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Peaceful Market Exchange—Not Politics—Harnesses the Value of Diversity

That there are inherent benefits in diversity is a common article of faith in our democratic/populist times. We hear it in and about universities, businesses, politics, entertainment, etc. Typically, though, we hear about it in terms of forcing more diversity on those whose diversity in a particular dimension doesn’t measure up to someone else’s arbitrary standard.

However, high-volume discussions on the topic often proceed as if diversity was the relevant end desired, while all but ignoring whether that diversity expands our joint possibilities or contracts them by increasing social balkanization. And policies that reinforce divisions between groups by imposing disparate treatment do the latter. The zero- or negative-sum views they represent, and the top-down solutions derived from them, actually divert our focus away from the greatest engine humanity has discovered for turning diversity into mutual benefits—free markets.

Free markets turn diversity into widespread shared gains, facilitating social cooperation, while coerced diversity relies on imposing harms on particular groups, crowding out social cooperation possibilities.

Individuals have diverse tastes, backgrounds, cultures, experiences, circumstances, etc., producing disagreements about the values of goods and services. Market exchange, however, allows all to benefit from those differences. The reason is that voluntary trade provides benefits that exceed costs to both parties. Thus, the divergent values that arise from uncountable differences lead to exchanges that create wealth for all involved. Everyone gains from their diversity, with no one’s desires ignored or overridden simply because they are different in some way. In contrast, coercively imposed diversity benefits whichever groups can politically dominate by imposing burdens on others.

Individuals have diverse skills, abilities, circumstances, climates, traditions, prior investments, etc., that also lead to very different production costs across people and places. Consequently, specialization in production for exchange with others can dramatically lower costs and increase our capabilities to supply what people want, further expanding mutual gains from diversity. But coercive diversity increases our differences rather than better integrating our efforts, short-circuiting the foundation of such gains.

Further, arenas where different ideas and customs, have come into voluntary contact have always been primary sources of new and better ways to do things. “Could what they do work better for me than what I am doing now?” motivates the communication, evaluation, application, imitation, and modification that turn diversity into benefits for others. That is why trade hubs, particularly ports, have always been centers of entrepreneurship and advancement, and why cities have been the incubators of vast amounts of innovation, which no one must or could impose from without. Coercively increasing the separateness of groups, however, undermines this highly creative and productive interaction.

Free market arrangements also produce mutual benefits from dynamic change. Our diversity of time, place, and circumstance means that some of us learn new productive information that others do not yet know. When such discoverers act on that information in markets (e.g., buying more of a good discovered to soon be of greater value) they communicate the resulting changes in relative scarcities faster and more accurately than any other social communication mechanism. Consequently, fewer mistakes are made, benefiting all. However, anything that increases group separatism and distrust, rather than openness to peaceful relationships, depreciates incentives to seek out such information or productively communicate it to others.

Diversity among individuals is a fact. But whether it is a social benefit in fact depends on whether it creates excuses to fight each other for special treatment or offer members mutual benefits. Recent efforts have focused on “solutions” representing the former, overlooking that, as Dwight Lee put it, “politicizing our differences is far more likely to make diversity a source of conflict than a cause of celebration.” Americans would do better to remember British rabbi Jonathan Sachs’s maxim that “it is through exchange that difference becomes a blessing, not a curse,” and focus instead on advancing voluntary arrangements which allow all to peacefully advance their ends, even when they differ.

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Gary Galles
Gary M. Galles is a professor of economics at Pepperdine University. He is the author of The Apostle of Peace: The Radical Mind of Leonard Read.
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