CHAPTER 7 |
Primum non nocere
—Hippocratic Oath
THE UNDERLYING PREMISE of this book is that racial discriminatory preferences do not explain all they are purported to explain. This is not to say that racial discrimination does not exist and has no effects. The policy-relevant question is how much of what we see can be explained by discrimination alone and how much by other phenomena?
Elementary economic theory amply demonstrates there are differences between what people would like to do, what they can do, and what they will find in their interest to do. Simply the knowledge that a person prefers Rolls-Royces to Fords, or twenty-five-point diamonds to two-point diamonds, does not tell us much about what he will in fact purchase. To understand more fully what people will do, one must also know the restraints they face and what must be sacrificed. In other words, we must acknowledge the role income and prices play in human behavior.
Differences between what people want to do and what they can do, or find it in their self-interest to do, apply to matters of race as well. Efforts to form discriminatory collusions against blacks encounter problems akin to efforts to form other kinds of collusive agreements. The major problem is that what is optimal for an individual member most likely will not be optimal for the group as a whole. For example, when a seller’s collusion is organized, it pays an individual member to cheat by charging a lower price while other members honor the one agreed upon. By shading their prices, the members who cheat can sell more of their product and earn greater profits at the expense of faithful members.
There is symmetry in buyer collusions. It pays an individual member to offer a higher price while other members honor the agreement to offer the lower one. Because of differences between what is optimal for the individual and what is optimal for the group, voluntary collusions (those not legally enforced) tend to break down.
A racial example of the difficulty of maintaining an effective collusion is the post-Civil War attempts by Southern planters—buyers of labor—to depress wages for blacks. During the Reconstruction era, many landowners resented the mobility and increased bargaining power of freedmen. Landowners therefore often colluded in an attempt to restrict the terms of sharecropping contracts. Before the Joint Committee on Reconstruction, in 1866, General George E. Spencer told of a planters’ association in Tuscaloosa County, Alabama. The planters agreed among themselves to give no more than one-eighth of the net proceeds of their crops to black tenants. One landowner violated the agreement and contracted to give his tenants one-sixth. He was later ostracized and forced to change the contract.
Newspapers and journals of the time carried numerous appeals for landowner cooperation and organization. In 1865, a contributor to the Southern Cultivator urged that planters stand together in enforcing contracts; with landlords acting as one, the freedman “must consent or starve.” Four years later, in DeBow’s Review, a planter lamented that “there is no concert of action on the part of the planters to oppose these ever increasing exactions [wage demands of the freedmen].” The same lament was aired in the same magazine in 1889: “If they desire success, let the farmers, as a body, cooperate together, and work by rule, order and system; attend to their own labor, and let other’s labor alone.”[1] This latter plea was in response to one white farmer, motivated by high demand for agricultural products and subsequent high demand for agricultural labor, “enticing” another’s workers by offering higher wages.
An official of the Freedmen’s Bureau correctly saw why planter collusions failed: “Such was the demand for negro laborers . . . that any combination to abridge their freedom in seeking and changing homes, or to control the price of labor, failed utterly.”[2] General Wager Swayne said, “[T]he planters made a strong combination to hire no negro away from home. The freedmen stood it out until the planters gave way, and they finally hired at random, at a little higher wages than were generally paid elsewhere.”[3] Another general referred to “a competition for labor which in many localities [in Texas], has become a scramble.”[4]
Planters’ associations failed to organize an effective collusion against black labor. That is precisely what economic theory would predict: the goals of a collusion and actually achieving those goals are often two different things. The reason for the planters’ failure is simple: profits depended on getting crops planted, harvested, and off to the market. Planters willing to pay higher wages found more workers willing to work for them; in addition, they could pick and choose among workers to get those of higher quality, while planters who honored the lower-wage agreement found fewer and lower-quality workers. Strong individual incentives to violate agreements, plus the absence of an enforcement technique, were the Achilles heel of the planter collusion.
