Restitution Principle Research Paper

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The theory of restitution is a neglected aspect of international and national income accounting. The concept addresses the problem of how to measure, and account for, the costs and benefits of systemic economic injustice. What  are the economic consequences of longstanding, historically grounded, systemic exploitation, wrongful taking, unjust enrichment, unequal exchange, immoral accumulation,  and  excessive profiteering  based  on  racial, ethnic,  religious, or  language-cultural domination  and control? Restitution  theory provides a basis for understanding and analyzing problems of chronic poverty and inequality, and developing rational public policy remedies.

A related concept is the restitution principle. It is a moral concept that  says that  if a society democratically decides that certain practices, such as slavery, segregation, and discrimination, are wrong and makes them illegal, then it is not morally acceptable to retain class pecuniary benefits that were produced by those past practices. These benefits must be returned to the class from which they were taken. Whenever there are chronic grievances—between nations, races, or other large social groups—a fundamental issue is invariably the sense that one party has systematically perpetrated unremedied economic injustices.

The theory of restitution is based on the intuition that it is possible to:

•  Reconstruct historic economic relations.

    •  Specify “fair” standards for prices, wages, terms of trade, and interest rates.

    •  Specify fair rates of return on investments that were violated, usually by force.

    •  Audit the historic pattern of transactions between the groups in question.

    •  Compare the actual with the “fair” standard, then estimate the deviation from “fairness.”

    •  Designate that result as unjust enrichment, and estimate its present value and distribution.

    •  Draw policy implications that will usually lead to remedies in the form of lump sum or other redistributive income and wealth transfers, in-kind subsidies, or investments in real and human capital.

In the case of African Americans, for example, for four hundred years, income and wealth have been coercively diverted from Africans and African Americans to the benefit of Europeans and European Americans. This was primarily done through slavery, then Jim Crow segregation, and then  discrimination in education, housing, and labor and capital markets. It is possible now to reconstruct  that  history in  detail, develop national  income accounting tools to regularly measure the magnitude of income and wealth transfers, then estimate their present value and distribution.

These unjust enrichments were not dissipated. They were transferred intergenerationally and are currently held by whites in the top 30 percent of the income and wealth distribution. The processes that produced the benefits are now widely regarded as wrong, illegal, and illegitimate. They violate current standards of fairness; therefore, the benefits these processes produced are unjust, and should be returned to those who were harmed or to their descendants collectively.

This becomes a matter of restitution. And the restitution owed—by some estimates, $5 to 10 trillion—can be paid through adjustments in tax and budget policies over approximately forty years. The restitution could also be paid  primarily through  investments in  human  capital, housing, and business formation.

U.S. national income accounts do not help much in managing social dysfunction. They overlook unjust enrichment.  Similarly, U.S.  international  income  accounts overlook systemic unequal  exchange—overcharges and underpayments  between trade  and  investment partners who  have asymmetric power and  bargaining strength. Without  proper accounting, policymakers produce weak concepts and weak policies and programs that fail to remedy problems of poverty and underdevelopment. Scholars and policymakers do recognize disparities and inequalities, and the basic reasons for continuing chronic economic distress, among many African Americans, have been thoroughly documented. But the descriptions and analyses do not produce policies sufficient to manage or solve the phenomenon of gross disparities in income and wealth by race. Economists and other social scientists and policy analysts have focused on the costs of racial exclusion and discrimination. But that is an incomplete approach, and one reason that relatively little progress has been made against intransigent, chronic economic underperformance and persistent poverty.

The  concept of restitution  is based on the understanding that  justice and  morality are fundamental  to sound public policy. And retaining unjust enrichment is inconsistent and incompatible with holding in perpetuity benefits derived from past immoral and wrongful systemic transactions and processes. Americans, for example, can acknowledge that much wealth has been built in the past by methods that cannot stand scrutiny by today’s standards, even though such methods may have been acceptable at the time. But morality according to the restitution principle  makes it  impossible to  accept  the  fruits  of wrongful actions that were committed on one’s behalf—as posterity—by  one’s  collective if  not  direct  biological ancestors.

Boris Bittker’s The Case for Black Reparations (1973) examined these questions thoroughly and successfully. He dealt with all the common objections—that raising these issues now, so late in the game, is ex post facto, and that justice is not meted out that way under the American system. In response, Bittker argued that there is ample precedent for finding retroactive responsibility and culpability, and correcting it, if practicable. As part of national and international accounting, government and nongovernmental agencies can perform the statistical and analytical work in the process of managing national economic life.

