Social Justice Can Make You Poor

by ROBERT WEISSBERG September 14, 2012

It is said that a fish has no concept of water and this adage certainly applied to how the anti-business mentality that increasingly dominates American life. Why else would a presidential candidate find it necessary to reaffirm the value of business success and almost apologize for his earned personal wealth? Why would his rival-Barrack Obama-feel it unnecessary to excuse his total lack of business experience during a time when economics is the campaign's central issue? 

Properly depicting this aversion to capitalism would require a door stopper tome, so let me instead offer a far simpler mental experiment that brings this transformation into view, specifically, how trying to achieve social justice can kill the goose that lays the golden eggs.

Imagine a few early 17th century explorers finding an island somewhere in North America where the native Indians have abundant fur pelts. Trade begins-a few furs for some tools, a little jewelry and so on. The furs are sent back to Europe, word gets out and pretty soon the little island is the hub of the fur trade.

The population swells and more Indians come to town to do business, and new European arrivals build taverns, inns, storage sheds and other enterprises. The local economy grows more complex. Entrepreneurs will now arrange shipping, offer insurance, loan money to smooth out the irregularities of trade, and even supply security to those who've grown wealthy.

Indians similarly prosper. Many branch out into deer skin and duck down while others become middlemen who collect pelts in the backwoods and bring them to the trading area. Government supplies only for the most minimal functions, for example, removing dead animals from streets.

Now, almost out of nowhere, a ship (the H.M.S. Lollipop) full of community activists committed to social justice arrives and after some intense debate are permitted is disembark and settle. At first these newcomers are just happy to be on dry land but in a few weeks they got busy.

These social activists quickly observe that many of the Indians who venture into trade their wares tend to linger for a few days before their journey home. Most sleep in the open under unsanitary conditions. Nobody considers this a problem-it's just life in the rough (many settlers had once lived like that upon arrival). A few Indians trade for rum, get drunk and pass out in the town square. The social justice activists are also appalled at the terms of trade. Piles of furs that will be sold for top guilder in Europe were bartered for cheap beads and face paint, even the rum is gone within an hour after receiving it.    

But, what most disturbs these social activists is how the merchants view Indians. Yes, the natives are admired for their hunting and survival skills, their stoicism in the face of immense hardship but less kind are terms like "primitive," "violent," "simple-minded" and "untrustworthy." Moreover, Europeans lack interest in learning the Indian language or appreciating their customs. Everything is just business and, to be frank, a lucrative business for all parties.  (Since the social activists don't know the Indian language either it never occurs to them to ask how the Indians viewed the Europeans.)

The social activists now have their marching orders: the Indians are being exploited and their culture condemned all the while Europeans grow rich. The entire arrangement was rife with inequality, stereotypes and needs fixing.

The activists demand that some of the "obscene" trading profits be allocated to better accommodate visiting Indians, including free food and lectures about excessive drinking. A half-guilder tax per pelt is demanded to hire role models and mentors to teach the Indians modern business skills. And all Europeans should attend mandatory lessons about Indian culture taught by activists unable to speak a single word of the Indian language. Meanwhile other activists disrupt on-going trades while chanting "People not profits" and must be dragged off to the freshly built stockade. A few worried over the possibility of declining beaver and bear population visit Indian villages to teach sustainable goat herding and cheese making albeit there is no known market for goat products or goat cheese (a few goats escape, multiply and then destroy local vegetable gardens).

In the meantime what the Indians had once traded for-knives, cloth and beads and jewelry-are given away free to "exploited" Indians by "philanthropic" activists so Indians no longer hunt. Alas, however, shortages in what was especially wanted, especially rum, encourage a crime wave. Particularly hard hit by the availability of "free" goodies were women and children who once helped catch and skin animals. Tribe elders begin worrying that the tribe's hunting skills are disappearing to be replaced by listlessness.

Needless to say, this trading outpost is now less profitable and doubts are raised about whether it can be a going business, even if all the social activists are kicked out. After all, bad habits are not easily reversed and there surely must be similar wildlife rich places and Indians willing to trade for what Europeans can supply.

So, one day everything is packed up, put on the ships and the merchants and other business folk sail on to virgin territory but without the social justice champions. Traders have learned their lesson and their next colony will have a big sign, "No Community Organizers Allowed Punishable by Death."

What happens back in the original colony? The social activists soon re-discover an ancient lesson: it is easier to destroy than create. The supply of "free" trinkets ran out and the now despondent Indians daily return to the trading post in the futile hope of doing business. But, absent any new opportunities to bring social change and eliminate exploitation, and befuddled by angry unhappy Indians, the bored social activists return home, borrow money from their parents and begin working on a hard-hitting documentary film about the exploitation of Indians.

Yes, this is all a fairy tale but it makes a serious point: those who want to improve the world seldom grasp the economic realities that drive progress. For one, benefits must be commensurate with risk. Our Europeans may have made "obscene" profits, but they were risking life and limb and many who sought similar wealth died without achieving it. Big breakthroughs come from big risks and deserve compensation as such.

Second, exploitation may be in the eye of the beholder. Paying for a steel knife with a dozen of ultimately valuable beaver pelts only seems like a rip-off to economic illiterates. But that knife probably travelled 4000 dangerous miles though multiple hands and while the Indian could get dozens of pelts, he only had a single source of steel knives. The exchange was a good deal for all parties.

Third, a marketplace may be imperfect, but even an imperfect one is superior to no marketplace. Just ask those unhappy, unemployed Indians with piles of beaver pelts without any customer.

This lesson in economics can go on and on, but let me conclude with a simple message: intentions are not the same as results. What seemed like a "good idea" and "social justice" or "fairness" certainly sounds wonderful but such slogans have probably impoverished millions. Unfortunately, this high-sounding but economically illiterate sloganeering can resemble odorless, invisible carbon monoxide. After a point the goose that lays the golden eggs grows increasingly tired and one day never wakes up. That, my dear friend, is a change that you can believe in.