Cowardly* Chronicle of Higher Education Refuses to Publish an Idea that Could Save Colleges from Failure and End Runaway Tuition Hikes!

3/20/2015 at 4:03 pm 

Dear Prof. Wright,

Thank you for sending us your article. Several of us have read it, and we regret to say that we are unable to publish it. Because we receive dozens of manuscripts each week on all sorts of topics, we have to make some tough choices. And, unfortunately, that large number also precludes us from responding to each in depth. But we appreciate your thinking of us and hope you will keep us in mind for articles in the future.

Sincerely yours,
The Editors 

Small Colleges as Professional Partnerships by Robert E. Wright, Nef Family Chair of Political Economy, Augustana College SD

Higher education in America is yet again engulfed in crisis. On the rise for decades, tuition and borrowing appear to be approaching their natural limits. Small colleges are closing or merging and intrusive federal regulations loom. It is time to experiment, especially at the most fundamental level.

            I’ve argued in two books (including one, Fubarnomics,  published in the U.S. in 2010) that the sector’s root problems are ownership structure and incentive alignment. For-profit schools (whether proprietary or publicly-traded) have proven themselves venal: they lure students into taking out federal loans while leaving most to drop out or to earn degrees with little marketplace value. State-owned schools vary greatly in quality and cost-effectiveness. So, too, do private colleges and universities. The problem with both public and private schools is that they are non-profit entities. Nobody owns them, so nobody in particular has an interest in making them more efficient. Some are blessed with talented administrators, caring trustees, generous alumni, and so forth, but none are owned by the people who create most institutional value, faculty members.

            It is high time that one or more colleges, struggling or recently failed ones, reorganize as professional partnerships, along the lines of a law firm or business consultancy such as McKinsey. Such a college’s assets (tangible and intangible) would be owned by faculty members according to a formula of their own agreement, likely based on variables like term of service, pre-partnership salary, and so forth. Professors who dislike the agreement would be free to leave or to try to negotiate better terms. Presumably those professors who push for more than their objective worth would be allowed to leave while others would receive reasonable recompense for their expected contributions to the partnership.

            Once bound together in professional partnership, faculty members would be free to establish their own governance rules, policies, and so forth within the general guidelines of partnership law. Partners’ ownership stakes, for example, are not like shares in a public company as they cannot be sold or transferred but only insured against death or disability. The goal of such a rule is to tie the long-term incentives of partners (professors) to that of their firms (colleges). Some flexibility is necessary, however, so in their partnership agreement faculty partners can establish rules governing the “cashing out” of faculty members who wish to leave before retirement, or who the faculty partners wish to be rid of. (Instead of being an absolute, in other words, tenure could be “priced,” as in other types of partnership.)

A professional partnership college would be a for-private entity but one where the interests of the two main constituencies, faculty and students, are more closely aligned over the long term than in current for-profit and non-profit ownership models. Publicly-traded and proprietary colleges sometimes make ruthless cuts in their pursuit of quarterly profits. Non-profit public and private colleges, by contrast, often spend too much, i.e., more than strictly necessary to achieve a pedagogical goal, because that can be easier than making difficult decisions. Presumably, professional partners would search out the happy median as they would have no incentive to endanger their own future by slashing expenditures too much or by spending more than they have to in pursuit of specific goals. Surely mistakes will be made in execution of their long-term interests but that is a far better state of affairs than the structurally mis-aligned incentives of traditional non-profit and for-profit colleges.

Moreover, I suspect that many professional partnership colleges would soon conclude that their capital would be best employed by lending it to their students or, if they have insufficient reserves to do that, by guaranteeing their students’ college-related debt. Traditional lenders cannot readily discern good student borrowers from risky ones, but colleges certainly can and in fact can make students lower-risk borrowers by increasing their human capital and improving their attachment to their alma mater. Colleges can therefore lower student borrowing costs by lending to their students directly or by guaranteeing student loans made by traditional lenders and in the process tie their long-term interests much more closely to those of their students.

Professional partnership colleges could bring other improvements to U.S. higher education as well. If barriers to entry were reduced, we might see increased competition and hence innovations not currently fathomed. The more venal for-profit colleges might be run out of the industry and burdensome federal regulations avoided.

Of course, I may have overestimated the beneficial qualities of professional partnerships but, at this critical juncture, we need data more than we need debate. Let the experiment begin and the professional partnership model spread if it works in practice as well as it appears to in theory.

*In hindsight, maybe the editors at the Chronicle are not cowards. Maybe they just aren't very bright.

***Consumer Alert*** Nagel Property Management Inc., Sioux Falls, SD ***Consumer Alert***

***Consumer Alert*** Nagel Property Management Inc., Sioux Falls, SD ***Consumer Alert***

On occasion, I exercise my First Amendment right to warn friends and neighbors about potentially shady businesses, including hotels and auto dealers who have ripped off my family. That time has come again. Renters and property owners thinking of listing property with Nagel Property Management Inc. of Sioux Falls should beware. Just this afternoon I tried to rent a property through the company only to learn that its leases contain some onerous terms. The company did not send out the lease beforehand so I arrived at the office cashier's check in hand and ready to sign. Several parts of the document and behavior of the company, however, put me on guard. Most importantly, the terms for contract violation were very heavy and breaking the lease inadvertently would be easy to do because it contains sweeping definitions, like banning all forms of "business" activity from the premises. Another clause limits guests to a 2 week stay. The first was easily negotiated but required positive action on my part. The company acted very strangely on the second. We negotiated a change in language from an absolute ban to "written permission" and then to "written notification." Nevertheless, the company tried to sneak a document changed to "authorization" by me, as if I don't know the difference between authorization and notification or that authorization is virtually synonymous with permission. Moreover, it tried to foist on us a second document with many of the same stipulations as the first, including the 2 week guest rule! We had already signed some documents re: security deposit and so forth, so I ripped them up when it became clear that the company was not going to budge on the rule, citing a bunch of bizarre irrelevancies, because I no longer felt I could trust it with my signature. Perhaps worst of all, the company tried to make all sorts of oral, side agreements about the guest rule although its lease clearly states, as it should, that only the written agreement binds.

