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.
COVID-19 exposed many economic and societal fissures in America, and a common feature of these inequities—from health to wealth gaps to police violence—is 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.
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:
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.