# What determines whether slavery is economically efficient in industrialized/modern era economies?

Various forms of slavery were nearly universal before the industrial revolution. After industrialization, it would naively seem forced labor would continue to be widespread, as there is no way to compete against it. But it only remained or became entrenched in a few locations and market sectors. Even current non-industrialized economies rarely involve slavery. I can't find a convincing explanation of why.

The coincidence with industrialization suggests slave profits are disproportionately vulnerable to automation, but slavery was largely agricultural and declined before much agricultural automation, while wage labor specifically coincided with industry. Why are profits higher from agricultural/automatable work, but not those from factory work and non-automatable services, when using slaves rather than wage labor?

I find it impossible to believe it was because of lofty values for human rights. But imagining US/English history without a labor movement, for example, seems like it was resulting in the kind of sweathouse economy I would have expected to be typical. Do the data show that labor movements decisively shifted the equilibrium world-wide?

I also find it impossible to believe that most work requires education incompatible with being indentured, or that maintaining discipline and motivation would be prohibitive. Do the data say otherwise?

Maybe workers create so much more profit when they are themselves maximal consumers that capital creates political pressure to inflate wages above subsistence, to create (investment) markets? I think this would be capitalists' explanation, but coordination among capital would be susceptible to being undercut, prisoner's-dilemma style, by competitors willing to use slaves. I think the only thing that prevents that in an international context are trade agreements, but again, it is hard to believe those have been so dramatically effective.

I haven't been able to find this question addressed with data, it is always completely overwhelmed with ideology.

Some common explanations claim slaves cost more to maintain than they produce (under most circumstances). That can't be right -- workers make enough to eat, profit their employers, and buy comforts unavailable to slaves (including time off, medical care, and retirement), considering redistribution of course. So why hasn't capital driven those comforts to zero?

The first answer here contains an insight I find plausible: you can fire/exchange a wage worker, but you can't sell an unproductive slave. So capital is willing to pay to insure against sinking costs into future labor of uncertain value. Another way to emphasize the mechanism is to focus on the cost of management necessary to utilize workers' full capacity -- workers can do this more efficiently than an employer. I find this line quite persuasive, are there data? @1muflon1 cites Anderson & Gallman (1977) -- is this the best reference in this vein?

Are there respected/consensus analyses of historical data that shed light on this question?

• slavery economically inefficient in most circumstances -- Is this the consensus opinion among economists? – Kenny LJ Sep 20 at 3:49
• @KennyLJ if slavery is efficient, how is the world economy sustaining such a disequilibrium for so long? – user1441998 Sep 20 at 4:16
• @user1441998 If gold is more valuable, why don't more metals turn into gold? Not everything is driven by economics... – Giskard Sep 20 at 7:09
• @Giskard well, i think at least that question is -- it costs more to do it (fusion reactor?) than it would be worth -- economics :) can you provide analysis to establish the decline of slavery was due to non-economic forces? – user1441998 Sep 20 at 8:10
• @user1441998 To get a good answer you definitely have to ask that question at History, but here is a random article on the subject. – Giskard Sep 20 at 8:30

Necessary Caveats When Discussing Slavery:

First before tackling this question it is important to note that this issue is broad and complex. This is because there is no single 'slavery'. For example, slavery under the Roman Empire was not the same as slavery practiced in US south (see Tamin; 2017). Furthermore, even within a given society there might be different parallel forms of slavery. This is especially true if you count as slavery all 'unfree labor' such as indentured servitude or serfdom which were similar to slavery (Russian serfs could even be bought and sold see Kolchin 1990). Hence it is extremely difficult to generalize about an institution that has been practiced differently all across world and time until very recently, and making exhaustive review of all forms of slavery and unfree labor is beyond scope of stack exchange. As a consequence I will mainly focus in my answer on the sort of slavery that existed in the US although I will try to keep thigs as general as possible.

