Profit and Prejudice

The Luddites of the Fourth Industrial Revolution

Paul Donovan

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781000292442
• Edition: 1
• Topic: Économie
• Subtopic: Économie du travail

Avoiding prejudice will be critical to economic success in the fourth industrial revolution. It is not the new and innovative technology that will matter in the next decade, but what we do with it. Using technology properly, with diverse decision making, is the difference between success and failure in a changing world. This will require putting the right person in the right job at the right time. Prejudice stops that happening.

Profit and Prejudice takes us through the relationship between economic success and prejudice in labour markets. It starts with the major changes that occur in periods of economic upheaval. These changes tend to be unpopular and complex – and complexity encourages people to turn to the simplistic arguments of 'scapegoat economics' and prejudice. Some of the changes of the fourth industrial revolution will help fight prejudice, but some will make it far worse. The more prejudice there is, the harder it will be for companies and countries to profit from the changes ahead. Profit is not the main argument against prejudice, but can certainly help fight it.

This book tells a story of the damage that prejudice can do. Using economics without jargon, students, investors and the public will be able to follow the narrative and see how prejudice can be opposed. Prejudice is bad for business and the economy. Profit and Prejudice explains why.

1 Profit and prejudice

I remember hearing you once say, Mr Darcy, that you hardly ever forgave, that your resentment once created was unappeasable. You are very cautious, I suppose, as to its being created?

Jane Austen, Pride and Prejudice¹

If this book has a main message, it is that prejudice is bad for business and the economy. And that is a message that matters more and more today.

Why is prejudice so bad for the economy? Prejudice throws away skilled workers for no good reason. Prejudice stops workers from moving to better jobs for no good reason. Prejudice prevents good decision-making. Prejudice weakens profits and economic strength. Prejudice wastes workers’ talents. Companies and countries succeed if they make the most of their workers’ talents.

Why does this matter more and more? The coming years are likely to be a period of major economic change. Indeed, it is set to be such a big period of economic change that economists are calling it the ‘fourth industrial revolution’. Millennials, brought up on a steady diet of smartphone upgrades, tend to refer to this as ‘Industry 4.0’.

Economies will survive and thrive in the fourth industrial revolution by having the right people, with the right skills, in the right job, at the right time. Prejudice puts the wrong people, with the wrong skills, in the wrong jobs, at the wrong time. Doing everything wrong at once is not often considered a winning economic strategy.

In the fourth industrial revolution, getting rid of prejudice (or at least fighting it) will allow economies and companies to win. The more a country or a firm can reduce prejudice, the more likely it is to succeed. The problem is that change is never very popular. Economic change often leads to political change and social change. In the past, economic change, political change and social change have led to a lot of prejudice. This prejudice has gone on to hurt economies, societies and people. The economic changes of the fourth industrial revolution are unlikely to be any different. More prejudice is coming, and it will be bad for economies.

In times of change, politicians can move to ‘anti-politics’. As the name suggests, this involves being against something as a main policy platform. ‘Anti’ politicians pick a group to blame and make them the scapegoat for economic problems. ‘Anti’ parties pledge to reduce or remove that group’s economic role. This, the politicians claim, will solve the problems. Being ‘anti’ or against a particular group is a simple and seductive solution to economic problems and a common response to periods of change. ‘Anti’ parties do not provide positive solutions to economic or social problems.

To an economist, the message that ‘prejudice is bad’ is clear. Economists have had a well-argued theory of prejudice for more than 75 years.² Sadly, it seems that the message is not clear enough. Economists have not convinced others of the damage that prejudice can do. In recent years, many of the world’s most advanced economies have seen a rise in prejudice politics. Politics today echoes the prejudice politics of the past three industrial revolutions. And with that prejudice politics comes big economic risk.

Discrimination and prejudice

So, what exactly is prejudice? In this book, prejudice is not quite the same thing as discrimination. To discriminate just means to separate one thing from another. Discrimination is a way of making a choice. It can be rational. Rational discrimination is good for the economy. Rational discrimination should lead to the best option being chosen and, in turn, the best possible outcome. Discrimination can mean choosing the right person for the right job at the right time. The job interviewer who compares different candidates’ skills comes to a rational decision. They discriminate in favour of the best possible person.

Economists like discrimination in this sense. The basis of economics is discrimination. Economics is all about choosing the best way to divide the limited things we have among our unlimited desires. Choosing the best way to divide things is known as the ‘economic problem’. Most economic models assume that people make rational choices. The fact that people do not make rational choices in the real world is a big source of irritation to economists. It messes up our models.

Prejudice is a highly specific, very narrow form of discrimination. Prejudice is irrational discrimination.³ It is the word ‘irrational’ that makes prejudice so bad. Irrational decisions destroy economies. If a person makes a decision based on irrelevant or illogical ideas, then we have prejudice. We want people to ignore what is not relevant when they make economic decisions. The moment people start listening to ideas that are not relevant, we get prejudice.

