by Michael Reich Michael Reich is Professor of Political Economy at U. C. Berkeley. This article was written in 1974, hence used only data available at that time. His research was repeated on later census data in his book Racial Inequality: A Political-Economic Analysis, (Princeton, N.J.: Princeton University Press), 1981, and by other researchers, with similar results. His main thesis is that most workers are harmed by racism, regardless of their race. Reich believes this analysis to be based on ideas from Marx, but whether Marx would agree with his assumptions about how wages are determined is debat- able. In the early 1960s it seemed to many and the atmosphere of distrust between blacks that the elimination of racism in the U.S. was and whites has been intensifying. Racism, in- proceeding without requiring a radical restruc- stead of disappearing, seems to be on the in- turing of the entire society. There was a grow- crease. ing civil rights movement, and hundreds of Besides systematically subjugating thousands of blacks were moving to Northern blacks so that their median income is 55 per- cities where discrimination was supposedly cent that of whites, racism is of profound im- less severe than in the South. Government re- portance for the distribution of income among ports pointed to the rapid improvement in the white landowners, capitalists, and workers. For levels of black schooling as blacks moved out example, racism clearly benefits owners of of the South: in 1966 the gap between the me- housing in the ghetto where blacks have no dian years of schooling of black males aged 25 choice but to pay higher rents there than is to 29 and white males in the same age group charged to whites for comparable housing had shrunk to one-quarter the size of the gap elsewhere in the city. But more importantly, that had existed in 1960.1 By 1970, how- racism is a key mechanism for the stabilization ever, the optimism of earlier decades had van- of capitalism and the legitimization of inequal- ished. Despite new civil rights laws, elaborate ity. We shall return to the question of who White House conferences, special ghetto benefits from racism later, but first we shall re- manpower programs, the War on Poverty, and view some of the economic means used to stepped-up tokenist hiring, racism and the subjugate blacks. economic exploitation of blacks has not less- ened. During the past twenty-five years there THE PERVASIVENESS OF RACISM has been virtually no permanent improvement Beginning in the first grade, blacks go in the relative economic position of blacks in to schools of inferior quality and obtain little of America. Median black incomes have been the basic training and skills needed in the labor fluctuating at a level between 47 percent and market. Finding schools of little relevance, 63 percent of median white incomes, the ratio more in need of immediate income, and less rising during economic expansions and falling able anyway to finance their way through to previous low levels during recessions.2 Seg- school, the average black student still drops regation in schools and neighborhoods has out at a lower grade than his white counterpart. been steadily increasing in almost all cities, In 1974 only 8.1 percent of blacks aged 25 to 34 were college graduates, compared to 21.0 1 U.S. Department of Labor, Bureau of Labor Statis- percent of whites in the same age bracket.3 tics, Report No. 375, "The Social and Economic Exploitation really begins in earnest Status of Negroes in the United States, 1969," p. when the black youth enters the labor market. 50. 2 The data refer to male incomes: see Table 10-A, 3 U.S. Bureau of the Census, Series P-60, "Educa- p. 360. tional Attainment."
