US economy lost $16tn in the past 20 years due to racial discrimination, Citigroup says

The country's GDP will get a $5tn boost if it ends today the most severe forms of economic discrimination against African Americans

KENOSHA, WISCONSIN - AUGUST 28: A small group of peaceful demonstrators protesting the shooting of Jacob Blake hold a rally on August 28, 2020 in Kenosha, Wisconsin. Blake was shot seven times in the back in front of his three children by a police officer. The shooting has led to several days of rioting and protests in the city.   Scott Olson/Getty Images/AFP

Not addressing racial gaps between black and white Americans has cost the US economy up to $16 trillion (Dh58.72tn) in the past two decades, according to Citigroup.

If the US eliminates the most severe forms of economic discrimination against African Americans today, its gross domestic product will increase by $5tn over the next five years, Citigroup's global chief economist Catherine Mann and economist Dana Peterson, wrote in a report titled Closing the Racial Inequality Gaps.

This would translate to an average of 0.35 percentage point to the world's biggest economy's GDP per year and 0.09 percentage point to global growth on an annual basis, they said.

Wages, education, housing and investment were the four key areas where severe economic discrimination has persisted in the past 20 years.

Eliminating the wage gap associated with racial inequality could have added $2.7tn in income or about 0.2 per cent to GDP per year in the past 20 years. Facilitating easy access to higher education for black students could have increased their lifetime incomes by $90 billion to $113bn, according to the report

Improving access to housing credit might have added an additional 770,000 black homeowners over the past 20 years, generating $218bn in sales and expenditures over that period.

Providing fair and equitable lending to black entrepreneurs could have generated an additional $13tn in business revenue and created 6.1 million jobs per year, the report added.

“These costs are most evident in racial gaps: wide numerical differences in key social and economic indicators between black and white Americans,” Citigroup economists wrote.

“These gaps are apparent in unemployment, net worth, debt levels, wages, peak income, financing for businesses, spending on education and rates of imprisonment and sentencing levels.”

Racial inequality has taken centre stage in US following the death of African American George Floyd earlier this year. Police brutality and the disproportionate impact of the virus outbreak on the minorities are core topics in the upcoming presidential elections in November.

“Black, Latinx, and Native Americans have been hospitalised for Covid-19 at a disproportionately high rate, a direct result of what the Centers for Disease Control and Prevention has identified as ‘long-standing systemic health and social inequities’,” Raymond McGuire, Citigroup’s vice chairman and chairman of the lender’s banking, capital markets and advisory business, said in the report.

“Blacks and people of colour are also bearing a disproportionate share of the pandemic’s economic devastation. And the killings of Ahmaud Arbery, Breonna Taylor and George Floyd have finally shaken the US and the world awake to the egregious racial inequities in our criminal justice system,” Mr McGuire, said.

To emerge from a history of segregation and discriminatory policies, the government, politicians, corporations and individuals need to do “considerable work”, Citigroup economists said.

Government, they said, can help by eliminating discriminatory barriers and implementing policies that support work, home ownership, entrepreneurship and well-being. Financial inclusion, implementation of tax reforms and implementing “salary history ban” will also help close gaps.

Basic actions include adequate race-specific data collection, prohibiting discrimination in wages, access to housing; jobs, education, and financial services, according to the report.