Of course no one should make a decision about renting a property from, or with, Nagel on the basis of my experience alone but do look over all documents VERY CAREFULLY, know what you are signing, and don't be afraid to walk away if things don't look/feel right.

UPDATE 3/19/15: I've already received interesting feedback on this. I'm not alone in having doubts about Nagel. The most interesting comment so far has been the suggestion that property management companies work in the interests of owners rather than renters because without any properties to list there would be no renters. True, but without any renters there will be no demand for listed properties. So *quality* property management companies will balance the interests of both sides instead of just trying to suck renters into the maw.

Remarks Made at Book Launch of Genealogy of American Finance

The launch of Genealogy of American Finance was very well attended. Below please find the comments I made at the launch, which was held at the Museum of American Finance on the evening of 10 March 2015:

When David Cowen called me two years ago, almost to the day, to ask if a history of bank mergers in the United States could be done, I more or less asked him how much time and money he had available. When he told me, I picked myself up off the floor and said, “yeah, I can do something with that.” Today, I’m very pleased with my response. A year ago, when I was entering almost 2,500 bank and bank holding company mergers for one of our larger banks into an Excel spreadsheet, I fear I would have given a different response, one laden with four letter expletives. But Dick, I think fully half of the Museum’s staff, various unsung heroes at Columbia University Press, and in a few cases bank archivists, did a wonderful job bringing all my work, which ranged from grueling to titillating, to heel. To do so, we had to answer questions like how do we truncate 100s or 1000s of mergers so they fit, not only legibly but elegantly, on a few pages, how do we find images for banks that literally no one involved in the project had ever heard of before the project began, and what does ahorro mean?

It means saving in Spanish and it came up because of the methodology we employed to bring the subject matter under control. In an ideal world, with a decade or two to work and a seven figure budget, the project would have traced the history of every bank, commercial, savings, and investment, to ever receive a charter in the United States. A few voluntarily wound up their affairs and some outright failed -- though not as many as you might think. We actually track the aggregate percentages of banks that failed annually from 1790 until 2010 in Table 5. Most banks, in fact, exited by merging with others and mostly in a series of waves driven by momentous economic and/or regulatory changes. Because we could not follow all of the nation’s hundred thousand plus banks forward through time, we opted for the next best alternative, which was to trace mergers backwards from banks still in existence today, much as genealogists do when constructing a family tree. Hence the first part of the book’s title. As there are still thousands of banks in operations in the United States today, writing the histories and recording the mergers of even that population would have taken too long. So we decided to take a page from the Federal Reserve, literally a webpage that unfortunately the Fed has since discontinued, and tackle the fifty largest bank holding companies in the United States as of 2013. I’m very happy that we chose fifty instead of just ten or twenty because the book shows that beneath the big banks that have become to varying degrees famous or infamous over the last few decades there remain sizable, quality institutions with histories just as long and just as interesting as the biggest, hoariest banks you can think of. Hoary just means old, by the way, but I tend to overuse it so the term was completely expunged from the book in editing.

Looking at the fifty biggest bank holding companies also took far us away from Wall Street and into our two newest states, Alaska and Hawaii, and two future states, Puerto Rico and Canada. Seriously, our big fifty also includes some big foreign banks with significant U.S. holding companies, world class banks headquartered in places like Spain and Scotland, and Germany and Japan, as well as our very financially stable neighbors to the North.

America’s largest 50 bank holding companies include some surprising institutions, including a bank started by the Mormon Church, a giant Dutch cooperative bank, and arguably the world’s best auto insurance company, which is also a mutual. Two other of the BHCs we cover began as insurers and three began their corporate existence as the credit arms of giant manufacturers. Two began as transportation companies and one as a water utility. Another seven started out in finance, though not as commercial banks, including two brokerages, two credit card issuers, two investment banks, and one finance company. That’s why the second part of the book’s title is American Finance instead of Wall Street or the U.S. banking industry.

Of course the real world is not as cut and dried as I’ve implied. With but few exceptions for mutuals and relative newcomers, all of the big fifty bank holding companies essentially have multiple points of origin. We did our best to stay with the main strands in the genealogical charts and in the narrative histories but it is not always easy to tell the difference between a merger and an acquisition, especially in older sources, which liked to use general terms like amalgamation instead. Even discerning the target from the acquirer can be difficult. For combinations that took place in recent decades, for example, the Federal Reserve database sometimes indicates that A acquired B while the FDIC database says with equal authority that B acquired A. And what to do when A definitely acquired B but then A changes its name to B? Dick, who has a memory like a steel trap for the full third of American history to which he has been a personal witness, thankfully called me out on at least one of those and we corrected it. But then there were cases where A acquired B and kept A its name but the executives of B took over A’s management. We discuss these subtleties in the narrative histories, of course, but they are not always easily or fully reflected in the genealogical charts or the listings of founding industry or date.

The narratives are so rich and plentiful that undoubtedly anyone with an axe to grind or a thesis to promote will find some support in the book’s 300 plus pages, but Dick and I did not come to any grandiose conclusions. Instead we posed a series of questions about economic and regulatory trends. If I had to pick out one underlying theme, though, I’d say that America’s banking system is like a rain forest but instead of providing the biosphere with biodiversity it provides the economy with let’s call it bancodiversity. America’s largest bank has assets roughly 1,000 times the value of the smallest bank in the study but it is arguably no more successful, unless one measures success solely by size. The fact is, a certain portion of America’s depositors and borrowers prefer the smaller bank to the bigger one and the competition makes them both better. If history shows us anything, it is that change is a constant. What works today may utterly fail tomorrow, so it is nice to have alternative models around to fall back upon when financial Armageddon strikes, as we know from recent events it can.

We also know from relatively recent events that Wall Street faces physical risks. Thankfully, our nation’s bancodiversity is geographic as well as cultural, organizational, and technical. America’s big bank human capital spreads from Portland, Maine to San Juan, Puerto Rico to Honolulu, Hawaii and from San Francisco to Minneapolis to Houston to Boston and surprising places in between, including Tulsa, Oklahoma; Des Moines, Iowa; Birmingham, Alabama; Columbus, Ohio; Bridgeport, Connecticut, and even my old stomping grounds in Buffalo, New York. Maybe an interest in bancodiversity is what induced the Fed to replace its top fifty bank holding company page with a page listing holding companies with assets greater than $10 billion, which throws big mutuals like Teacher’s Insurance & Annuity Association and State Farm into the mix as well.

