The high cost of affirmative action
IN JUNE 1998, PARLIAMENT is expected to
vote on the Employment Equity bill. Once law, it will require firms and
other organisations to start changing the composition of their
workforces to achieve equitable representation of black people, women
and the disabled. At a press conference last month, the Labour
minister, Tito Mboweni, described the bill as one of the most important
and central instruments to bring about change in the South African
workplace. Much of the criticism directed at the measure, he said, had
been based on ignorance rather than on an objective study.
That there are huge inequalities in the labour market is indisputable.
The African unemployment rate for 1994 reached 41 per cent compared to
rates of 6.4 per cent, 23 per cent, and 17 per cent for whites,
coloureds, and Asians respectively. Furthermore, women fare worse in
all racial groups, but African women are worst off with an unemployment
rate of 50 per cent. These figures are reflected in incomes. The World
Bank’s 1995 World Development Report showed that the poorest 20 per
cent of South Africans received only 3 per cent of national income
while 63 per cent went to the richest 20 per cent.
Supporters of affirmative action argue that the legislation will
produce numerous other benefits besides eradicating inequalities of
race and gender — improved industrial relations, greater respect for
different cultures and values, less stress at work as employees fulfill
their potential, increased product-ivity, more equitable income
distribution leading to higher domestic demand, and greater economic
growth. What the enthusiasts have not discussed, however, are the costs
of achieving these desirable goals through affirmative-action
law.
Fortunately, countries such as America and Malaysia have lengthy
experience of affirmative-action law in pursuit of racial and gender
equality — experience that we can draw upon to assess the costs and
benefits that South Africans might expect from its proposals.
The United States passed its first affirmative-action law in 1964.
Thirty years later, the outcomes, at best, are mixed.
In the unemployment arena the position of American blacks has actually
got worse: in 1964 the ratio of black to white unemployment was 2:1, in
1990 it stood at 2.76:1. Nor has the economic status of minorities and
women improved significantly. It is true that women’s share of
professional degrees grew from 2.7 per cent in 1960 to 36 per cent in
1990 and that their average earnings as a percentage of men’s increased
from 61 per cent to 72 per cent over the same period. However, a study
of 138 firms by Alison Konrad and Frank Linnehan found that although
companies with race-conscious policies had at least one woman at a
higher rank, and more minorities in management positions than companies
with race-neutral employment policies, in four other categories (the
rank of the highest-ranking minority; the percentage of women in
management; the percentage of women in the company as a whole; and the
percentage of minorities in the company as a whole) the results were
the same for both types of company.
Why did aggressively pursued affirmative-action policies produce such
meagre gains? In his book The Affirmative Action Fraud (Cato Institute,
Washington 1996) Clint Bolick, president of the Institute of Justice,
explains that rather than helping new entrants to the lab-our market to
find jobs, these measures largely shifted exist-ing employees from some
employers to others.
The broader effects of the legis-lation also seem to have been
limited. In a 1993 article in Forbes Magazine, Peter Brimelow and
Lesley Spencer reported that the gap in black and white college
participation rates has grown since the seventies. In 1976 about 22.6
per cent of blacks aged 18 to 24 were at colleges compared to 27.1 per
cent of whites in the same age group; by 1990 black participation rates
had grown to 25.4 per cent, while the rate for whites stood at 32.5 per
cent.
Social conditions for blacks have also deteriorated. In 1950 only 9
per cent of black families were headed by a single parent; in 1965 that
figure had increased to 28 per cent, and by 1993 to almost 50 per cent.
In 1959 only 15 per cent of black births were illegitimate, in 1992, 66
per cent were. One in four black men in his twenties is either in jail,
on probation, or on parole.
In terms of earnings distribution, the black middle class prospered
during the period 1970-1990: the percentage of black families earning
more than $50,000 per annum increased from 10 per cent to nearly 15 per
cent. But this improvement might have happened without affirmative
action, since the percentage of white families in high-income
categories also grew during this period. Meanwhile, the percentage of
black families earning below $15,000 in 1993 was nearly 40 per
cent.
In Malaysia, affirmative-action policies to reduce the inequalities
between the impoverished Malay majority and the ethnic Chinese minority
have been in force for 20 years and can claim reasonable success.
Progress has been made in establishing a Malay business community in an
economy dominated by Chinese. And, according to a report by Ian Emsley
published in the journal Optima, poverty decreased dramatically from 49
per cent of the population in 1969 to 19 per cent in 1987. Access to
education and employment for Malays has also improved so that the
distribution of employment in different sectors of the economy as well
as in better-paying occupations is approaching target figures. But
before South Africans start quoting these figures as proof of the
effectiveness of affirmative action, it is essential to remember that
the Malaysian economy was growing at a remarkable 6-7 per cent a year
during these decades. This growth created new job opportunities to
absorb the Bumiputra (“sons of the soil”) into the labour force while
non-Malays did not lose their jobs to make room for Malays.
However, even after 20 years of affirmative action, Malays are not
proportionally represented in management positions and the professions,
and they still find themselves over-represented in the less productive
parts of the economy. Ownership of equity has not reached the 1970
targets and although great strides have been made towards equalisation
of income per capita between ethnic groups, income inequality within
ethnic groups has widened. Richer Malays found it easier to use the
opportunities in tertiary education, better-paid managerial positions,
cheap shares, loans and government contracts provided by ethnic
preferment. Once again, the beneficiaries of affirmative action have
been predominantly those who already had a comparative advantage over
their poorer compatriots. This is particularly pertinent for South
Africa, where inequality within racial groups has grown steadily more
significant and in 1991 accounted for 77 per cent of overall
inequality.
