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Lee – The Market Makes Diversity Worth Celebrating

Market Makes Diversity Worth Celebrating

R. Lee
Ramsey Professor of Private Enterprise
Economics Department
Terry College of Business
University of Georgia

Presented to The Philadelphia Society
Regional Meeting, Cleveland, September 21, 2002

It seems that diversity is
being celebrated pretty much around the clock on college campuses today.
Certainly, my campus is no exception. All students entering the
University of Georgia beginning Fall 2002 must satisfy a cultural diversity
requirement (including everything from specific courses to field trips,
depending on the major) to graduate, this requirement being administered by the
Office of Institutional Diversity. There is much to be said for promoting
greater understanding and appreciation of cultural differences, and how they can
enrich our lives, particularly in our increasingly global world.
My only complaint with celebrating diversity on my campus is that I
don’t feel welcome to join in. I
must admit, the only effort I have made to be included in diversity activities
on campus involved publishing a few editorials in the campus newspaper
expressing my support for diversity. But
the only responses I received from diversity advocates were highly critical of
my support. My offense was in
arguing that the case for diversity was also a case for free enterprise.

Those most vociferous at celebrating diversity either ignore, or more
often criticize, the social institutions that make diversity worth celebrating.
Instead, they champion social arrangements that make diversity a source
of acrimony and conflict.

Diversity cannot be considered either good or bad outside a social
context. It takes little knowledge of either history or current events to
recognize that differences between people are just as likely, probably more
likely, to lead to horrors than to harmony.
Politicize our differences, and it destroys the type of understanding and
harmony diversity advocates want to celebrate. Rather, people end up celebrating
their diversity with brutality and barrages of some rather lethal fireworks, as
we have seen in the former Yugoslavia, the Middle East, Chechnya, Rwanda,
Burundi, the Congo and other multicultural hot spots around the world.

Markets Allow Us to Benefit from Diversity

The best foundation for the peaceful celebration of diversity is a
free-market economy, based on private property, voluntary exchange and
constitutionally limited government. Market
economies are now universally, if often grudgingly, acknowledged for their
superiority at creating prosperity. Less
widely recognized, but equally important, is that the market’s
wealth-producing success comes from its ability to thrive on diversityóto
bring together people with different cultural backgrounds, understandings,
skills, and interests and convert those differences into opportunities to
capture mutual gains through productive cooperation.
The marketplace is best described as a multicultural latticework of
productive and harmonious interaction.

Most of the goods and services we depend on every day are made possible
only by the coordinated efforts of a culturally diverse multitude from around
the world. A diversity of people and cultures, specializations and skills, along
with regional differences in geography, climate and resource endowments, is
necessary to make available the simplest goods.
For example, to produce something as simple as a wooden
pencil requires resources, and the cooperation of people with specialized
skills, from all over the world (see Read (1958)). To take full advantage of the
productive possibilities diversity creates, we must share information with
countless others about what we can best do for them and they can best do for us,
and respond to that information as if we are as concerned with them as we are
with ourselves. This sharing of
information and cooperative response are possible only through the incentives
provided by market prices. Communication
through market prices not only informs people all over the world on how best to
serve the interests of others, but motivates them to do so.
Those who sink into parochialism and cultural isolation are
penalized in market economies, while those who expand their markets by becoming
more knowledgeable and sensitive to a wide variety of culturally influenced
interests and concerns are rewarded.

But the most important advantage that markets allow us to realize from
diversity goes beyond material wealth. Economists
have long understood that primary benefits from international commerce motivated
by market incentives are human improvement and understanding.
This case for multicultural diversity was eloquently made by John Stuart
Mill (1848; 119-20) when he wrote,

us hardly possible to overrate the value, for the improvement
human being, of things which bring them into contact with
dissimilar to themselves, and with modes of thought and
unlike those with which they are familiar.
Commerce is —
purpose of the far greater part of the communication which
place between civilized nations. Such
communication has
been — one of the primary sources of progress.
To a
like man — it is indispensable to be perpetually comparing
own notions and customs with the experience and example
persons in different circumstances from himself: and there
is no
nation that does not need to borrow from others, not merely
arts or practices, but essential points of character in
its own type is inferior—. It was in vain to inculcate
of brotherhood among mankind by moral influences
unless a sense of community of interest could also be
and that sense we owe to commerce.