Second, when we discuss whether slavery made an economic sense we have to distinguish between economic sense from point of view of society and point of view of few private individuals. For example, mercantilism is demonstrably not economically beneficial to society and generally tends to make economies poorer than they could be without it, which you can learn from any international economics textbook (see Krugman et al (2018) for example). Yet despite of that you could historically find many merchants who became fabulously rich thanks to mercantilist doctrines. North Korean or Venezuelan institutions also make local elites extremely rich but are arguably disastrous to the general level of economic welfare in their societies. If government would give a company monopoly on apple production it would greatly benefit the owners of said apple company but hurt consumers much more so on net basis it would be not economically desirable to have it.

Slavery from Private Perspective:

From narrow private perspective slavery was profitable. For example, according estimates provided by Conrad & Meyer (1958) the slave owners in antebellum US could expect to see return in excess of $$10\%$$ during certain time periods. According to Fogel & Engerman (1974) returns of plantation owners using slave labor were comparable to those in manufacturing.

Generally speaking if slavery was not privately profitable for people engaged in the slave business they would not continue to do it on any large scale. Yes even if it would not be profitable some individuals could have kept slaves as a some sort of Veblen good to signal their high status, and I am sure historically some wealthy individuals kept slaves for only this purpose, but on any economy-wide scale slavery would not persist if it would not bring benefits to the slaveholders themselves.

Slavery from Societal Perspective

From a societal point of view the economic literature suggest slavery had more costs than benefits. For example, Anderson & Gallman (1977) argue that slave ownership is detriment to specialization. The reason for this is that if you own slaves you own them whether demand for your goods is high and low. Slaves are essentially a fixed cost for a business because you need to shelter them and feed them even if you dont have any work for them whereas free laborer can be just fired and hired at will. As a response slave owners were often not engaged in just one single line of business (like just picking cotton) but had to also diversify and use their slaves for various tasks.

However, such diversification is detrimental to economic welfare and even economic growth as specialization leads to both higher efficiency and hence allows economies to produce more, but what even more specialization can also have dynamic effects that allow economies to grow more faster (inventions & discoveries are usually made by specialist not by 'jacks of all trades'). Consequently, Anderson & Gallman argue that slavery in long run stifled the economic growth in south and hence been detrimental to southern economies even if for the slave owning elite benefited from such system. Other authors such as Genovese (1976) went even so far as to claiming that slave ownership was detrimental to the development of 'capitalism' as it discouraged development of towns and commercial centers.

Furthermore, generally from a development perspective we recognize two types of institutions (see Acemoglu and Robinson Why Nations Fail);

1. Inclusive Institutions - “inclusive economic institutions… are those that allow and encourage participation by the great mass of people in economic activities that make the best use of their talents and skills”

2. Extractive Institutions - are defined as the opposite of the above inclusive institutions (and authors even mention slavery as prime example of extractive institution).

And developmental research shows (again see Acemoglu and Robinson) that extractive institutions are detrimental to economic development. In fact the authors argue that most of the differences between 'rich' and 'poor' countries today can be explained by the fact that countries that are high income today tended to adopt inclusive institutions while the low income countries mostly relied on extractive institutions. Now slavery is only one of myriad of institutions so it is possible that a country would manage to develop even despite of it. Also the contrary holds a country where most institutions are highly extractive but does not have slavery will still not be able to develop itself. Nonetheless, their research suggests that slavery would be detrimental to economic development.

An concrete example of study that looks at unfree labor would be study of Dell (2010) that using regression discontinuity (in order to ensure exogeneity) examines the long‐run impacts of the mita, an extensive forced mining labor system (which is very close to slavery) in effect in Peru and Bolivia between 1573 and 1812. Results show that this system had persistent effect on lowering household consumption by around 25% and increases the prevalence of stunted growth in children by around 6 percentage points in subjected districts today (long after the system was abolished). Furthermore, the study shows this system had also persistent negative effects on other developmental measures such as integration of road networks and that also the regions that used to had mita are less industrialized and focus more on subsistence farming even today.

There are also some studies that highlight that slavery also had some positive economic impacts. For example, Williams (1944) argues that even though slavery was overall detrimental to economies of Americas it helped to develop international financial networks and in turn international banking has first order effect on economic development. Nonetheless, international financial systems would most likely develop thanks to the international trade eventually anyway so the benefits of slave trade were likely just indirect.

