Black Capitalism—A Preface

Part one


As far as we are able to discern, the term "black capitalism" was first popularized by Dr. Martin Anderson, author of The Federal Bulldozer, and economic advisor for President Nixon. Our use of the term here does not indicate support for any form of racial separatism or apartheid. We most emphatically reject all attempts to invest "black" with connotations of inherent virtues or vices.

"Black capitalism," as we use it, clarifies a vital political conflict, for it forces those who advocate "black power" to identify precisely what they mean. "Black power" had been a blanket-term, tending to obscure differences between those who were crusading for Negro individualism and those who instead sought political power and racial collectivism. Now the fundamental conflict in race issues today has found its way into popular terminology. The fundamental choice between viewing the Negro as an independent individual—as a man—and viewing him as a tribal warrior, is now more open. Will it be productiveness—or parasitism? Dollar earnings—or the spoils of a protection racket? Black capitalism—or black power?

Those who understand and advocate the former must reject government urban policies of the present, in order to create an atmosphere consonant with freedom and individualism. For too long city residents have been subject to an ever more twisted labyrinth of federal, state, and local laws and programs allegedly designed to aid them. With few exceptions, these programs have failed to attain their announced objectives.

Welfare programs (REASON, Nov. 1968) penalize the incentive of both recipients and taxpayers. Urban renewal demolishes four times the amount of low cost housing it replaces.* Minimum-wage laws hijack the jobs of thousands of marginal workers. Poverty grants finance criminals through padded payrolls and kick-backs. Rent controls freeze both rents and the incentive to construct low-cost housing. As the list grows, the poor get poorer, and the rich—the dishonest rich—get richer.

If the troubles of the cities are to be solved, men must be free—free to project their goals, to map their strategies, to lead productive lives on their own terms and without fear of the edicts of master-planners. Only freedom can provide the incomparable incentive of a clear road. Coercive laws, based on totalitarian premises and productive of inefficient programs, foster an atmosphere of uncertainty, frustration, and terror. Welfare advocates, having spit in the faces of men by divesting them of their freedom, now point to the physical rot and spiritual nausea of Watts, Harlem, and Roxbury in blank astonishment. They should not be surprised, for when any group begins to trample on the rights of men, it can only bring pain, resentment, sickness, destruction.

Out-going Vice-President Hubert Humphrey, perennial proposer of master-plans for the economy, has referred to himself, in the November issue of Technology Review, as a "humanistic engineer." One example of his "humanism" is nation-wide program of Urban Renewal which he so warmly commends as a stride toward social Justice. Here innocent property owners are forced to surrender their titles to the government—or else. Here innocent apartment dwellers find slipped beneath their doors a note which reads, simply and irrevocably: Get out. Such is the nature of humanism in the benevolent welfare state.

Humanism, in fact, consists of treating men as humans. It is not practiced by pushing them around like so many stupid sacks of flesh. "Humanistic engineer" is a contradiction-in-terms which seeks to evade the fact that men, unlike steel, glass, and concrete materials, have lives, minds, plans, and untouchable rights.

If the cities of the United States are to survive through this century, the thoughtless assertions of bureaucrats will have to be rejected. If our cities appear to be tearing at the seams, this is not because we have too few government programs, but because we have too many.

Voluntary action is the only logical alternative to the institutionalized chaos from which America now suffers. Problems have intensified in the last dozen years—the solutions may not bring immediate physical results. But that is all the more reason to reject naive government programs.

In coming months, REASON will offer not simply a plan, but a philosophy to save the cities—not a cynical gimmick (such as "negative income tax" or "guaranteed minimum income"), but an over-all approach, integrated on the basis of the facts, and on the basis of the premise that urban residents are humans with dignity and rights.

The first articles in our series on "black capitalism" will deal with housing. Why has metropolitan housing deteriorated so rapidly? What causes overcrowding and high prices? What can be done to improve the quality of housing?

To answer some of these questions, REASON interviewed a young "environmental designer" (architect, landscaper, landplanner, and developer) from Portland, Maine earlier this month. William Altenburg, Jr., owner and principal figure behind Portland-based Environmental Design Associates, spoke with us for several hours concerning the underlying causes and cures for slums. What follows is a short segment of that conversation.

