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An extreme example of what government may be willing to do
with the taxpayers' money was a state-owned fertilizer plant in In-
dia, which continued to employ thousands of workers for years,
even though the plant produced no fertilizer whatever:

The cleaning crew kept the factory clean, the mechanics kept the
machinery in good order, and the workshop supplied spare parts.
The managers and workers came to work, and the personnel depart-
ment marked attendance. Everyone was paid, including a bonus,
and even overtime in some cases. However, they had no work be-
cause soon after the factory was built it was discovered that the
company was unviable. If they had produced, they would have lost
masses of money. It was cheaper not to produce. Yet they could not
close down. Not only was it bad politics to close, the law did not
permit it.

Given such laws and practices, it is not surprising that, while
more than half of India's industrial work force worked for govern-
ment-owned enterprises in 1990, they produced only 27 percent of
the country's industrial output that year. Job security laws often
mean low productivity and low productivity means lower standards
of living for the country as a whole.
The particular job security policies in American colleges and
universities have their own peculiar consequences, often quite dif-
ferent from the goals of these policies. Academics who have been
Free and Unfree Labor 45


employed a given number of years at a given college or university
must either be promoted to a position with permanent tenure or
let go. This is called the "up or out" system. It means more job se-
curity for those who go up but less job security for those who are
forced out”less not only compared to their more fortunate acade-
mic colleagues, but less compared to people of similar ages in
other sectors of the economy without such job security systems.
Because academic job security systems leave colleges and uni-
versities with long-term commitments that can easily exceed a
million dollars for each tenured faculty member, this can lead to
more stringent requirements for continued employment than if no
such commitment were implied. In other words, untenured faculty
members whose current work is perfectly satisfactory will often be
let go”not have their contracts renewed”when time comes for
the "up or out" decision, when there is not yet sufficient evidence
to be confident that this person will in future years progress to the
higher performance levels expected of senior faculty members, no-
tably in scholarly research.
In the absence of this "up or out" system, people who are per-
fectly satisfactory as assistant professors could continue to be em-
ployed as assistant professors, while others could progress onward
and upward to become associate professors or full professors at
whatever time their work merited such promotions, whether that
was before or after the number of years established for making "up
or out" decisions under the current system. Those who never
reached the higher levels of performance required for such promo-
tions could nevertheless continue to be employed at their current
level, so long as their work was satisfactory at that level.
In other words, people who would be able to keep their jobs in
the absence of the current academic job security system instead
lose their jobs because this job security system imposes long-term
commitments that colleges and universities seek to avoid by re-
46 APPLIED ECONOMICS


taining only those young faculty members whose promise seems
great enough and clear enough, soon enough.
At the highest-rated universities, it is common for most assistant
professors to be terminated before time for them to become associate
professors, since there has seldom been enough time for them to have
produced the high levels of research quantity and quality required for
senior positions at such institutions. In short, the difference between
the goal of a policy”in this case, greater job security”turns out to
have little to do with the actual outcome of that policy, which is less
job security than most people of similar ages have in other sectors of
the economy where there are no such policies.
This academic promotions system also helps explain a common
but paradoxical phenomenon at many universities”the outstand-
ing young teacher who is terminated, to the consternation of his
students, who may even mount organized protests, usually in vain.
It is even common on some campuses to hear the "teacher of the
year" award referred to as "the kiss of death" for young faculty
members. That is because outstanding teaching is very time-con-
suming, in terms of creating high-quality courses and preparing
each lecture in these courses, so that there is insufficient time left
for doing the amount and quality of research required for getting
tenure at a top university. Such institutions usually fill their senior
positions by hiring those people who have already produced the
requisite quantity and quality of publications somewhere else.


