Dwight
R. Lee
Ramsey Professor of Private Enterprise
Economics Department
Terry College of Business
University of Georgia
Paper
Presented to The Philadelphia Society
Regional Meeting, Cleveland, September 21, 2002
It seems that diversity is being celebrated pretty much around the clock on college campuses today. Certainly, my campus is no exception. All students entering the University of Georgia beginning Fall 2002 must satisfy a cultural diversity requirement (including everything from specific courses to field trips, depending on the major) to graduate, this requirement being administered by the Office of Institutional Diversity. There is much to be said for promoting greater understanding and appreciation of cultural differences, and how they can enrich our lives, particularly in our increasingly global world. My only complaint with celebrating diversity on my campus is that I don’t feel welcome to join in. I must admit, the only effort I have made to be included in diversity activities on campus involved publishing a few editorials in the campus newspaper expressing my support for diversity. But the only responses I received from diversity advocates were highly critical of my support. My offense was in arguing that the case for diversity was also a case for free enterprise.
Those most vociferous at celebrating diversity either ignore, or more often criticize, the social institutions that make diversity worth celebrating. Instead, they champion social arrangements that make diversity a source of acrimony and conflict.
Diversity cannot be considered either good or bad outside a social
context. It takes little knowledge of either history or current events to
recognize that differences between people are just as likely, probably more
likely, to lead to horrors than to harmony.
Politicize our differences, and it destroys the type of understanding and
harmony diversity advocates want to celebrate. Rather, people end up celebrating
their diversity with brutality and barrages of some rather lethal fireworks, as
we have seen in the former Yugoslavia, the Middle East, Chechnya, Rwanda,
Burundi, the Congo and other multicultural hot spots around the world.
Markets Allow Us to Benefit from Diversity
The best foundation for the peaceful celebration of diversity is a free-market economy, based on private property, voluntary exchange and constitutionally limited government. Market economies are now universally, if often grudgingly, acknowledged for their superiority at creating prosperity. Less widely recognized, but equally important, is that the market’s wealth-producing success comes from its ability to thrive on diversity—to bring together people with different cultural backgrounds, understandings, skills, and interests and convert those differences into opportunities to capture mutual gains through productive cooperation. The marketplace is best described as a multicultural latticework of productive and harmonious interaction.
Most of the goods and services we depend on every day are made possible only by the coordinated efforts of a culturally diverse multitude from around the world. A diversity of people and cultures, specializations and skills, along with regional differences in geography, climate and resource endowments, is necessary to make available the simplest goods. For example, to produce something as simple as a wooden pencil requires resources, and the cooperation of people with specialized skills, from all over the world (see Read (1958)). To take full advantage of the productive possibilities diversity creates, we must share information with countless others about what we can best do for them and they can best do for us, and respond to that information as if we are as concerned with them as we are with ourselves. This sharing of information and cooperative response are possible only through the incentives provided by market prices. Communication through market prices not only informs people all over the world on how best to serve the interests of others, but motivates them to do so. Those who sink into parochialism and cultural isolation are penalized in market economies, while those who expand their markets by becoming more knowledgeable and sensitive to a wide variety of culturally influenced interests and concerns are rewarded.
But the most important advantage that markets allow us to realize from diversity goes beyond material wealth. Economists have long understood that primary benefits from international commerce motivated by market incentives are human improvement and understanding. This case for multicultural diversity was eloquently made by John Stuart Mill (1848; 119-20) when he wrote,
It
us hardly possible to overrate the value, for the improvement
of
human being, of things which bring them into contact with
persons
dissimilar to themselves, and with modes of thought and
action
unlike those with which they are familiar.
Commerce is …
the
purpose of the far greater part of the communication which
takes
place between civilized nations. Such
communication has
always
been … one of the primary sources of progress.
To a
being
like man … it is indispensable to be perpetually comparing
his
own notions and customs with the experience and example
of
persons in different circumstances from himself: and there
is no
nation that does not need to borrow from others, not merely
particular
arts or practices, but essential points of character in
which
its own type is inferior…. It was in vain to inculcate
feelings
of brotherhood among mankind by moral influences
alone,
unless a sense of community of interest could also be
established;
and that sense we owe to commerce.
Markets Foster Diversity by Allowing Freedom to Be Tolerated
Markets do more than enable us to benefit fully from the diversity that already exists. By enhancing the benefits of diversity, and creating an environment in which freedom can be tolerated, markets foster far more diversity from which to benefit. Freedom is necessary and sufficient for diversity to flourish. Some diversity can obviously survive without freedom, but it is always a cautious and constrained diversity, bumping up against the intolerance of the status quo and the demands for uniformity and outcome equality. With freedom there is no need to promote diversity, as it will take off spontaneously in far more directions than any diversity advocate can imagine.
