at that through our earnings and economic lens. Right. And you quantify a qualified kind of test to the tune of eleven million dollars post-tax, I just assign that to be unfair. Yeah. You know, yeah, absolutely. I think that's why I call it a tax. Right.

11:28 - 11:51

Because what it's doing is reducing your earned income, is reducing your retained earned income, is reducing your ability to accumulate wealth. It's an extraordinarily powerful headwind in front of people that some people face and other people don't, or that some people face to a high degree and other people face to a much lesser degree.

11:51 - 12:11

You know, the there's another test that you refer to, and I think it's along the lines of the Harvard implicit test and specifically the Harvard Implicit Association test. And I'm reading here that that test found that 74 percent of Americans have implicit unconscious preference for White people over Black people.

12:12 - 12:33

You know, beyond the lawyer study, you know, what else have you found to really quantify the cost of discrimination? It shows up in a myriad of places. You know, University of Chicago did a study in the labor market to identify bias where, and a lot of people, I think, have heard about this, where they started with resumes.

12:33 - 13:06

Right. And they sent out resumes to a host of people across industry, across size of business, public sector, private sector, across the board. Right. Very, very representative. And what they did with the resumes is that they scaled a resume in terms of, you know, the quality of it. So the quality of the institution, the length and experience, breadth of experience that a person had. And then they took the same resume and they would give it a White-sounding name and then the same resume, they would give it a Black-sounding name, send it out and see what happens.

13:06 - 13:38

So what they found was if you had a Black-sounding name, you would get 50 percent less callbacks. Right. The other thing that they found was that for the resumes that people thought was White, presumably because they had a White-sounding name, as you increased the quality of the resume in terms of length and depth of experience and the institutions that the person went to, you saw an increase in demand for callbacks, which makes sense. It was 30 percent decrease. But the same case when they thought it was a Black name, right.

13:38 - 13:48

Or Black-sounding name, there was no statistical improvement in the demand. So even as the strength and quality of the resume increased, there was no incremental demand.

13:48 - 14:16

Right, for the person when they thought was Black. These are the things that are really, really important that that we understand. Some of this, no doubt, is explicit bias. People know what they're doing. A lot of it is unconscious bias right there. They're not thinking about it and they don't necessarily mean to do it. But it is having an economic impact, right, for people. And then we see some of the things that are happening, you know, in the automotive markets. We see it happening in the housing markets. We see it happening in the financing. Right.

14:16 - 14:50

And the insurance that goes along with that. I'll share one thing. An interesting study. I think Yale did this, but it was a study on eBay to get a sense of, you know, discrimination in the commerce space or online commerce. So what they did was they offered baseball cards, right, online. And I found that when, you know, a Black person was selling it, that the price was substantially lower. I think it was an order of 20, 30 percent lower than when a White person was selling it. The question would come up is how would you'd be able to tell the difference?

14:50 - 15:17

So what they did was they would hold the baseball card in the tips of their finger, right. Your thumb and your kind of appointment finger bent holding it. And you would take a picture of it. So you could see the tips of the person's finger, so the difference in melanin, in the tips of the finger triggered, right, a 20 or 30 percent valuation associated with the very same thing. So anti-Black bias is is real. There's a tremendous amount of data on it.

15:18 - 15:38

And it shows up, you know, across the board. What we often see are different manifestations of the same underlying issue. The approach that I take is what does that cost us when it happens? So we just spent a couple of minutes talking about labor's impact and influence on the cost of discrimination.

15:39 - 15:59

You know, the one thing I was blown away by when I first met you probably two and a half years ago at a nice Jamaican restaurant in Queens, is your thoughts on education and Jim Crow. You know, I think myself, along with the listeners, may have some basic knowledge about that.

15:59 - 16:21

Obviously, some listeners who have experienced many of these things that you have quantified in a book, I'd like you to spend a little time just really walking through Jim Crow and education and the impact that's had on why we are where we are today. I'll try to do the brief version. You know I'm often not successful.

16:22 - 16:30

So after the period of, you know, emancipation, right, you have a short, you know, period of reconstruction that people often talk about.

