Free Markets vs. Racism

Although I play basketball (poorly), I’m not a fan of the NBA. As such, I don’t pretend to have much interest in the Donald Sterling controversy.

Some people have wondered whether his rights to free speech are being infringed, but I disagree. He obviously has the right to say whatever he wants, even if he makes himself look like an idiot.

But the National Basketball Association is an organization that has certain rules, and it presumably has the right – by virtue of the contract among team owners – to impose disciplinary measures.

In other words, Sterling has free speech, but that doesn’t mean he is free from consequences if he says something dumb. Just as I have free speech at the Cato Institute, but also would suffer consequences if I said something offensive about a particular group (or, for that matter, if I started supporting tax hikes, bigger government, and statism).

And that’s a good thing. As a libertarian, I don’t want the government policing speech, but there’s nothing wrong with private sector penalties on racists.

And that’s the topic of today’s column. The free market is a powerful and under-appreciated tool for punishing racism and rewarding color-blind behavior.

Here’s some of what Walter Williams wrote on the topic for the Washington Examiner. He starts by pointing out that Sterling certainly wasn’t racist when making decisions about what basketball players to employ.

Though Sterling might be a racist, there’s an important “so what?” Does he act in ways commonly attributed to racists? Let’s look at his employment policy. This season, Sterling paid his top three players salaries totaling over $46 million. His 20-person roster payroll totaled over $73 million. Here are a couple of questions for you: What race are the players whom racist Sterling paid the highest salaries? What race dominated the 20-man roster? The fact of business is that Sterling’s highest-paid players are black, and 85 percent of Clippers players are black.

Walter draws the obvious conclusions, and he cites the path-breaking research of the late Gary Becker on the economics of discrimination.

How does one explain this? …Let’s use a bit of simple economics… First, professional basketball is featured by considerable market competition. …There’s open competition in joining both high-school and college teams. You just sign up for tryouts in high school and get noticed by college scouts. Then there’s considerable competition among the NBA teams in the acquisition of the best college players. Minorities and less preferred people always do better when there are open markets instead of regulated markets. Recently deceased Nobel Prize-winning economist Gary Becker pointed this phenomenon out some years ago in his path-breaking study “The Economics of Discrimination.” Many people think that it takes government to eliminate racial discrimination, but economic theory predicts the opposite. Market competition imposes inescapable profit penalties on for-profit enterprises when they make employment decisions on any basis other than worker productivity.

In other words, the free market pushes people to make decisions on the basis of ability rather than race.

The takeaway from the Sterling affair is that we should mount not a moral crusade but an economic liberty crusade. In other words, eliminate union restrictions, wage controls, occupational and business licensure, and other anti-free market restrictions. Make opportunity depend on one’s productivity.

And as you can imagine, Walter speaks with authority on these issues. And he’s right that the free market is a weapon against racism.

By contrast, when government gets involved with race issues, you often get nonsensical results, such as EEOC penalties against companies trying to weed out criminals, or legal harassment of financial institutions for trying to make sensible loans.