Despite being universally praised in general, freedom is surprisingly unpopular in the particular, except under the discipline of market incentives. When I ask a large class of students how many favor freedom, everyone still conscious raises his or her hand. When I next ask how many favor allowing people to pursue their own selfish interests with little or no regard for the interests of others, only a very few, if any, raise their hands. But this is exactly what is done with freedom. Give people freedom and most of the time they use it to do whatever they want, without the slightest concern, or even awareness, for how their actions affect countless others, with the possible exception of a few friends and loved ones. One has to sympathize with doubts about freedom that is exercised in ways unaccountable to concerns broader than the narrow interests of those exercising it. Indeed, that isn’t freedom at all, it’s license, and will not long be tolerated. Only freedom that is disciplined, with people required to take responsibility for the consequences of their actions, is real and durable freedom.
Here we see the major advantage of markets and why markets do so much to foster diversity. Markets expand the range of acceptable freedom by imposing discipline on it—by insuring that when people pursue their own interests they do so in ways accountable to the interests of others. The keys to this accountability are the market prices that arise from the transfer of private property. The market price for a product informs each consumer of the value other consumers place on another unit of it, and of how much the additional unit costs all those involved in making it available. So consumers buy more of a product only as long as an additional unit is worth at least as much to them as it is to other consumers, and as much as suppliers have to sacrifice to produce it. Similarly, suppliers will incur the cost of producing more of a product as long as consumers value another unit, as communicated by its price, by more than the cost. And this cost will be as low as possible, because market prices provide the information and motivation necessary for coordinating the actions of the numerous specialists required to produce everything from wooden pencils to jet airlines as cheaply as possible and to distribute them in the quantities and to the locations most preferred.
I won’t get into a detailed discussion of the amazing job markets do coordinating the actions of countless people in a myriad of roles and specialties to best harmonize the interests of all. Rather, I want to emphasize that the market discipline and accountability behind that coordination make it possible for us to tolerate far more freedom, and therefore diversity, than without them.
Another way to emphasize freedom’s dependence on market discipline is by recognizing what happens to freedom when that discipline is absent. Consider the problem of excessive pollution, which results from the lack of markets in the use of the environment as a waste-sink. If such markets existed, polluters would have to pay prices that reflected the cost their emissions imposed on others. Polluters would be accountable to others, and we could tolerate the freedom to use the environment as a resource for discharging waste just as we now tolerate the freedom to use resources to produce shirts, shoes, food, and a host of other goods whose production and distribution are guided by market prices. But because we don't have pollution markets (largely because of political opposition to marketable pollution permits), we cannot tolerate the freedom to pollute. Instead we accept, indeed demand, a labyrinth of governmentally imposed restrictions on our polluting activities that would be unacceptable in most areas of our lives.
Environmental regulations point to the loss of diversity as well as freedom when markets are outlawed or suppressed. The tremendous advantage of replacing the current command-and-control approach to pollution control with a policy of marketable pollution permits is that it would allow us to reduce pollution in least-cost ways, which vary according to local circumstances and changing conditions, by making reduction profitable (making polluters accountable for the costs of their emissions). Pollution policy is now characterized by bureaucratic rigidities, mindless red tape, and one-size-fits-all uniformities that stifle the efficiencies possible only with diverse approaches.
The lack of diversity allowed by government environmental policy (and government controls in general) is explained partly by ignorance of the local information of time and place that exists in the absence of market prices, partly by the appeal of the status quo to government agencies and established interest groups, and partly by the general clumsiness and inflexibility of political decision-making.
The lack of diversity in pollution control may not be the main concern of campus advocates of cultural diversity, but the general threat of government to diversity extends to the heart of multiculturalism. The U.S. is one of the most open countries in the world to the immigration of people from a wide variety of cultures largely because it still relies more on market exchange and less on government mandates to allocate goods, services and resources. Those subject to market competition want more immigrants and more opportunities for them once they arrive. When producers are held accountable to the demands of consumers, they value talented and hard-working workers, no matter what their places of birth or cultural backgrounds. On the other hand, some groups can capture political benefits at public expense by appealing to, and stirring up, xenophobic tendencies to increase restrictions on immigration when government stands ready to protect organized groups against the accountability of market competition. Also, the more we rely on free markets rather than politics, the more we foster the goals of multiculturalism by attracting immigrants with the prospect of being offered opportunity and treated with dignity. Countries that suppress market discipline with centralized government controls are primarily concerned not with people wanting to enter, but with the existing population wanting to escape, hardly a situation that promotes cultural diversity.
Even with well-functioning markets imposing the accountability that makes freedom and diversity possible, persistent pressures to reduce freedom remain inherent in the political process. The discipline of the market can be, and often is, harsh and unforgiving. When people are not using their time, talent and resources to best serve the interest of others, they pay a price in the form of unemployment, bankruptcy and other forms of financial losses. This discipline gives us the freedom, as P. J. O’Rourke (2002; p. 18) says, to “do anything we damn well please—and take the consequences.” The problem is that after doing “what they damn well please,” people don’t want to take the consequences. Instead, they pout, whine, blame others, sue, and turn to government.
