Exploitation-Part II, Reparations—Calculating A Fair Amount.

Exploitation-Part I, The Bay For Justice” sorted out how conflating punishment of crimes with compensation for losses in determining a fair reparation amount for colonization would produce an unjust result. Yet, conflating those disparate things is as common as it is illogical. That being the case, many people are fine with punishing people who had nothing to do with committing a crime plus they seek compensation without thinking through (1) what compensation would be appropriate, (2) from whom it should come, (3) whether it is possible to ensure that only the people deserving reparations would get them—so as to avoid siphoning off money that should go to those who deserve it (and avoid payments to people who do not deserve them),[i] and (4) whether receipt of reparations would be salutary to its recipients or their progeny and/or society at large. In this post let’s sort through some of the issues associated with calculating an appropriate amount of reparations.

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AUTHOR’S NOTES: Colonizers owned slaves in many colonies and colonizers profited from the import/export slave trade as well. Both activities are disgusting—certainly by today’s standards at least. As terrible as those things were, this post will focus on non-punitive, just compensation, i.e., the economics of the matter. This is proper for the reasons explained in “Exploitation-Part I, The Bay For Justice,” i.e., because an argument for just reparations rests on the economics, not the heinousness, of exploitation. (I acknowledge that other justifications for reparations have been claimed, but I am aware of no legitimate ones.)

Moreover, much of the exploitation by colonizers did not involve the ownership of slaves by colonizers. Rather, colonizers and native entrepreneurs entered into voluntary transactions to trade raw materials, goods, labor and/or ideas (“Stuff”) that they valued less for Stuff that they valued more. (The standard rejoinder to this claim about colonization is “monopoly!” The impact of the colonizers’ monopoly power will be addressed later posts. I mention he rejoinder here in hope that the reader does not quit the post because she believes I am ignorant of what she believes to be the primary feature of these transactions. Suffice it to say here that monopoly power affected the fairness of transactions to some degree but did not negate the voluntariness of the transactions. That they were voluntary reveals much about the economics of the situation.)

By treating slavery as a form of exploitation (as opposed to the effrontery to humanity that I believe it is) for purposes of economic analysis, I am by no means dismissing or excusing the qualitative difference between unfair working conditions[ii] and slavery. The differences are real, large, and damnable.

What follows is far from the mainstream thought of people who today live in modern, prosperous countries. Many, probably most, of those people believe that anyone who harbors thoughts other than letting their abject and uncompromising abhorrence of people having to work under grueling, harsh, and unrewarding conditions or whose thoughts might impede immediate reparations stupendous amounts is either evil or demented. Because I believe those beliefs of those people are inflicting more harm than good on poor people around the world today, a sorting out what is wrong with those beliefs is needed. Call me evil or demented if you must.

Others commentators have broached the ideas discussed in this post. The ones I’ve seen, however, tiptoe into the issues by saying things like, “This is a touchy topic, but permit me to tread carefully.” Approaching the topic in that way results in milquetoast assertions that do not get to the heart of the matter[iii] and are therefore too to obscure or oblique to enlighten as much as is necessary. By taking a straightforward tact I hope to more clearly sort out the relevant issues.

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Arguments for reparations are usually founded on three broad claims:

1) Rich countries stole and exploited raw materials, goods, labor and/or ideas (“Stuff”) from the people they exploited,

2) a. Rich countries are rich because they used their ill-gotten gain (capital) from exploitation to invest and to grow into the wealthy countries they are today (some appear to assume that colonization is the sine qua non of a country being rich), and/or

b. Exploited countries are poor because exploiters stole their Stuff (capital). Absent that stealing poor countries would not be poor. (These claims are allegedly bolstered by claims that the ideas that enabled the Northeastern Europeans to jump ahead of the pack had been developed by non-Northeastern European people long before the Northeastern Europeans exploited those ideas—something akin to “You didn’t build that [give that back].”), and

3) Exploiting countries should return their ill-gotten gain or pay compensation for losses to the descendants of exploited people.

Let’s sort out some issues with respect to the first foundation for reparations.

Justice could be achieved by causing colonizers to repay the people who were exploited or were the victims of theft. This fact lends credence to the ill-gotten gain element of the argument for reparations and that argument deserves serious consideration. (For the purposes of this post, let’s assume the existence of a feasible and effective way to achieve justice by paying the descendant of the people exploited.)

Critical to achieving justice with reparations would require a fair calculation of the net economic effects of colonization. The task would involve a fair calculation of the following values:

  • Damages. The sum of:
    1. Exploitation Value. A positive number equal to the difference between what the colonized people should, in fairness, have been paid for the working conditions they experienced because of colonization,
    2. Stolen Stuff Value. A positive number equal to the value to the victim of what was stolen from colonized people,
    3. Benefits to Colonized People of Colonization. A negative number equal to the benefits colonized people received because of colonization,

AND

  • Unjust Enrichment. The amount by which the colonizers benefitted from exploiting or stealing from colonized people.