REASON: Certain sections of many American cities are apparently simultaneously experiencing both a housing shortage and a rapid degeneration of existing dwellings. Why?

Mr, Altenburg: The problems of "shortage" and "decay," as I call them, are real but are not what we are told. A housing shortage exists when the supply of a particular type of housing at a particular cost is less than the demand for that unit at that price. The term "housing shortage" as used today is a floating abstraction. It is being used to mean a failure of developers (Capitalism) to provide housing for people who need it. The term's purpose is to divorce the concept "housing" from its concretes: What kind?—How much?—Where? This allows statists to demolish 100 units of low income housing and replace them with 150 units of high income housing, claiming an increase in housing, while ignoring the fact that there is now a decreased supply of the former. Meanwhile the cause of the decay that led to the clearing of the area is ignored and the areas in which the displaced persons settle begin to decay. The problems of "shortage" and "decay" are caused by the government and could be solved by developers and landlords, if they were not prohibited from doing so.

REASON: What prohibits them from doing so?

Mr. Altenburg: The particular reasons are complex, but in principle the cause is simple. The various branches and levels of government have made it impossible for supply to be related to demand. The producers of housing cannot function in the market to provide what people want and can afford.

REASON: Are you saying that government is to blame for housing shortages?

Mr. Altenburg: Absolutely yes. Let's take a typical example of a shortage as meant by the government: A family with a very low income and six children can afford $30.00 monthly rent and they live in two rooms with no bathroom, kitchen, or heat. It is what they can afford, but it is "substandard"—another catch-all subjective term—therefore the government blames developers for a housing shortage. It is not possible to build an apartment for these conditions at a price they can afford—today. The reason is that the developer has no control over minimum cost conditions.

REASON: Who, then, does control his costs?

Mr. Altenburg: Consider some of the expenses which a developer faces when he builds. Financing, land, labor, materials, insurance, and permits—all these costs plus taxes, overhead, operating expenses, and profit are added together to obtain total project cost, which when divided by the total number of units will determine the rent or sales price of each unit.

Of these, how many can the developer control or predict? He can't predict his financing costs because interest rates and the availability of money are determined by the government. The developer has to compete with the government in the capital market. Because the government's decisions are arbitrary and because it controls the supply of money and is the principal borrower, long range estimates of interest rates are impossible. Interest rates dramatically affect the cost of owning and holding land for future development. It is expensive and time-consuming to assemble large tracts of land for optimum development. Yet this is the best way to develop because it reduces many costs of construction and allows greater flexibility in land use and meeting demand. Fluctuating interest rates make it difficult.

Land prices are a function of the market. But the developer has no control over potential return on land—zoning boards sharply restrict his sphere of action. Obtaining permission to build under zoning is a frustrating, time-consuming, and above all, expensive part of construction. Zoning creates artificial land uses, completely independent of the market, using the police powers of the state to determine how each parcel of land in a community will be used. More often than not it is used to increase the value of one man's land at the expense of another's. Zoning also controls density, which is the principal component of return per acre, placing it under the control of the whims of the local residents of a town. Building codes control not only his land return but capital investment in construction and building costs through health, plumbing, electric, building, and subdivision ordinances. The codes tell him precisely what he must use and in what way it is to be used. Any variation is prohibited, regardless of whether or not it improves the safety of the building. What this does to innovation, let alone costs, should be obvious.

In a free society, the major control a developer would have over a unit he is producing is in the technique of construction. Given any number of parts, an imaginative producer can create better ones and a better way to put them together. But—this means that he has an idea, and he tells his workers what to do and how to do it. In a free society, he would bear the consequences for any failures and he would receive the rewards for any success. Today, however, the labor unions totally control the production techniques which will be used. For example, a unionized brick mason may not lay any more than a certain number of bricks a day (even if he wants to). The unions forbid a wide range of materials and technique and have, of course, complete political control of wages. Having lost the ability to manipulate material, labor, and construction technique costs, the developer becomes little more than a automaton, and the dream of an end to the shortage of low-cost housing remains just that.

Even the actual price of construction materials is influenced externally and arbitrarily by the government's tariff and subsidy policies. Deficit spending, in causing inflation, must by necessity also raise material prices. Literally hundreds of government programs combine to distort price structure.

