Tuesday, September 21, 2004

Does economic discrimination deprive liberty? And what about its rationality?

Jason at Positive Liberty takes aim at my hypothetical where I attempt to demonstrate that (private) discrimination doesn’t deprive anyone of liberty, yet forbidding such discrimination clearly does.

He writes:

Economic activity has not fallen under the same rubric as intimate conduct, and with very good reason: The right to engage in commerce is something more or less guaranteed to all. The right to have whomever one desires in love is not.

A better example would run something like this: Phil asks Marcia on a date. Marcia refuses, because Phil has a long history of treating Marcia and all her relatives badly. Phil convinces hotel and restaurant owners in a dozen states that they should never serve Marcia, her relatives, or any of their descendants for all eternity. He does the same for the banks, the lawyers, the doctors, the department stores, the golf courses, and even many institutions of higher education. Marcia soon discovers that if she wants even a halfway decent shot at life, she may have to avoid a whole region of the country.

It seems to me that the question we should ask is not whether Phil has used the government to achieve his ends. Yes, such a use would be wrong. But the more salient question is whether Phil--acting very nearly as a quasi-governmental agent himself--has infringed on Marcia's presumed freedom to engage in commerce.

The law rightly scrutinizes corporations more closely than individuals in this matter, because corporations have a great deal more practical power than individuals do to harm other individuals' freedom of commerce. When an individual discriminates, it makes much less difference than when a corporation does. And when a league of corporations stretching across a wide swath of the country discriminates, the effects are even worse.


Yet I think I could have just as easily—with only slight tweaking—turned my Phil & Marcia example into an economic one and I don’t think the outcome would have been any different. Moreover, I submit that in order for Phil to be able to effectively convince enough private businesses to discriminate against the “Marcia clan” such that they will “discover[] that if [they] want[] even a halfway decent shot at life, [they] may have to avoid a whole region of the country,” Phil would have to get his grimy hands on the organs of the state to accomplish this feat. This outcome cannot possibly occur in a competitive market full of self-interested business-folk, without such government coercion.

Maybe this is Providence, but a paper that I wrote in law school on Richard Epstein’s polemic on employment discrimination, Forbidden Grounds, is staring me right in the face. So let me quote from my unpublished work:

Private discrimination in a free market radically differs from the use of force. The person who discriminates against another for any reason has power only to refuse to do business with that particular person. The victim of the discrimination, unlike the victim of force, “keeps his initial set of entitlements—life, limb, and possession—even if he does not realize the gains from trade with a particular person.” (Forbidden Grounds, at 30). Potential victims of discrimination can migrate to the other tail of the distribution and seek out those people interested in doing business with them. For example, if 90 percent of the people are opposed to doing business with a particular person [or class of persons], then that person [or class] can concentrate on doing business with the other 10 percent [or with one another—just look at how much successful business the gay community does with one another]. As long as the tort law effectively prohibits the forceful interference with contracts, a person’s enemies are powerless to block her mutually beneficial transaction with others by the use of force.


Shortly thereafter, I discuss why firms [and I see no reason why this wouldn’t include big corporations, who are in the business of maximizing profits for shareholders], absent coercion by government, would not do to the Marcia clan what Jason above describes:

Epstein and [economist Thomas] Sowell claim that a dominant majority in a free employment market will not effectively disenfranchise any particular group of people. Strong economic incentives against such behavior exist in competitive markets. Those who decide not to trade with or hire certain people because of race, sex, or age, etc. incur needless costs, even as it leaves those who are discriminated against free to pursue alternate opportunities. “The greater the class of persons who are regarded as off-limits, and the more irrational the preferences, the more the decisions will hurt the people who make it, and the more numerous the options it will open to rival traders.” (Id. at 42.)

Sowell gives specific examples of how such costs bear themselves out in the real world. When employers refuse to hire an individual simply because he or she belongs to the “wrong” group, “they must either take longer to fill their vacancies, or accept less qualified people, or pay more to attract a larger pool of applicants to select fully qualified people solely from the preferred group.” (Thomas Sowell, Race and Culture, at 88.) If discriminating employers choose to let their job vacancies remain open longer, rather than hire members of the disfavored group, then delays in accomplishing business goals often result in slower sales and loss of customers due to customer dissatisfaction. A shorthanded workforce can also lead to overtime work at premium wages to get the work done.

A categorical refusal to hire individuals because they belong to the “wrong” group invariably leads to paying more than necessary to hire someone from the group that the employer prefers. Meanwhile, non-discriminating employers employ their workers at market price. These employers stand to make greater profits and eventually displace their competitors who impose higher labor costs on themselves by hiring labor at pay rates above what is necessary to get the same work done. The firms with cheaper production costs can afford to undersell the discriminating firms in the product market, while still making a profit and in fact earn that profit on more units sold, because of cheaper prices. The point that Sowell makes is clear—those who continue to practice irrational discrimination do so at their own peril. “The particular choices made may vary with the employer or the industry, but the costs of discrimination remain inescapable in a competitive marketplace, and vary only in the form they take.” (Id. at 88-89).

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