Payees of reparations would be entitled to the higher of Damages or Unjust Enrichment. (Way too many reparations advocates illogically talk about reparations as though payees should receive the sum of both damages and unjust enrichment. To make matters worse, they talk as if the payees are entitled to punitive damages to boot.[iv])

Determining the “fair market value” of almost anything is difficult and the results are both imprecise and have a short shelf life. The issues in most valuations, however, are straightforward compared to the issues with respect to valuing damages from colonization. Let’s sort out some issues concerning the valuation of those damages.

The value of Stuff to the victim of theft or exploitation can be quite different from its value to the thief or exploiter. An extreme example illustrates the point: Had a colonizer stolen or paid little or nothing for bubbling crude (“black gold,” “Texas tea”) oil that contaminated land owned by colonized people would arable if the crude oil were hauled away, the result would have been positive for both the colonizer and the colonized, i.e., a “win-win.” This is because the colonized people had neither the technology nor capital to refine crude oil into valuable products, removing the oil would have been costly, and oil on otherwise arable land diminished the land’s value, i.e., removing a nuisance from a property increases its value. Rather than being a nuisance, the crude oil had a positive value to a colonizer who had the wherewithal to turn a profit on Stuff that had a negative value when owned by the colonized.

Similarly, colonizers had the technology and capital to turn low-value raw materials in the hands of the colonized people into high-value products. Given this fact, the colonized lost nothing if they sold raw materials to colonizers for its fair market value in the colonies, while the colonizers gained much by purchasing raw materials for that price and transporting them to a place where they were more valuable.

Even if we stipulate that the natives who produced or mined raw materials for export were exploited (suffered unfair working conditions), an initial question would be: “Can a person today assess the extent to which the working conditions of someone long ago—in some cases hundreds of years ago—were unfair?” The working conditions of a bookkeeper or factory worker 150 years ago would be considered deplorably unfair to a bookkeeper or factory worker in any modern city.[v]  Working conditions that were completely reasonable and fair 150 hundred years ago would have been considered to be quite nice by people who lived 300 years ago. The working conditions of 300 years ago would be considered highly unfair by people of 150 years ago and cruel, if they were inflicted on a worker in a rich country today. A fair calculation of a reparations amount must assess the extent to which the working conditions were poorer than a minimally fair working condition as of the date and place of the exploitation. Identifying the dividing line between fair an unfair would be, at best, astoundingly difficult even if that dividing line was not constantly in flux over time, did not vary significantly from place to place, and representative data sets were available to reasonably estimate that dividing line. Because none of those situations exist, identifying a fair reparations amount is well beyond astoundingly difficult.

A critical, if not pivotal question concerning just reparations would be, “Who did the exploiting?” Certainly, the colonizers were not the only parties exploiting colonized people. For example, in general, colonizers did not have the language skills, or desire to manage native laborers. In addition, they did not have the necessary immunity to diseases to enslave people. Consequently, colonizers purchased Stuff (raw materials or goods, labor, and ideas) from natives who arranged for the production and delivery of Stuff to the colonizers (“native entrepreneurs”). Whether or not the colonizers paid the native entrepreneurs a fair or unfair amount for the Stuff, what the native entrepreneurs paid their workers could have been even less fair, e.g., the colonizers could have paid a fair amount and the native entrepreneurs could have paid their laborers unfairly little. Justice could be achieved by forcing colonizers to pay the colonized an amount equal to the extent to which the price they paid the native manager was less than fair. To charge the colonizer for the exploitation of workers employed by native entrepreneurs is a different matter.

While colonizers could be fairly charged for the exploitation of slaves owned by the colonizers, it is much harder to make that case with respect to exploitation by native slave owners. At a minimum, the computation of any reparations amount should give the colonizers credit for the excess profits the native entrepreneurs gained by exploiting their fellow natives—because they are members of the people who were colonized. Let’s just say that figuring all of that amount out would be tricky at best. Hopefully, this discussion reveals the irrationality of the idea that the amount of exploitation can be fairly determined by simply looking at the cash and Stuff flow between the colonizers and the colonized (which included the profits of native entrepreneurs). Stated differently, myopically focusing on the impoverishment of native laborers to measure the extent of exploitation by colonizers is a gross error.

Alternatively, consider this perspective on the matter: For the most part, native entrepreneurs were paid a negotiated (read profitable) price for Stuff they sold to colonizers. To the extent the colonizers paid the fair market value of the Stuff at the designated delivery location,[vi] native entrepreneurs were not exploited (quite the opposite). The benefited because if the seller was not paid enough for the Stuff to make an acceptable profit, the seller would not have made the sale. If the colonizer is to be dunned for the exploitation by the native entrepreneurs of their employees, the colonizers should get some credit for the profit gained by their employers on account of the colonizers’ purchases.