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But where the world is left in a situation of what they call a global cotton famine. What people don't realize is that the US cotton was like the equivalent of oil, and the US dominated the global oil industry. It was 80 percent, of the global cotton industry, 80 percent of that was supplied by the US, and cotton exports was 61 percent of total US exports. I mean, you just can't beat free labor. The Civil War, you know, eliminated that. And it caused cotton famines around the world.

17:02 - 17:13

Right. So about 20 million people were employed in the industry globally. A million people lost their jobs. It was a really, really big deal. So the issue becomes, you know, how does America put a newly free people back to work?

17:13 - 17:44

Right. To solve and kind of resolve this. And a solution to that, a context for that, is this notion of Jim Crow. Right. Which is really a system of laws and customs. Right. That's reinforced by an extraordinary level of violence to reimpose 100 percent tax on the Black laborer, the sharecropper in particular. Now, people often say, well, what do you mean by 100 percent tax? Right. So post emancipation, the large mega plantations are broken into smaller lots. Right.

17:45 - 18:18

Black families would settle on those lots. They would agree to plant cash crops and then they would share in a portion of the harvest at the end of the year sharecropping. Right. But the thing people need to understand, it was an actual contract. Right. But the challenges, the terms and conditions on a contract were set by the White farmer. And the harvest doesn't come tomorrow. The harvest comes at the end of the season, end of the year. And these are impoverished people. They have about 0.175 percent of US wealth, right, at the time. So that farmer has to provide them with the tools, the fertilizer, the clothes, housing, everything that they need to actually provide the crop.

18:18 - 18:42

And I do it at a rate north of 70 percent per annum. Right. Sort of setting your cost structure. The problem is when you get to the time of the end of the season where you're taking the crops to market, the small White farmer, or the White farmer, is the market. So he's telling you what they are worth. So he controls your revenue, your income, controls your expenditures. Right. He's setting the cost for those. So he controls your profit by definition.

18:42 - 19:05

So that's where the hundred percent tax comes in. And the challenge is, you know, people said, well, why would you agree to something like that? And people didn't. Right. But it was, the first thing is, if you didn't agree they had laws for that called vagrancy laws, which said if you can't prove you're a landowner and you can't prove that you're gainfully employed, they could charge you to a criminal offense, put you in state county jail. Right.

19:05 - 19:28

So massively high impetus, an incentive to sign those contracts. If you break the contract, they can charge you with something, contract enforcement laws, so they can charge you a criminal offense, put you in a state or county jail. If you decide to sit in jail, just kind of wait your time out, what they can do is put you through a system called convict leasing, which they can lease you back out to the very White farm you didn't want to work for or a private corporation.

19:29 - 19:56

So it was just a, just a diabolically encompassing structure that was put around, that those folks couldn't get out. And under those conditions it's extraordinarily difficult to accumulate wealth. And at the same time period where you have, you know, over 4000, you know, Black people in America who were lynched associated with that. I mean, it was a horrific time, people paid by the pain of death. So in those situations, it's extraordinarily difficult to accumulate wealth.

19:57 - 20:23

And it didn't last for a couple of years. It lasted close to 75 years. Now, the issue when it comes to education is that we have to understand is, you know, this kind of notion of, you know, separate but equal was really a way of mal-distributing economic resources. If you go back to that time and you can go look up these records and whatnot, you'll see that for every, in the South, for every dollar invested in a Black child, five to eight were invested, you know, in a White child.

20:23 - 20:50

Right. It's not rocket science. If you do that with your kids, one is going to Harvard, the other is going to be impoverished. Right. Kind of five […], multiple on investments, just untenable. And you have that going on for a period of about 90 years. As that gap starts to close, Black teachers are earning about 25 to 34 cents on the dollar for what a White teachers is making for the same subject. Right. And then they don't have equal infrastructure. So when it comes to like human capital development. Right.

20:50 - 21:23

Like how to, you know, empower our young people with education, the mal-distribution was so dramatic that researchers said if they just kept all the other discrimination the same, but invested equally in the education of the kids, that could have cut the income gap between White and Black workers by about up to 50 percent. So when you start looking at that over a generation, you start to talk about north of 600 billion dollars. When you start to talk about that over like a 90-year period that is happening in parallel with the Jim Crow structure you're talking about.

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Really hard to imagine numbers. So the issue becomes really significant.