Since we have gone to press, some real world changes have also taken place. American Express is struggling again, a recurrent theme in its history. Royal Bank of Scotland spun off Citizens, which is now Citizens Financial Group, Inc. and the nation’s 23^rd largest BHC. Unionbancal changed its moniker to MUFG Americas Holdings Corporation and moved its headquarters to New York. M&T and Hudson City Bancorp still want to merge but find their marriage blocked by the Fed. And so forth. 

This is all fodder, perhaps, for a second edition of this book but of course that will depend on how the first is received. I think every bank executive, regulator, financial policymaker, and financial journalist in North America and Europe should have a copy handy, but that’s just me. Thanks!

I just posted this to SSRN. To download the full (short) paper, click here.

Business History > Piketty

Robert E. Wright

Augustana College - Division of Social Sciences

March 2, 2015


Abstract:     

Piketty's Capital in the 21st Century has attracted more attention than it perhaps deserves given that its main empirical claim, that wealth inequality is bound to occur in "capitalist" economies because the rate of return r is greater than the rate of economic growth g (r > g), is not rigorously shown and explicitly excludes capital losses. Over the last few centuries, returns in the United States have varied greatly by asset class and often been highly negative. Moreover, while the book correctly maintains that recent increases in income inequality in the United States are due to poor corporate governance, it calls for a general wealth tax rather than governance reform.

 

Number of Pages in PDF File: 11

Keywords: Thomas Piketty; Capital in the 21st Century; wealth inequality; income inequality; corporate governance; rates of return 
 
JEL Classification: D63, G3, N11, N12, N21, N22 , O15, P1

Even Better Than a Balanced Budget Amendment Would Be a No More Presidential Family Dynasties Amendment

As noted in an earlier post, I'm skeptical of a federal balanced budget amendment. I'd rather see a return to the Fiscal Constitution described by Bill White. The matter is much more complex than the 22nd amendment, which established a two-term limit for U.S. presidents.

What I would like to see, though, is an end to presidential family dynasties. I think an amendment that would give real meaning to the 22nd amendment by banning the children, parents, siblings, and spouses of presidents from serving as president (or vice president) would be very helpful in the long run and in the short run would prevent the horror of another Bush, Clinton, or Obama (don't think they haven't thought about it) in the White House. The simple fact is that thousands, if not tens of thousands, of people could serve as president with distinction. (And untold others could muddle through like the last two did.) So why risk de facto breaking the 22nd Amendment (by electing a person effectively controlled by a former 2-term president), looking bad to foreigners (or more importantly to future Americans!), and perpetuating presidential family dynasties? Costs > benefits.

Would such an amendment be unfair to the children, parents, siblings, and spouses of presidents? Yes, but it would be less unfair than the name recognition, patronage, and other boosts that those close to presidents receive. Would Hillary have been Secretary of State without Bill's presidency? Nope. Would George W. have won if daddy didn't? Nope. (In fact, he didn't really win the first time!) John Quincy rode on his old man's coattails too, and didn't really win his election either.

The Economics of Slavery and Freedom, 1750-2050

The Economics of Slavery and Freedom, 1750-2050

3 in 1 Room, Augustana College SD, Thursday, 12 February 2015, 7 p.m.

I was ten years old when I first went to work. … There were five people in the home, and I did all the work – cooking, cleaning, washing clothes, washing dishes. I woke each morning at 5 A.M. and went to sleep at 10 P.M. I slept on the floor in the drawing room. I did this work seven days a week. Sometimes the wife would beat me. The husband in the home would rape me. … After two years, they sent me to another home. … I was in this home for two years. They did not beat me, but I was working all the time. Finally, I was in a third home for three years. I had to do everything. They had two daughters, and I had to take them to school each morning. I wished I could go to school like them. In this home they would beat me very badly.

If pressed on, say, a game show, many people would date the passage I just read to the nineteenth century or earlier because the speaker was clearly enslaved: beaten, raped, forced to work long hours for others who denied her an education. Unfortunately, the narrative is actually from the present century. It is part of the haunting story of Nirmala, a young girl from Nepal, as recorded by Siddarth Kara, a Harvard University professor and one of the world’s foremost experts on human trafficking and contemporary slavery.

A specter haunts the world – the specter of slavery. This is a serious matter, though I’m teasing a bit by invoking Karl Marx’s Communist Manifesto. You were probably taught, as was I, that slavery was a quote unquote peculiar institution that flourished in America for a few centuries before Abraham Lincoln and Ulysses S. Grant ended it once and for all. If you are a history geek, you’ll know that matters were a little messier than that – slavery pervaded the New World and the freedpeople and their progeny suffered for decades after Emancipation – but the basic Whiggish view that slavery is a relic of the past still likely dominates your view of the matter. My goal tonight is to disabuse you of the notion that slavery is something that happened in the past to the ancestors of a readily identifiable group and to help you to see that American chattel slavery was not peculiar at all. Rather, it was part and parcel of a long and continuing history of forced or coerced labor. As Sigmund Freud once wrote, Homo homini lupus … man is wolf to man.

I hope that by the end of the evening you will be so outraged that you will want to spring to action, or at least be interested enough in the topic to attend the other lectures in this series, which is sponsored by the Institute for Humane Studies at George Mason University in Virginia, near the nation’s capital. All that the Institute requests in return for its money, which will be used to pay the travel expenses and honorariums of all the speakers except me, because I’m doing this for free and live nearby, is the acknowledgement just made, a headcount, a few pictures of the event, and the paper survey being passed around. All students who complete a survey and provide a valid email address will be entered to win a $25 Amazon gift card. Yes, this means you will receive an email from the Institute. If you don’t want it, you can of course unsubscribe as it would be ridiculous for an organization dedicated to advancing human liberty to force people to accept electronic junk mail. Yes, you are allowed to laugh. Finally, if you have any questions about liberty, or want to learn more about its role in our society, I am the “go to person” for the Institute here at Augustana so feel free to contact me via email, Twitter, Skype, my website, or my office, which is 111 Madsen Center, just to the north of the Social Science division main office on the first floor.

