From: johnson@whitewater.chem.wisc.edu (Arthur Johnson)
Subject: Re: Pessimism
Organization: Physical Sciences Lab, UW-Madison
Date: Sat, 3 Oct 92 16:24:54 GMT

In article <1992Oct2.020918.20279@oracle.us.oracle.com> mfriedma@uucp  
(Michael Friedman) writes:
> In article <1992Oct1.010832.15538@pslu1.psl.wisc.edu>  
johnson@offroad.chem.wisc.edu (Arthur Johnson) writes:
> >In article <1992Sep29.232824.15935@oracle.us.oracle.com> mfriedma@uucp  
> >(Michael Friedman) writes:

> >> Well, in general, you can't afford to be racist unless you have a lot
> >> of excess capacity arround.
> 
> >     This is only true if the economic system is absolutely  
laissez-faire,  
> >i.e. all economic frictional coefficients are equal to zero. 
> 
> I've never heard the term "economic frictional coefficient" before, so
> I'm not sure what you mean.  Are you talking about transaction costs?
> As far as being laissez-faire, that is incorrect.  If I have 8
> headcount and a job that can maybe be done by eight people if they're
> all good then I absolutely need the best people.  How much government
> regs there are has no bearing on this.

     OK, I'd better back up a step. An economic system can be modeled by  
making an analogy to Newtonian mechanics. Laissez-faire capitalism  
corresponds to the ideal frictionless case, i.e. there is no inefficiency  
in the system. But we don't live in a laissez-faire world. In American  
capitalism, net productive economic activity = (productive economic  
activity that would be achieved assuming laissez-faire) - (lost productive  
activity due to inefficiency, i.e. "frictional forces"). There are a lot  
of frictional forces in this economy, the sum of which results in a much  
smaller net productive activity than could be the case. Examples of these  
frictional forces are racism, sexism, religious favoritism, "settling" for  
less than doing your best ("it's good enough for government work"), lack  
of market knowledge, substandard education, substandard health care,  
bonehead government regs, etc. 

     Laissez-faire capitalism contains within it certain assumptions,  
among which are that all the people in the society agree that the purposes  
of economic activity are to maximize monetary profit and maximize  
efficiency in terms of how resources are utilized. If everyone agrees on  
this, then you are correct when you say that an employer (or even any two  
people involved in a transaction) can't afford to be racist, because that  
will introduce inefficiency, and therefore loss of profit, into the  
system. Let's look at your example of the job that can maybe be done by  
eight good people if they're all good. When you say that "I absolutely  
need the best people", my guess is that you say that because you  
personally believe in maximizing profit and efficiency, i.e. you accept  
laissez-faire assumptions about the purpose of economic activity. There's  
nothing wrong with that, but keep in mind that many people disagree with  
you. Ever wonder what the assumptions are behind the statement "money  
isn't everything, you know"? Plenty of people will happily accept  
inefficiency and less profit if it means that they can hire their  
relatives, friends, or people of similiar ethnic or religious background.  
In your example, many supervisors would be willing to settle
for people who are just OK at the job, provided they are from the same  
group. Why? Because, for those supervisors, group solidarity and "taking  
care of your own" is more important than profit or efficiency.

     Let me give you one example from my own experience, in this case  
related to housing, not employment. I was discussing the issue of racial  
discrimination in housing and what to do about it with a woman of both  
high education and intelligence. I proposed that instead of the myriad of  
current rules and regulations, a "blind" system be put in place, in which  
the sellers of a house were not permitted to know anything about the  
potential buyers, other than appropriate financial data to ensure that  
their bids were genuine. This system, if it could be properly worked out,  
would have the dual benefit of eliminating racial discrimination wrt home  
ownership and make the housing market a truly laissez-faire one, i.e. the  
only relevant issues between buyers and sellers being ones of price,  
quality, and location of the property. This woman said she thought that  
most people would be horrified by such a system. Why? I asked. Because  
"there are more important things than money", she said. Things like the  
kind of people you're selling to, are they "worthy" of the property being  
bought, will they help maintain the character of the neighborhood (even  
though the sellers will be long gone from there), etc. These latter  
"values", she said, need to be considered when deciding which bid to  
accept, i.e. one should sell to the "right kind" of people, even if their  
bid is lower. Now, obviously I haven't taken a poll of all Americans to  
find out what percentage agree with this woman; I will say that my  
personal conversations with people do seem to bear this out. Based on  
that, and the fact that "right kind" is so often used as a code word for  
"non-blacks", there's no question that current racist attitudes are still  
an important factor in black-white economic disparities.          
 
> >In reality,  
> >our economic system is subject to a great deal of economic friction,  
> >resulting in a huge dissipation of economic energy as waste economic  
> >"heat". 
> 
> What the heck are
> 
> A.  Economic friction, and
> 
> B.  Economic "heat"?