Furthermore, all of the above does not even take into account the welfare cost associated with the loss of utility experienced with by the slaves themselves. This utility loss was undoubtedly tremendous and any economic analysis from societal point of view has to take it into consideration.

Lastly, as pointed out by Giskard in his +1 comment, slavery was not abolished just due to economic reasons (and the same can be said about serfdom or myriad of other extractive institutions). Moral and socio-political factors play role as well. For example, top US public economists are generally in favor of well regulated market for kidneys as this poll shows, yet US does not have such market and this is most likely because most voters would consider such market immoral regardless of any general welfare benefits. Consequently, one should not assume that some economic policy exists or ceases to exist solely because it is or ceases to be economically efficient. You should also note that slavery was most prevalent in the past when democracy was not ubiquitous as today, and even countries that had democracy extended franchise only to the land holding elites (which were also most likely the ones to own slaves) and was further restricted based on other ethic or gender characteristics. Thus extension of franchise probably played big role in abolition of slavery and other forms of unfree labor but these are questions for political scientists, historians, sociologist and anthropologists to answer.

• +1 The only answer so far posted that gives supporting sources. – Adam Bailey Sep 20 at 13:29
• thanks for thoughtful answer+cites but most doesn't address question. you discuss individ benefit vs soc dev, utility, morals, but q is about efficiency (ROI, profit, value created wrt input). if those other factors powerful enough to cause turn away from efficient slavery (significantly coincident w/industrialization), what data shows this? you discuss democracy/franchise, but slavery largely vanished b4 expansion of franchise. you note slavery was at times profitable, but don't say what precisely distinguishes situations where it was profitable vs not, which is what this questions is asking. – user1441998 Sep 20 at 17:03
• @user1441998 I did discuss the issue of efficiency. In economics efficiency is not measured narrowly in terms of ROI from an economic perspective the most efficient system is the one that yields the most utility not highest ROI/profit. The point of my answer is that for owners of slaves slavery was almost always profitable - but it was generally not efficient from societal point of view. – 1muflon1 Sep 20 at 17:05
• Genovese - why would agriculture slavery impede development of urban centers (markets, factories, etc)? Acemoglu & Robinson - correlation/causation confusion. disequilibria (ex: government created monopolies) are rare/temporary cuz unstable relative to efficient alternatives, and don't characterize bulk of econ activity, tho might be a good (separate) question whether mercantilism era disproves this. organ market: adequately explained by economic consideration of participation cost? if participants agree on price, gov't wouldn't be able to stop traveling to seychelles to exchange... – user1441998 Sep 20 at 17:10
• You're welcome, 1muflon1. Thanks for your thoroughly answer! – Ángel Sep 20 at 21:07
1. Prices were too high. 2 billion pounds of cotton were picked annually by 2 million american slaves at ten cents per pound. That's 100 dollars per year output for a slave that cost thousands, plus upkeep. Slavery cost more than farm rent. Wages are cheaper than the equivalent ownership cost because they can be tailored to a specific task rather than buying the entire worker.

2. Wages provide the same control as slavery with less effort. Why beat slaves when you can just charge rent, then get beaten by other slaves who want to live there? Land rent and competition for existence is an easier coercion than slavery.

3. Paying slaves for piece work is easier to track than having an arbitrary output quota. If the slave has to pick 100 lb of cotton, they could fill it with dirt, whereas if it has to be saleable then the merchant will do the evaluation.

So it is fundamentally about ease of control.

In cases where rent is low, more hours are needed and quality is simple then slavery is more viable.