Crime as an Occupation

Perhaps the freest of all occupations is that of the career criminal,
who simply ignores the restrictions that the law attempts to im-
pose. While many crimes are committed by people in a moment of
passion or a moment when temptations overcome both morality
and logic, the person whose whole livelihood depends on the com-
Free and Unfree Labor 47


mission of crimes is a very different phenomenon. The career
criminal cannot simply be dismissed as irrational because there is
too much evidence from too many countries that he is indeed
quite rational.
It is easy enough to say that "crime does not pay," but the real
question is: Does not pay whom”and compared to what? It is
doubtful whether Bill Gates could have done nearly as well as he
has by becoming a burglar or even a hit man for organized crime,
but those who do pursue these criminal occupations are unlikely to
have had the same alternatives that Bill Gates had because of his
particular talents and circumstances. Given the low educational
levels of many who become career criminals, crime may well be
their best-paying option. Given the short time horizons of many of
those who make crime their occupation”especially young people
and people from lower social classes”such things as selling drugs
may be very lucrative in stage one, whether or not it leads to prison
in stage two or perhaps never living to see stage two.
The rationality of the career criminal is demonstrated in many
ways, including a variation in the amount and kinds of crime com-
mitted as the costs of committing those crimes vary. These costs
include not only the legal penalties but also the dangers faced
from potential victims of these crimes. For example, burglary
tends to be affected by the proportion of people who have guns in
their homes. The rate of burglary is not only much higher in
Britain than in the United States”nearly twice as high”British
burglars are far less likely than American burglars to "case" the
premises before entering, in order to make sure that no one is
home. Even if someone is home in Britain, there is far less danger
that the person at home will have a firearm, given the far more
strict British gun control laws. British and American burglars are
both behaving rationally, given the respective circumstances in
which they operate.
48 APPLIED ECONOMICS


While 13 percent of burglaries in the United States occur while
the home is occupied, more than 40 percent of the burglaries in
Britain, the Netherlands, and Canada occur while the home is oc-
cupied. These latter three countries have much lower incidences of
gun ownership than the United States, due to more severe gun
control laws. After the Atlanta suburb of Kennesaw passed an or-
dinance requiring heads of households to keep a firearm in their
homes, residential burglaries dropped by 89 percent.
Another major cost to a criminal career is the danger of incur-
ring legal penalties, usually imprisonment. Here criminal activity
in general has tended to vary inversely with the risk of imprison-
ment. In the United States, various legal reforms of the 1960s
had the net effect of reducing the likelihood that anyone com-
mitting a given crime would actually spend time behind bars as a
result. Crime rates skyrocketed. The murder rate, for example,
was twice as high in 1974 as in 1961, and between 1960 and
1976 a citizen's chance of becoming a victim of some major vio-
lent crime tripled.
Data from other countries show similar trends. On a graph
showing the rate of crime in Australia from 1964 to 1999 and the
rate of imprisonment per 1,000 crimes committed over that same
span, the two lines are virtually mirror-images of one another, with
the rate of imprisonment going down and the rate of crime going
up. The graphs for England and Wales, New Zealand, and the
United States are very similar. In the United States, the crime rate
peaked in the 1980s and began falling as the rate of incarceration
rose. In England and Wales, the rate of imprisonment hit bottom
in the early 1990s”which is when the crime rate peaked and then
began a substantial decline as the rate of imprisonment rose. In
New Zealand, the high point in crime was reached in the early
1990s while the low point in incarceration was reached about 1985
Free and Unfree Labor 49