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A black worker with the same number of years seniority, age, health, job attitudes, and a host of schooling and the same scores on achieve- of other factors. They presume that they can ment tests as a white worker receives much analyze the sources of "pure wage discrimina- less income. The black worker cannot get as tion" without simultaneously analyzing the ex- good a job because the better-paying jobs are tent to which discrimination also affects the located too far from the ghetto or because he factors they hold constant. or she was turned down by racist personnel But such a technique distorts reality. agencies and employers or because a union The various forms of discrimination are not denied admittance or maybe because of an separable in real life. Employers' hiring and arrest record. Going to school after a certain promotion practices; resource allocation in city point doesn't seem to increase a black per- schools; the structure of transportation sys- son's income possibilities very much. The more tems; residential segregation and housing educated a black person is, the greater is the quality; availability of decent health care; be- disparity between his income and that of a havior of policemen and judges; foremen's white with the same schooling. The result: in prejudices; images of blacks presented in the 1966 black college graduates earned less than media and the schools; price gouging in ghetto white high school dropouts.4 And the higher the stores—these and the other forms of social average wage or salary of an occupation, the and economic discrimination interact strongly lower the percentage of workers in that occu- with each other in determining the occupational pation who are black. status and annual income, and welfare, of The rate of unemployment among black people. The processes are not simply blacks is generally twice as high as among additive but are mutually reinforcing. Often, a whites.5 Layoffs and recessions hit blacks with decrease in one narrow form of discrimination twice the impact they hit whites, since blacks is accompanied by an increase in another are the "last hired, first fired." The ratio of aver- form. Since all aspects of racism interact, an age black to white incomes follows the busi- analysis of racism should incorporate all its as- ness cycle closely, buffering white workers pects in a unified manner. from some of the impact of the recession. No single quantitative index could ade- Blacks pay higher rents for inferior quately measure racism in all its social, cul- housing, higher prices in ghetto stores, higher tural, psychological, and economic dimensions. insurance premiums, higher interest rates in But while racism is far more than a narrow banks and lending companies, travel longer economic phenomenon, it does have very distances at greater expense to their jobs, suf- definite economic consequences: blacks have fer from inferior garbage collection and less far lower incomes than whites. The ratio of access to public recreational facilities, and are median black to median white incomes thus assessed at higher property tax rates when provides a rough, but useful, quantitative index they own housing. Beyond this, blacks are fur- of the economic consequences of racism for ther harassed by police, the courts, and the blacks. We shall use this index statistically to prisons. analyze the causes of racism's persistence in When conventional economists attempt the United States. While this approach over- to analyze racism they usually begin by trying emphasizes the economic aspects of racism, it to separate various forms of racial discrimina- is nevertheless an improvement over the nar- tion. For example, they define "pure wage dis- rower approach taken by conventional econo- crimination" as the racial differential in wages mists. paid to equivalent workers—that is, those with similar years and quality of schooling, skill COMPETING EXPLANATIONS OF RACISM training, previous employment experience and How is the historical persistence of ra- cism in the United States to be explained? The 4 U.S. Bureau of the Census, Series P-60, "Income most prominent analysis of discrimination in 1966 of Families and Persons in the United among economists was formulated in 1957 by States." Gary Becker in his book, The Economics of 5 See, for example, U.S. Department of Labor, Manpower Report of the President, various years.
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Discrimination.6 Racism, according to Becker, criminate and hiring more blacks, thus raising is fundamentally a problem of tastes and atti- the black wage rate, it is not true that the capi- tudes. Whites are defined to have a "taste for talist class as a whole would benefit if racism discrimination" if they are willing to forfeit in- were eliminated and labor were more efficiently come in order to be associated with other allocated without regard to skin color. We will whites instead of blacks. Since white employ- show below that the divisiveness of racism ers and employees prefer not to associate with weakens workers' strength when bargaining blacks, they require a monetary compensation with employers; the economic consequences for the psychic cost of such association. In of racism are not only lower incomes for blacks Becker's principal model, white