In the U.S. case, slavery, primarily agricultural slavery, produced benefits for over two hundred  years. But many Americans only think of slavery in terms of agricultural commodity production.  In fact, slavery generated great benefits in other ways as well. Slaves were used in manufacturing, services, and activities that today would be called municipal or state government, running transportation, utility, and emergency services. Enslaved people  also cleared land  and  built  infrastructure—roads, dams, levees, canals, railroads, and bridges. Without this labor, it can be argued, the United States would not have expanded west as it did. Indeed, it is possible, and perhaps probable, that the United States would never have become a continental nation. It likely would not have been able to complete the Louisiana Purchase, nor gain the territories that became the Southwest and West Coast states, so vital to twentieth-century growth. Without the labor of enslaved people, the United States could well have ended, territorially, at  about  the  Mississippi River, and  never emerged as a world power. The point is not to speculate on  counterfactual history, but  the  crucial role of slave labor in creating the basis for expansion and total continental development is worth underlining.

Slave-produced goods and  services benefited most white  Americans indirectly and  passively through  the process of human capital formation. Slaves made it possible for many whites to go into more rewarding occupations, gain increased skills, and generate greater lifetime earnings for themselves and their descendants. In these indirect  and  passive ways, slavery produced  enormous benefits  beyond  those  usually considered that  flowed directly from production. Similarly, after the slavery era, exclusion and discrimination allowed millions of Americans and  immigrants  to  enter  occupations with greater prospects. In these ways, racism generated income and wealth that flow to present-day recipients. That is an important reality, and its consequences can be measured.

Historian Theodore Hershberg studied immigration and found that successful, accomplished black tradespeople and skilled operators were displaced by immigrants. So it is not simply a matter of black entrance being blocked. Black earnings were established, then forcibly discontinued by private practice and by conscious, active, wrongful interventionist public policy.

Discrimination continued through the mid-twentieth century. During the twentieth century, discrimination produced far greater benefits than those piled up during the preceding 270 years because of the greater population and size of the economy. The most significant sources of unjust enrichments have fairly recent origins, notwithstanding the dramatic effects of compound interest on the earlier, longer stream of coercively, interracially diverted income.

Exploitation,  exclusion, and  discrimination  were mechanisms that produced unjust enrichment. Exploitation is a loaded term that carries great emotional baggage with the general public even when used in a technical sense. In restitution analysis, exploitation refers to super benefits over and above “normal” returns on investment, or above a unit of labor’s marginal productivity. Exclusion refers to what is usually known as occupational discrimination, in which whites occupied jobs that otherwise, in a freely competitive market, would have been occupied by blacks of equal ability and training, exerting equal effort. Discrimination refers to three other phenomena in addition  to occupational discrimination. First, employment discrimination is commonly seen in the “last-hired, firstfired”  practice,  whereby  blacks and  whites  of  equal endowments experience different lengths of employment in similar economic cycles. Second, wage discrimination refers to situations in which whites and blacks, equally endowed, receive different wages for the same occupational and skill contribution. Third, there are other forms of discrimination, as outlined by economist Lester Thurow in Generating Inequality (1975). These include discrimination in  capital, housing, medical and  health care, and other subtle twentieth-century practices.

All these differential practices produce a diversion of income and wealth in the United States from blacks to whites. All of them  made whites better off relative to blacks, in the aggregate, than they otherwise would have been in a society, and in markets, using free and openly competitive selection processes.

The  total consequence of these direct and indirect, active and passive methods of diverting income and wealth interracially resulted in  unjust  enrichment  that  can  be measured. The information will be salutary for all concerned, and it will focus policy discussion on constructive remedies. That leads to the “so what?” question: What difference will this information make? What practical value will restitution theory have? Managing overall national economic performance requires that policymakers understand the concept of unjust enrichment and the restitution theory. Economic underperformance is caused in part by the alienation of millions of people who believe they are victims of injustice, and withhold their best efforts in response.

Systemic economic arrangements often are imposed by  dominant   social groups  on  less powerful  ones. Invariably, these patterns of transactions produce costs for the latter and benefits for the former. Economic injustices, sustained over time, produce cumulative benefits—that is, unjust  enrichment. This can be measured. When  such cumulative benefits are measured, the results can then be introduced into public policy discussions for the purpose of acknowledging the transgressions, admitting the consequences, and accepting the fact that remedies are proper, feasible, and just.

Restitution theory offers a basis for correcting the lopsided results of distortions in  markets characterized by coercion,  exclusion, and  discrimination.  It  raises the prospect that  the simple fact of illuminating economic relationships this way will, in and of itself, tend to reduce the offending behavior. That is because a major reason the injustices occurred in the first place, and then perpetuated, was that a veil of ignorance rested over the phenomena. Restitution theory lifts that veil, and will make it harder in the future for economic injustices to  become systemic. Such injustices rely on the fact that their magnitude is not understood. Once their magnitude is discovered, political and social forces will mobilize to stop the practices and to retrieve the unjust enrichments that have been produced.

Bibliography:

  1. Bittker, Boris. 1973. The Case for Black Reparations. New York: Random House.
  2. Hershberg, Theodore. 1981. Philadelphia: Work, Space, Family, and Group Experience in the 19th Century: Essays Toward an Interdisciplinary History of the City. New York: Oxford University Press.
  3. Thurow, Lester. 1975. Generating Inequality: Mechanisms of Distribution in the U.S. Economy. New York: Basic Books.

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