Monday, 14 December 2009

A Quota for all...

A quota system is an anathema to free enterprise. This perverse belief that quotas can be economically viable for any firm is obscene.

The costs of imposed quota systems to business are in the order of 10's of billions of dollars annually (Lubove, 1997). Quotas burden all employers. This added cost has to be borne by somebody. Though it is immensely difficult to measure the harm that a quota system does overall, we all end up paying more to receive less. As we sink into the ever devolving quagmire of quotas that threaten to consume us already, it is difficult to reflect on a world without them. It requires an intellectual exercise in deep thought to appreciate that without quotas we are all much richer.

This is how the egalitarian statists attempt to maintain the status quo. They use the law and regulations to not only keep us in the mire, but to see we sink deeper. The addition of more quotas help to ensure that we remain stuck.

To the egalitarian statists, businesses are not in business to provide desired goods and services. They are a tool designed to provide jobs for even the least worthy and help socio-engineer the politically correct society. But at what cost? The question to be asked is “who pays”?

Who runs the bureaucratic infrastructure needed to monitor the boardroom? Who tells a business that they have to hire to a quota when there are no suitable applicants? If 20 men and 1 woman are in the running for a board appointment at a company under the quota, does the company have to hire the woman even if she is the least qualified?

So why is there no outcry at this expense?
The mass media rant perversely when an executive receives a $1 million bonus for returning a company to profitability. Yet, the same media crowed in a vicious joy when Smith Barney was been ordered to "invest" in "extensive" diversity training to the excessive amount of $15 million. We look at the companies as the cause of the failures and cry for bailouts, but forget that we engineer these failures when we suck money from the firms into unproductive black-holes.

Most companies know this. Their boards are well versed in the costs, but the apprehension of adverse government action and increased regulatory frameworks forces them to cowl in silence. They put up a brave front and wear the ever increasing burden that they must carry.

Again, the true question is just how much an imposed affirmative action costs? It does not matter if it is the government or alternatively some other regulatory body, what is the cost?

As noted above, Lubove (1997) estimated the annual cost of diversity training at $10 billion through a surcharge on the penalties assessed against alleged discriminators. Even this is far too low. Recent diversity settlements in the US of eight companies totalled to over $400 million before the legal fees where added.
Brimelow and Spencer(1993) calculated an annual sum of $300 billion for the quota system in the US as a whole. Each time we accept a quota system it is another brick in the wall against freedom.

The opportunity cost of quotas impacts all companies. Lost productivity of qualified employees who are passed over for less-qualified applicants hurts us all. The myth that companies across the market hire to set targets of white males is just that, a myth. Companies are in the business of making profit. They hire whoever will help them achieve this be they male, female, black, white or green. Add to this the loss of time when employees are forced to sit through sensitivity training. The productivity of an employee doing during the hours they learn to be sensitive is zero, yet it must be borne by the company.

The miracle of markets is that they provide an indirect estimate of these costs. To test the claim that quotas enhance profitability and hence create a surplus for society all we need to is to contrast the performance of those that adopt quotas to those that have not imposed quotas. For example, Texaco in the US has an affirmative action policy that pushes the hiring of black geologists. If the quota system is valid, Texaco should outperform any competitor with a policy that results in its engaging the best geologists while not considering race. We could evaluate the performance of companies with diversity training programs against those that do without.

The problem is that these experiments are only achievable in the event that companies are free to decide without regulatory force. Quota advocates are opposed to this level of freedom as they recognise the facts that are revealed in such situations. The result is that they persist on creating regulative and administrative laws that ensure all companies implement the full assortment of affirmative-action measures. The result, the real cost of quotas continues to be hidden.

To force boards to adhere to the quota, do we add the booby-trap of diversity training, this is the logical next step and one that has been discussed. These training efforts teach the board to prize sexual, ethnic and other cultural differences, while also remaining quite about these differences.

Does the introduction of a quota increase the number of skilled women?
What really matters and what will increase the number of women on boards is an increase in skills. This is a combination of both education and experience. Companies that base their hiring practices in selecting the best people regardless of race, sex and other irrelevant factors have a competitive advantage over those that discriminate. Discrimination is a negative factor whether it is imposed by regulation or ignorance. A quota does nothing to increase the skills of women and actually reduced the quantity of available positions – hence having the perverse effect that less skilled women are hired to board positions.

There is a direct correlation between skills as well. Many people forget that not all MBAs are the same. Some qualifications have a finance component and others do not. While this may not seem to matter too many people, it does have an impact on selection processes with board appointments in major companies strongly correlating in favour of those applicants with finance qualifications. In the past, commerce and finance qualifications were the realm of male applicants. This has changed and more women have learnt these essential skills. Some Universities are seeing more women in commerce, finance and accounting for the first time. The issue is that these are the board appointees of 20 years forward, not those that are applying now.

Silence gives consent in politics. We should not consent to the current waves of restrictive trade or capital control legislation being spewed forth.

For a previously well publicised quota call we can look to the ridiculous. A Supreme Court nominee proposed by President Nixon was scorned for being "mediocre" resulting in Senator Roman Hruska (R., Neb.) proposing that “the mediocre folk of America deserved representation" on the highest Court. I ask, what has changed today?

Taking the quota argument to the farthest position and presenting a reductio ad absurdum Lynch (1989) notes the idiocy of the claim that youths aged 18-25 had been grievously "under-represented" in the past. Should we take this a step further and correct the “heinous and chronic under-representation of five-year-old men and women" (Rothbard, 1974) on company boards as well?

References

  • Brimelow, P. & Spencer, L. (1993) “When quotas replace merit, everybody suffers” Forbes, 1993
  • Lubove, S. (1997, December). Damned if you do, damned if you don’t. Forbes pp. 126-130
  • Lynch, Frederick R.(1989) “ Invisible Victims: White Males and the Crisis of Affirmative Action” Contributions in Sociology
  • Rothbard, Murray N.,(1974) "Egalitarianism as a Revolt Against Nature," in Egalitarianism as a Revolt Against Nature and Other Essays (Washington, D.C.: Libertarian Review Press, 1974), pp. 7-8

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