All Commentary
Tuesday, January 1, 2002

The Market Makes Diversity Worth Celebrating

Politicizing Our Differences Makes Diversity a Source of Conflict

The mantra on university campuses today is “celebrating diversity.” There are good reasons to encourage a greater appreciation of the rich diversity in the world. We are increasingly part of a global community; it’s important that we interact cooperatively with people of diverse backgrounds, understandings, skills, and motivations. But we should keep in mind that emphasizing our differences carries at least as much potential for conflict as for cooperation. Every day, in multicultural hot spots around the world, people celebrate their differences with bloody barrages of high-octane fireworks.

Also, much of what is promoted under the banner of diversity on campuses today ignores, and often disparages, the most effective force for fostering multicultural harmony—the market economy.
Market economies, based on private property and voluntary exchange, are now acknowledged to excel in the production of wealth. What people often fail to recognize is that market economies are so productive because they allow us to make the best use of the differences between people and countries. People are rewarded in market economies for seeking out those who are different and taking advantage of those differences through specialization and exchange.

The best way to celebrate diversity on campuses is by promoting a better understanding of the free-market economy that makes diversity worth celebrating. But you will look in vain for a multicultural course that emphasizes our ability to cooperate across cultural divides through market activity. Instead, the most vocal advocates of cultural diversity on campuses see the political arena, not the marketplace, as the best setting for bringing people together. Unfortunately, politicizing our differences is far more likely to make diversity a source of conflict than a cause of celebration.

If people and countries were all the same, the world would be a very impoverished place—impoverished and boring. If everyone had the same skills, attitudes, cultural norms, interests, and backgrounds, and if all countries had the same resource endowments, weather conditions, and cultural heritages, the opportunities to gain from specialization and exchange would be far less than they are. Individuals, and the countries they live in, would end up having to produce more themselves of what they consumed, being jacks of all trades and masters of none. With less specialization, and less of the increased productivity that comes from it, we would all be poorer. And quite apart from the reduction in wealth, the world would be a less interesting and exciting place. People would have less to contribute to, and learn from, one another, and the opportunity for personal growth from travel and social interaction would be diminished. The world is a more wondrous place in every way because of its diversity.

But to take advantage of the specialization that diversity makes possible we must be able to share information with countless other people on what we can best do for them and they can best do for us, and respond to this information as if we were as concerned with the welfare of others as we are with our own. This sharing of information and cooperative response is possible only through market prices. The market is a multicultural collage of global cooperation that not only allows people from all over the world to serve the interests of one another, but also motivates them to do so. Free-market capitalism penalizes parochialism and cultural isolation and rewards those who expand their markets by accommodating a wide variety of culturally influenced interests and tastes.

Scarcity and Conflict

I don’t want to leave the impression that markets completely eliminate conflict and replace it with the harmony of all joining hands and singing “We are the world.” We live in a world of scarce resources, and the greater the diversity the greater the variance in views on how those resources should be used. True, in markets the best way for you to get more things you want is by helping others get more things they want; conflict is diminished by allowing everyone to become better off. Thus market exchanges harmonize diverse preferences to a degree rarely possible in the political arena.

When people pursue their objectives through the political process, they usually achieve success by convincing authorities to take resources away from others. No more is produced—what one person gains, others lose. Worse, people devote resources to lobbying politicians that could have been producing more of what people want, so the winners gain less from political action than the losers lose.

This explains why political decisions are often controversial, with opposing sides pitted against each other. Each side finds it is more successful mobilizing public opinion and support for political action by presenting its case as a crusade for virtue, which makes it is easy for members of opposing sides to see each other as enemies. When one side loses, its tendency is to see the loss as a personal rebuke and a triumph of evil by those on the other side.

In contrast, conflicts over scarce resources in the marketplace are generally impersonal. The market is often criticized for being impersonal, but that is actually one of its advantages. When you end up with less of something than you had planned on because the price goes up, it is not the result of anyone’s intentionally taking something from you. The price increase is the effect of countless people responding to a wide variety of considerations, with it doubtful that any of them are giving you any thought at all. Because price changes are impersonal, people are far less likely to respond with animosity when they end up with less than if they knew that their loss was the intended result of political action that permitted others to gain at their expense.

People in Texas use less gasoline than otherwise because the gasoline usage of New Yorkers drives up the price they pay. But few Texans feel animosity toward New Yorkers when filling up with gas. But imagine if gas were allocated politically, and the Gas Allocation Commissar told Texans that they had to reduce their gasoline use so New Yorkers could increase theirs. This would surely increase the sensitivity of Texans to the differences between them and New Yorkers, but it would be the sensitivity of a raw nerve.

In general, the more diversity in a community, the more socially divisive political decisions will be. Fortunately, most decisions can be made individually in the marketplace since they involve choices that people can make largely independently of one another. The less we rely on government the more we can tolerate diversity, indeed thrive from it. If only this were understood by those who see more collectivism as the best way to promote (and celebrate) diversity.

  • Dwight R. Lee is the O’Neil Professor of Global Markets and Freedom in the Cox School of Business at Southern Methodist University.