Markets Foster Diversity by Allowing Freedom to Be

Markets do more than enable us
to benefit fully from the diversity that already exists.
By enhancing the benefits of diversity, and creating an
environment in which freedom can be tolerated, markets foster far more diversity
from which to benefit. Freedom is
necessary and sufficient for diversity to flourish.
Some diversity can obviously survive without freedom, but it is always a
cautious and constrained diversity, bumping up against the intolerance of the
status quo and the demands for uniformity and outcome equality.
With freedom there is no need to promote diversity, as it will take off
spontaneously in far more directions than any diversity advocate can imagine.

Despite being universally
praised in general, freedom is surprisingly unpopular in the particular, except
under the discipline of market incentives.
When I ask a large class of students how many favor freedom, everyone
still conscious raises his or her hand. When
I next ask how many favor allowing people to pursue their own selfish interests
with little or no regard for the interests of others, only a very few, if any,
raise their hands. But this is
exactly what is done with freedom.
Give people freedom and most of the time they use it to do
whatever they want, without the slightest concern, or even awareness, for how
their actions affect countless others, with the possible exception of a few
friends and loved ones. One has to
sympathize with doubts about freedom that is exercised in ways unaccountable to
concerns broader than the narrow interests of those exercising it. Indeed, that
isn’t freedom at all, it’s license, and will not long be tolerated.
Only freedom that is disciplined, with people required to take
responsibility for the consequences of their actions, is real and durable

Here we see the major advantage of markets and why markets do so much to
foster diversity. Markets expand
the range of acceptable freedom by imposing discipline on itóby insuring that
when people pursue their own interests they do so in ways accountable to the
interests of others. The keys to
this accountability are the market prices that arise from the transfer of
private property. The market price for a product informs each consumer of the
value other consumers place on another unit of it, and of how much the
additional unit costs all those involved in making it available.
So consumers buy more of a product only as long as an additional unit is
worth at least as much to them as it is to other consumers, and as much as
suppliers have to sacrifice to produce it.
Similarly, suppliers will incur the cost of producing more of a product
as long as consumers value another unit, as communicated by its price, by more
than the cost. And this cost will
be as low as possible, because market prices provide the information and
motivation necessary for coordinating the actions of the numerous specialists
required to produce everything from wooden pencils to jet airlines as cheaply as
possible and to distribute them in the quantities and to the locations most

I won’t get into a detailed discussion of the amazing job markets do
coordinating the actions of countless people in a myriad of roles and
specialties to best harmonize the interests of all.
Rather, I want to emphasize that the market discipline and accountability
behind that coordination make it possible for us to tolerate far more freedom,
and therefore diversity, than without them.

Another way to emphasize freedom’s dependence on market discipline is
by recognizing what happens to freedom when that discipline is absent. Consider
the problem of excessive pollution, which results from the lack of markets in
the use of the environment as a waste-sink.
If such markets existed, polluters would have to pay prices that
reflected the cost their emissions imposed on others.
Polluters would be accountable to others, and we could tolerate the
freedom to use the environment as a resource for discharging waste just as we
now tolerate the freedom to use resources to produce shirts, shoes, food, and a
host of other goods whose production and distribution are guided by market
prices. But because we don’t have
pollution markets (largely because of political opposition to marketable
pollution permits), we cannot tolerate the freedom to pollute.
Instead we accept, indeed demand, a labyrinth of governmentally imposed
restrictions on our polluting activities that would be unacceptable in most
areas of our lives.