     I'm using these phrases as "Newtonian" metaphors for the drag  
(inefficiency) and loss of productive energy prevalent in modern American  
capitalism.  
 
> >Excess capacity will be utilized _provided_ that everyone holds  
> >profit maximization and maximum economic efficiency to be the primary  
> >purposes of economic activity. 
> 
> Quite possible, but I'm not talking about excess capacity.  I'm
> talking about the opposite - when you have just enough capacity or
> maybe too little.  In today's business environment with layoffs and
> downsizing that's a much more common situation than excess capacity.

     In certain segments of the economy, those currently subject to  
intense competition, there is little excess capacity, true. Those segments  
are closest to the laissez-faire situation. Interestingly, they are also  
the segments in which one sees a higher percentage of black folk in  
positions of real power and responsibility. But there are many other  
segments of the economy where that is not the case, and in those areas,  
racial discrimination is still a very real and significant problem.
  
> >The truth is, many people don't. If an  
> >employer is willing to take less profit in exchange for "peace of mind"  
> >(say, by hiring a less qualified white worker for reasons of ethnic or  
> >religious solidarity), or if an employer is willing to settle for only  
> >enough profit to pay him/herself a nice salary and cover expenses,  
excess  
> >capacity will begin to accumulate, 
> 
> Er no.  In that case the employer will just not increase capacity to
> meet demand.  There will be too little capacity, not too much.

     Depends on whether or not one considers those people who remain  
unemployed because these employers do not expand their businesses in  
accordance with proper laissez-faire principles to be "excess capacity" or  
not. I claim that un- or underutilized labor comes under the heading of  
excess capacity.
 
> >In an absolute laissez-faire economy, that employer would be  
> >driven out of business, of course. But American capitalism is not  
> >laissez-faire. Not even close. So racist employers, like Energizer  
> >batteries, go on and on and on.... 
> 
> Incorrect again.
> 
> Laissez-faire is irrelevant to the question of whether economic
> pressures will drive racist employers out of business unless
> 
> A.  Government regs directly protect racist employers (for example,
> "You've got to put blacks in the back of the bus.  You can't set up a
> competing line that puts blacks anywhere they want and drive the other
> company out of business")
> 
> or
> 
> B.  Government regs prevent companies from going out of business.
> 
> A is no longer the case, and except for really big companies B is not
> the case either.

     You are assuming that government regulations are the only hindrance  
to the establishment of the laissez-faire situation. But as I said above,  
the spoken and unspoken assumptions held by people wrt the purpose of  
economic acitvity need to be taken into consideration also. Putting it  
another way, laissez-faire is a state of mind as well as a question of  
government regulation. As long as a lot of people's assumptions about the  
purpose of economic activity do not correspond to laissez-faire  
assumptions, and if one of those assumptions happens to be that racism is  
an acceptable world view, racist employers will continue to operate, and  
even prosper. As long as a lot of people are willing to tolerate the  
economic inefficiency caused by racism, that inefficiency will not be  
eliminated.
 
     [...some stuff deleted...]
 
> >> 2.  It [capitalism] doesn't reward anybody.
> 
> >     Of course it does. It rewards people based on ability _and_ other  
> >things. The further the economy deviates from the frictionless ideal,  
the  
> >greater the "other things" loom in importance.
> 
> My point is that capitalism doesn't reward people.  People do.  Oracle
> reward me for my work, not some nebulous "capitalism".

     Valid point. Let me rephrase. Any economic system provides the  
framework whereby people can reward each other based on ability and other  
things. The further the economy deviates from the frictionless ideal of  
laissez-faire capitalism, the greater the "other things" loom in  
importance.
  
     [...some stuff deleted...]
 
> >> So then what do you [Carlyle] think the cause is?  After all, I  
gurantee  
> >> to you
> >> that the economics itself can't even tell what color your skin is,
> >> never mind discrimminate based on it.
> 
> >     The economic system can't discriminate based on skin color _only_  
if  
> >the economic system is laissez-faire. But who ever said that American  
> >capitalism is laissez-faire?
> 
> No one.  However your statement is incorrect.  The econmic system
> can;'t discriminate period.  Only people can.  And they can do that in
> a laissez-faire economy just as they can in a non-laissez-faire
> economy.

