The Cost of Discrimination

Discrimination–that is making business decisions in hiring or doing business on a basis other than price and quality (as they relate to the decision)–has a cost.  There is certainly a cost to those discriminated against.  These are obvious in the cases of people not hired, people unable to shop at certain places, or people whose goods or services are not bought because of who they are.  But discrimination also has a cost to those doing the discrimination.

As one extreme example, a pro basketball team owner who refused to hire black players, would be at a clear disadvantage over teams that were not so discriminatory.  Thus even if the owner of such a team is personally highly prejudiced, he will, nevertheless have a strong incentive to hire the best players he can get, regardless of their race because winning teams means filling more seats in the stands, more people watching the game on television (and thus more ad revenue for those broadcasts) and more merchandise sold.  All of that translates to more money.

Other cases may be less dramatic but the principle is there.  A shop that decides to turn away business because of the race of a potential customer is just begging for someone to come along, accept that business as well as the more “conventional” business, and, thanks to the larger customer base, out-compete him.

Consider also Major League Baseball.  There were a limited number of teams in the major leagues and the setup meant it was next to impossible for new competing teams to enter that closed market.  It functioned, basically, as a cartel, a highly effective one of its type.  So long as all the individual businesses in that cartel agreed to discriminate against black players, then they could get away with it.  But let just one team break ranks–like the (then) Brooklyn Dodgers did in 1947 when they hired Jackie Robinson–and the floodgates open.  Other team owners, regardless of what they might personally feel about race, opened their own teams to black players.

Why would they do that?  Well, look at the results.  Over the decade from 1949 to 1958 Black players won National League MVP in seven out of those 10 years–one, Roy Campanella, winning three times.  If, once the Dodgers opened the way, the other teams didn’t start hiring Black Players then all of those players would have been playing for the Dodgers.  As it was, the Dodgers did have three of those five players.  I guess some folk were just a little slow.

But what, some may ask, about the Jim Crow south?

What about it?  Let’s take a look at those Jim Crow Laws.  Jim Crow Laws.  Jim Crow Laws.  Laws.  This wasn’t a case of businesses deciding who they would and wouldn’t do business with, and facing the consequences of turning away paying business or not.  It was a set of business practices enforced by law.

Once again we have the actions of government blamed on the private sector.

This matter of cost is why the so called “wage gap” between the sexes is…questionable at best.  If women earned 77 cents for every dollar earned by men presumably in the same job and for the same quantity and quality of work, then someone could pay women 80 cents for what other companies are paying men, hire away all the good women workers (paying more than the other places), be able to hire five women where the other place hires four men, and produce more the goods and services at a lower price.  Much smaller production cost differences than that have more than once allowed one competitor to crush another.

That this doesn’t happen suggests that there’s considerably more to the issue than the political rhetoric would suggest.  But that’s a topic for another time.  For this case, simply note that the supposed if it were real, would come at a considerable cost to the discriminating companies.

Discrimination costs.  It costs the discriminator less, perhaps, than the one discriminated against, and the cost may not be obvious but it is there.  Left to themselves businesses will tend to become less discriminatory because they’ll want the customers spending money.  They’ll want the workers.  They’ll want the business.

Most of the time government intervention to “fix” things merely makes things worse.  The only role where it actually helps in anything like a consistent manner is by intervening in the case where people use force, chiefly violence, not just to discriminate for themselves, but to impose their discriminatory practices on others.  This is often a legitimate matter for government.  For the rest, it can be left to the economy and the market.

The market may not give a perfect solution, but government rarely gives a better one.