I should also take this opportunity to thank four of the students in my interim course on global slavery who helped me with this speech, Augie history majors Gabe Dunn and Dan Jansen, Augie economics major Cephas Mampuya, and St. Thomas economics major Nicole Niedringhaus. Any remaining mistakes or lame jokes, however, remain my sole responsibility. See that last comment was actually a lame joke that only professors would get.

Anywho, thanks to the funding provided by the Institute for Humane Studies, exactly a month from tonight, in this very room, historian Matthew Mason of Brigham Young University will talk about the politics of abolition in historical context. On April 9, literature professor Elizabeth Swanson Goldberg of Babson College in Massachusetts will show how businesses can help to reduce the incidence of slavery. And on May 7, again right here in the 3-in-1 Room, economic historian John Majewski of the University of California, Santa Barbara, will discuss his work on the hidden economic costs of slavery. If the continued enslavement of other human beings somehow does not morally outrage you, John will show you how slavery hits everyone squarely in the pocketbook.

At this point, some of you are probably wondering what exactly I mean by terms like enslavement, slave, and slavery. Most broadly, I mean the term literally, not metaphorically, and regarding labor, not politics. Phrases like “I slaved away on the project” or we “worked like slaves” are obviously just metaphorical and hence not the subject under discussion this evening. Before their War for Independence, many of the colonists of mainland North America claimed that King George, the British Parliament, and London bureaucrats were trying to enslave them by limiting the colonists’ political influence over fiscal, monetary, and other public policies. That is obviously an important topic, one that I have been writing a book about for 15 years now, but not the subject tonight, though admittedly finding the boundary between political enslavement and labor slavery can be difficult, particularly when a government owns labor slaves, as many have done throughout history, including Germany and Japan during the Second World War. I would assert that North Korea is the worst offender today, but I won’t for fear that its hackers will shut down my blog, on which this speech will be posted … minus the sentence I just spoke of course. Let me remind you that you are free to laugh when appropriate.

What I mean tonight by enslavement is the practice of forcing people to labor for others. Slaveholders, a.k.a. enslavers, are businesses, governments, or individuals who claim to own human beings or a unilaterally decided portion of the economic value created by their labor. Slaves, a.k.a. enslaved persons, are the people that enslavers purportedly own and de facto expropriate the labor of. Right now, so far as the best experts can tell, about 30 million people are enslaved throughout the world. 30 million! That figure may be higher than at any other time in human existence. Of course 30 million is a small percentage of the global population, which is now a record 7.3 billion, so we can’t rightly say that slavery is more prevalent than ever before. But it is still 30 million souls, roughly the population of both Dakotas, Colorado, Montana, Wyoming, Nebraska, Iowa, Missouri, Minnesota, and Wisconsin combined. That is almost as many people as have died of AIDs since its global proliferation began in the 1970s. Slavery appears to be spreading as quickly as HIV and in fact the two phenomena are linked because sex slaves, a sizeable portion of the 30 million total slaves, can’t insist on condom use or other safe sex practices.

Another way to think of the 30 million figure is that it is less than one percent of the world’s population. Yet and I quote here Nobel Laureate Robert Fogel: quote between 1600 and 1800, New World slaves represented less … than 1 percent of the world’s population. unquote Nevertheless, by the end of that period slavery was rightly considered one of the world’s most pressing problems. In short, slavery today is already a major problem and likely to get worse before it gets better, especially if good people like yourselves stand idly by.

Before I explain the economic reasons why slavery, if left unchecked, is likely to continue to spread, however, I want to continue to explain what is meant by the term as some of you may be picturing shackled Africans picking cotton or other iconic images from America’s checkered past. It is Black History Month after all. But slavery today looks different from that depicted in Twelve Years a Slave or Roots because enslavement is technically illegal the world over but no government has managed to extirpate it. De jure, there are no slave and free states or countries anymore but de facto all are slave states because slaves can be found in every country on the globe and every state in the United States, including South Dakota.

Some of you may find it difficult to believe that South Dakota is a slave state because if you drive from Sioux Falls to Pierre you won’t see gangs of slaves tending to the fields. Slaves today usually work indoors, or at least out of sight, and at a wide range of activities, not just growing and harvesting agricultural staples. Many girls and young women, and some boys, are forced to sell sexual access to their bodies and forced prostitution has been documented in this state on several notorious occasions. We can call South Dakota a free state when we have made it so costly to enslave other people here that no one would even think of trying it. Cost, by the way, is a function of both the penalties for enslaving others, including jail time and fines, and the probability of being caught and convicted. Passing harsher penalties, in other words, is meaningless if enslavers know they remain unlikely to be convicted.

Other forms of slavery may also occur in good, old So. Dak. We know that elsewhere in the world, some enslaved individuals are forced to beg and to turn over the proceeds to their masters at the end of the day. Others make simple manufactured goods like bricks, cigarettes, and textiles. Others are forced to fish or raise shrimp. Any good that is relatively easy to produce can be made by slave labor, and probably is, at least somewhere.

Slavery today has no racial component per se. Enslaved persons are more likely to come from oppressed minorities and poor communities than from affluent, mainstream groups, but slaveholders are equal opportunity enslavers. Today, people of every race, religion, and ethnic group are enslaved and people of every major race, religion, and ethnic group hold slaves. That was pretty much true in the eighteenth and nineteenth centuries as well, though you may not have heard much about Muslims enslaving Europeans and Americans, the use of Asian coolies in Latin America, the serfs beholden to Russia’s Tsar, and so forth, but they are all part of humanity’s not so illustrious and not so distant past.

Nobody knows when slavery began but anyone familiar with The Holy Bible, the Quran, or the holy texts of the major Asian religions knows that it is an ancient practice. In fact, the first human writings, from the Epic of Gilgamesh to the Code of Hammurabi, are rife with mentions of slaves and slavery. Thanks to the discovery of iron shackles in eastern Europe, we know that slavery existed in prehistory, although the details remain obscure. Slavery probably arose during the Neolithic Revolution, as some groups of humans shifted from a hunting and gathering foraging strategy to herding and horticulture and, in some areas, outright agriculture. It is difficult to see how or why hunter-gatherers would enslave others, except perhaps for sexual recreation or procreation, and indeed a survey of remaining hunter-gatherer societies conducted in the twentieth century revealed that virtually none of them countenanced slavery. Most remaining pastoral and agricultural societies, by contrast, had allowed slavery in the past and some had made extensive use of slaves.