These are some of the successes of affirmative-action policies in two
countries, but at what cost were they garnered? Calculating their cost
is notoriously difficult and reliable estimates are hard to come by.
Easiest to assess are the direct costs: the bureaucratic expansion
required to implement the affirmative-action measures. In America this
machinery com-prises the Equal Employment Oppor-tunity Commission, the
Office of Federal Contract Compliance, the Department of Education, and
several other federal, state, and local agencies. Brimelow and Spencer
found that the cost of regulation by these agencies amounted to
approximately $545 million. When the costs of complying with
affirmative-action regulations (including private-sector costs) are
added, they estimate that direct costs rise to $17billion-$20
billion.
In South Africa the proposed affirmative-action institutional
framework comprises the Department of Labour, the Directorate for Equal
Opportunities, the Labour Inspectorate, industry-wide
collective-bargaining forums, the Commission for Conciliation,
Mediation and Arbitration, the Labour Court and the Labour Appeal
Court, and the Employment Equity Advisory Council. Neither the Labour
Market Commission report nor the Employment Equity green paper of 1996
contain any cost estimates for running this operation. In reply to a
parliamentary question last month, Tito Mboweni said it would cost
about R28 million a year to administer the bill, of which R15 million
would be spent on inspections, R7 million on moni-toring, R3 million
for the Employment Equity Commission and R3 million for policy
development.
Besides direct costs, indirect costs and opportunity costs must be
taken into account. Indirect costs involve no direct cash outlay but
constitute real costs in the sense that delays in hiring and recruiting
are caused by time-consuming affirmative-action regulations in, for
example, the private sector and educational institutions. Such problems
are already being experienced in the South African construction sector,
where uncertainty about government’s affirmative-action requirements
has resulted in long delays in allocating housing projects and a
slowdown in growth in the building industry. Brimelow and Spencer
estimate the indirect costs of US affirmative action for 1991 to be $96
billion.
Further indirect costs arise from interference with the market
mechanism. In Malaysia, Emsley suggests that the allocation of human
and financial resources “away from areas of highest return reduced
possible productivity gains”.
He further observes that while inefficiencies arising from giving
preference to and subsidising Malay firms may have been reduced by the
practice of having non-Malay business partners and sub-contracting to
Chinese firms, such behaviour did not encourage the development of
entre-preneurship among Malays. In education, race-based preferential
policies, particularly in awarding certificates, have led to the
devaluation of certain degrees and the further complication that more
prosperous Chinese have their children educated at international
institutions. The result has been a double standard of education for
Malays and non-Malays.
Brimelow and Spencer believe that in America the highest costs of
affirmative action are the oppor-tunity costs — the opportunity cost of
a particular choice is the value of the best alternative foregone — and
estimate these at $236 billion for 1991. The opportunity costs of
affirmative action arise from bad hiring decisions under government
coercion, negative effects on morale, and the misallocation of
financial resources. What results might have been achieved if these
resources had been invested in efficient education, essential
infrastructure or other efforts to empower the truly disadvantaged —
those outside the economic mainstream?
Finally, there are the social costs, which are difficult to quantify
but must not be overlooked. Affirmative-action policies based on race
must use racial attributes to be implemented. This reinforces negative
stereotypes, racial tension and a stigmatisation that thwarts the
efforts of members of the preferred groups to pursue their goals on
merit and hard work rather than preferential treatment.
The American affirmative-action landscape is littered with stories of
abuse of the affirmative-action provisions, simply because race has
become a proxy for disadvantage. In his book, No More Martyrs Now
(Conrad Books), Don Caldwell cites the example of Harvard University’s
financial aid to all minority students irrespective of need. When one
of the beneficiaries was asked whether he had to maintain a certain
standard of performance to receive the financial aid of the programme,
he responded: “No, I have to prove I am still black!”
Race-based affirmative-action policies encourage a culture of
entitlement that undermines initiative, self-confidence and
self-reliance. The beneficiaries of racial preferences may always have
to do more to prove their worth than others because of lingering
suspicions of undue advantage. Even the beneficiaries themselves often
wonder whether they are in demand because of their abilities or because
they happen to be the “right” colour.
Shelby Steele, a black professor of English at San Jose State
University in California, abhors the message that current
affirmative-action policies send to young American blacks: “that extra
entitlements are their due and that the greatest power of all is the
power that comes to them as victims. If they want to get anywhere in
American life, they had better wear their victimisation on their sleeve
and tap into white guilt, making whites want to escape by offering
money, status, racial preferences, anything — in return. Is this the
way for a race that has been oppressed to come into their own? Is this
the way to achieve independence?”
Should an argument against race-based affirmative action therefore be
construed as an argument for the status quo? Certainly not. Efforts
should be made to find ways in which all South Africans would become
better off, but especially the truly disadvantaged — those with the
least access to employment, food, security, and productive assets.
Since the poorest of the poor are found predominantly in the rural
areas and are more often than not women and youths, a sustained effort
to help the rural poor to help themselves could go a long way towards
solving problems of marginalisation and inequality. To a large extent,
the success of the New Economic Policy in Malaysia can be credited to
its commitment to rural development and particularly to efforts to
raise the incomes of rural Malays through gains in agricultural
productivity.
All South Africans must have access to rewarding employment,
sufficient education and skills acquisition: these are non-negotiable
requirements. But we cannot allow different standards based on race.
Building capacity through hard work and patience will take longer, but
it will certainly be a better use of resources than the attempted
short-cut of affirmative action
Focus 10, April 1998. Rachel Jafta
is lecturer in economics at the University of Stellenbosch. The
complete text of this article is published in "Ironic Victory:
Liberalism in post-liberation South Africa" edited by David Welsh and
R.W. Johnson (Oxford University Press).