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May 1998
Volume 16, Number 5

Quotas and the Bottom Line
by Michael Levin

Recent blows to quotas in public employment and education such as California's Prop. 209 and the Hopwood decision have spurred efforts to entrench racial preference more securely in the private sphere. This has inspired its advocates to invent strange defenses that were undreamed-of thirty-four years ago, when quotas were introduced. Among the most perverse is that quotas are economically beneficial.

To my knowledge this claim was first presented in the mid-1980s by Andrew Young, then Mayor of Atlanta, who scolded whites for resenting the requirement that blacks receive one-third of all city contracts. Competition, he said, isn't a zero-sum game; giving jobs to minorities expands the economic pie.

This rhetoric became more conspicuous in the famous Texaco case. Texaco settled an anti-discrimination lawsuit by offering its black employees $140 million. It also pledged to increase black employees from 9 to 13 percent, buy more from nonwhite or female suppliers, and deal more with financial institutions not owned by white males. Yet Texaco's CEO announced that this unprecedented settlement wouldn't hurt the company. In fact, it would be "good business...and essential for our future success."

Just recently, no less a trivium than Jesse Jackson, Alan Greenspan, and Bill Clinton lectured Wall Street bigwigs on the need to hire more blacks and women (at the expense of white males). "Wall Street stands to gain if it closes the gap," Jackson promised, warning at the same time that he would "keep a close eye" on the investment industry.

Now even on economic terms, accommodations to "civil rights" are usually disastrous. Take "sensitivity training," increasingly a part of all civil-rights settlements. White males naturally resent show trials at which they play the villain, but Seth Lubove reports in Forbes that blacks now sue over the "racism" these programs allegedly involve.

Having been ordered to institute "diversity training" as a result of a 1993 lawsuit, Chicago's R.R. Donnelley has been taken to court again by 3,500 black employees made to watch a film about lynching. This absurdity is inevitable: since whites can't be scolded unless they are shown abusing blacks, blacks can always complain about being degraded.

So why is there no outcry at this expense? Newspapers that grumble when an executive gets a $5 million bonus for returning a company to profitability ought to howl at the $15 million Smith Barney has been ordered to "invest" in "extensive" diversity training.

They don't, in large part, because the corporate world itself discourages it. Most firms, fearing adverse government action, put up a brave front, as Texaco did, Smith Barney is now doing, and Merrill Lynch no doubt will when its current negotiations with the Equal Employment Opportunity Commission go against it.

Of course, common sense and elementary economics tell us not to believe businessmen who thank the government for making them act in their own interest. If "diversity" really were profitable, it would not have to be enforced.

Still, some CEOs claim that they did not seek a multiracial work force in the past because of a "corporate culture of racism," and now their eyes have been opened. They even start to cite specious reasons for why quotas are such a great thing for the bottom line. A popular one is consumer satisfaction: blacks like being served by blacks, Hispanics by Hispanics, and so on. We must learn to compete in a global marketplace where whites are a minority, we are constantly told.

(Ironically, the 1964 Civil Rights Act explicitly forbids consumer preference as a legitimate basis for discrimination. And imagine how the EEOC would react to a school that hired only white teachers to please white parents.)

These rationales for quotas are economically questionable. Do blacks really avoid Texaco stations manned by whites? Does this happen often enough for replacing the whites (and hiring diversity trainers) to pay its way? Blacks (and whites) seem not to mind televisions made in Korea, or sneakers sewn by Nicaraguans.

Then there is the argument about changing demographics: since whites are becoming a minority, firms must learn to spot non-white talent. If that is true, no bullying is necessary. Competitive pressures of the market reward companies that seek out talent wherever they can find it, and punish those that do not. Regulators have no idea what the demographic composition of every firm should be any more than they can know its best business strategy generally.

When diversity advocates get specific, the result is often ludicrous. A New York Times op-ed piece by an executive of Denny's Restaurants (another victim of racial extortion) gave the following example of insensitivity that proper training might help avoid. Suppose a black in a restaurant, having ordered a steak, sees a white customer who entered later served before him. The steaks might have been frozen at the time the black ordered, and as it thawed, the white order was prepared at the same time. Supposed conclusion: better management would have avoided the appearance of discrimination.

Obvious problem: this scenario has nothing whatever to do with race, since a white customer who had ordered first but been served second would presumably be just as annoyed. Or is the idea that slighting black customers is worse than slighting white ones? Or that blacks are so much more sensitive than whites that they take offense at treatment a white will shrug off?

(This last question shows why diversity training is such a boobytrap. A firm's work force must learn to prize ethnic differences, yes, but also to be mum about those differences. Let the head office remind regional management not to expect punctuality from Latin Americans, as United Airlines did recently, and it can expect trouble. So it is safest to turn sensitivity sessions into Orwellian 10-minute hates directed at whites.)

The real question is just how much government-imposed affirmative action costs. Lubove puts the annual cost of multi-culti training at $10 billion, a surcharge on the penalties assessed against alleged discriminators. (Which in just eight recent settlements totaled $400 million, exclusive of legal fees.) Yet a few years ago Peter Brimelow put on a price tag of $300 billion annually for the quota system as a whole. Why the huge discrepancy?

The basic answer is the opportunity cost of quotas: the lost productivity of qualified employees passed over for others who are less-qualified, as well as what else employees could be doing during the hours they learn to be sensitive.

One of the great virtues of the market is that it permits an indirect estimate of these costs, indeed of the overall claim that quotas enhance profitability: compare the performance of those that adopt quotas to those that do not. If quotas are good business, Texaco with its black geologists will outperform competitors who hire the best geologists regardless of race. If Hispanics won't buy from all-white firms, then let Apple hire Hispanics while IBM hires whites to please white customers, and see who sells more computers. Compare businesses that think diversity training pays its way with those that do without.

But these experiments are possible only when firms are free to decide which side to take. That is why quota advocates will never permit this freedom, because they know as well as anyone what it would reveal. They will continue to use regulative and administrative law to make sure that every business adopt the full array of affirmative-action measures. And the cost of quotas will remain disguised.

Quotas burden all employers, so it is extremely difficult to measure the harm they do. Mired in quotas as we all are, it takes a bit of reflection to realize that without them we'd all be a lot richer. And that is the way egalitarian statists like things, and why they use the law in every way they can to make sure we stay stuck.

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Michael Levin teaches philosophy at the City University of New York.

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