In fact, slavery may be one of the defining characteristics of our species, along with trading. Adam Smith’s observation that humans are the only critters that regularly trade with unrelated conspecifics, to wit with other members of the species that are not part of the same kin group, holds up to this day. So too, however, does the observation that human beings are the planet’s most prolific enslavers. We are consummate warriors, too, but all wars eventually end while trade and slavery just go on and on and on. From this broader biological and historical perspective, it is not at all surprising that slavery remains so ubiquitous today.

But are there really some 30 odd million people enslaved today? Well, that figure is not based on census counts as in early nineteenth century Trinidad, the antebellum U.S., Brazil before its emancipation, and so forth because, again, slavery is everywhere illegal. Measuring illicit activities is notoriously difficult, but I think the order of magnitude is correct. We are not talking about 1 million people here, nor 100 million. Whether the right number is 15 million or 45 million, slavery is an important problem demanding our attention, especially because the number of enslaved persons is more likely to grow than to shrink unless good people act.

A more interesting question than the number of slaves, I think, is the degree to which people are enslaved. Thinking about the degree of enslavement might strike you as a strange notion as the traditional belief in this country is that people are either free or they are enslaved and that was certainly the case of the iconic New World slavery of the seventeenth, eighteenth, and nineteenth centuries. But if we look at slavery more broadly throughout the globe and human history, it quickly becomes apparent that people can be forced to labor for others in many different ways. In New World slavery, as in the United States before ratification of the 13th Amendment exactly 150 years ago this December, slaveholders used all known methods of coercion and control. Employers of other forms of forced labor utilize fewer methods, allowing the worker somewhat more leeway or freedom.

Armed with that insight, I constructed a degree of slavery index that takes the form of 17 characteristics of enslavement. I don’t want this to sound too flippant but I feel we need a brief interlude of comic relief so here goes: my slavery index is sort of like the “You might be a redneck if” jokes that were popularized by Jeff Foxworthy over a decade ago. I happen to be a redneck so I have no problem repeating some of them here:

·         You might be a redneck if you’ve ever been kicked out of the zoo for heckling the monkeys. That actually happened to me but in my defense the monkeys started it!

·         You might be a redneck if you have the local taxidermist’s number on speed dial. If you don’t believe this one, you haven’t seen my office lately.

·         You might be a redneck if you’ve ever hit a deer with your car...deliberately. Okay, I have not done this recently but I have tried to clip roosters and rabbits, only in open season, though, and only when they were too close to buildings or livestock to shoot them instead.

There are at least 300 of those redneck jokes extant so my list of 17 is not so bad, except my list isn’t at all funny, it’s quite sobering in fact. Here goes, in no particular order:

1.      You are enslaved to the extent that you are not paid in whatever your society considers to be cash money or other liquid assets. Many slaves are paid only in kind, that is in food, clothes, and shelter, in order to prevent them from accumulating liquid wealth that could be used to aid in their escape. Other forced laborers are paid in company scrip good only at company-owned businesses, like grocery stores and apartments, also as a means of control. Surely some of you remember Tennessee Ernie Ford’s song about life in a company coal town, “Sixteen Tons”: Oh you load 16 tons and what do you get? Another day older and deeper in debt. St. Peter dontcha call me cause I can’t go, I owe my soul to the company store. Still other forced laborers, called debt peons, are quote unquote paid only in account book entries, which they usually cannot see or understand if they could. Again, control is the main purpose for not paying a laborer in cash.

2.      You are enslaved to the extent that you are physical restrained beyond the requirements of the labor undertaken. This is a pretty easy one. A jockey is not enslaved because he or she has to sit in a saddle on a horse. That is the job. Ditto an airplane pilot in a cockpit and so forth. Chains around the ankles of a strawberry picker or doors that prevent egress from a factory, by contrast, are certainly a means of control.

3.      You are enslaved to the extent that you are psychologically constrained beyond the requirements of the labor undertaken. This is a more difficult one to understand. Some call these mental constraints invisible chains and modern slaveholders much prefer them to physical chains because they are cheaper and more easily hidden. They include the threat of physical violence or magic against the laborer or those he or she holds dear and the use of theology to convince slaves that some deity or deities desire their enslavement. Enslavers also sometimes use alcohol or drugs to psychologically control their victims.

4.      You are a slave to the extent that you are legally required to work. That is because the law precludes an important avenue of escape from bondage, not working at all. Typically, employers induce governments to pass such legislation to elicit aid from the police to help control their workers. The postbellum U.S. South, for example, passed so-called vagrancy laws to force freedmen and their descendants to work for wages or risk being sentenced to prison labor camps.

5.      You are a slave to the extent that your body or its labor can be transferred to another employer without your consent. This is why highly paid professional athletes have sometimes called themselves slaves, typically to public ridicule. The ridicule was well placed because professional athletes are not enslaved in most other ways but the athletes were correct that transfer without consent is a common tactic of slaveholders.

6.      You are enslaved to the extent that you owe your employer significant sums or are listed as collateral security for a loan. Employers who are also creditors have tremendous control over their worker-debtors and a relatively large incentive to work them hard. Use of debt laws has been the prime mechanism for controlling workers in near-slave conditions in numerous post-emancipation societies, including the postbellum South and the nations of South Asia to this day.

7.      You are enslaved to the extent that you have been seasoned, by which I mean subjected to procedures, physical and/or psychological, designed to break your will to find other employment or escape bondage. African slaves sent to the West Indies during the Diaspora were seasoned through whippings and other physical torture. Today, young girls being seasoned for prostitution are repeatedly raped, or just beaten senseless if their virginity can be sold at a premium.

8.      You are enslaved to the extent that you cannot choose another employer whenever you wish to do so. Many people today are tricked into slavery with false promises of better working conditions, a different job description, and so forth. Their enslavers try to justify enslavement by claiming that the workers quote unquote chose to work for them and will often produce a signed contract to quote unquote prove it. Liberty, or non-enslavement, consists of choosing whether or not to continue working for a particular employer every time work commences. A surgeon shouldn’t walk out in the middle of an operation or a railroad conductor in the middle of a run but with sensible caveats like those, employment should be at will, at least for workers.