No matter how well the market performs—indeed, precisely because it is performing well—some groups can always benefit by reducing the freedom of others. The benefits are typically concentrated, very visible, and easily connected to the government policy that created them. The costs, though always greater than the benefits, are thinly dispersed over the entire population, seldom noticed since they largely take the form of benefits not realized, and, even if they are noticed, are difficult to connect to the policy that created them. So when a policy that benefits a few by restricting freedom of the many is being considered, politicians can expect to hear impassioned pleas for passage from the few, to hear nothing at all from the many, and to respond predictably. The unfortunate dynamic at work here is also predictable. The more freedom is suppressed and the discipline of the marketplace eroded, the less tolerance there is for the freedom that remains. As Thomas Jefferson so presciently stated, “The natural progress of things is for liberty to yield and for government to gain ground.”[i] And the more liberty yields to government, the less hospitable society becomes for diversity, cultural and otherwise.
So it is disheartening for economists to see those on campus who claim to
favor diversity oppose market institutions that enhance the value of diversity
and create the social setting in which it is most likely to flourish.
Whether this opposition to the market springs from ignorance, the desire
to use political influence to promote private advantages, or some combination of
the two is not the concern of this paper.
Politics and the Destructiveness of Diversity
In the last section, I emphasized how relying on private property and market exchange increases tolerance for diversity, and for the freedom than allows diversity to thrive. In this section, I shall argue that politicizing society reduces tolerance for diversity by converting it from a beneficial feature of society to a potentially destructive one.
Markets are competitive places where people do their best to get ahead. People easily see this competition as a ruthless process in which the successful get ahead at the expense of the unsuccessful. The result is that people often blame markets for encouraging competition, and recommend more reliance on the political allocation of goods and services as a way of moderating competitive impulses with a cooperative spirit nourished by collective action.
The problem with this view is that competition is the result of scarcity, not markets. As long as our ability to want more outpaces our ability to produce more (and there is no reason to expect this to change before the sun fizzles out) people will compete against each other. Scarcity requires some mechanism for rationing desirable things and the way rationing takes place affects how people compete, but not whether they compete. Substituting politics for markets in the allocation of goods and services does nothing to reduce competition (all those lawyers, lobbyists, and special-interest associations haven’t located in Washington, D.C., because of the weather), but it does change the type of competition. Unfortunately, political competition is less productive and more likely to create divisiveness and hostility than market competition, and these disadvantages with political competition are intensified by diversity.
In political competition, the advantage is in masquerading self-interest behind a rhetorical facade of concern for social justice and the public interest. And since you have put yourself clearly on the side of righteousness and virtue, obviously those who oppose your political goals must be foolish and uninformed at best, greedy and wicked at worst. The result is that political competition quite often finds one vision of what is fair and noble pitted against another. Quite quickly this competition can become a conflict between strongly embraced principles, with mutual accommodation and compromise viewed with contempt by all sides.
The tendency for political competition to degenerate into battles between good and evil is aggravated by the need for successful political contestants to activate broad public support for their positions. As opposed to market activity where there is usually a clear connection between the effort, or expenditure, made and the return realized, in political activity the connection between effort (voting) and expenditure (contributions to candidates or causes) and return is extremely tenuous. In markets, people are activated by the expectation of marginal increases in rather mundane benefits. People are seldom motivated politically by the marginal and mundane. Rather, political support is best achieved by making people feel they are part of a noble crusade for an emotionally compelling cause, even when the political objective is nothing more inspiring than grabbing transfers. The steel industry wants tariff protection to protect American jobs, agricultural interests want subsidies to save the family farm, the public education lobby opposes vouchers to prevent the destruction of our public schools for the sake of our children, and corporations want subsidies for ethanol to help save the earth. Those who best inspire conviction in the righteousness of their causes are the most likely to succeed in political competition. The competition becomes even more contentious and emotionally volatile when religious and ethnic issues become politicized.
When the number of things decided politically increases, so does the potential for animosity between people with occupational, geographical, cultural and ethnic differences, as well as other differences that make no difference (indeed, are the source of mutually beneficial specialization and exchange) when things are decided through market competition. With noble principles at stake, once a decision is made, those who believe they have lost (which may be all sides) frequently experience righteous indignation at the “evil” of those who seem to have prevailed. This process can easily degenerate into an acrimonious, and potential deadly, conflict with emotions inflamed and concerns shifting from advancing one’s own interest to harming the enemy. People do become sensitive to the differences between them and others, but it is the sensitivity of an exposed nerve, not of mutual understanding and respect. Evidence on the tragic dynamic that can be created when diversity becomes politicized is found in body counts around the world that are painful to contemplate.