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And I think it's significant because people are like, listen, hey, why can't you just do what we're doing, what we have done, which is we've worked really hard and there's no doubt about that. Like people in the country work really, really hard. People who come to the country have worked extraordinarily hard. There's no doubt about that. The issue is what is the yield on the work that you're putting in? Right. And the yield on the work that Black people were forced to do was extraordinarily small. The yield on the hard work that other people were doing was far more, far higher. Context matters.

22:03 - 22:35

I thought I'd be able to get through this show without getting extremely upset, but, you know, again, I think is really important. That we level set. Yeah, you know. You know, I work at a research firm. Obviously, you put a lot of research into this book. It's really important that we know the gaps that we're trying to fill and to really quantify that. I believe the number you put on kind of the whole separate but equal is we could have reduced that wage gap by 50 percent.

22:35 - 22:54

Yep. Right off the top of my head. I don't know what that is today, but I know we are very far off from where we need to be. And it's just amazing that, you know, the historical context really provides some insight, not only just what's happened over the last number of generations, just a lot of the stuff we need to do today.

22:55 - 23:18

You know, there is a negative impact when you look at the discrepancies of labor and certainly the whole idea of equity in schools and just be mindful of, you know, the creativity and a recognition of the cultural differences that should go into educating our individuals, but at the end of the day, these challenges do tally up to a number.

23:19 - 23:54

Right, and it's a number we need to attack. It's a number we need to really be mindful of. As I said at the onset of this show, you know, I'm looking forward to the next conversation. I think it'll be way more vibrant. You know, having opportunity for you and I to talk through solutions, I think will really be helpful for the listeners. Before we kind of, you know, kind of close down this conversation and start another one, any final takeaways? You know, what do you want the listeners to really absorb, in addition to buying your book, and we'll talk about that in a second.

23:55 - 24:11

The first thing is that these are really, really massive problems. As is the case with any kind of massive problem, we need a lot of people at the table working on those problems, but it's tough to get people to work on solving problems when they think you are the problem.

24:12 - 24:35

When I think, like, if you would just fix you, we would be great, and to do that, we have to have more of two things, which is empathy and understanding. People have incredibly strong positions. They have very little context and even less information. And if we can start filling in that gap, then I think we can have more people on board saying I didn't get the scope and the full scale of what we're talking about.

24:36 - 24:39

So what can we do to help resolve this? Right.

24:40 - 25:13

So that's the reason for the information in the book is the paradigm shift, to get people to see things differently so they can kind of join in this effort. Yeah, and I think it's important that many of us recognize the spot we're in today is not self-inflicted. I think self infliction really drives a woe-is-me perspective, and is really draining. And I just think that ultimately, at the end of the day, that self infliction won't inspire you and encourage you to kind of work through that.

25:14 - 25:33

But you mentioned another term that I love, and that's a seat at the table, right? I think everything that we deal with, whether it's the Black tax, anything around diversity, equity, inclusion, does require allies. And I don't advocate that we raise our hand and say, oh, Mr. and Mrs. such and such, please hold my hand and help me fix this.

25:34 - 26:06

But I think what you've done in this book is to create a conversation through a lens that I believe has never, never happened. And I think that's what's going to drive not just Black Americans, but all Americans to recognize that we're all in this like we all have a part in this, and that, you know, the education along the lines of what you shared, again, I think is just very important. You want to tell the audience how to access you and your book?

26:07 - 26:29

Yes, the book can be gotten at www.blacktaxed.com. You know, I can be reached on Twitter, @blacktaxed, on Instagram at Blacktaxed, or Shawn Rochester, and I'm on Facebook as well and of course on LinkedIn. Awesome, man.

26:30 - 26:45

So as always, thanks for the dialogue and the conversation. Look forward to Part Two of this. You know, just to let the audience know, we're going to talk about how to get your PHD. So stay tuned for that. I hope you enjoyed today's episode. We love to hear from you.

26:45 - 27:18

So please e-mail your thoughts, questions, and any feedback to diverse markets at Bernstein.com. Be sure to share, subscribe and rate us on iTunes or anywhere you listen to podcasts, and also check us out on Twitter at BernsteinPWM. Stay tuned for our follow-up conversation with Shawn Rochester as we address purchase, hire, and deposit Black. Bernstein: Making money meaningful for individuals, families and foundations for over 50 years. Visit us at Bernstein.com.