9.      You are enslaved to the extent that you do not control your own work schedule. Over the last few decades, many companies began to allow flex time and other forms of self-scheduling because it made workers happier by returning some control to them. Flexible scheduling is not always possible and inflexible scheduling on its own hardly constitutes slavery but being forced to work a disagreeable schedule is a characteristic of slavery. Enlightened employers offer a wage differential in compensation.

10.  You are enslaved to the extent that you do not control the number of hours worked per day or other period. Employers sometimes force hourly workers to work overtime by threatening termination for noncompliance. In those cases, workers are essentially at least 1/17^th slaves unless they feel adequately compensated for the imposition.

11.  You are enslaved to the extent that you cannot control the tempo of your work. Again, many hourly workers are effectively enslaved by being tied to the output of machines, like that famous episode of I Love Lucy where Lucille Ball tries, and comically fails, to keep up with the candy conveyor belt. Many workers throughout history chose to be paid a piece rate rather than an hourly wage because it gave them some control over their work tempo as well as their schedules and hours worked.

12.  You are enslaved to the extent that you cannot choose your place of residence. This sounds unlikely outside of chattel slavery but most debt peons are effectively told where to live. Consider, too, the situations of military personnel, indentured servants, and convict laborers.

13.  You are enslaved to the extent that you do not control your own name. P Diddy, Sia, and the Artist Formerly Known as Prince chose to change their names, as do many women upon marriage. Children are stuck with those concocted by their parents but only until they turn 18. Employers who force name changes on workers, by contrast, are engaging in an act of enslavement. Recall the scene from Roots when Kunta Kinte was whipped for not accepting his slave name, Toby Waller. You might recall that enslavers also changed Solomon Northup’s name, to Platt. Similarly, the seasoning process for forced prostitutes today often entails acceptance of a new name.

14.  You are enslaved to the extent that you do not have freedom of movement in order to purchase goods or search for other employment. This is another control mechanism employers and masters use to keep their workers from escaping and/or to maximize the amount of labor they can extract from them by monopolizing each worker’s consumption as well as his or her labor.

15.  You are enslaved to the extent that you are not able to marry on the same terms as your employer. This is yet another control mechanism. Slaveholders do not want their laborers forming attachments that might reduce their productivity or aid in their escape.

16.  You are enslaved to the extent that you are not able to control your own children on the same terms as your employer. Enslavers can use children to manipulate their laborers. Children can be used to incentivize slaves to work harder or to punish them for escaping, plotting rebellion, and so forth.

17.  Finally, you are enslaved to the extent that you cannot own property on the same terms as your employer. Property is a means of independence, so slaveholders usually prevent slaves from owning much of it, typically claiming each slave’s possessions as their own.

I’m sure that other conditions could be adduced, which is what I said when my list was only 12 items long. In terms of my index as it now stands, New World chattel slaves were completely enslaved as they typically enjoyed none of the 17 freedoms just detailed. CEOs today, by contrast, are completely free because they enjoy them all. Tenured college professors today are pretty darn free too. In between lay other types of workers, from South Asian debt peons today, who are nearly completely enslaved, to American wage workers today, who are much more free than not. In the middle toil coerced laborers, like apprentices, indentured servants, interns, family members, and convict laborers, who are partly free and partly enslaved. Whether you want to count such people as quote unquote slaves or not will of course influence your estimate of the number of people enslaved in the world, both in the past and today.

Astute listeners may have noticed that my list did not mention specific material conditions of labor, to wit minimum compensation, maximum hours of work, and so forth. That is because conceptions of quote unquote fair wages or onerous workload vary over time and place. While the notion of a wealthy slave jolts us, slaves are not always the poorest people around in material terms, nor do they necessarily work the longest or in the harshest conditions. For example, U.S. cotton plantation slaves worked an average of 58 hours per week when free commercial farmers in the North worked 60 hours per week on average and factory workers put in an average of 72 hours weekly. The farmers were clearly materially better off than the slaves but factory workers not so much so. The same could be said of wage laborers in many parts of the world today. The difference is that the wage laborer retains his or her free will, well as much free will as any human being has. That is why wage workers in the North bristled at the notion that they were quote unquote wage slaves even though the average slave ate more meat than they did.

Rather than quibble over whether person X is a slave or not, I’d like to argue that any form of enslavement is bad for society, for two reasons. Firstly, enslavement diminishes human liberty, which many people believe is a good, i.e. something of value, in and of itself. Ceteris paribus, all else equal in other words, who would choose less liberty instead of more? Only people confused about the meaning of liberty I’d venture. Liberty is not, as one of your louder professors would have it, freedom from constraint. Rather, it is freedom to do as you list, as you want, within the constraints imposed by nature and the laws of man. That is why we do not consider ourselves quote unquote enslaved by gravity, which is a law of nature that we cannot change, the movie Interstellar to the contrary notwithstanding. For similar reasons, we should not consider ourselves enslaved by markets, which are also natural phenomena unless distorted by the laws of man. Rightly speaking, people can only be enslaved by other people, individually or in concert. Humans cannot be enslaved by natural forces and certainly not by sociological constructs of dubious empirical merit like quote unquote capitalism, which at best is an abused, vague holdover from the Cold War whether the term is wielded by votaries of the Left or the Right.

The tricky part is that manmade laws also place constraints on us, constraints that are not binding, or in other words that can be changed. Some of those constraints are salubrious, while others are not, but discerning between the two is often difficult, even for unbiased observers, of which too few exist. Almost all laws favor some groups over others but a surprisingly large number help some groups at the expense of others. We should work to extirpate all laws of the latter class, whether they ostensibly help or hurt workers or employers. I can go no further in this direction tonight without significant digression but suffice it to say that more liberty is better than less even if some political Liberals, ironically enough, suggest otherwise. Economic freedom has been shown econometrically to lead to increased economic output per person as well as higher levels of education, higher life expectancy, and other outcomes most people would consider good.