Environmental regulations point to the loss of diversity as well as
freedom when markets are outlawed or suppressed.
The tremendous advantage of replacing the current command-and-control
approach to pollution control with a policy of marketable pollution permits is
that it would allow us to reduce pollution in least-cost ways, which vary
according to local circumstances and changing conditions, by making reduction
profitable (making polluters accountable for the costs of their emissions).
Pollution policy is now characterized by bureaucratic rigidities,
mindless red tape, and one-size-fits-all uniformities that stifle the
efficiencies possible only with diverse approaches.

The lack of diversity allowed by government environmental
policy (and government controls in general) is explained partly by ignorance of
the local information of time and place that exists in the absence of market
prices, partly by the appeal of the status quo to government agencies and
established interest groups, and partly by the general clumsiness and
inflexibility of political decision-making.

The lack of diversity in pollution control may not be the main concern of
campus advocates of cultural diversity, but the general threat of government to
diversity extends to the heart of multiculturalism.
The U.S. is one of the most open countries in the world to the
immigration of people from a wide variety of cultures largely because it still
relies more on market exchange and less on government mandates to allocate
goods, services and resources. Those
subject to market competition want more immigrants and more opportunities for
them once they arrive. When
producers are held accountable to the demands of consumers, they value talented
and hard-working workers, no matter what their places of birth or cultural
backgrounds. On the other hand,
some groups can capture political benefits at public expense by appealing to,
and stirring up, xenophobic tendencies to increase restrictions on immigration
when government stands ready to protect organized groups against the
accountability of market competition. Also, the more we rely on free markets
rather than politics, the more we foster the goals of multiculturalism by
attracting immigrants with the prospect of being offered opportunity and treated
with dignity. Countries that
suppress market discipline with centralized government controls are primarily
concerned not with people wanting to enter, but with the existing population
wanting to escape, hardly a situation that promotes cultural diversity.

Even with well-functioning markets imposing the accountability that makes
freedom and diversity possible, persistent pressures to reduce freedom remain
inherent in the political process. The
discipline of the market can be, and often is, harsh and unforgiving. When
people are not using their time, talent and resources to best serve the interest
of others, they pay a price in the form of unemployment, bankruptcy and other
forms of financial losses. This
discipline gives us the freedom, as P. J. O’Rourke (2002; p. 18) says, to
“do anything we damn well pleaseóand take the consequences.” The problem
is that after doing “what they damn well please,” people don’t want to
take the consequences. Instead,
they pout, whine, blame others, sue, and turn to government.

No matter how well the market
performsóindeed, precisely because it is performing wellósome groups can
always benefit by reducing the freedom of others. The benefits are typically
concentrated, very visible, and easily connected to the government policy that
created them. The costs, though
always greater than the benefits, are thinly dispersed over the entire
population, seldom noticed since they largely take the form of benefits not
realized, and, even if they are noticed, are difficult to connect to the policy
that created them. So when a
policy that benefits a few by restricting freedom of the many is being
considered, politicians can expect to hear impassioned pleas for passage from
the few, to hear nothing at all from the many, and to respond predictably.
The unfortunate dynamic at work here is also predictable. The more
freedom is suppressed and the discipline of the marketplace eroded, the less
tolerance there is for the freedom that remains. As Thomas Jefferson so
presciently stated, “The natural progress of things is for liberty to yield
and for government to gain ground.”[i]
And the more liberty yields to government, the less hospitable society becomes
for diversity, cultural and otherwise.

So it is disheartening for economists to see those on campus who claim to
favor diversity oppose market institutions that enhance the value of diversity
and create the social setting in which it is most likely to flourish.
Whether this opposition to the market springs from ignorance, the desire
to use political influence to promote private advantages, or some combination of
the two is not the concern of this paper.

Politics and the Destructiveness of Diversity

In the last section, I emphasized how relying on private property and
market exchange increases tolerance for diversity, and for the freedom than
allows diversity to thrive. In this
section, I shall argue that politicizing society reduces tolerance for diversity
by converting it from a beneficial feature of society to a potentially
destructive one.