     In an abstract sense, yes, a person could discriminate based on race  
in a laissez-faire economy. But the most likely result would be that that  
person, if s/he started a business, would be bankrupt very quickly, and  
then might very well be committed to an insane asylum. Here's why. Let's  
assume a society whose economy is absolutely laissez-faire. Among other  
things, this means that wrt economic decisions, everyone in the society  
agrees that the purpose of economic activity is to maximize both profit  
and the efficient use of resources. Consequently, all economic rewards are  
distributed based solely on ability/merit. Now, into this ideal society  
comes a person who does not hold these assumptions about economic  
activity. S/he starts a business and in hiring, does discriminate based on  
race, i.e. s/he will hire a less qualified person of his/her own race  
before a more qualified person of a different race. First of all, this  
business will be driven out of existence in short order, because it is by  
definition the most inefficient business in this particular economic  
sector. This leaves that person with basically three choices: (1)  
voluntarily leave the society for browner pastures, (2) resign him/herself  
to being an employee for someone else, realizing that s/he will never rise  
to a position of responsibility, because s/he is not willing to help  
his/her employer maximize profit and efficient use of resources, (3)  
realize that by a laissez-faire society's standards, his/her attitudes  
indicate that s/he is to some extent out of touch with reality, and  
therefore insane, and s/he should voluntarily commit him/herself to an  
insane asylum, where s/he can obtain appropriate treatment for her  
condition (brothers/sisters, I was cured :-) :-) ).

     [...some stuff deleted...]
  
> >     Actually, a lot of black people are. [starting their own  
businesses] There was an NYT article a  
> >couple of days ago that discussed the explosive increase in black  
business  
> >formation over the past twenty years as being one important factor in  
the  
> >growth of the black upper-middle and upper classes. One major reason  
why  
> >this is happening is that many black people feel they aren't getting a  
> >fair shake from white employers. 
> 
> Really.  I wasn't aware of this.
> 
> Does it remind you of any other groups?  Like Koreans, maybe?

     To some extent, yeah. My main comment on this trend is that, at this  
point, the kind of businesses being formed are heavily skewed towards  
services. There's nothing wrong with black folk starting service  
businesses, but if _nearly every_ black-owned business is a service  
business, I think there's a problem. This starts to lead us into the realm  
of education, which is off the thread. I'll just say that even when black  
kids do get a reasonable primary/secondary education, it's usually heavy  
on literary/artistic skills, and light on math/science/technical skills.  
The mix needs to be changed.

     [...some stuff deleted...]
   
> >> Again, not in growing companies [promotion based on non-ability].
> 
> >     Again, only if maximum efficiency and profit maximization are the  
> >goals of the organization. But most growing businesses are willing to  
> >settle for a less than optimal growth rate, in exchange for other
> >things.  
> 
> Not the ones that are growing.  Jow Blow with the local grocery store
> may be like that, but public corporations that have a growth
> philosophy are usually hungrier than that.

     Larger public corporations are often hungrier. But, the vast majority  
of people work for small businesses. That's where the brutal effects of  
racism are so often clearly seen. When one looks at how many of these  
businesses hire, there is no question that this economy is still a LONG  
way from being laissez-faire. 
 
> >There was this interesting 60 Minutes piece a couple of years back  
about  
> >NYC temporary agencies, all of which had set up this elaborate code  
system  
> >with many major NYC employers that would screen out black office  
workers,  
> >even if they were more qualified than competing white office workers.
> 
> Office workers?  I thought it was receptionists and other
> high-visibility people.  As I remember it, the codes weren't used for
> the regular office workers.

     As I remember it, it was both. As I recall, the reason the  
investigators tried to control for physical attractiveness was so that  
each pair could apply for both types of positions. The point is that  
anyone who maintains that racism is no more than a residual problem in the  
economy is only kidding themselves. And let's think about the effects of  
the above system on black individuals for a moment (you seem to be really  
big on the individual). Lots of people keep saying that racism is not a  
serious impediment to advancement anymore. Many, many black people, all of  
American history notwithstanding, start out taking that at face value,  
i.e. that the slate has been more or less wiped clean. So they go to  
school, either paying for it out of savings or borrowing money to pay for  
it. And these people work very hard to be highly skilled, and they can  
prove it, by any objective measure that anyone can devise. But when they  
try to find work, they consistently run into the above type of shit, over  
and over and over. Now, of course, every business does not operate this  
way wrt hiring. But finding a fair-minded employer is hit or miss, and  
it's still usually much more miss than hit for black folk. Sooner or  
later, "be of good cheer, all will work out in the end" wears pretty thin.  
In the face of this, it is a _constant_ struggle for black Americans to  
try to avoid becoming so jaded and cynical about life that all initiative  
is destroyed. I don't know what way I can use that will help you to see  
this. Maybe you should try to _really_ get to know some of your black  
co-workers at Oracle. By this I mean make them a real part of your social  
circle. This might help you see things from a different perspective.
   
     [...stuff deleted...]

Arthur Johnson
johnson@offroad.chem.wisc.edu
Newsgroups: soc.culture.african.american