Colonization provided profitable markets into which colonized people could sell their Stuff. The existence of those markets for their Stuff improved the lives of the people who sold Stuff. Exactly how much credit the colonizers should receive on account of that benefit to colonized people is not clear. The correct answer, however, is not zero, and it is potentially large. (Witness the hullabaloo today about the excessive damages inflicted on America companies because of tariffs imposed by other countries on the importation of American goods and services.)

This issue is complicated by, among other things, the likelihood that more people in the colonies were enslaved by native entrepreneurs because of those additional markets. Without the additional sales to colonizers of Stuff that slaves could produce, incurring the expense of enslaving people would profitable with respect to fewer potential slaves.

On the other hand, colonizers saved the lives of the many slaves and native people during droughts transporting them to countries that were not experiencing drought and needed slaves. The slaves were saved because they would have starved or been killed to eliminate the need to feed them in a drought-stricken country, and the natives both made money selling their slaves and avoiding the problems associated with killing people. How much exploitation is acceptable in order to save the life of one slave is a testy calculation. Moreover, in addition to helping the people who were moved, moving people from places with too little food to places with enough food also helps the people who were not moved.

Surely, the expected improvement in the standard of living of a native entrepreneur as a consequence of a trade with a colonizer was never as great as the native entrepreneur would have liked—such is the fate of all parties to almost every transaction everywhere and always. The result would not have been considered “fair” according to many third-party standards. However, subject to the normal mistakes people make when predicting the economics of an anticipated transaction and occasional failures by counter-parties to perform, on average, all parties to a trade improve their situations over to what they would have otherwise been. The fact that people keep on trading and wealth increases over time is good evidence that people are reasonably proficient at predicting the economic outcomes of their trades.

The above effect is also true with respect to domestic business relationships. Native entrepreneurs had to hire people to make or mine the Stuff the native entrepreneurs agreed to deliver colonizers. The less the native entrepreneurs paid his workers, the more profit he made. He could not, however, have hired anyone to do the work unless the workers were paid what the workers believed would result in their being better off than if they did not accept the job offer. i.e., the workers’ lives were improved by being colonized—but surely much less than the workers (and vastly less than later-day sympathizers) would have liked to have been better off.

The sad reality is that life in impoverished countries is truly awful for

So, even under what is fairly considered to be awful working conditions, compared to what their situations would have been otherwise after a transaction, the lives of everyone involved was improved by the exploitive transactions. A fair calculation of a reparation amount must give the colonizers credit for the extent to which the exploitation improved the standards of living of the colonized over what they would have been absent the colonization.

In light of the above, calculating a fair reparation amount is far more complicated than what most people would expect. The above just a sampling of those complications. Demanding reparations while ignoring the many complications of calculating a fair amount for reparations is unreasonable.

In a just tribunal, the claimants would have the burden of proof as to the fair reparations amount. Wish them luck.

There are other misunderstandings with respect to exploitation. Let’s sort some of those out in future posts.


[i] This reference includes people like the peasant characterized in this fable: “. . . God and St. Peter wandering the countryside in disguise looking for lodging and being refused, until at last a poor but hospitable peasant couple take them in. God reveals himself, and tells them that for their good deed they can have anything they want. The husband and wife briefly consult together. The husband begins, “We have only miserable chickens, but our neighbor has a goat that yields milk every day…. ” God anticipates: “You mean that you want a goat, too?” “No. We want you to kill the neighbor’s goat.”

Deirdre N. McCloskey. Bourgeois Dignity: Why Economics Can’t Explain the Modern World (Kindle Locations 1188-1189). Kindle Edition.

[ii] By “working conditions” I refer mean “a broad range of topics and issues, from working time (hours of work, rest periods, and work schedules) to remuneration, as well as the physical conditions and mental demands that exist in the workplace.”

[iii] In “China Says: “Please Exploit Us!” the author says the following about modern “sweatshops” owned by Nike, Wal Mart, Reebok, etc. in poor countries: “These and other firms have been taking some steps to improve conditions at their factories, but it’s often easier said than done.”

[iv] For an explanation of why this is a false assumption, see “Exploitation-Part I, The Bay For Justice.”

[v] See “Life in New York City before indoor toilets,” “If you’ve ever bemoaned the fact that you share a bathroom with several family members or housemates, you’re not alone. Most New Yorkers live in apartments and most units have just a single bathroom. A hundred and fifty years ago, however, the situation was much worse. At the time, New Yorkers had just a few choices when it came to taking care of their lavatory needs and by modern standards, none of the options were appealing—visit an outhouse or use a chamber pot.” Facilities available to office workers were similar.

[vi] As they say, the value of real estate depends on three things, location, location, location. Due to the risk and cost of transportation, the value of personal property is also location dependent.

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