The thing is, by drawing inspiration from racist sources with outdated ideas, and presenting said sources as positive influences, it condones their beliefs.
For example, fantasy and geek culture really idolizes H.P. Lovecraft and presents him as a great and influential literary figure, but ignores the horrible racism in his works and beliefs. It makes it seem like it's okay. Forgivable.
Similarly, certain elements evoke racist imagery. Even if not being racist, it's using the language of racism. Cultural shorthand.
I completely disagree here. I know a number of Lovecraft fans and none of them would condone any sort of racism. All of them, without exception, are aware of Lovecraft's flaws and they can appreciate his work while acknowledging them. Thinking we have to purge work from the collective consciousness because it was written by flawed people or in a time or place with different morals is ridiculous and in my opinion dangerous.
If orcs are presented in a way that emulates stereotypes that used to be applied to real world ethnicity it is hugely problematic. As problematic as making elves analogous culturally with a real world nation. Care should be made to avoid both overt or accidental racism. Because a lot of people still deal with racism in their everyday lives, and really don't need an escapist game bringing them down. They don't need a reminder of the real world ruining their immersion.
To me, orcs are presented as nasty, evil, smelly, and violent. I would never associate that with any group of humans. Why would anyone else, and if they do how is that anyone's fault but theirs?
Do people associate elves with real world nations? That seems bizarre. What would be the point?
That said, I don't mind evil orcs. There's a purpose to that. Monstrous races serve a purpose and if they're just misunderstood or victims of ethnocentric biases it makes the adventurers - the player characters - into the real monsters. That kind of morally grey world where the actions of the players might not be justified shouldn't be the baseline. Orcs need to be mostly irredeemably evil so they can be killed with impunity.
But they also shouldn't be the only dark skinned folk in the world. The world shouldn't be divided into pale skinned good guys and dark villains (with the uber good elves being even paler). There needs to be representation on both sides. And orcs need to be clearly fantastic, and not just collections of old stereotypes, even if this is just accidental.
I always imagine goblins/orcs as grey-skinned, more pale than dark - probably from watching the Hobbit cartoon when I was young. I also wouldn't have a problem with dark-skinned elves. Drow are different; they have obsidian colored skin not because they are evil but because of their subterranean habitat.
Edit: As an extension to this, the light/dark thing is often used as a proxy in the battle between good and evil (think positive and negative energy planes). This is far more fundamental than any issue with skin color and derives from our collective fear of the dark among other things. I think pointing to this as an example of racism would be a mistake (I'm not saying anyone is. I'm just saying.)
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