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Despite the recent controversy, Professor Houston said the attitudes of Australians had come a long way since the 1967 referendum, which resulted in indigenous Australians being counted in the census for the first time.
"We often don't think of those things as discrimination, but they are in effect discriminatory."
The other form of frequently unrecognised racism, Professor Houston said, was institutional racism.
The Collingwood president faced a barrage of criticism for his so called "slip of the tongue", prompting one of his club's footballers, Harry O'Brien, to say that racism in Australia was often cloaked by "larrikinism."
However, he said that society tended to tolerate jokes or statements by those who didn't realise they were causing offence.
"To me Eddie's comments are reflective of common attitudes that we as a society face," tweeted O'Brien, who was born in Rio de Janeiro to a Brazilian mother and a Congolese father.
Urban Dictionary defines casual racism as "the art of being slightly racist in a casual fashion. It's when one doesn't really hate people of another colour" but still laughs at jokes at their expense.
"It's better to put a fence at the top of the cliff rather than an ambulance at the bottom of the cliff, and I reckon if you ask Eddie McGuire, he'd say exactly the same thing," Professor Houston said.
Professor Houston was the first Aboriginal person to be appointed to such a senior role at any Australian university.
King Kong have thrust into the spotlight once again the prevalence and varying types of racism in Australia.
But he said if one person was offended by a joke, it was racist.
of Sydney's Deputy Vice Chancellor (Indigenous Strategy and Services).
That's the type of ignorance that needs to be tackled head on, said Professor Shane Houston, the Lacoste Frames Eyeglasses University Polo Shirts Uk
Eddie McGuire's controversial comments this week about using dual AFL Brownlow medallist Adam Goodes to promote the musical Wholesale Polo Shirts Downtown Los Angeles
Are you a casual racist
"The rights of a single Australian are as important as the rights of the rest. If I'm in a group of 50 people who aren't Aboriginal who crack a joke about Aboriginal people and they all have a bit of a chuckle, I have to say that's unacceptable. We have to call it for what it is. It's racism, and the majority has to think about how they position themselves in those sorts of situations."
"People need to understand that it's not okay to laugh at other people or to discriminate against other people just because they are different and they are in a minority," he said.
He said most Australians recognised instances of overt racism in which, for example, a person was denied a job or access to housing because of the colour of their skin.
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"For example, in setting public policy, the structure of a particular program might work for 80 per cent of the population, but because the circumstances of Aboriginal people or people from migrant communities don't fit the profile that was used to create the program, their access is limited," Professor Houston said.
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"But if you let the jokes go by it reinforces the unacceptable behaviour which is outside of what people see as discrimination."
He said Australia needed to find strategies to educate people earlier about what was acceptable behaviour and what wasn't.
Professor Houston said society tended to tolerate racist jokes, often because it was hard for people in a minority to speak up when they were offended
He said institutional racism was when an organisation or body created an environment in which a situation was tolerated because it benefited the majority.
"To me Australia is very casual with racism, I would argue that many people in this country would not think what Eddie or the 13yr [sic] old girl said last Friday is 'bad'.
"We've seen a huge shift in the character and the flavour of our social interactions in our society. Do we have some way to go? Absolutely, yes. But let's not forget that as a society we've seen incredible changes and maturing, and I want to celebrate that. But that's a tool we use then to tackle the journey not yet completed."
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