Consider wars, the ultimate political competition. Even if initially motivated by nothing more than plundering wealth, wars quickly become fueled by self-righteous hatreds that keep them going longer than the spoils even to the winner can justify. And politicians are not above initiating conflicts with other countries, and sacrificing the lives of many of their citizens in the process, to mobilize the intense political support that only hatred of outsiders can create.
If the carnage from politicizing diversity between nations is not bad enough, an even bloodier toll has resulted from politicizing diversity within nations. It is well known that in the 20th century an unprecedented number of soldiers were slaughtered in international conflict. Less well known is that the number of battlefield deaths during the last century pales compared to the number of noncombatants killed by their own governments. Professor R. J. Rummel (1994) of the University of Hawaii at Manoa estimates that there were approximately 37 million battlefield deaths from 1900 to around 1990. But Rummel estimates that, over the same period, governments massacred, or willfully starved, approximately 150 million noncombatants (mostly their own citizens).
Ironically, the atrocities committed by governments are invariably “justified” in the name of noble public purposes, with these justifications reflecting the need to rally public support (or at least complacency) for those atrocities. Certainly, few political movements have inspired more idealism than communism, and, coupled with the politicization of almost everything under communist rule, this idealism was instrumental in the deaths of 62 million people (as estimated by Rummel (1990)) at the hands of the Soviet government from 1917 to 1987, and the deaths of 35 million (as estimated by Rummel (1991)) in the People’s Republic of China from 1949 to 1987, to mention the most obvious examples. Of course, the people most likely to be slaughtered by totalitarian regimes are those who strive to maintain their political and cultural diversity in the face of the homogenizing demands of political centralization and control.
Americans have been blessed with an impressive (though hardly perfect) history of social diversity and harmony thanks to our political traditions of individual rights and constitutionally limited government, and the free-market institutions that have flourished under these traditions. The legacy of our political economy makes it easy to dismiss the possibility that diversity and political competition in America will degenerate into the social horrors it has in so many other countries. But remote as this possibility may seem, dismissing it would be a mistake. The best hope for maintaining social harmony and the enormous benefits from diversity is by understanding the dangers in attempting to promote diversity by politicizing our differences with negative-sum political competition. Unfortunately, this understanding seems to have completely escaped the most vocal advocates of diversity on our college campuses. And it seems also to be fading fast as a restraint on destructive public policy.
Our cultural, ethnic, sexual, and other differences have increasingly
been politicized with policies that treat people as members of groups with
rights to special outcomes instead of treating them as individuals with rights
to equal opportunity. Society is
becoming balkanized as more groups discover that outrage over exaggerated claims
of victimization has become a political currency good for special advantages at
the expense of others. Rather than promoting peaceful and productive
interaction, our differences are becoming the source of self-righteous
intolerance between increasingly hostile interests.
In the long run we all lose from such political competition, but those
most at risk are members of minority groups, whose welfare is most vulnerable to
the whims of political fad and fashion.
Conclusion
Those who extol the virtues of cultural diversity have much in common with those who claim “greed is good”: They both ignore the social context in which decisions are made. Greed, or self-interest, to use a less pejorative term, is clearly not to be applauded in all social contexts. Self-interest motivates theft, pillage, embezzlement, rape, murder and other outrages in the absence of sensible social mores and rules, and sanctions to enforce them. But self-interest also motivates hard work, creativity, entrepreneurial discovery, and a host of other socially productive activities when subjected to market incentives. Similarly, diversity can splinter society into warring factions, each feeling justified in inflicting harm on others in a setting that politicizes our differences. But in a setting characterized by constitutionally limited government and market incentives, diversity is the source of economic progress and social enrichment.
So let’s celebrate diversity on our college campuses. But let’s also make sure our students acquire an understanding of the economic system that makes diversity worth celebrating.
References
Dumbauld, Edward (ed.), The Political Writings of Thomas Jefferson (New York: The Liberal Arts Press, 1955).
Mill, John Stuart, Principles of Political Economy, Vol. 2 (London: John W. Parker, West Strand, 1848).
O’Rourke, P.J., “The War of the ‘We’ Against the ‘Me’,” Cato Policy Report (July/August 2002): 18-19.
Read, Leonard E., “I, Pencil,” The Freeman (December 1958): 32-37.
Rummel, R. J., Death by Government: Genocide and Mass Murder in the Twentieth Century (New Brunswick, N. J.: Transaction Publishers, 1994).
____________, China’s Bloody Century: Genocide and Mass Murder Since 1900 (New Brunswick, N. J.: Transaction Publishers, 1991).
____________, Lethal Politics: Soviet Genocide and Mass Murder since 1917 (New Brunswick, N. J.: Transaction Publishers, 1990).