Lab volunteer Dilan Saujani looks at the history and legacy of racism in the financial system.
Tackling systemic racism is an integral part of building a financial system that serves people and planet. To do so, we cannot only focus on surface-level manifestations of racial injustice in finance, but must also understand the history of key financial institutions, their role in creating and sustaining racial injustice, and how they continue to perpetuate racial disparities today. This blog explores three aspects of the history of racism in finance, and how this legacy continues to play out.
1. Finance and slavery
The history of the major players in UK finance is intimately linked with the transatlantic slave trade. Modern banks that developed rapidly in London provided credit throughout the whole slavery supply chain, facilitating and providing financial incentives to proliferate the exploitation of Black people. Slave traders engaging in the ‘triangular trade’ route required credit arrangements provided by these new financial institutions to buy supplies before they received payment for the Africans that they captured. At the same time, merchants and traders in London, Bristol and Liverpool purchased the goods produced by slave plantations. The slave trade also helped the establishment of the maritime insurance market, housed at Lloyds of London and other financial institutions that remain lynchpins of the UK’s insurance market today. The Bank of England was set up in 1694 to underpin this whole system of commercial credit. This was crucially important in helping the state to wage major wars throughout the 18th century, which were often aimed at securing or protecting overseas territories such as the colonies, and financing the military and naval means that protected the Atlantic slave routes and plantation economies.
These institutions form the bedrock of our financial system, and have a huge impact and influence on people’s lives. Yet their history shows a foundation of racial injustice. Furthermore, racism is still embedded into many current practices in the financial sector. For instance, a study of 60,000 households has demonstrated that prior to the 2008 financial crisis Black and Asian households were 25% and 21% more likely to face credit exclusion respectively, compared to White households, even after controlling for factors such as house tenure, income levels, social security benefits, age, household size, education levels, region, gender, marital status and expenditure levels. Similarly, a 2013 report investigating discrimination in British banks’ lending practices highlighted that BAME communities can be subject to higher interest rates and there is a large funding gap for start-ups led by BAME people.
As Positive Money has written, the recent apologies from the Bank of England, Lloyds of London, and other large banks are not enough. As calls for reparations grow, these institutions must confront their role in upholding racism – past and present.
2. Racial injustice and the economy
Racism also pervades beyond the financial system to our economy more widely and slavery and colonialism played a major part in the development of the UK economy. Western economies benefitted hugely from the atrocities they committed, not only directly from slaves and their labour, but also the other sectors this enabled. For example, the copper bars that some British merchants traded for enslaved Africans and the cheap woollen garments used for slave uniforms in the West Indies were both produced in South Wales. The slave trade was one of the key drivers of the industrial revolution in Britain, as its profits were invested in the development of British industries such as textiles and manufacturing. By 1800 all slave-related industries in the UK are estimated to have generated 11.1% of GDP.
Many of the UK’s key industries are stained with this legacy. But this unjustness is still embedded within our economic system. As the Runnymede Trust highlights, although migrants and ethnic minorities have lived and contributed in Britain throughout its development, during the industrial revolution and WWII, the experience of racial discrimination is viewed as somewhat marginal to Britain’s past and present, including in terms of economic and policy thinking. As Positive Money has called for, we must put racial economic justice at the forefront of the financial inclusion agenda.
3. The UK’s legacy of racial injustice reaches far beyond its own borders
Finally, it must be stressed that this legacy is international. As Jubilee Debt Campaign have highlighted, Ghana’s debt crisis is rooted in colonialism. Even after Britain had abolished the slave trade, British colonies were run to supply raw materials, such as fossil fuels, valuable metals, and cash crops, to drive the industrial revolution. This led to a sustained dependence on commodity exports, which has left a strong legacy even 60 years after independence. Ghana’s economic problems and resulting debt crises have been greatly affected by its continued dependence on commodity exports, and their volatile international prices. Recent falls in prices of gold and oil have helped destabilise the economy, and despite large debt cancellations a decade age, Ghana still loses roughly 30% of its government revenue to external debt payments each year. Many other developing nations face similar problems, leading to the resurgence of what some have called global debt colonies.
Understanding this history, and its legacy in UK finance, the wider UK economy and the global economy as a whole, helps to understand how entrenched racial injustice is in the system. To address it requires systemic solutions. We must look beyond only treating the symptoms of racism in finance, and work to transform the financial system so it prioritises justice and genuinely works for all people.
If you’re working on tackling systemic racism in finance and would like support from or to collaborate with the Lab, please contact us. To learn more about this history and its solutions, we recommend training from Decolonising Economics. Read more about banking, race and colonialism in this blog series from Positive Money.