As sellers of labor, trade unions are collusions. Like buyer collusions, they encounter similar problems. It is in a union’s interest to set high wages for its members. However, not all workers in a given occupation are—or are allowed to become—union members. Although a union can set wages for its members, it cannot do so for non-members. As we saw in our discussion of the railroad industry, in the pursuit of higher profits, employers were only too anxious to hire the cheaper-priced black workers who were denied union membership. Unions of course learned in the construction, trucking, plumbing, and other industries that what could not be successfully accomplished through the free market could be accomplished through violence—and later through government backing in the form of restrictive labor laws and regulations, such as occupational licensure and the Davis-Bacon, Interstate Commerce, and National Labor Relations acts. Those measures put the force of government behind collusive agreements.
Another example of racially discriminatory collusions breaking down can be found in major league baseball and professional football. In baseball, the large pool of talented players in the Negro leagues, and the fact that such talent could not be ignored and denied indefinitely, made it only a matter of time before racial collusion in professional sports would break down. In 1947, when the Brooklyn Dodgers signed Jackie Robinson to a contract, and two years later hired two other black players, the rest of the league teams decided they could not continue to suffer the competitive disadvantage from discriminating against the large pool of available, highly qualified blacks.
Today, black athletes dominate areas of sports where they were once excluded. As of 1985, over 75 percent of American professional basketball players, 54 percent of professional football players, and 20 percent of professional baseball players were black.[5] In professional basketball, twenty-one of the twenty-six times the Most Valuable Player award was won, between 1955 and 1981, it was won by a black.[6] Black players tend to be the highest paid. As early as 1970, four of the six baseball players in the $125,000 and higher salary bracket were black.[7] As the twenty-first century begins, blacks dominate professional sports, with the exception of baseball, even more so.
There have been many successful collusions, and they have worked against the best interests of blacks. The reason is simply that the conditions for their breakdown have not been present. Effective collusions require an enforcement mechanism that may include, inter alia, the following: penalties for noncompliance with the terms of the collusion, state-enforced laws or standards, and noncomplying members denied the right to do business; and licenses or special privileges revoked for “unethical” behavior.”[8] The ultimate enforcement mechanism is threat of violence, usually at the hands of government. When there is government enforcement of collusive action, paying a higher price or charging a lower price becomes more than a matter of failing to honor a gentlemen’s agreement; it becomes a criminal act subject to fines and/or imprisonment.
When there are government-sanctioned collusions, as in the cases of the minimum wage law, the Davis-Bacon Act, collective bargaining agreements established under the Railway Labor and Wagner acts, and numerous licensing arrangements, employers achieve lower costs by engaging in racially discriminatory hiring. There is less economic inducement for employers to take advantage of lower wages and hire less-preferred workers and risk racial conflict in the workplace. Whatever the moral and emotional arguments over whether it is fair for one person to have to charge a lower price for what he sells or pay a higher price for what he buys, the effects of preventing him from doing so are clear: the competitive disadvantages he already faces are heightened. After all, the most effective way to get somebody to buy something or hire someone is to offer a lower price or wage.
Further appreciation of the ability of competitive forces to thwart those of racial discrimination is seen in housing markets by considering this question: how did blacks seize control of housing in the central areas of most major cities? During the more racially discriminatory times of the 1930s, ’40s, and ’50s, no one could prevent whole blocks and neighborhoods from going from white to black virtually overnight. How did poor, discriminated-against blacks do this? Keep in mind that some of these neighborhoods were formerly occupied by relatively affluent whites. Moreover, there were no anti-discriminatory housing laws and no fair-housing advocates, such as the federal Department of Housing and Urban Development.
Poor blacks simply outbid the whites for the property. At first thought, the ability of poor people to outbid those of greater means may seem implausible. But imagine a three-story brownstone being rented by a non-poor white family for $200 per month. Imagine, too, that the landlord has antipathy toward blacks. Despite his antipathy, if six poor black families proposed that the building be partitioned into six units, with them paying a rent of $75 per unit, the landlord might very well reassess his position. He would be faced with the prospect of earning $450 a month by renting to blacks as opposed to $200 a month by indulging his racial preferences and retaining his white tenant. The fact that blacks came to occupy neighborhoods formerly occupied by whites is strong evidence that the landlord’s dilemma was resolved in favor of blacks.