Markets are competitive places where people do their best to get ahead.
People easily see this competition as a ruthless process in which the successful
get ahead at the expense of the unsuccessful. The result is that people often
blame markets for encouraging competition, and recommend more reliance on the
political allocation of goods and services as a way of moderating competitive
impulses with a cooperative spirit nourished by collective action.

The problem with this view is
that competition is the result of scarcity, not markets.
As long as our ability to want more outpaces our ability to produce more
(and there is no reason to expect this to change before the sun fizzles out)
people will compete against each other. Scarcity
requires some mechanism for rationing desirable things and the way rationing
takes place affects how people compete, but not whether they compete.
Substituting politics for markets in the allocation of goods and services
does nothing to reduce competition (all those lawyers, lobbyists, and
special-interest associations haven’t located in Washington, D.C., because of
the weather), but it does change the type of competition.
Unfortunately, political competition is less productive and more likely
to create divisiveness and hostility than market competition, and these
disadvantages with political competition are intensified by diversity.

In political competition, the advantage is in masquerading self-interest
behind a rhetorical facade of concern for social justice and the public
interest. And since you have put yourself clearly on the side of righteousness
and virtue, obviously those who oppose your political goals must be foolish and
uninformed at best, greedy and wicked at worst.
The result is that political competition quite often finds one vision of
what is fair and noble pitted against another.
Quite quickly this competition can become a conflict between strongly
embraced principles, with mutual accommodation and compromise viewed with
contempt by all sides.

The tendency for political competition to degenerate into battles between
good and evil is aggravated by the need for successful political contestants to
activate broad public support for their positions.
As opposed to market activity where there is usually a clear connection
between the effort, or expenditure, made and the return realized, in political
activity the connection between effort (voting) and expenditure (contributions
to candidates or causes) and return is extremely tenuous.
In markets, people are activated by the expectation of marginal increases
in rather mundane benefits. People
are seldom motivated politically by the marginal and mundane.
Rather, political support is best achieved by making people feel they are
part of a noble crusade for an emotionally compelling cause, even when the
political objective is nothing more inspiring than grabbing transfers. The steel
industry wants tariff protection to protect American jobs, agricultural
interests want subsidies to save the family farm, the public education lobby
opposes vouchers to prevent the destruction of our public schools for the sake
of our children, and corporations want subsidies for ethanol to help save the
earth. Those who best inspire
conviction in the righteousness of their causes are the most likely to succeed
in political competition. The
competition becomes even more contentious and emotionally volatile when
religious and ethnic issues become politicized.

When the number of things decided politically increases, so does the
potential for animosity between people with occupational, geographical, cultural
and ethnic differences, as well as other differences that make no difference
(indeed, are the source of mutually beneficial specialization and exchange) when
things are decided through market competition.
With noble principles at stake, once a decision is made, those who
believe they have lost (which may be all sides) frequently experience righteous
indignation at the “evil” of those who seem to have prevailed.
This process can easily degenerate into an acrimonious, and potential
deadly, conflict with emotions inflamed and concerns shifting from advancing
one’s own interest to harming the enemy.
People do become sensitive to the differences between them and others,
but it is the sensitivity of an exposed nerve, not of mutual understanding and
respect. Evidence on the tragic dynamic that can be created when diversity
becomes politicized is found in body counts around the world that are painful to

Consider wars, the ultimate political competition. Even if initially
motivated by nothing more than plundering wealth, wars quickly become fueled by
self-righteous hatreds that keep them going longer than the spoils even to the
winner can justify. And politicians
are not above initiating conflicts with other countries, and sacrificing the
lives of many of their citizens in the process, to mobilize the intense
political support that only hatred of outsiders can create.