and then began to rise again, with the crime rate falling with a lag
of a few years.
This is not to say that crime is unaffected by cultural or other
differences among these countries, even though historically they
are all offshoots of the same British culture. There are serious cul-
tural differences which are no doubt reflected in the absolute levels
of crime, though the similarity in trends is very striking.
As one example of absolute levels of crime that cannot be ex-
plained by laws, in the nineteenth century, guns were freely avail-
able in both London and New York City, and yet the murder rate
in New York was several times what it was in London. Early in
the twentieth century, severe gun control laws were passed in New
York State before such laws were imposed in England”and yet
New York City continued to have several times as high a murder
rate as London.
Eventually, Britain's gun control laws were tightened far more so
than those in the United States, especially after the Second World
War. Yet Britain's crime rates in general, and murder rates in par-
ticular, rose as these gun control laws became ever tighter in the
latter part of the twentieth century. However, because New York's
murder rate continued to be far higher than that in London, and
that in the United States far higher than that in Britain, this dif-
ferential was often attributed to differences in gun control laws. In
reality, the United States has lower murder rates than some other
countries with stronger gun control laws, such as Russia, as well as
higher murder rates than other countries with stronger gun con-
trol laws, such as Britain.
While there are undoubtedly many complex factors behind the
absolute crime rates in any country, the trends strongly suggest
that changes in crime rates reflect rational reactions to those
changes by criminals.
50 APPLIED ECONOMICS

UNFREE LABOR

Involuntary labor can range from jury duty to military draftees to
inmates of forced labor camps to outright chattel slavery, in which
people are bought and sold like cattle.
The power of American courts to force citizens to serve on juries
has even been used to send out law enforcement officers to seize
customers at random in shopping centers, taking them directly to
court to fill in as jurors, when there have been inadequate numbers
of jurors on hand to conduct trials. While this is an extreme exam-
ple, it demonstrates the government's power to compel involuntary
labor. According to a news item in the Wall Street Journal:

Michael Kanz was pushing a grocery cart toward the checkout lane
at the Wal-Mart Supercenter here when a woman wearing a gun
walked up and told him to follow her orders”or face the conse-
quences.
It wasn't a mugging, but a jury summons to report to court within
an hour. And it's a perfectly legal way some judges have in recent
years been getting jurors at the last minute.

The various categories of involuntary labor differ not only in du-
ration but also in severity. Jurors do not usually serve as long as
military draftees, and inmates of forced labor camps may serve for
years but not necessarily for a lifetime, as slaves usually did. The
severity of treatment also varies, being more severe for draftees
than for jurors, and often more severe for inmates of government-
run forced labor camps than for privately owned slaves, whose
long-term productivity would be jeopardized by very severe treat-
ment. But, because people in forced labor camps are not owned by
anyone, their long-term productivity matters less”if at all”to the
decision-makers directly in charge of them, who have no incentive
to think beyond stage one.
Free and Unfree Labor 51

Productivity of Involuntary Labor
In some forced labor camps, especially those run by the Nazis and
the Japanese during World War II, the inmates were often simply
worked literally to death. The same was true of most Chinese in-
dentured servants sent to Cuba in the nineteenth century. In both
cases, as well as in the Soviet gulags of the twentieth century, total
control and an absence of ownership meant that the long-run pro-
ductivity of these workers meant nothing to those in charge of
them, who had no incentive to think beyond stage one. Only
where privately owned slaves were very cheap and easily replaced
were they likely to be worked at a literally killing pace or subjected
to dangerous working conditions. Where they were expensive and
not easily replaced, as in the American antebellum South, the
need to preserve the existing slaves often led their owners to hire
Irish immigrants to do work considered too dangerous for slaves.
During Frederick Law Olmsted's celebrated travels through the
antebellum South, he was puzzled to see black slaves throwing
500-pound bales of cotton down an incline to Irish workers who
were at the bottom, catching these bales and loading them onto a
boat. When Olmsted asked about this racial division of labor, he
was told that slaves "are worth too much to be risked here; if the
Paddies are knocked over board, or get their backs broke, nobody
loses anything." It was likewise common to use the Irish for other
work considered too dangerous for slaves, such as draining
swamps that might be malarial, building levees that might collapse
on the workmen, building railroads, or tending steam boilers that
might blow up.
How does involuntary labor in general affect the allocation of
scarce resources which have alternative uses”and therefore the
economic wellbeing of the country as a whole? Because involun-
tary labor, by definition, does not have to be paid a price reflecting
the value of the alternative uses of its time and capabilities, such
52 APPLIED ECONOMICS

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