• (1) - prices of slaves? what drove cost so much higher than expected value? "tailored to a specific task" - you mean you can fire/exchange a worker, but you can't sell unproductive slave? this is first idea i've heard that makes sense - capital willing to pay to avoid sinking costs into future labor of uncertain value, hmm.. don't think (2) is convincing, slavery basically consumes all labor output as rent, so wages are strict unnecessary loss for owner. same with (3), someone (not the worker) is paying quality evaluation costs, whether they are high or low, so that doesn't affect profit. – user1441998 Sep 20 at 4:33
• @user1441998 "what drove cost so much higher than expected value?" Capturing people against their will and physically subjugating them was inherently difficult and expensive, as well as morally abhorrent. Especially as the import of new enslaved people stopped, they could not be considered plentiful. – nanoman Sep 21 at 2:19
• "Prices were too high." That's "This place is so crowded, no one goes there anymore" sort of logic. "Wages provide the same control as slavery with less effort." No, they don't. "If the slave has to pick 100 lb of cotton, they could fill it with dirt" It would be quite obvious after the fact if they did that, and my understanding is that there were often people watching them. – Acccumulation Sep 21 at 3:48
• @nanoman data that show it quantitatively, please. it was, at least at times, worth the cost. what distinguishes those times? – user1441998 Sep 21 at 3:49
• @nanoman Even if that's true (and I don't think it was), that just explains the supply side. It doesn't explain the demand side. Why would someone pay more money that a slave is worth? – Acccumulation Sep 21 at 3:53

Why are profits higher from agricultural/automatable work, but not those from factory work and non-automatable services, when using slaves rather than wage labor?

Labor with freedom enables the development of human capital, which becomes more important to productivity when work involves specialized skills and a goal of quality (not merely quantity). The more complex and thought-driven the task, the more effective it is to motivate people through hope and pride rather than fear.

Beyond the overwhelming moral considerations (which help maintain the norm against slavery in the present day), slavery depresses efficiency by misaligning incentives: Workers who could put in time and effort to become better at their jobs (whether through formal education, or simply curiosity and creativity) do not reap any of the rewards for doing so.

Rewarding skilled, open-minded workers generates more of them. Unlocking this human capital, in turn, generates innovation and productivity leaps and bounds beyond a barbaric and shortsighted attempt to treat human beings like animals or machines.

workers make enough to eat, profit their employers, and buy comforts unavailable to slaves (including time off, medical care, and retirement), considering redistribution of course. So why hasn't capital driven those comforts to zero?

Most employees' productivity (especially in terms of quality) simply could not be matched by enslaved people. The workers are invested in their careers and motivated to make themselves valuable to employers. You cannot simply beat your way to improved morale; that will keep people's minds on the punishment they fear, and prevent them from doing a complex, thought-driven job well.

• I find these considerations plausible for white collar sectors. Are there data that support them for blue collar? What are estimates for the percentage of modern economic activity involving skill/thought? I would think most blue collar work/services use minimal human capital. Loading/driving trucks, giving haircuts, driving uber's, food service/hospitality, data entry, reception/retail/shelf stocking/cashiering, phone center work, factory lines, agriculture, cleaning, child care, and on. They all seem compatible with fear and/or petty incentives lower than wages... – user1441998 Sep 21 at 0:52
• @user1441998 Most of those service jobs involve (at least) skills of conversation, empathy, and responding to unexpected events. Note that many have evolved review/rating systems (for restaurants, nannies, drivers, etc.) precisely because the quality of customer experience is important. Observations on employee engagement inspired by a fish market have been applied positively to other workplaces. – nanoman Sep 21 at 1:59
• well data establishing positive returns to such an approach would be welcome. seems those types of jobs have been done by slaves for millenia and no clear reason industrialization disrupted that. is there evidence that slaves in history were constantly consumed with misery and lacked any vitality (interest to empathically converse, flexibly deal with challenges, etc)? or did they mostly just accept the world as always knew it and make do the best they could, looking for ways to earn privileges and avoid punishments? slaves can be rewarded for attitude and initiative, punished for sullenness. – user1441998 Sep 21 at 3:30
• @user1441998 1. More prosperous customers due to industrialization would have higher expectations for quality of service. 2. Slaveholders would under-reward initiative due to not having to compete with other employers for the worker's loyalty (and not wanting to encourage free thought among the enslaved people), resulting in a less efficient equilibrium. 3. Whatever rewards were offered, few could be as truly satisfying without freedom. – nanoman Sep 21 at 5:50

Could data possibly be generated to determine whether slavery is economically efficient in an industrial economy where the data would be independent of ideology? I doubt it.

