Andrew Young’s statement that blacks have been “ripped off” by stores run by Jews, Koreans,
and Arabs has been rightly criticized and he has apologized. But these irresponsible remarks have
wider implications than Andrew Young and wider implications than their political repercussions.
For decades, one of the biggest blind spots of most civil rights “leaders” and
“spokesmen” for the black community has been their utter lack of knowledge of economics.
As a purely factual matter, prices do tend to be higher—and the quality
of service and products lower—in stores in low-income neighborhoods. But the knee-jerk
assumption that this represents “exploitation” or “racism” ignores the economics of the situation.
Many of the ghetto stores charging high prices are struggling to survive, while supermarkets in
other neighborhoods are very profitable charging lower prices. There are many reasons for this.
The reason least likely to be acknowledged by those who blame the store owners
is that crime, shoplifting, vandalism, and riots have raised the costs, both directly
and by causing insurance rates and the costs of security to be higher in ghetto neighborhoods.
The costs of delivering goods to small neighborhood stores
are also higher than the costs of delivering goods to huge supermarkets. Delivering a hundred
cartons of milk to a supermarket is cheaper than delivering ten cartons of milk to each
of ten local stores scattered around town. Selling a customer $50 worth of groceries
in a supermarket takes less time than selling ten customers $5 worth of groceries in a little
neighborhood store. Faster turnover is one of the keys to a supermarket’s lower prices.
A supermarket can prosper with one cent of clear profit on each dollar of sales
because that dollar comes back to be re-used again and again in the course of a year.
If the inventory of a supermarket sells out in two weeks, that one cent comes back 26 times
in the course of a year. This means that a penny of profit on a dollar from each sale
becomes more than a quarter on a dollar annually. Few local stores can match that. Not only are the
delivery and overhead costs of the local store likely to be higher, the slowness with which its
inventory turns over means that even higher prices may not fully compensate for such differences.
The cumulative effect of such cost differences is that prices are often
higher and at the same time profit rates lower in poor neighborhoods.
One of the factors limiting what a ghetto store can charge is that many ghetto residents already
shop in other neighborhoods, when the price savings are enough to cover bus fare or taxi fare.
Every increase in prices risks losing still more customers.
Many of the same black “leaders” who accuse local store owners of making exorbitant profits
also complain that supermarkets seldom locate in ghetto neighborhoods. Do they
think supermarkets are against making money, if ghettos are so profitable?
The poor quality of many goods and of the service in ghetto stores
is also a result of what has happened in these neighborhoods over the years.
My niece, living in the same Harlem neighborhood where I grew up in the 1940s,
often complained of rude service and bad quality goods, as well as their high prices—complaints
that were not at all what I experienced growing up in that same neighborhood.
There were far more stores back in the 1940s and it would have been financial suicide for any given
store to treat its customers the way ghetto stores can get away with treating them today.
What happened in between? Ghetto riots happened, beginning in the 1960s. Many
stores that were looted or burned out in those riots never re-opened.
Nor were many other people ready to come in from outside to replace them. Nor were local residents.
People who have neither the efficiency nor the courtesy to compete with other stores
in middle-class neighborhoods can survive running ghetto stores because of the lack of competition.
Many black “leaders” and “spokesmen” who romanticized ghetto riots as “uprisings”
against oppression are now displaying their ignorance of both history and economics.
Those ghetto residents who had nothing to do with those riots are still paying the price.