So the second reason that I believe that slavery is bad for society is because it hurts economic health in direct proportion to the degree that enslavement is countenanced by that society. In other words, multiply my slavery index score by the number of people so afflicted in a given nation or region. Sum the figures for each type of laborer and divide by the total workforce. The higher the resulting number, the lower will be that society’s economic achievements and prospects. Please allow me to try to convince you of this proposition, though it will require an extended explanation.

Enslaving others is obviously immoral and now it is also illegal. So why do people still do it? The simple fact is that enslaving others is profitable. Enslavers control both their labor costs and their labor supply, to wit both the price and quantity. They command, in other words, at least as much market power as monopolists do. Enslavers of course do not subject themselves to minimum wage laws and they are not subject to fluctuations in the supply or demand for free laborers. They compensate their slaves as little as possible, which typically is just enough to keep the slaves alive and healthy enough to work, and, tragically, they can buy as many as they need at low prices whenever and wherever there is an international slave trade, as de facto there is today. Human trafficking in other words. Like other businesses, slaveholders have overhead and capital costs but their labor costs are much lower than those of their competitors, especially when they can trick society into controlling their slaves for them. That means that enslavers earn big rents, which is what economists call profits above the normal profits that would be earned in a competitive market.

Slaveholders today generally have to expend some of those rents to control their slaves and to prevent government interference or even solicit governmental aid. Corruption and slavery today go hand in hand. Not all police officers or judges are corrupt, but it takes only a few bad apples to prevent enforcement of the laws. In some places, border patrol officers, police, and politicians are themselves enslavers and use the coercive power of the state to keep their workers slaving away, if you will pardon the expression. Where officials are not easily paid off, enslavers expend some of their rents on various forms of so called muscle, or in other words big, scary dudes with guns who keep the slaves physically restrained and/or electronically monitored, make credible threats against their families, and so forth. Even with those extra costs, enslaving others is still very profitable. If it weren’t, it would be limited to psychopaths, like that guy recently apprehended in Cleveland, who seek power over others instead of cash.

Some people conclude that the profitability of slavery means, ipso facto, that slavery is good for the economy, or in other words that it causes economic growth, which is the term that economists use to describe sustained increases in inflation-adjusted per capita income, typically measured by GDP. Several historians, including Robin Blackburn of Essex and Ed Baptist of Cornell, have jumped on this notion to proclaim that America’s current wealth was built on the backs of slaves. Their ultimate goal is to create political support for reparations for the descendants of slaves. I find the claim that slavery causes growth both wrong and wrongheaded. Slaveholders in developing countries today have latched onto such claims to argue that the United States and other rich nations should allow slavery in poorer nations. It is not fair, they argue, for the West to get rich due to slavery and then to prevent other nations from following the same path. Such arguments of course injure the efforts of neo-emancipationists, people like myself who want to decrease the number of slaves, and the index of total enslavement, throughout the world.

The claim that slavery leads to economic growth is not just wrongheaded, it is empirically false. As previously noted, almost every country and empire on the planet has countenanced slavery at some point and yet only a small percentage has ever experienced economic growth. Ergo, slavery cannot be a sufficient cause of economic growth. Merely having slaves, in other words, will not induce an economy to grow.

Slavery is also not a necessary cause of economic growth because numerous nations have experienced sustained increases in real per capita income without expropriating the labor of significant numbers of slaves: the Scandinavia nations, Japan, South Korea, Canada, Australia, and New Zealand come immediately to mind. I won’t invoke modern Britain, Holland, France, and Germany because, while they did not have much slavery at home, they all possessed overseas empires where slavery, debt peonage, and indentured servitude were widespread. I’m with Adam Smith in the belief that the overseas colonies hurt the domestic economies of the European imperialists but that is a large area of debate in and of itself so I won’t go further. Finally, I think it would be fairer to say that the United States became rich in the nineteenth century despite slavery rather than because of it but again time precludes an extended discussion and later speakers in the series will address the issue in full.

What about all the wealth the slaves built on the South’s cotton, sugar, and tobacco plantations? Like I said, slavery was profitable for slaveholders. That is why they owned slaves. Just because an activity is profitable, however, does not mean that it generates economic growth. Consider, for example, the 1850 essay of French economist Frederic Bastiat, “That Which Is Seen, and That Which Is Not Seen.” In the essay, Bastiat notes that people are apt to praise a child who breaks a shopkeeper’s window because the act creates employment for glassmakers and window repairmen. Bastiat grants that those groups benefit from the careless child, noting that quote All this is that which is seen. unquote But what is unseen, Bastiat explains, is that the shopkeeper now cannot afford to buy dinner, or a bottle of wine, or new shoes, or a book. Destruction of the window, therefore, does not increase the economy’s output, it merely shifts it from some industries, like wineries and publishing, to others, including glass manufacturing and window installation.

Most people understand the gist of Bastiat’s story, which for shorthand is often referred to as Bastiat’s window or the broken window fallacy, which is why breaking windows is illegal and why we usually don’t bash in our windows when recession threatens or even when depression hits. But some still cling to the old myth that World War II saved America from the Great Depression even though it is now clear that what kept the national economy from generating jobs was certain aspects of the New Deal, including the National Industrial Recovery Act and other so-called high wage policies. It is true that wars stimulate aggregate demand and hence output but gains are fleeting and wiped out by inflation, or rationing, as in the U.S. during World War II. Wars also cause the destruction of capital, both human and physical, including windows but much more as well. Wars are worth more than absolutely nothing, the lyrics of the song “War” to the contrary notwithstanding: you know, War, what is it is good for? Absolutely nothing. Uh!. Wars may be necessary, for example, to protect home and hearth from violent outsiders. War, per se, however, is costly and hence never justified on economic grounds alone and anyone who argues otherwise is an unreformed Keynesian, the owner of a munitions plant, or both. Pause for laughter.

American chattel slavery has been likened to war, but one need not go that far to see how it, or other forms of forced labor, cannot possibly promote economic growth. No slave worthy of the appellation ever reached his or her full potential. The opportunity cost of slavery to an economy is the sum total of the difference between each slave’s actual total output and each slave’s potential output under a less oppressive labor regime. So when people, often the descendants of slaves, claim that slaves made major contributions to the economy, they are not wrong per se, they are merely emphasizing that which is seen. That which is not seen, however, must be accounted for if we are to understand the whole picture, which is that slaves would have produced much more if they had been free to pursue their own interests, whether they perceived those interests to be individual, familial, or as part of some collective.

