Profit Motive Discourages Discrimination

© 2011 Karen Selick

An edited version of this article first appeared in the May 28, 2011 issue of the Ottawa Citizen,
under the headline "Power to Dictate Must Be Curtailed." It was written in response to
a letter from someone named Joseph Y. Obagi, which in turn had been written in response
to my May 19 article, "The Real Problem with Human Rights Tribunals".
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In responding to my article advocating the repeal of human rights laws, Joseph Y. Obagi offers up “schools, institutions, transportation systems, both private and public, hospitals and businesses” as examples of entities that may have a more powerful impact on people’s daily lives than government. Most of the institutions he lumps together are in fact creatures of the state, whose power derives primarily from the fact that the government has either outlawed competition (hospitals) or made it virtually impossible for private institutions to compete because they have to support their competitors through coercive taxation (schools, transportation companies).

The historical record shows that the state and its coercive-monopoly offshoots have been far greater discriminators than private businesses ever have. It was the state that required apartheid in South Africa. It was the state that enacted Jim Crow laws to create segregation in the southern United States, often over the strenuous objection of businesses who didn’t wish either to offend their black clientele and lose their business, or to incur the expenses of installing duplicate facilities for the two races. A partial list of such laws can be found here: http://tinyurl.com/c7ll63.

Nobel prize-winning economist Gary Becker pointed out in 1957 that the free market and the profit motive provide disincentives for businesses to discriminate. Businesses exist to maximize their profits; they can’t do that by arbitrarily turning away potential customers. The profit motive also impels businesses to seek out the most reliable and cost-effective suppliers and employees—something else they cannot do by irrationally rejecting potential candidates on the basis of irrelevant characteristics.

Empirical studies corroborate Becker’s predictions. One 1962 study showed that Jews were far more likely to be hired in competitive industries (eg. manufacturing, wholesale and retail trade, entertainment, professional services) than in industries that were highly regulated and monopolistic.

A 2009 study published by three U.S. economics professors concluded that the competition unleashed by bank deregulation “reduced both the racial wage gap and racial segregation in the workplace, particularly in states with a comparatively high degree of racial prejudice, where competition-enhancing bank deregulation eliminated about one-quarter of the racial wage gap after five years.” Their study used data from the mid-1970s to the mid-1990s, a period when racially-base wage discrimination was illegal but persisted nevertheless. In other words, market forces achieved what state coercion could not.

Any government powerful enough to dictate whom we must hire or rent to is also powerful enough to harm minorities when it so chooses. It is that enormous power which must be curtailed.

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July 3, 2011