employers but also higher incomes for the capitalist class have a taste for discrimination; marginal pro- and lower incomes for white workers. Although ductivity analysis is invoked to show that white capitalists may not have conspired consciously employers lose while white workers gain (in to create racism, and although capitalists may monetary terms) from discrimination against not be its principal perpetuators, never-the-less blacks. racism docs support the continued viability of Becker does not try to explain the the American capitalist system. source of white tastes for discrimination. For We have, then, two alternative ap- him, these attitudes are determined outside of proaches to the analysis of racism. The first the economic system. (Racism could pre- suggests that capitalists lose and white work- sumably be ended simply by changing these ers gain from racism. The second predicts the attitudes, perhaps by appeal to whites on opposite—capitalists gain while workers lose. moral grounds.) According to Becker's analy- The first says that racist "tastes for discrimina- sis, employers would find the ending of racism tion" are formed independently of the economic to be in their economic self-interest, but white system; the second argues that racism inter- workers would not. The persistence of racism acts symbiotically with capitalistic economic is thus implicitly laid at the door of white work- institutions. ers. Becker suggests that long-run market The very persistence of racism in the forces will lead to the end of discrimination United States lends support to the second ap- anyway: less discriminatory employers, with no proach. So do repeated instances of employ- "psychic costs" to enter in their accounts, will ers using blacks as strikebreakers, as in the be able to operate at lower costs by hiring massive steel strike of 1919, and employer- equivalent black workers at lower wages, thus instigated exacerbation of racial antagonisms bidding up the black wage rate and/or driving during that strike and many others.7 However, the more discriminatory employers out of busi- the particular virulence of racism among many ness. blue- and white-collar workers and their fami- The approach to racism argued here is lies seems to refute our approach and support entirely different. Racism is viewed as rooted in Becker. the economic system and not in "exogenously determined" attitudes. Historically, the Ameri- SOME EMPIRICAL EVIDENCE can Empire was founded on the racist extermi- Which of the two models better ex- nation of American Indians, was financed in plains reality? We have already mentioned that large part by profits from slavery, and was ex- our approach predicts that capitalists gain and tended by a string of interventions, beginning workers lose from racism, whereas the con- with the Mexican War of the 1840s, which ventional Beckerian approach predicts pre- have been at least partly justified by white su- premacist ideology. Today, by transferring 7 white resentment toward blacks and away from See, for example, David Brody, Steelworkers in capitalism, racism continues to serve the America: The Nonunion Era (Cambridge: Harvard needs of the capitalist system. Although indi- University Press, 1966); Herbert Gutman, "The Ne- gro and the United Mineworkers," in The Negro and vidual employers might gain by refusing to dis- the American Labor Movement, ed. J. Jacobson (New York: Anchor, 1968); S. Spero and H. Harris, 6 Gary Becker, The Economics of Discrimination The Black Worker (New York: Atheneum, 1968), (Chicago: University of Chicago Press, 1957). passim.
-3- cisely the opposite. In the latter approach ra- also greater.9 This result is consistent with our cism has an equalizing effect on the white in- model and is inconsistent with the predictions come distribution, whereas in the former ra- of Becker's model. cism has a disequalizing effect. The statistical This evidence, however, should not be relationship between the extent of racism and accepted too quickly. The correlations reported the degree of inequality among whites provides may not reflect actual causality since other in- a simple yet clear test of the two approaches. dependent forces may be simultaneously influ- This section describes that test and its results. encing both variables in the same way. As is First, we need a measure of racism. the case with many other statistical analyses, The index we use, for reasons already men- the model must be expanded to control for tioned, is the ratio of black median family in- such other factors. We know from previous in- come to white median family income (abbrevi- ter-SMSA income distribution studies that the ated as B/W). A low numerical value for this most important additional factors that should ratio indicates a high degree of racism. We be introduced into our model are: (1) the indus- calculated values of this racism index using trial and occupational structure of the SMSA's; data from the 1960 Census, for each of the (2) the region in which the SMSA's are located; largest forty-eight metropolitan areas (bounda- (3) the average income of the SMSA's; and (4) ries are defined by the U.S. Census Bureau, the proportion of the SMSA population that is who use the term standard metropolitan statis- black. These factors were introduced into the tical areas—SMSA's). There is a great