The Magazine

The Quotas That Won't Die

Neither party has the nerve to take on the scandal of preferential set-asides in government contracts.

Jul 21, 2008, Vol. 13, No. 42 • By JENNIFER RUBIN
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Forty years ago, the Nixon administration (building on the Johnson administration's attempt to transform the Small Business Administration into a weapon in the War on Poverty) undertook efforts to enhance "black capitalism," using Section 8a of the Small Business Act to provide preferences, assistance, and loans based on the race of government contractors. Thus was born race- and gender-conscious contracting which would become endemic. From the U.S. State Department to city garbage collection, contracts at all levels of government employ race and gender preferences.

Preferential contracting is a multibillion dollar business. According to a study by Justin Marion of the University of California at Santa Cruz, government contracting is estimated at almost 10 percent of gross domestic product and the practice of giving preferential treatment to disadvantaged business enterprise (DBE) contractors and subcontractors is widespread. In 2002, 6.75 percent of federal procurement dollars, for example, were awarded through the Small Business Administration to DBEs. And between 1983 and 1999, all Department of Transportation contracts required 10 percent "goals"--their term of art for set-asides--for minority- and women-owned firms.

The original intent of the DBE programs was to spread work around to a variety of struggling minority business owners, lifting them from poverty to the ranks of the successful. But study after study has shown that a small number of firms, a monopoly of just one or two in some jurisdictions, gets the overwhelming share of the contract awards. Todd Gaziano, a U.S. Civil Rights commissioner, told me, "When you use race as a proxy for disadvantaged [status], the subset that will take advantage are the most educated and the most affluent."

Race-conscious contracting practices are an enormous burden on taxpayers. Marion found that road construction projects in California cost 6 percent less after the overturning of affirmative action by Proposition 209 in 1996. In the two years after racial preferences were eliminated the state saved an estimated $64 million.

The list of the presumed minorities recognized by the Small Business Administration (upon which many government agencies rely) is a monument to racial pieties. Some groups are on the list (e.g., Pakistanis) and some not (e.g., Afghans). The evidence that individuals from Japan, Korea, Burma, Vietnam, Laos, Cambodia, Thailand, Malaysia, Indonesia, and the Philippines are suffering from discrimination in the United States is virtually nonexistent. "These lists," Gaziano says, "show just how political the determinations are rather than having anything to do with current or even recent discrimination."

Confirming the arbitrary nature of these preferences, Justice Sandra Day O'Connor wrote in the Supreme Court's 1989 decision in City of Richmond v. J.A. Croson Co.:

There is absolutely no evidence of past discrimination against Spanish-speaking, Oriental, Indian, Eskimo, or Aleut persons in any aspect of the Richmond construction industry. .  .  . It may well be that Richmond has never had an Aleut or Eskimo citizen.

In 2007 Salon detailed the "often-secretive world of federal contracting, an area of government rife with abuse and poor oversight," and told the sordid tale of an Alaska Eskimo firm receiving a no-bid State Department contract for assistance on Bolivian coca eradication. (Thanks to Senator Ted Stevens's influence, federal no-bid contracts to Eskimo tribes under preferential contracting provisions grew from $180 million in 2000 to $876 million in 2004.) In many of these cases, the politically connected Eskimos displaced other minority firms whose bids were far more competitive.

George LaNoue, professor of political and public policy at the University of Maryland, Baltimore County, explained in a recent study of minority set-asides that a typical DBE program doesn't concern itself with actual victims of discrimination:

It does not identify contracts where discrimination occurred. It does not identify firms subjected to discrimination and provide remedies to them. It does not identify prime contractors that discriminate in the selection of subcontractors and sanction them. What it does do is redistribute subcontracting dollars to firms owned at least 51 percent by women or minorities.