U.S. COMMISSION ON CIVIL RIGHTS The U.S. Commission on Civil Rights is an independent, bipartisan agency first established by Congress in 1957 and reestablished in 1983. It is directed to: • Investigate complaints alleging that citizens are being deprived of their right to vote by reason of their race, color, religion, sex, age, handicap, or national origin, or by reason of fraudulent practices; • Study and collect information concerning legal developments constituting discrimination or a denial of equal protection of the laws under the Constitution because of race, color, religion, sex, age, handicap, or national origin, or in the administration ofjustice; • Appraise Federal laws and policies with respect to discrimimition or denial of equal protection of the laws because of race, color, religion, sex, age, handicap, or national origin, or in the administration ofjustice; • Serve as a national clearinghouse for information in respect to discrimination or denial of equal protection of the laws because of race, color, religion, sex, age, handicap, or national origin; • Submit reports, findings, and recommendations to the President and the Congress. MEMBERS OF THE COMMISSION Clarence M. Pendleton, Jr., Chairman Morris B. Abram, Vice Chairman Mary Frances Berry Esther Gonzalez-Arroyo Buckley John H. Bunzel Robert A. Destro Francis S. Guess Blandina Cardenas Ramirez Linda Chavez, StaffDirector jSelected Affirmative Action Topics in Employment and Business Set-Asides/ A Consultation/Hearing of the United States Commission on Civil Rights March 6-7, 1985 Volume 2 CONTENTS Opening Statement ofChairman Clarence M. Pendleton, Jr............................. ·1 Underrepresentation and Underutilization: Do They Reflect Discrimination? Statement of Charles R. Mann, President, Charles R. Mann Associates . . . . . . . . . . . . . . . 2Statement of Walter E. Williams, John M. Olin Distinguished Professor ofEconomics, George Mason University................................................... 6Statement of Barbara R. Bergmann, Professor of Economics, University ofMaryland..................................................................................... 9 Statement of Carl C. Hoffmann, President, Hoffmann Research Associates . . . . . . . . . . 11Statement of David H. Swinton, Director, Southern Center for Studies in PublicPolicy, Clark College....................................................................... 14 Remarks by Parren J. Mitchell, Chairman, Committee on Small Business, U.S.House of Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Minority and Women's Business Set-Asides: An Appropriate Response to Discrimination? Statement of Joan G. Haworth, Associate Professor of Economics, Florida StateUniversity.................................................................................... 3~Statement of John W. Sroka, Executive Director, Occupational Divisions,Associated General Contractors of America............................................ 38Statement ofJames H. Lowry, President, James H. Lowry & Associates .. . . . . . . . . . . . 41Statement of Peter G. Kilgore, Kirlin, Campbell & Keating, Washington, D.C. :.... 45Statement ofTimothy Bates, Professor of Economics, University of Vermont....... 48 Legal Perspectives: The Current State of Affirmative Action Law Regarding BusinessSet-Asides and EmploymentStatement of Bruce E. Fein, Vice President, Gray & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Affirmative Action: Underrepresentation and UnderutilizationStatement of Nathan Perlmutter, National Director, Anti-Defamation League .. . . . . 71Statement ofAlbert Shanker, President, American Federation ofTeachers.......... 73Statement of Hyman Bookbinder, Washington, D.C., Representative, AmericanJewish Committee .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 76 Minority and Women's Business Set-Asides Statement of Dewey Thomas, Jr., Executive Director, National Association ofMinority Contractors....................................................................... 87 11 Statement of Kurt A.J. Monier, Associated Specialty Contractors, Inc................ 89 Statement of Laura Henderson, Chair, Procurement Task Force, National Association of Women Business Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Statement of Fernando Valenzuela, Vice President, Latin American Manufacturers Association; and Celestino Archuleta, Treasurer....................................... 94 Statement of G. Paul Jones, Jr., Chairman, National Construction Industry Council 97 Affirmative Action as a Remedy for Discrimination in Employment and Business Contracting: Strategies for the Future Statement of Jonathan S. Leonard, Assistant Professor of Industrial Relations, University of California, Berkeley........................................................ 106 Statement of Nathan Glazer, Professor of Education and Sociology, Harvard University.................................................................................... 107 Statement of Larry M. Lavinsky, Proskauer, Rose, Goetz & Mendelsohn, New York, New York .......................................................................... :. 