deal of model by the technique of multiple regression variation from SMSA to SMSA in the B/W in- analysis. Separate equations were estimated dex of racism, even within the North; Southern with the Gini index and the top 1 percent share SMSA's generally demonstrated a greater de- as measures of white inequality. gree of racism. The statistical techniques used All the equations showed strikingly uni- are based on this variation. form statistical results: racism as we have We also need measures of inequality measured it was a significantly disequalizing among whites. Two convenient measures are: force on the white income distribution, even (1) the percentage share of all white income when other factors were held constant. A I per- that is received by the top 1percent of white cent increase in the ratio of black to white me- families; and (2) the Gini coefficient of white dian incomes (that is, a 1 percent decrease in incomes, a measure which captures inequality racism) was associated with a .2 percent de- within as well as between social classes.8 crease in white inequality, as measured by the Both of these inequality measures vary Gini coefficient. The corresponding effect on considerably among the SMSA's; there is also top 1 percent share of white income was two a substantial amount of variation in these and a half times as large, indicating that most within the subsample of Northern SMSA's. of the inequality among whites generated by Therefore, it is very interesting to examine racism was associated with increased income whether the pattern of variation of the inequal- for the richest 1 percent of white families. Fur- ity and racism variables can be explained by ther statistical investigation reveals that in- causal hypotheses. This is our first source of creases in the racism variable had an insignifi- empirical evidence. cant effect on the. share received by the poor- A systematic relationship across est whites and resulted in a decrease in the SMSA's between our measure of racism and income share of the whites in the middle in- either measure of white inequality does exist come brackets.10 This is true even when the and is highly significant: where racism is greater, income inequality among whites is 9 For example, the correlation coefficient between the B/W measure of racism and the Gini coefficient 8 The Gini coefficient varies between 0 and 1, with 0 of white incomes is r = -.47. A similar calculation by indicating perfect equality and 1 indicating perfect S. Bowles, across states instead of SMSA's, re- inequality. For a more complete exposition, see H. sulted in an r = -.58. Miller, Income Distribution in the United States 10 A more rigorous presentation of these and other (Washington, D.C.: U.S. Government Printing Of- variables and the statistical results in available in fice, 1966). Michael Reich, "Racial Discrimination and the White -4-
Southern SMSA's are excluded. tual discriminatory practice from the objective Within our model, we can specify a economic self-interest of most union members. number of mechanisms that further explain the The second mechanism we shall con- statistical finding that racism increases inequal- sider concerns the allocation of expenditures ity among whites. We shall consider two for public services. The most important of mechanisms here: (1) total wages of white la- these services is education. Racial antago- bor are reduced by racial antagonisms, in part nisms dilute both the desire and the ability of because union growth and labor militancy are poor white parents to improve educational op- inhibited; (2) the supply of public services, es- portunities for their children. Antagonisms be- pecially in education, available to low- and tween blacks and poor whites drive wedges middle-income whites is reduced as a result of between the two groups and reduce their abil- racial antagonisms. ity to join in a united political movement press- Wages of white labor are lessened by ing for improved and more equal education. racism because the fear of a cheaper and un- Moreover, many poor whites recognize that deremployed black labor supply in the area is however inferior their own schools, black invoked by employers when labor presents its schools are even worse. This provides some wage demands. Racial antagonisms on the degree of satisfaction and identification with shop floor deflect attention from labor griev- the status quo, reducing the desire of poor ances related to working conditions, permitting whites to press politically for better schools in employers to cut costs. Racial divisions among their neighborhoods. Ghettos tend to be lo- labor prevent the development of united worker cated near poor white neighborhoods more organizations both within the workplace and in often than near rich white neighborhoods; ra- the labor movement as a whole. As a result, cism thus reduces the potential tax base of union strength and union militancy will be less school districts containing poor whites. Also, the greater the extent of racism. A historical pressure by teachers' groups to improve all example of this process is the already men- poor schools is reduced by racial antagonisms tioned use of racial and ethnic divisions to de- between predominantly white teaching staffs stroy the. solidarity of the 1919 steel strikers. and black children and parents.13 By