If the carnage from politicizing diversity between nations is not bad
enough, an even bloodier toll has resulted from politicizing diversity within
nations. It is well known that in the 20th century an unprecedented
number of soldiers were slaughtered in international conflict.
Less well known is that the number of battlefield deaths
during the last century pales compared to the number of noncombatants killed by
their own governments. Professor R.
J. Rummel (1994) of the University of Hawaii at Manoa estimates that there were
approximately 37 million battlefield deaths from 1900 to around 1990.
But Rummel estimates that, over the same period, governments massacred,
or willfully starved, approximately 150 million noncombatants (mostly their own

Ironically, the atrocities
committed by governments are invariably “justified” in the name of noble
public purposes, with these justifications reflecting the need to rally public
support (or at least complacency) for those atrocities.
Certainly, few political movements have inspired more
idealism than communism, and, coupled with the politicization of almost
everything under communist rule, this idealism was instrumental in the deaths of
62 million people (as estimated by Rummel (1990)) at the hands of the Soviet
government from 1917 to 1987, and the deaths of 35 million (as estimated by
Rummel (1991)) in the People’s Republic of China from 1949 to 1987, to mention
the most obvious examples. Of
course, the people most likely to be slaughtered by totalitarian regimes are
those who strive to maintain their political and cultural diversity in the face
of the homogenizing demands of political centralization and control.

Americans have been blessed with an impressive (though hardly perfect)
history of social diversity and harmony thanks to our political traditions of
individual rights and constitutionally limited government, and the free-market
institutions that have flourished under these traditions.
The legacy of our political economy makes it easy to dismiss the
possibility that diversity and political competition in America will degenerate
into the social horrors it has in so many other countries.
But remote as this possibility may seem, dismissing it would be a
mistake. The best hope for maintaining social harmony and the enormous benefits
from diversity is by understanding the dangers in attempting to promote
diversity by politicizing our differences with negative-sum political
competition. Unfortunately, this
understanding seems to have completely escaped the most vocal advocates of
diversity on our college campuses. And it seems also to be fading fast as a
restraint on destructive public policy.

Our cultural, ethnic, sexual, and other differences have increasingly
been politicized with policies that treat people as members of groups with
rights to special outcomes instead of treating them as individuals with rights
to equal opportunity. Society is
becoming balkanized as more groups discover that outrage over exaggerated claims
of victimization has become a political currency good for special advantages at
the expense of others. Rather than promoting peaceful and productive
interaction, our differences are becoming the source of self-righteous
intolerance between increasingly hostile interests.
In the long run we all lose from such political competition, but those
most at risk are members of minority groups, whose welfare is most vulnerable to
the whims of political fad and fashion.


Those who extol the virtues of
cultural diversity have much in common with those who claim “greed is good”:
They both ignore the social context in which decisions are made. Greed,
or self-interest, to use a less pejorative term, is clearly not to be applauded
in all social contexts. Self-interest
motivates theft, pillage, embezzlement, rape, murder and other outrages in the
absence of sensible social mores and rules, and sanctions to enforce them.
But self-interest also motivates hard work, creativity,
entrepreneurial discovery, and a host of other socially productive activities
when subjected to market incentives. Similarly,
diversity can splinter society into warring factions, each feeling justified in
inflicting harm on others in a setting that politicizes our differences.
But in a setting characterized by constitutionally limited government and
market incentives, diversity is the source of economic progress and social

So let’s celebrate diversity on our college campuses.
But let’s also make sure our students acquire an understanding of the
economic system that makes diversity worth celebrating.


Dumbauld, Edward (ed.), The
Political Writings of Thomas Jefferson
(New York: The Liberal Arts Press,

Principles of Political Economy, Vol. 2 (London: John W. Parker,
West Strand, 1848).

O’Rourke, P.J., “The War
of the “We’ Against the “Me’,” Cato Policy Report (July/August
2002): 18-19.

“I, Pencil,” The Freeman (December 1958): 32-37.

Death by Government: Genocide and Mass Murder in the Twentieth Century
(New Brunswick, N. J.: Transaction Publishers, 1994).

____________, China’s
Bloody Century: Genocide and Mass Murder Since 1900
(New Brunswick, N. J.:
Transaction Publishers, 1991).

____________, Lethal
Politics: Soviet Genocide and Mass Murder since 1917
(New Brunswick, N. J.:
Transaction Publishers, 1990).

Quoted in Dumbauld (1955).

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