Capitalism vs. (Government + Discrimination)

I was surfing the Wikipedia when I came across the article on Friedman’s book “Capitalism and Freedom”, and given the way he’s being attacked over the past few days by every illiterate idiot and conspiracy theorist who thinks he (or she) understands economics, the small paragraph on the chapter on “Capitalism and Discrimination” is illuminating-

In a capitalist society, Friedman argues, it costs money to discriminate, and it is very difficult, given the impersonal nature of market transactions. However, the government should not make fair employment practices laws (eventually embodied in the Civil Rights Act of 1964), as these inhibit the freedom to employ someone based on whatever qualifications the employer wishes to use. For the same reason, right-to-work laws should be abolished.

Every “liberal,” welfare-statist, socialist and communist out there argues that capitalists are bloodsucking monsters who would squeeze the worker for all its worth, would not practice “equal opportunity” and pay decent wages were it not for the presence of the benevolent government. But history tells a different story.

While discrimination – racism, caste-ism, class-ism, homophobia, xenophobia etc – is a problematic characteristic of society and will only subside as society realizes the mistakes it has made, governments actually enforce discrimination because that is the Will of society. You can see this every where – from the caste-ism that was rampant through thousands of years of rule by kings and emperors in India, slavery that was actually supported by states of the South in the USA, and discrimination that continued till the civil rights movement in the ’60s, the criminalization of homosexuality throughout the world, and the refusal to grant legal rights similar to married heterosexual couples to homosexual ones as late as November ’08. Once society progresses however – it has an epiphany, its “Oh My God!” moment – and it immediately goes into over-correction mode. So governments reverse their discriminatory policies overnight – the Will has changed, and move even farther to the left mandating equal rights everywhere. And society conveniently blames capitalism – private entrepreneurs – for all its errors. What better way to wash one’s sins than claiming others are at fault.

These two articles show why this theory is correct – “The enemies of Jim Crow” by Jeff Jacoby (via Cafe Hayek), and “The Economics and Politics of Discrimination” by George Leef.

Jacoby writes-

Far from craving the authority to relegate blacks to the back of buses and streetcars, for example, the owners of municipal transportation systems actively resisted segregation. They did so not out of some lofty commitment to racial equality or integration, but for economic reasons: Segregation hurt their bottom line. It drove up their expenses by requiring them – as the manager of Houston’s streetcar company complained to city councilors in 1904 – “to haul around a good deal of empty space that is assigned to the colored people and not available to both races.” In many cities, segregation also provoked blacks to boycott streetcars, cutting sharply into the companies’ profit.

In a notable study published in the Journal of Economic History, economist Jennifer Roback showed that in one Southern city after another, private transit companies tried to scuttle segregation laws or simply ignored them.

Thus in Jacksonville, Fla., a 1901 ordinance requiring black passengers to be segregated went unenforced until 1905, when the state Legislature mandated segregation statewide. The new statute “was passed by the Legislature much against the will of the streetcar companies,” reported the Florida Times-Union. So well-known was the companies’ hostility to segregation that when a group of black citizens challenged the law in court, their attorney felt compelled to deny being “in cahoots with the railroad lines in Jacksonville.”

And Leef-

Not many businessmen prefer prejudice to profits. As economist Milton Friedman puts it, “A businessman or an entrepreneur who expresses preferences in his business activities that are not related to productive efficiency is at a disadvantage compared to other individuals who do not. Such an individual is in effect imposing higher costs on himself than are other individuals who do not have such preferences. Hence, in a free market, they will tend to drive him out.” (Capitalism and Freedom, pp. 109-110)

In theory, therefore, we would expect to find little discrimination in a free market because of the’ self-interest of businessmen. This theory finds strong support from historical evidence. First, the Jim Crow laws of the states of the South specified that certain jobs in industry could be done only by white workers. But if the industrialists were intent upon discriminating, why did this preference have to be enacted into law? The answer is that to preserve the status of the white worker, there had to be a legal restraint upon employers. In the absence of the law, competition from nondiscriminating employers would have urged all to hire and promote blacks and whites on the basis of economic value, not race.

A second piece of evidence comes to us from South Africa, and again shows the power of business competition to reduce racial discrimination. The reason for the adoption of the policy of Apartheid in the 1930s was that white workers were incensed that so many blacks were being hired and were competing with them in pay and promotions. Therefore, they persuaded the government to restrict the better-paying jobs to whites only. Once more, we see that business was the enemy of discrimination, government the cause.

Read them both, as also this article on discrimination from The Concise Encyclopedia of Economics.

Have things changed? They never do, actually. Society always manages to find a new minority to victimize. If the recession means the US government will try to force tech-companies to hire Americans over Indians (over protests from the companies), or buy American goods over Chinese ones (making Americans pay more for goods) often because of the lobbies in favor of such moves (American workers, and American companies respectively), things are not exactly great in India – Raj Thackeray’s goons will bash North Indians who come to Bombay in search of jobs, the government of Maharashtra will enforce a law that has been lying gathering dust, Chidambaram asks what business the Bangladeshis have in India

Mr. Chidambaram said porous borders and illegal immigration were causing “unexpected demographic changes and a lot of angst” among the native population of Assam and West Bengal.

etc etc etc. Another manifestation of how society discriminates through the government but rationalizes by not calling it discrimination.

And government intervention, like the present nationalization-but-not-nationalization, results in hilarious posts like this one

Is Bank of America spending oodles of money on advertising? Horrors! Make it stop. Is General Motors planning to install machinery that will displace some workers? Never! Make it stop. Is Chrysler appointing yet another middle-aged straight white male as its president? Racist homophobic chauvinists! Make them appoint a handicapped lesbian of color.

Only that “hilarious” might be the wrong adjective here, because governments have the power to make that happen.

Ludwig von Mises writes about government in his Human Action (via The Austrian Economists)-

No government and no civil law can guarantee and bring about freedom otherwise than by supporting and defending the fundamental institutions of the market economy. Government means always coercion and compulsion and is by necessity the opposite of liberty. Government is a guarantor of liberty and is compatible with liberty only if its range is adequately restricted to the preservation of what is called economic freedom. Where there is no market economy, the best-intentioned provisions of constitutions and laws remain a dead letter.

In the case of “Jim Crow”, by interfering in the free market, the government enabled, rather than fought discrimination. And this is why governments should never be allowed to function on the basis of majoritarianism. Rights – individual rights, property rights, and every corollary right – should never be subject to vote. Otherwise, what the lynchmob – also known as society – “wills”, “happens.” Something to ponder over before blaming Capitalism for every thing from murdering Chileans to eating your homework.

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  • despicable  On February 21, 2009 at 4:51 pm

    Aristotle says:
    Duplicate comment. Refer to this.

  • raveler  On February 22, 2009 at 3:16 am

    Amazing how insightful and liberating the truth can be. Government needs to get out of the morality business, stop legislating policies that create racism by favoring one ethnicity, or gender over another. It’s time for affirmative action to go away; unfortunately, I see more racist legislation on the horizon, especially if Obama and Holder get thier way.
    Wait! If affirmative action were gone, what would Jessie Jackson, and Al Sharpton do for a living?

    • Aristotle The Geek  On February 22, 2009 at 5:26 am

      Affirmative action, or the “quota system”, is just one of the symptoms, or effects, of a meddlesome government. The root cause is the lack of respect for individual rights. If these rights are held to be irrelevant, then affirmative action and the “stimulus” are the same as far as the individual is concerned; in both cases, his power to choose is taken away from him.

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