That example demonstrates how price-fixing and other restrictions on trade can reduce options for people who are discriminated against. If there were a rent-control law, mandating that the maximum rental income the landlord could charge was $200 a month, less-preferred renters could not compete with those more preferred. That in turn means a transaction deemed mutually beneficial (the one between the six black families and the landlord) would not have occurred.
Why is it that poor blacks did not inundate suburban areas to the extent they did the cities? The answer is easy: the power of local governments to subvert the operation of the market. To a much greater extent than cities, suburban areas have highly restrictive zoning ordinances. They fix the minimum lot size, set minimum floor space and minimum distance to adjacent houses, and restrict property use to a single family. These laws combined, independent of de jure or de facto racial discrimination, deny poor people the chance to compete with nonpoor people.
Therein lies the power of the market. People can offset some of their handicaps by offering a higher price for what they buy or a lower price for what they sell—what economists call compensating differences. Well-meaning observers may be morally outraged by such a necessity. But the fact of business is that if less-preferred people are not permitted to use price as a bargaining tool, they may very well end up with none of what they want instead of some of it.[9]
As we have discussed throughout, numerous laws, regulations, and ordinances have reduced or eliminated avenues of upward mobility for many blacks. The most common feature of these barriers is that they prevent people from making voluntary transactions that are deemed mutually advantageous by the transactors themselves. While there is a long history of licensing laws written with the express purpose of restricting opportunities for blacks, it is misleading to see those laws as necessarily anti-black. An ordinance that generates a $600,000 license price in order to own a taxi, such as in New York City, discriminates against and handicaps anyone—brown, black, white, or yellow—who cannot meet the price. Therefore, these laws are anti-people! They produce a racial effect only to the extent that blacks may be the least likely to meet the entry conditions. They were the last major ethnic group to become urbanized and gain basic civil rights. When they finally achieved that status, blacks found that new barriers had been erected.
Recognizing that laws creating economic barriers are anti-people is important, not for analytical clarity alone but for making policy recommendations as well. For example, people who financially benefit from New York’s taxicab monopoly, while highly organized, are relatively few in number. They are the taxi-medallion owners, those in allied trades, and politicians who receive campaign contributions. On the other hand, those who bear the burden of the monopoly are large in number: the taxicab riders of New York City, who receive lower-quality service and pay higher prices for it, plus would-be entrants into the taxi business.
The recognition that government-sponsored monopolies might be race-neutral also tells us that blacks who already own taxis are just as likely to support collusions as are whites. Everybody likes a monopoly in what they sell and competition in what they buy. Taxis aside, blacks who are part of a monopolized market structure, such as a licensed trade or occupation or a union-protected job, will share the same interest in maintaining a collusion as do whites.
Economically, the solution to some of the problems of upward mobility that many blacks face is relatively simple. The more difficult problem lies in the political arena: how to reduce or eliminate the power of interest groups to use government to exclude? The broad solution to exclusion is for the U.S. Supreme Court to interpret the right to work as it now interprets the right to speech. The Court has all but said that there is no compelling state reason for limiting freedom of speech. Similarly, from a moral point of view, there are very few compelling state reasons for limiting one’s freedom to work.
One of the most eloquent statements of that position was stated by Supreme Court Justice Rufus W. Peckham, when he wrote the Court’s unanimous opinion in Allgeyer v. Louisiana in 1897: “The liberty mentioned in that amendment [Fourteenth] means not only the right of the citizen to be free from the mere physical restraint of his person, as by incarceration, but the term is deemed to embrace the right of the citizen to be free in the enjoyment of all his faculties; to be free to use them in all lawful ways; to live and work where he will; to earn his livelihood by any lawful calling; to pursue any livelihood or avocation, and for that purpose to enter into all contracts which may be proper, necessary and essential to his carrying out to a successful conclusion the purposes above mentioned.”[10]