As Bastiat’s story makes clear, breaking windows redistributes wealth but it doesn’t generate growth. If it did, all the nations of the world could grow wealthy by employing window breakers. Ditto with slavery. Enslaving others redistributes wealth from slaves to slaveholders but it doesn’t stimulate growth, it doesn’t grow the size of the economic pie. If it did, the world would have grown wealthy long, long ago and be flush with pies. Mmmmm pie.

But I’m not content to show that slavery merely redistributes wealth because it is much more pernicious than that. Slavery actually reduces GDP, the overall size of the economy in other words, because it creates what economists call negative externalities, or costs that slaveholders manage to foist upon society rather than bearing themselves. Slavery, not enslaved persons but the act of enslaving others, is a form of pollution. The negative externalities or types of pollution created by slavery are numerous and in aggregate quite sizeable and go a long way toward explaining why non-slaves spilled so much blood and treasure in the nineteenth century helping to emancipate slaves in Brazil, Cuba, Russia, the United States, the West Indies, and elsewhere. Simply put, slavery impoverishes everyone.

What forms has this pollution taken? The specifics are time and culture bound, of course, but some generalizations can be safely made.

First, as previously noted, slaves rarely achieve their full potential. They have little incentive or opportunity to improve their human capital through education, including basic literacy and numeracy, and little incentive to innovate because the slaveholder would not share the resulting gains and cannot even credibly promise to do so. In addition, slave morbidity and mortality rates exceed those of non-slaves, while their fertility rates are typically dramatically lower than those of non-slaves, to the point that only a few slave societies have been able to rely on natural increase to reproduce the slave population. Slaves that somehow escape bondage are typically so physically and/or psychologically damaged from years of overwork and torture that they never achieve their potential productivity. In large measure, then, enslavers do not just steal slaves’ labor, they waste slaves’ lives, thereby denying them to society.

Second, slaves rarely take kindly to their enslavement. Some are seasoned, or inured to their plight, but enslavers can never fully trust them. Slaveholders therefore must expend non-trivial sums to control their slaves, from chains to guards to surveillance devices. And still they worry that their slaves will rise up and kill them or run away. To fully protect themselves from the wrath of their slaves would prove so costly that the profits of slavery would disappear, unless, that is, some or all of the cost of controlling slaves can be foisted upon society at large. Here, slaveholders achieved some of their greatest successes. In the antebellum U.S. South, slaveholders managed to make the public pay for slave patrols, public whipping stations, militias the only purpose of which was to put down slave rebellions, and even nationwide fugitive slave laws that enjoined every adult American to help return runaway slaves. The Code of Hammurabi shows that similar laws subsidized the slaveholders of ancient Mesopotamia and the Romans had similar laws. Wherever slavery has been legal, governments have helped slaveholders to control their bondsmen.

Third, slavery almost universally weakens institutions and governance. Education lags because slaveholders fear it, and the trouble it can cause them, as hilariously depicted in the Life of Aesop. Enslavers have little interest in other forms of public infrastructure because they are mobile labor lords, not people with deep community ties. Most today don’t even pay taxes. Diplomacy is distorted because slaveholders want to maintain the value of their human property and that means extending slavery whenever and wherever possible and protecting it from all threats. Where slavery is illegal, corruption is rife as enslavers buy off police officers and government officials. Some scholars have even suggested that slavery was abolished in many countries so that politicians could directly share in its profits by taking bribes to look the other way. Worldwide, but especially in nations where slavery is most prevalent, enslavers are rarely convicted and when they are, they suffer penalties that are a mere pittance compared to their profits. They literally get away with murder but also rape, fraud, theft, and kidnapping.

Slavery also hurts slaveholders and their families. Many attain wealth but at the cost of their souls 
and their morality. I point this out not out of sympathy for enslavers but to suggest that enslaving others, whether done legally or not, imposes costs on society. Many slaveholders are also adulterers, murderers, and rapists who teach those around them to solve problems through violence. Today, they often traffic illicit arms and drugs as well as people.

I’m currently writing a book about the negative externalities created by slavery and, alas, it is not going to be a thin one. I won’t bore you with any more details or examples but I do hope you come away from this talk understanding that, at best, slavery redistributes wealth from slaves to slaveholders and, in fact, far from causing economic growth slavery hurts economies by producing prodigious amounts of pollution, or costs, called negative externalities, borne by society and not by the slaveholders themselves. Slavery, therefore, is not so much a specter as it is a scourge, an instrument of punishment that impoverishes us all, giving us a second reason, in addition to slavery’s obvious moral turpitude, to work toward emancipation. But, ironically, slavery is wildly profitable for slaveholders and hence the practice of enslaving others is likely to continue to spread until enslavers are caught, tried, convicted, and made to pay for their crimes many times over.

If the story of twenty first century slavery, Nirmala and 30 millions like her, has moved you at all, what I would like you to do is to come listen to the other speakers in the series. And bring a friend or two along with you. The other speakers will have some concrete suggestions for the activists among you. I’ll leave you with only one other action item, the notion that you should help the government to get its priorities in order. Our nation currently spends far more controlling something clearly protected by the Constitution, firearms, than it spends preventing slavery, which has been clearly unconstitutional since ratification of the 13^th amendment a century and a half ago. The government needs to expend fewer resources monitoring drug use and incarcerating non-violent offenders, who are disproportionately black, Hispanic, Indian, or poor, and expend more resources interdicting human trafficking and imprisoning their ringleaders. It also needs to do more to help freed slaves to heal and make the most of the rest of their lives. It also needs to stop arresting prostitutes and to start arresting the people who force them to sell their bodies. Basically, we need to ensure that our government fulfills the basic goals of its job description, which is to protect its citizens’ lives, liberty, and property. 

Before I entertain questions and comments, I want to remind students to turn in their surveys, with a valid email address, for a chance to win a $25 Amazon gift card and zero chance that they will receive more than one unwanted email from our sponsor, the Institute for Humane Studies at George Mason University. Thank you. Questions?