If economic efficiency means maximum social utility, and if that means an effort to produce social outcomes which generate the greatest good for the greatest number of people in society, then the question reduces to whether slavery or other modes of production generate the greatest good for the greatest number. This analysis incorporates the ethical debates over what is good and how society should act to cause the good in some political economic context. Any data generated would have to incorporate distinct ethical and moral values inherent in the comparison of distinct political-economic ideology.

If coercion is inherently bad from the perspective of each biological animal or human being then despite the patterns of coercion in society there would be an ethical impulse or drive to be free from coercion. This would provide the basis for ethical philosophies of liberalism and libertarianism and even liberal socialism. See this article Jack and Jill and the Two Kinds of Freedom:

https://www.libertarianism.org/publications/essays/excursions/jack-jill-two-kinds-freedom

Consider the hypothetical case of Jack, an ethical nihilist who does not believe in any moral principles whatsoever. He sees other people as natural resources that may be exploited for his convenience, beasts of burden that may be beaten into compliance or even killed, if necessary. Jack, in other words, draws no moral distinction between persuasion and coercion. Whether he deals with others voluntarily or through the use of physical force is a purely pragmatic decision.

Let us now reverse the situation and make Jill the person who wants Jack to go with her up the hill to fetch a pail of water. Unlike Jack, however, Jill is a libertarian who strongly believes in the moral autonomy and rights of all persons. Freedom, for Jill, is a fundamental moral value, so she will deal with Jack voluntarily or not at all.

Also see this short book by professor Hugh Gibbons, Justifying Law: An Explanation of the Deep Structure of American Law:

where Gibbons argues that the will of each person is expressed by the experience, "I am the cause of my desired perceptions". This experience may depend on states of nature or social relations in which one is not the sole cause, however, one is operating with the perception that others and nature are not interfering with the self as a cause of desired perceptions. Gibbons argues that the rules, laws, and customs of society can either show respect for the will of each person or contempt for the will of some persons or class of persons in a given social context. The classification of crimes via acts of deception or coercion is based on the contempt shown for the will of the victim under this theory of social relations.

Slavery discounts the will of some class of persons to accomplish goals in accord with the will of some other class of persons. This is what is meant by the loss of utility of the slave and the gain of utility of the master, and when one argues that the loss of the slave exceeds the gain to the master, so social utility is negative. But a libertarian rejects social utility as the measure of the good because coercion, deception, and contempt for the will of another person is not justified as the means to cause the good.

Slavery is not the root issue here. The level of automation and the required investment (and human capital to decide, do and handle it) is the core issue: today we can find firms that produce almost the same goods but one firm does it with lot of automation and robots and AI but other firm does it with lot of manual labor, with work that is almost inhuman and whose conditions are almost comparable to the slavery. The real question is - why both types of firms may exist and whether it is good that there are firms with no automation?

Agriculture is one example - e.g. there is harvesting robots like https://www.youtube.com/watch?v=FCivsotZEjk but still - the agriculture is the business with lot of manual and inhumane work - and even it the European Union which is said to celebrate the humanity, e.g. https://www.politico.eu/article/italy-seasonal-migrant-farm-workers-coronavirus-covid-19/ I guess the lack of social policy and lack of education policies supports the survival of industries with lot of manual/inhumane work.

I have sought for years the economic literature about this duality that can model and provide guidance of these issues, but I have not find any good papers about it. I have this question Emergence of notion "primitive business" in the era of Industry 4.0 and globalization that can gave insight into the issues about which I am talking. Unfortunately, that question is unaswered.

Slavery increased with the growth of state capacity. More government caused enslavement. The fall of the Roman empire reversed this trend and caused feudalism. As government regrow it took the form of corvee and other tax slavery.

As rents increased, it was no longer needed to enslave. Instead of enslaving everyone the government can just give pieces of paper and have people fight over them. Thus wage labor become easier than direct slavery due to land rent creating artifical need for pieces of paper.

Also, automation and declining demand for labor overall tend to work against slavery. No reason to enslave if there is no work to do. Slavery devolves into wage labor, then contract work, then unemployment. Slavery persists as incarceration in populations which are easily controllable.

There are multiple factors but the immediate reason was that land rents outsourced the coercion function of slavery.