economic exclusion and inclusive policy - 3
Socially inclusive policies
Reducing economic discrimination is thus essential because it is likely to increase economic growth, reduce inequality among individuals and between groups and also reduce the potential for conflict to which inequality between groups may give rise. Conclusions regarding the consequences of market discrimination on economic growth and income distribution are derived from mainstream economic theory. The same theory also predicts that in highly competitive markets, discrimination will prove to be a transitory phenomenon as there are costs to the firm or employer associated with market discrimination, which results in lower profits. Firms or employers who indulge in discrimination face the ultimate sanction imposed by the markets. This theoretical perspective thus sees the resulting erosion of profits as a self-correcting dimension of discrimination.
However, the free market solution is not a practical remedy. For a number of reasons market discrimination, particularly labour market discrimination, might persist over long periods with or without the prevalence of the free market situation.
First, not all markets are highly competitive. The persistence over decades of labour market discrimination in high-income countries attests to that. Indeed, in developing countries, monopolistic power is quite significant, which enables indulgence in market discrimination.
Second, even if competition exists in all markets, it is not a sufficient condition for the elimination of discrimination. Market discrimination in a competitive market situation will still prevail if all the employers are discriminators.
Thirdly, the worker discriminated against may not have an opportunity to prove his or her productivity potential and therefore, discrimination will persist.
If these two theoretical positions on discrimination have some meaning, then they also have obvious alternative policy implications. Those who believe that discrimination is indeed self-correcting would argue in favour of strengthening competitive market mechanisms. But if discrimination persists despite the presence of the competitive market process (which is the case in reality) or for other reasons mentioned above, activist or interventionist policies would be necessary.
The perspective that competitive market mechanisms work against the perpetuation of discrimination is countered by an alternative theoretical view on discrimination. I cannot do better than quote Steven Shulman and William Darity, who have summarised the two views so precisely:
The analytical stance of the mainstream neo-classical economists is characterised as methodological individualism and it presumes that economic institutions are structured such that society-wide outcomes result from an aggregation of individual behaviours. It presumes that if individuals act on the basis of pecuniary self-interest then market dynamics dictate equal treatment for equal individuals regardless of inscriptive characteristics such as race. Consequently, observed group inequality is attributed to familial, educational or other background differences among individuals who are unevenly distributed between social groups. The causes of a dissimilar distribution of individuals between social groups may be genetic, cultural, historical or some combination thereof. The differences in cultural attributes include the value families and neighbourhoods place on education, attitudes and work habits. The historical refers primarily to the impact of past discrimination on current inequality. In contrast, economists who may be classified as methodological structuralists do not accept this interpretation. Structuralism as an analytical method holds that aggregate outcomes are not the result of a simple summation of individual behaviours, but rather arise from the constraints and incentives imposed by organisational and social hierarchies. In this view, individual behaviour achieves its importance within the context of group formation, cooperation and conflict. Economic and political outcomes are thus a function of the hegemony exercised by dominant groups, the resistance offered by subordinate groups and the institutions that mediate their relationship. Discrimination, in this view, is an inherent feature of the economic system. Competition is either not powerful enough to offset the group dynamics of identity and interest or it actually operates so as to sustain discriminatory behaviours. Discrimination is due to the dynamics of group identification, competition and conflict rather than irrational, individual attitudes. Market mechanisms, far from being relied upon to eliminate discrimination of their own accord, must be scrutinised and pressured to further the goal of equality of opportunity.
The policy implications of this view on the persistence of discrimination are obvious. Since the markets will continue to operate in an imperfect manner, discrimination will persist. It will also persist as a normal phenomenon under certain conditions mentioned above, even if market forces are competitive in nature, calling for intervention in the form of legal safeguards and fair or equal access affirmative action policies and other measures. State interventions in the form of affirmative action are required in various markets like land, labour, capital, produce, consumer and social services such as education and housing as groups face discrimination in exchanges carried out through market and non-market channels.
The international experience
Several counties where discrimination is a problem have developed policies against it in multiple spheres. Measures against market discrimination, however, vary from country to country. Some distinguishing features of these interventions need to be clearly understood. Two aspects need special consideration. These relate to (a) the type of economic sectors or markets which are covered for affirmative action policies and (b) the method of affirmative action which provides access to the groups discriminated against in various social and economic spheres or markets.