The government requires that certain utilities be provided to housing units and then creates coercive monopolies to provide these services. They are inefficient, arbitrary, restrictive of innovation, expensive, and concerned primarily with their regulatory agencies and politics rather than production and profits. A developer has no alternative but to accept the dictates of the utility; he has no where else to go.

The income tax, the book beeping costs, the social security, the fringe benefits paid to workers as a result of Labor Blackmail all add to the cost of housing and since they are subjective and dependent upon force for their implementation they cannot be accurately estimated, so the developer must add a fudge factor to his cost estimates and hope that he makes a profit.

The net result of all this is that the developer must depend on high income markets to support all the hidden and exaggerated cost he is saddled with. This is the basic reason that only subsidized housing is built in the low and lower-middle income housing markets.

It is obvious that the construction of low-cost housing is being systematically thwarted—precisely because of the very agencies supposedly dedicated to its promotion. The answer is not, as some have suggested, that of providing grants or tax incentives to developers, but that of returning their freedom to make economic decisions and with it, the predictability of the market place.

REASON: Then you would advocate the abolition of all restrictive laws and programs under which builders now operate?

Mr. Altenburg: Yes, definitely, but that is not enough. Only in a fully free, fully Laissez-faire Capitalist society can the potential for realizing the best housing at the lowest cost in any given technology be realized.

REASON: You apparently believe that slum landlords, slumlords as they are called, are not entirely to blame in the creation of slums.

Mr. Altenburg: The distinguishing characteristic of a slum is that it is filthy. Neatness, or its lack, is the differentia that makes one house a slum unit and its counterpart in another neighborhood "A Nice Place to Live." Neatness is an attribute of effort, not income or education. If slums were neat and clean but still in poor repair, it would be the landlords' fault in a free society. But the cost of repairing and maintaining a building inhabited by systematic vandals at a rent they can afford is impossible, Therefore, the landlord collects what little rent he can squeeze from the tenants (between visits by vast hordes of social workers organizing "rent strikes" and developing "revolutionary consciousness"), and lets the building rot.

REASON: What prevents him from providing maintenance today?

Mr. Altenburg: This is similar to the question on developers' costs, but with a twist. Here there is a double edged sword. Slums are composed (usually) of older buildings that are not modern in many aspects of their plumbing, wiring, heating, and bathrooms. When a city adopts a code that regulates any aspect of construction, it also outlaws the "old way," However, a "grandfather clause" permits existing buildings to continue in violation as long as they stay the same. As soon as they are altered in any substantial way a permit must be obtained and it will not be granted unless all code violations are corrected. The landlord who can afford to fix only the heating soon discovers he must also redo the wiring, plumbing, fire exits, etc.; all or nothing. The heating, as you might guess, remains in disrepair. In order to reconstruct, the landlord must compete with government projects for labor at legislated wages, use outdated materials and method forced on him by law, pay permit fees and post bonds, deal with dozen of agencies, operate under the constant threat of urban renewal, and still assume the blame for the condition of the slums. He must provide housing at government standards at government rent levels and face criminal penalties if he fails.

REASON: If, as you suggest, slums are created by slum-dwellers, who or what creates slum-dwellers?

Mr. Altenburg: As I said before, fundamental differentia between slums and other areas is neatness. The minimum effort to show that one is not a pig is to stay clean and to keep one's living area clean. But it is not automatic, it requires effort and some thought, and above all, the conviction that one is not a pig but a rational being of self-made soul and environment. It is his outlook on life that creates the slummer.

REASON: What are the general principles under which voluntary slum clearance will occur?

Mr. Altenburg: When the profits to be derived equal or exceed that of other entrepreneurial activities, then clearance will be undertaken on a larger scale than is currently the case. Private slum clearance is not an inherently uuprofitable concept, but given the present context, given the morass of regulatory agencies with which developers, landlords, and financeers must contend, it will not attract entrepreneurs of the caliber necessary to accomplish the job. The solution is to remove the restrictions which presently make such ventures unattractive, The solution, in short, is freedom.

*The Federal Bulldozer, Martin Anderson (1964)