Labour Market

Free markets, not ethnic monitoring, offer the best defence against racism

Following my piece about Mrs May’s proposals for ethnic pay monitoring, a correspondent has asked me how we can resolve issues of ‘illegitimate racial barriers to progression in workplaces’ without legal intervention.

When the issue of racial discrimination was first discussed by economists, in the late 1950s and early 1960s, it was argued that such discrimination was unlikely to persist in a free and competitive market. According to Gary Becker, discrimination – the differential treatment of individuals whose productivity is identical – imposes a cost disadvantage on firms which discriminate. In the long run, discriminating firms lose out to non-discriminators. Similarly, Milton Friedman argued that the growth of capitalism, by boosting competition, was accompanied by a major reduction in disadvantage faced by minority groups.

Both Becker and Friedman argued that it was governments who were often responsible for persistent discrimination. This was obvious in the case of the notorious ‘Jim Crow’ laws (making many occupations only open to whites) in the American South, or in apartheid South Africa.

However there may often be cases where government policy conducted for other reasons may nevertheless penalise non-whites. I have argued that some occupational regulation may have this effect.

Take, for instance, the rules surrounding licensed taxi-drivers in London. Last year there were 24,000 drivers who had achieved the arcane ‘Knowledge’ which entitles them to drive the expensive (ironically named) black cabs. 89% of them were white (only 2%, incidentally, were female). Of the 118,000 minicab drivers, who find their way round the capital by 21st-century Google Maps rather than channeling music hall’s Mr Memory, just 27% were white.

This ‘exclusion by regulation’ is not confined to taxis. The legal profession is another case where government regulation effectively keeps white males in the driving seat. And only last week the government announced a working party to define new regulations for people wanting to work in estate and letting agencies, again something which will probably disproportionately exclude people from ethnic minorities, though this is not the intention.

Of course some private sector businesses discriminate on racial (or, more properly, ethnic) grounds. There is evidence from ‘matched application’ studies that people with non-Anglo-Saxon names are less likely to be interviewed. But large firms are increasingly aware of this and are taking steps to improve matters, such as having anonymous application forms and ethnically-balanced appointment and promotion panels. Perhaps encouragingly, the numbers making racial discrimination claims to employment tribunals is lower than in the past (even allowing for the effect of the temporary fees for tribunal claims).

Would being tougher on firms be likely to change opportunities for minority groups very much? As with gender pay gaps, some firms will show up well for random reasons and will be ‘role models’ held up for public edification, which may do some good in raising aspirations. At worst, though, ethnic monitoring could lead to some unscrupulous firms outsourcing low-paid jobs, or altering their recruitment strategies in subtle ways to avoid public censure while still privileging some groups rather than others. Or it could lead to perverse results such as condemning Chinese restaurants which only employ Chinese waiters: such is the nature of political interventions in the Age of Twitter.

Improving the life chances of disadvantaged groups – whether disadvantaged by ethnicity, gender, disability or whatever – is not an easy task and one which individual firms are unequipped to undertake. It’s not their job: it’s difficult enough to succeed in satisfying customers in a rapidly-changing world where competition is ever-increasing and government regulations ever-tightening. Most businesses eventually fail in their core purpose, let alone in social engineering.

It is a moot point whether the state is likely to do any better, despite the huffing and puffing. Should it even try? Government will often do best by getting out of the way. At least we can aim to minimise those types of state involvement in the economy that make matters worse.

Many would go further and argue that we need to respect the agency of individuals who should not be defined as victims and who may resent the idea that they need help to succeed. Indeed, we should also respect different views on what equality is about. For example, should we have a police force that exactly matches the diversity of the population? Some communities clearly have, for differing reasons, little interest in being police officers. They might be more interested in careers in medicine or accountancy than in academia or the media. Is it wrong, for instance, that men and women of Indian heritage are over-represented in pharmacy?

Overt discrimination is rightly outlawed and no conceivable UK government is going to renege on this. Where governments go further, the aim should always be to generate greater equality of opportunity, for instance by improving educational provision and reducing barriers to entry to privileged occupations. But equality of outcome is an impossibility, and probably undesirable, in a complex society.

Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

1 thought on “Free markets, not ethnic monitoring, offer the best defence against racism”

  1. Posted 18/10/2018 at 17:40 | Permalink

    Indeed research in America has draw simlar conclusions, that Occupational Licensing disadvantages ethnic minority groups.
    The conservative government have been encouraging OL and worker certification thanks to lobbying from corporate interests who want to limit health & safety liability.( Corporate manslaughter & homicide act) However they might have shot themselves in the foot, since putting cost burden restrictions on employment creates more poor people.
    The majority of the poor will vote for socialist ideology, socialism is closely linked to trade unionism. Trade unions are some of the most protectionist trade bodies in the UK. So we are left with the two main political parties in the UK pushing for OL to satisfy their lobbyists. Free market ideology is about inclusion not EXCLUSION. Maybe the conservative party need reminding!

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