Affirmative Action in Procurement - Literature review Example

Affirmative Action in Procurement Introduction Affirmative action programs were designed to improve the provision of services relating to education, employment, and government contracts. The reason behind affirmative action plans is to correct discriminatory practices prevailing in society and prevent such practices from occurring in the future. The Federal government created a policy of affirmative action in contracting with the passage of Small Business Act (SBA) and the Office of Minority Business Enterprise in 1958 and 1969 respectively. This was soon followed by a number of state governments and the focus shifted towards obtaining products and services from women and minority owned businesses. Since the inception of affirmative action, there has been divergent views regarding the pros and cons of affirmative action in procurement. Several researchers believe affirmative action in procurement has the ability to eliminate racism and sexism, whereas others remain skeptical regarding its impacts. The purpose of this paper is to analyze various articles and journals that have been published regarding affirmative action in government procurement. The objective is to provide a rationale for starting these programs, their impact on society, the benefits, and challenges associated with these programs. Historical Development The American business world has historically neglected minority business groups in contracting and procurement activities within the government. The idea of affirmative action in procurement can be traced back to the times of President John F. Kennedy, when racial discrimination was first brought into the forefront. The roots of these programs were established in the 1940s, when the Roosevelt administration issued orders of non-discrimination in cases of government contracts. In order to rectify the situation, the SBA was launched during the Nixon administration. It was the first step taken towards the removal of discrimination from business. The popularity of the civil rights movement during the 1960's generated the momentum for this process and has remained an important component in government procurement. The basis for implementation was to eliminate racial discrimination, provide technical assistance, the coordination of activities between Federal departments, and encourage development of minority businesses. The government spends billions of dollars in construction projects like building highways. There was inequitable distribution of government contracts among the minorities and the white owned businesses. This differential treatment caused minorities to protest against this discrimination. In order to solve this problem and promote the inclusion of minorities, congress introduced Public Law 95–507 in 1978, which directed federal agencies to secure an established percentage of contracts from minority owned firms. The government procures a significant amount of goods and services on an annual basis, roughly 10% to 15% of the GDP which greatly impacts the economy as a whole. Public procurement comprises a large proportion of public expenditure. If contracts are awarded to firms that are unable to complete the work efficiently, then quality of the overall work will be poor and development of the country’s infrastructure will be hampered. Since the 1970's and 80's federal, state, and local governments have taken aggressive actions to ensure equality in procurement. The logic presented by the government is that entrepreneurship and employment must be improved among minority groups. The government used these programs as vehicles for promoting employment among underrepresented groups of society. These programs have been defined as a milestone in eliminating discrimination since the civil rights and executive orders were passed. Affirmative action programs pertaining to procurement are considered to be very important in creating employment opportunities among women and minorities. Arguments for Affirmative Actions A number of arguments have been put forward in order to show reasons why affirmative action is required to protect minority groups. A study conducted by Marion pointed out that disadvantaged business enterprises (DBEs) face discrimination in accessing capital and this impacts their ability to enter the procurement market. Another study conducted by Reece has shown that the benefits of promoting goals encompassing social programs “A class-based affirmative action program should be seen as a cost savings to the state in its role as social program provider, which may in turn justify a corresponding decrease in contractor quality suffered by the state in its role as a consumer” (Reece, 2011). Other arguments that support affirmative action in government procurement indicate that minority and women are lagging behind mainly due to their inability to establish firms in the first place. Even if they are able to do so, they are constrained by the limited opportunities to participate in the process of procurement itself as they are out-competed by the larger firms. Enchautegui et al. conducted research to find whether the minorities and women get a fair share of government contracts. The study clearly pointed out the factors for which the minorities get were underrepresented in the share of government contracts. Firstly, the study highlighted that the minorities have inadequate financial capital and this limits their growth potential. Secondly, the social capital of the minority groups is also insufficient and they do not have adequate business networks for propelling growth. Thirdly, minorities lack the proper training and education to be considered for apprenticeship opportunities. Finally, historical patterns of residential segregation have reduced the access of the minorities to the mainstream market. These factors have collectively been perpetuated by discrimination and this makes the case of affirmative action for minorities and women a strong one. Findings from the study also suggest that discrimination exists in the acquisition of government contracts. This is because there are a large number of minority firms which are available yet the share of government contracts received by them is relatively small. The main reason behind introducing the affirmative action could be found both in equity and justice as well as the economic considerations. The Benefits of Affirmative Action Affirmative action in Federal procurement has mainly focused on preferential bidding in favor of small and disadvantaged business groups. The level of affirmative action in procurement has been studied relatively less than affirmative action in education and employment. There are not many studies that focus on the effective handling contracts by DBE’s and standard contractors. As a result, it is difficult to measure the effectiveness of these groups performance or their ability to manage contract awarded on the basis of affirmative action. One of the major debates regarding the handling of contracts to the minority was that whether there is any difference in the efficiency level of the work conducted by minorities to that of the work done by the non-minorities. It has been observed that there is no significant difference in terms of efficiency level of the minorities and non-minorities. Other researchers argue against this notion as they have found evidence, pointing out that a higher rate of failure has been observed among firms that receive support from the local governments. A study conducted by Holzer and Newmark indicates that educational qualification of the workers hired under affirmative action