contrast, during the 1890s, black-white The statistical validity of the above class solidarity greatly aided mineworkers in mechanisms can be tested in a causal model. building militant unions among workers in Ala- The effect of racism on unionism is tested by bama, West Virginia, and other coalfield ar- estimating an equation in which the percentage eas.11 of the SMSA labor force that is unionized is the The above argument and examples dependent variable, with racism and the struc- contradict the common belief that an exclu- tural variables (such as the SMSA industrial sionary racial policy will strengthen rather than structure) as the independent variables. The weaken the bargaining power of unions. Racial schooling mechanism is tested by estimating a exclusion increases bargaining power only similar equation in which the dependent vari- when entry into an occupation or industry can able is inequality in years of schooling com- be effectively limited. Industrial-type unions are pleted among white males aged 25 to 29. much less able to restrict entry than craft un- Once again, the results of this statistical ions or organizations such as the American test strongly confirm the hypothesis of our Medical Association. This is not to deny that model. The racism variable is statistically sig- much of organized labor is egregiously racist nificant in all the equations and has the pre- or that some skilled craft workers benefit from 12 racism. But it is important to distinguish ac- J. Jacobson (New York: Anchor, 1968). 13 In a similar fashion, racial antagonisms reduce Income Distribution" (Unpublished Ph.D. diss., Har- the political pressure on governmental agencies to vard University, 1973). provide other public services that would have a pro- 11 See footnote 44 above. poor distributional impact. The two principal items in 12 this category are public health services and welfare See, for example, H. Hill, "The Racial Practices of payments in the Aid to Families with Dependent Organized Labor: the Contemporary Record," in The Negro and the American Labor Movement, ed. Children program. -5- dicted sign: a greater degree of racism results away from capitalism. in lower unionization rates and greater degree Racism also provides some psycho- of schooling inequality among whites. This logical benefits to poor and working-class empirical evidence again suggests that racism whites. For example, the opportunity to partici- is in the economic interests of capitalists and pate in another's oppression compensates for other rich whites and against the economic in- one's own misery. There is a parallel here to terests of poor whites and white workers. the subjugation of women in the family: after a However, a full assessment of the im- day of alienating labor, the tired husband can portance of racism for capitalism would proba- compensate by oppressing his wife. Further- bly conclude that the primary significance of more, not being at the bottom of the heap is racism is not strictly economic. The simple some solace for an unsatisfying life; this argu- economics of racism does not explain why ment was successfully used by the Southern many workers seem to be so vehemently rac- oligarchy against poor whites allied with blacks ist, when racism is not in their economic self- in the interracial Populist movement of the late interest. In non-economic ways, racism helps nineteenth century. to legitimize inequality, alienation, and power- Thus, racism is likely to take firm root in lessness—legitimization that is necessary for a society that breeds an individualistic and the stability of the capitalist system as a whole. competitive ethos. In general, blacks provide a For example, many whites believe that welfare convenient and visible scapegoat for problems payments to blacks are a far more important that actually derive from the institutions of capi- factor in their taxes than is military spending. talism. As long as building a real alternative to Through racism, poor whites come to believe capitalism does not seem feasible to most that their poverty is caused by blacks who are whites, we can expect that identifiable and vul- willing to take away their jobs, and at lower nerable scapegoats will prove functional to the wages, thus concealing the fact that a substan- status quo. These non-economic factors thus tial amount of income inequality is inevitable in neatly dovetail with the economic aspects of a capitalist society. Racism thus transfers the racism discussed earlier in their mutual service locus of whites' resentment towards blacks and to the perpetuation of capitalism.
Reich’s Later Research
Using later Census data, Reich was able to make a statistical estimate of the effect of two race-related variables to the rate of profit for employers. BW = the ratio of black to white median fam- ily income in a given industry. %NW = the percent of non-white workers in an industry. We then have the following equation for the rate of profit in various industries: Rate of Profit = 20.5% - 14% x BW - 21.7% x %NW This equation implies that more racial inequality is associated with higher profits, and also that a lower percentage of non-white workers in an industry is associated with higher profits. See M. Reich, Racism: A Political Economic Analysis, Princeton, 1981.
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