Prejudice does not have to be deliberate. People can be prejudiced without meaning to be. We often use ‘rules of thumb’ to make decisions. It is a complicated world. It is obvious that people want to make decisions as simple as possible. By using rule-of-thumb generalisations, people use prejudice without knowing it. ‘Every economic book I ever read was boring, so economics is boring’ would be a prime example. Clearly, economics is downright fascinating, so this rule of thumb would lead to an utterly absurd conclusion.

We can see the difference between discrimination and prejudice in an example. Women (on average) do not have the same physical upper-body strength as men (on average). A job requiring physical strength may employ few or no women. It is discrimination to refuse to hire someone who lacks the strength to do a job. It is prejudice to refuse to hire a woman to do the job. The employer should consider every woman’s strength as an individual. Generalising – using a rule of thumb – about women may mean that the best person for the job is not hired.

A similar prejudice is unconscious bias. Unconscious bias is a slight variation on the rule of thumb. It comes from the assumptions people make. These assumptions are built by culture. They reflect what people see as normal. They tend to form rules of thumb. US Supreme Court Justice Ruth Bader Ginsburg famously said of the number of female Supreme Court justices: “I’m sometimes asked when will there be enough [women Supreme Court justices]? And I say when there are nine [out of nine], people are shocked”.⁴ Of course, as Ginsburg caustically noted, no one had been shocked when all nine justices were men. That was ‘normal’.

Why should an all-female Supreme Court be shocking? The answer, of course, is the unconscious bias that creates prejudice in all of us. In the past, society did not let women take up their proper role in the law. Supreme Court Justice Sandra Day O’Connor, the first woman to serve on the court, was forced to start her career as a legal secretary. This was (obviously) not down to a lack of skill or qualification. Law firms simply did not hire women as lawyers. An all-female Supreme Court should be no more surprising than an all-male Supreme Court, but unconscious bias makes it so. I can remember being surprised when the UK had its first female prime minister. I remember being surprised at Ginsburg’s suggestion of an all-female Supreme Court. Thirty-three years (and a lot of education) separated those events. Prejudice and unconscious bias can be hard to shift.⁵

As unlikely as it may seem, in the 1970s, sexism was common in the world’s orchestras. There was a view that women could not play instruments (except, perhaps, the harp).⁶ Then orchestras started to hold auditions for new members with a screen to hide the candidates from view. Women suddenly became a lot more successful at auditions. Before the screens, orchestral hiring decisions were irrational. A conductor who saw a female musician would decide she was an inferior musician. Introducing a screen forced a decision based on musical talent. Once prejudice was not allowed to thrive, the number of women in orchestras soared.⁷

The effects of this prejudice, unconscious or not, change how we behave with one another outside of work. The British psychologist and former US NBA basketball player John Amaechi, who is black, has commented on this. Amaechi has said that if he is sharing an elevator with a man, he will know where that man keeps his wallet.⁸ This is because the other man will unconsciously touch his wallet when sharing a confined space with a large black man. For the same reason, Amaechi says he never has to queue at a cash machine. People in front of him are prejudiced about the perceived threat of a large black man queuing behind them. They move away as soon as Amaechi joins the queue.

Whether it is deliberate prejudice, a rule of thumb or unconscious bias, prejudice is irrational. Because it is irrational, it leads to bad economic outcomes. Refusing to employ the best possible worker for a job because of their gender or the colour of their skin is bad business. Gender and skin colour do not affect a person’s ability to do a job. If prejudice stops the best person from being allowed to do a job, the company is not going to make the biggest profit it could make. If lots of people in an economy make lots of decisions based on prejudice, the result is bad for the economy.

As we will see, the decision not to do something can be just as economically damaging as the decision to do something. What an economy loses because of “the road not taken” can be highly significant. Economists, who occasionally have a less eloquent turn of phrase than the poet Robert Frost,⁹ refer to “the road not taken” as the ‘opportunity cost’ – what might have been. If the “road not taken” was, in fact, the right road, then the individual, the economy and society at large are worse off.

Imagine that the legal profession was prejudiced against women, but the medical profession was not. If a woman had the skill to be a great lawyer, she might still choose not to go into law. To avoid prejudice, she could opt to be an average doctor rather than a great lawyer. Thus, the woman earns less money than she could, and the economy loses the talent of a great lawyer – all because of the “road not taken”.

This is not a random example. Dr Ivy Williams was the first woman called to the English bar in 1922. Williams was an academic. She never actually practiced as a barrister. She completed her law exams at Oxford in 1903 and only received her degrees in 1920. Oxford University did not award woman degrees until then. Her success in being called to the bar was met with an editorial in the Law Journal, which declared that the admission of women “would never likely be justified by any success they will achieve in the field of advocacy”.¹⁰ The first female doctor in the UK, Elizabeth Garrett Anderson, qualified as an apothecary in 1865 (after finding a loophole), which allowed her to practice medicine. The Medical Act of 1876 allowed women to qu...