The Conservative Free Market Paradigm

1. RACIAL ECONOMIC INEQUALITY AND DISCRMINATION: CONSERVATIVE AND LIBERAL PARADIGMSREVISITED BY DR. ELEAZU OBINNA-Prof. Pan African Studies Dept. JULY 2009 • This review focused on the economic organization of race-how and why racial economic outcomes have persisted in the U.S capitalist economy. • Two theoretical models were reviewed. • The conservative discrimination model by Milton Friedman. In his Capitalism and Freedom (1962). 1 In Friedman’s view, the forces of competition in capitalist economy will eliminate discrimination within the competitive firm, He states that a firms use of noneconomic information such as “race” is costly. 2. The Liberal model which uses theory of human capital but focused on social causes in explaining racial economic outcomes. The liberal paradigm of offers a different explanation of racial economic outcomes. Liberal analysis- as seen through the writing of Gunnar Myradal, John Kenneth Galbraith, Lester Thurow, William J. Wilson, et; al.

2. The Conservative Free Market Paradigm • Was put fourth by Milton Friedman in his Capitalism and Freedman (1962) • In his views, the forces of competition in a capitalist economy will eliminate discrimination within a competitive firm. • He states that a firms use of non economic information such as “race” is costly. • Friedman believed that there is an economic incentive in a free market to separate economic efficiency from other characteristics of the individual. • A businessman or entrepreneur who expressed his business activities that are not relates to productive efficiency is at a disadvantage compared to other individuals who does not have such preferences. • In a free market the man who selects not to buy from the “Negro” will be drove out the market because he limits his range of choice. He will generally have to pay a higher price for what he is buying or receive a lower profit for his work. • An extension of the conservative model can be found in the concept of human capital. • Human capital is defined as investments in education, training, and other activities that raise the productive capacity of people.

3. Conservative Views • Conservatives argue that black-white disparities are caused by racial differences in human capital, not by racial discrimination within the labor market. • In specific, the conservative theory of human capital attributes the lower income of black to their supposed below average productivity. • However, the assumed lower black productivity is caused by “black” having smaller or qualitatively inferior investments in human capital than whites. • Black-white differences are seen as the result of blacks making bad individual and group choice, particularly in areas that affect their attainment of human capital. • Some of those bad choices were dropping out of school, choosing to live on welfare, and single parent households. • Conservatives argue that black-white income differences can be barrowed by individual blacks making greater investments in human capital. • Conservatives are quit critical of government programs designed to aid blacks and minorities. • Conservatives see no need to government intervention to improve the status of the racial minority because they believe that competitive forces are sufficient to discourage discrimination hiring practice.

4. Weakness of Conservative Racial Analysis • Competition eliminates racial discrimination within the firm. • The view that competition eliminates racial discrimination fails to consider various reasons why a firm might discriminate despite competitive market forces. • Hiring black workers may affront whit workers and cause them to produce less work or to take other actions that disrupt efficient operation of the firm. • Employment dealing with the public may be unavailable to the blacks because the realization that their employment may lose some of the white customers. • Training costs can multiply when blacks are quitting due to racial harassment by co-workers. • Management and decision making jobs require trust and cooperation amongst management. Therefore, they tend to hire mirror images of themselves which are upper class, white male. • Discriminatory behavior by a firm’s management team can create disunity among worker and as a result weaken their bargaining power.

5. Weakness of Conservative Racial Analysis • Blacks human capital deficiencies and cultural choices explain most of the racial income gap. • The conservative human capitalist argument is not supported by statistical evidence. • Arguments pose several conceptual problems. • They assume that it is possible to separate cultural patterns, family structure, and education from racial discrimination. • They assume that black educational differences and single female headed households are cultural choices and not the result of racial discrimination. • They refer a casual relationship between low income on one hand and black educational deficiencies and single parent households on the other, that is, black culture caused low education-female headed households with low income. • These assumption on which human capital and cultural arguments rest are contradicted by strong evidence that black culture is shaped by socioeconomic conditions including racial discrimination and isolation. • Black low educational attainment is also caused by discrimination.

6. The Liberal Paradigm • Liberal analysis suggest that racial economic inequality results from forces beyond the control of the individual. • Liberals argue by suggesting that virulent forms of discrimination, deep rooted changed in the economy and broad social forces play a critical role on the reproduction of black poverty and racial economic equality. • Liberal analysis is strongly influenced by Gunnar Myrdal’s, an American Dilemma (1944) in which he emphasized the self reinforcing conditions that keep blacks at the bottom rung of the ladder. He states If whites believed blacks were inferior, they will then limit access to education and employment. • He that these limitations led to cumulative process which is a vicious cycle of poverty which would have effect on several generations and that it is much stronger that countervailing market forces that act to reduce believed discriminatory outcomes. • Myrdal’s analysis suggest that government intervention is needed to break the persistence of negative racial outcomes.

7. The Liberal Paradigm • Affirmation action legislation is the major public policy effort to address current discrimination, • Government intervention also needed to cope with effects of structural changes in the U.S economy. • Shifts from manufacturing to service industry have affected blacks • The changes “ceteris paribus” reinforce the growth and marginalization of the black “urban poor.” • Government intervention can help bring the economy to a full employment level and there by reduce the competition for jobs between various ethnic groups.

8. Weaknesses of Liberal Racial Analysis • Capitalism development is only marginally responsible for racism. • Liberal racial analysis suffers from overwhelming weaknesses in its treatment of racism within a capitalist society. • The development of racism can be largely traced to capitalist development. • Government managed redistribution and tight labor markets are for ending black poverty and racial economic inequality. • Research suggest that black employment increases will be “robust” only when labor markets have tightened to the point that non –black labor resources are fully employed, leaving capitalist firms. No option but to hire from pool of unemployment black workers.

9. Conclusion • This chapter suggest that neither conservative nor liberals have developed a comprehensive treatment of how capitalism is an exploitive system that reaps political and economic benefits from racial distribution of resources. • Their models ignore how the end of racism is incompatible with the maintenance of the capitalist system. • From a black political economy perspective, these models share a weakness in not being relevant to black economic progress. • Conservatives and liberals address the persistence of racial economic inequality within the models capable of piecemeal solutions. • Racism is woven deeply onto the fabric of American society and will not be cured in the foreseeable future without major changed in the U.S political economy.