By Rupa Subramanya Dehejia

    Indians are used to complaining with some justice about racism abroad. But let’s not forget that it exists here in India, too.

    Consider the scene: A warm sultry evening and a group of college-aged young men approach a lively bar with the intention of having a few drinks. While other customers are admitted, they’re turned away with no explanation given. They infer this is a case of racism.

    This has happened to Indians in Australia. But allegations of racism also recently surfaced in Bangalore where Africans, mostly students, have complained of being denied admittance to bars. While difficult to quantify, one routinely hears complaints from Africans in India, running the gamut from being denied entry to bars to being unable to rent apartments.

    What are the economics behind this behavior? Does it cost the perpetrator as well as the victim? And can market forces be part of the solution in fighting racism?

    Starting with the seminal work of Nobel prize-winning economist Gary Becker, there is a large and rich literature on the economics of discrimination. Mr. Becker’s approach straightforwardly accounts for discrimination by assuming that people have a “preference” for it.  So, a bar owner would turn away someone whose look he doesn’t like even if that hurts the bottom line. Hardly surprising, but the important corollary is that discrimination is more costly in a dynamic and competitive market, and therefore less likely to be practiced.

    The classic example is the housing market. In cities with rent control, and therefore a shortage of apartments to rent, there are long waiting lists, with many would-be tenants vying for only a few available units. In such a situation, landlords can, and frequently do, exercise their preference, which may take the form of discrimination.

    For instance, as Hanna Ingber Win documents, in a Mumbai suburb single women have difficulty renting because they’re seen as promiscuous. By contrast, in a competitive rental market, demand matches supply, and landlords may not have the luxury of picking and choosing their tenants, regardless of whether they approve of them or not.

    If the Becker theory is correct, increased market competition among bars in Bangalore or rental units in Mumbai would decrease the likelihood of discrimination based on race or for that matter other criteria such as caste, religion, gender, etc., all of which exist in India and elsewhere.

    However, suppose discrimination by bar owners reflects not their prejudices but those of the majority of their customers? Indeed, one explanation offered by a Bangalore bar manager as reported in a newspaper account that his Indian patrons would be uncomfortable with Africans in the bar.

    Now, the economic calculus is not so clear cut. By admitting the Africans, the bar manager would gain revenue from them but if many of his other patrons exited as a result, he would incur a loss. It’s not clear in this instance which way market forces would drive discrimination. The market may have to be supplemented by government regulations that prohibit discrimination.

    But there’s a deeper issue here.

    As pointed out by columnist Salil Tripathi government rules prohibiting discrimination run up against individual liberty and the choice to do business or not with whomever one pleases. For instance, a homeowner cannot be compelled to sell his house to the highest bidder and is perfectly entitled to take a loss, if he wishes, by selling to someone whom he likes.

    The prevailing view in most liberal democracies is that a line must be drawn somewhere between liberty and discrimination. Where that typically falls is that matters in the public domain, such as rental housing or employment norms, are held to a stringent standard of non-discrimination, whereas purely private transactions are given wider liberty. For instance, in most places it is illegal for a bar to turn away a customer on the grounds of race, but it is legal for private clubs to vet members based on criteria which may include race or religion.

    One difficulty with this legalistic approach is it that those who discriminate very rarely admit to it. For instance, the same Bangalore bar manager cited safety and security as the reasons for turning away Africans, not their race. In making this defense, he alluded probably without realizing it to the work of two other Nobel economists, Kenneth Arrow and George Akerlof. They argue discrimination is “statistical” or based on profiling.

    On this theory, if, say, the Africans in Bangalore are associated with a higher crime rate than the general population, the bar owners might have a rational basis for wanting to exclude them, if not a legally defensible one.

    The trouble is that legitimate profiling may slide into illegitimate prejudice and discrimination. Recently, an acquaintance asserted that all of the young African men in Colaba in Mumbai are known drug dealers, pimps and troublemakers. When pressed by another friend, he admitted that this was a generalization.

    It would be nice to believe that proximity between different peoples increases friendship and reduces prejudice. For instance, as someone from the Northeast told me recently, discrimination against his community may have lessened in Bangalore because people know them better as a group.

    Unfortunately, it can go both ways. Sometimes, proximity increases animosity and prejudice.

    In an award-winning book, “Ethnic conflict and civic life: Hindus and Muslims in India,” Brown University political scientist Ashutosh Varshney documented that ethnic violence flares up where a particular community is economically marginalized. By contrast, where there is healthy commerce, economic integration generally leads to social integration.

    Mr. Varshney’s conclusion reinforces the message of Mr. Becker’s approach. Increased economic integration between communities makes discrimination, which disrupts those links, more costly. Economics can’t eliminate prejudice, but can certainly make it expensive to exercise it.


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