may be comparatively less than those who are not hired under this method, yet the level of performance of these workers is equal to workers employed by regular firms. There is also evidence that suggest if these groups receive proper technical assistance their rate of failure is decreased. Blanchflower and Wainwright focused on the change in utilization arising from affirmative action in procurement, by studying these programs in multiple locations where procurement programs were abruptly halted. Other researchers like Myers and Chan concentrated on procurements in support of highway construction in New Jersey and the impacts of such programs on minority business groups. The results from their study shows that when affirmative actions were eliminated it resulted in considerable adverse effects for the minority groups. Based on these findings, it can be argued that affirmative programs are indeed effective in reducing discrimination faced by these groups. There has been a plethora of research, which has contributed towards measuring the benefits that arise in procurement through affirmative action. For instance a study conducted by Aaron, Chay, and Fairlie shows that minority contracts have played an important role in increasing the rate of employment for minority groups and women. Research has also shown that the rate of employment increased in states that have adopted these policies. Affirmative action not only benefits minorities and women but also non-minorities as well. This program serves as a mentoring tool for minorities and provides them with a source of steady income. Additionally, it also provides opportunities for non-minorities to work alongside a diverse group of people. Arguments against Affirmative Actions Many critics who argue against affirmative action in procurement believe these policies have outlived their purpose. A study conducted by Reece highlights that polices attempting to eliminate discrimination result in discrimination against whites. Educational qualifications have been considered as a major obstacle which can cause discrimination against candidates, unlike racial discrimination. It is also argued that the victims and recipients of the preferential treatment are not very different. Awarding contracts on a basis of affirmative action may create doubt in minds of the minorities and women as they may consider this as sympathetic act and consequently, frustrate the efforts of non-minorities as they may have been more qualified for the job based on experience, education, and other accomplishments. Some critics also believe that racial preferences are not particularly required by minorities groups because the United States has already evolved past the factors of racial discrimination. As a result, there is a sufficient representations of minorities and women in the country, which makes it unnecessary to continue to utilize these policies. A valid factor pointed out by researchers suggests that the discrimination is conducted on the basis of merits and not other factors in the contemporary business environment. To address these concerns a number of researchers have suggested it has become necessary to reconstruct affirmative action in government procurement and conduct these programs on a class based approach, opposed to an affirmative action based approach. It is proposed that class based programs have the potential to eliminate the inequalities of opportunities among the classes, thereby creating jobs particularly in distressed areas, not necessarily based on racial differences. Class-based affirmative actions are also favored over race-based actions because it is believed to treat both the symptoms and root causes of social problems. Costs of Affirmative Action There has been an extensive debate among researchers questioning the cost incurred in implementing affirmative programs. Five states, namely California, Washington, Nebraska, Arizona and Michigan have already banned affirmative action in procurement as they believe this strategy encourages inequality. One of the negative impacts of granting contracts to minorities is that this raises the cost of state funded contracts. Marion’s research confirmed that the cost increase arose from a geographical concentration of the minority firms compared to non-minority firms. It has been estimated that the government of California could easily reduce the cost of transportation and infrastructure projects by 5.6% if the work is contracted to normal contractors. Therefore, Marion concluded that affirmative action causes inefficiency. Though evidence is sparse regarding costs that are imposed through awarding contracts to the DBEs, yet research conducted by Marion suggest that the minority subcontracts result in higher costs being incurred by the government. Profits earned by the firms tend to fall when contracts are given to minority groups. Economic efficiency falls if contracts are given to minorities. These results have casted considerable doubt regarding the effectiveness of affirmative action in contract procurement which have led a number of local and regional governments to ban affirmative action in procurement. Critics of affirmative action also argue that most of the policies that were designed to eliminate racial discrimination are no longer relevant and continuing to employ them only contributes towards system inefficiency. A general consensus is that such programs enhance the balance of outcomes, rather than equalization of opportunities. Marion’s research can also be considered as one of the many attempts made to show the costs imposed by affirmative action of government procurement. Results from the study shows that the government could reduce its costs by 6.1% if it eliminated the government contracts. Conclusion Based on the analysis conducted affirmative action in government procurement has been a widely debated topic in the United States. The main reason behind implementation of this program was to eliminate racial discrimination. Researchers have mixed views regarding the impacts of these programs on society as a whole. Though it can be concluded that minorities and women have benefitted from affirmative action, the impact on society as a whole is debatable. This is because implementation of affirmative action in procurement has raised the cost of public projects considerably in some states. Also, these programs are believed to undermine performance of the qualified candidates who are in a better position to accomplish the job. The state-sponsored affirmative actions are now becoming unpopular and this is evident from the ballots and Supreme Court initiatives. This shows that the trend of affirmative action in procurement is shifting from racial based preferences to common economic preferences. The common economic preferences refer to the socioeconomic status of the people. References Aaron, K. C., Chay, K. & Fairlie, R. (1998). Minority Business Set-Asides and Black Self- Employment. University of California at Berkeley. Retrieved from http://sites.duke.edu/ronniechatterji/files/2011/09/JOLE_FinalTextTables.pdf. Anonymous. (2011). Affirmative action is still needed for racial equality. Retrieved from http://online.wsj.com/news/articles/SB10001424052970203633104576623422258807078 Cameron, S. & Heckman, J. (2001). The Dynamics of Educational Attainment for Blacks, Hispanics and Whites. Journal of Political Economy, 109(3), 455-99. Colamery, S. N. (1998). Affirmative action: Catalyst or albatross? New York: Nova Publishers. Fiss, O. M. (1997). Affirmative Action as a Strategy of Social Justice. Yale Faculty Scholarship Series. 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