First, in the economic sphere, most of these countries such as the USA, Northern Ireland, South Africa and Malaysia have mainly developed anti-discriminatory measures for the labour market and other markets. However, in some countries affirmative action policy is also used for other economic and social spheres such as housing, education and various government contracts including those for construction and for purchase of products and consumer goods. In developing countries like Malaysia and South Africa, where a substantial portion of the population is engaged in agriculture, in addition to the labour market, affirmative action policies are also extended to the agricultural land market and private capital domestic and foreign capital markets and social services like education and housing.
Secondly, in these countries, various methods, legal or non-legal, have been used to provide protection and equal participation to groups discriminated against in various markets.
These measures include: (a) Reparation or compensation for the denial of property rights over time. (b) Legal provisions against discrimination, particularly in the labour market, in the form of equal employment opportunity acts. These acts prohibit any firm from exercising discrimination which is unrelated to productivity or related to non-economic considerations. (c) Fair access strategies to ensure equal participation of groups discriminated against in employment, described by various names like affirmative action, reservation, fair access or new economic policy, which work by promoting a (racial/religious) balance in employment with certain general benchmarks, with or without quotas fixed in proportion to the population of minority groups.
The difference in the purpose and mechanism of these methods needs to be understood clearly. The policy of reparation or compensation is used to compensate for the denial of property rights to certain groups in the past. It is considered as compensatory payment for an acknowledged grievous act of social injustice to a group.
In history, there are examples of such compensation or reparation. Realised instances of reparations in the US include the agreement with Japanese Americans subjected to internment during World War II, Aleut Indians for wartime losses and the Passamaquoddy Indian tribe, who were compensated with land and monetary contribution for settlement. Similar land agreements have been made with other Indian tribes. Other precedents are to be found elsewhere in the world, which include compensation to German Jews under the agreement between West Germany and the World Jewish Congress. The Austrian parliament also compensated Jews in 1995. The land distribution program undertaken by the Malaysian government to increase Malay land holdings is another example.
By force, the former Untouchables in India were denied rights to property, military service, trade, agriculture and education for several centuries. This is reflected in their lack of ownership of agricultural land and capital and low level of education. The former Untouchables are therefore a potential case for reparation or compensation for the denial of property rights and other rights, and injustice over a long period in Indian history. In fact, during the British period, the government did use policies of land compensation which included Panchami land in Tamil Nadu, Mahar Vatan land in Maharashtra and Depressed Caste land in Andhra. Land was distributed on a selective basis to Untouchables of Punjab during Partition as compensation for denial of land rights under the Punjab Land Alienation Act of 1901. All these cases were based on the principle of compensation.
The second anti-discriminatory method is the enactment of equal opportunity legislation. Such laws prohibit discrimination in employment and other economic spheres and make it subject to legal action. A minority group person could use this provision in the event of discrimination in job opportunities and other spheres.
However, equal opportunity legislation does not involve any positive or affirmative action on the part of government to guarantee or ensure equal participation of minority groups in employment and other economic spheres. Therefore, several countries have taken additional steps and made provisions to give a share to minority groups in government and private employment, government contracts, access to educational institutions (public and private), housing etc. In such affirmative practices certain benchmarks are fixed with or without quotas to give adequate representation to groups discriminated against. However, most countries have developed the method of measuring fairness of access mostly in terms of population share or labour force share. In the recent discussion on reservation in the private sector in India, method has been confused with policy. Writers have invariably confused quotas with policy, not realising that a fair access or equal opportunity strategy is a policy while quota or non-quota mechanisms are methods to secure fairness.
Northern Ireland has also introduced a system whereby all firms and industries are required to register with the Equal Employment Office and to indicate their employment composition by religious groups to bring in more transparency and to help develop policies which strike a balance in the employment pattern with respect to religion.
Sukhadeo Thorat is Chairman of the University Grants Commission, Government of India.
He is also Director of the Indian Institute of Dalit Studies and Professor of Economics
at Jawaharlal Nehru University. He lives in New Delhi