112 " , ' ~' I Statement of Finis Welch, Chairman of the Board, Unicon Research Corporation . . 113 Hearing Testimony of Donald Leslie, President, Johnson Electrical Corporation, Haup pauge, New York; Tom Stewart, President, Frank Gurney, Inc., Spokane, Washington; and Ralph D. Stout, Jr., President, Southern Seeding Services, Inc., Greensboro, North Carolina............................................................... 131 j Testimony of Ted F. Brown, President, T. Brown Construction, Inc., Albuquer i que, New Mexico; Joel L. Burt, Equal Opportunity Officer and Safety and Loss Control Manager, Copenhagen Utilities and Construction, Inc., Clackamas, Oregon; Donald L. King, Secretary, King Construction Company, Hesston, __ j Kansas; and Patrick R. O'Brien, Vice President and General Manager, OTKM Construction, Inc,, Portland, Oregon .................................................... 142 Testimony of Theodore A. Adams, Jr., President, Unified Industries, Inc., Springfield, Virginia; Susan Hager, Hager, Sharp, and Abramson, Washington, D.C.; and Elaine Jenkins, President, One America, Inc., Washington, D.C......... 154 Testimony of Roger R. Blunt, President, Tyroc Construction Corporation, Washington, D.C.; Clarence H. Braddock, President, Automated Sciences Group, Inc., Silver Spring, Maryland; Jerry Davis, Jr., President, Unified Services, Inc., ·Washington, D.C.; and Toni Y. Luck~ President, Luck Manufacturing, Inc., Washington, D.C............................................................. 166 l1l Selected Affirmative Action Topics in Employment and Business Set-Asides PROCEEDINGS, March 6, 1985 The consultation/hearing was convened at 8:30 a.m., March 6, 1985, Clarence M. Pendleton, Jr., Chairman, presiding. Present: Chairman Clarence M. Pendleton, Jr.; Vice Chairman Morris B. Abram; Commissioners Mary Frances Berry, Esther G. Buckley, John H. Bunzel, Robert A. Destro, and Francis S. Guess; Staff Director Linda Chavez; and General Counsel Mark Disler. OPENING STATEMENT OF CHAIRMAN CLARENCE M. PENDLETON, JR. CHAIRMAN PENDLETON. Good morning. I'd like to open these proceedings. What I'd like to know first: Is there anyone in the room who is hearing impaired other than some of us up here? [Laughter.] CHAIRMAN PENDLETON. We have a person here to do the translation, for lack of another term, if you'd like. If not, you can just rest until somebody does come in. Thank you very much for being here. I'd like for the first panel to please assemble. Today is going to be long, and we'd like to get started as soon as possible. Most of my colleagues are present this morning. My name is Clarence M. Pendleton, Jr., Chairman of the United States Commission on Civil Rights. On behalf of my colleagues and myself, I would like to welcome you to the Commission's first consulta tion/hearing on "Selected Affirmative Action Top ics in Employment and Business Set-Asides." Let me just say, first, that this is the first time we have had a combined consultation/hearing. We don't intend to continue this discussion on affirma tive action topics, I think, any further than this consultation/hearing. The purpose of this consultation/hearing is to provide Commissioners and the public with the opportunity to explore a variety of affirmative action topics with experts and business owners. The Commission has previously stated its opposi tion to quotas as a means of achieving equal employment opportunity. The Commission favors what it considers nondiscriminatory affirmative action such as additional recruiting, training, educational and counseling programs targeted to attract minorities and women, but open to all. There are other affirmative action issues, however, which the Commission has not yet addressed. These proceedings will enable the Commission to formulate more specific policy on these other issues, including business set-asides for minority-and women-owned businesses. The issue of when, or if, underrepresentation and underutilization in employment should . trigger a finding of discrimination and affirmative action will also be considered. During the next 2 days, participants in these proceedings will discuss underrepresentation and underutilization as a basis for a finding of discrimina tion. The appropriateness of set-asides as a remedy for discrimination and their overall effect on minori ty and women's businesses and contracting generally will be addressed. The current state of the law with regard to affirmative action and set-asides will also be considered. Participants will assess preferential and nonpreferential affirmative action in employ ment and business contracting and will discuss what remedies are appropriate for discrimination in these areas. The panels and speakers for the first day and the morning of the second day constitute the consulta tion component of these proceedings. The partici pants will present papers prepared by them and profession. He has taught and consulted in mathesubmitted to the Commission prior to these proceed matical and applied statistics at the Universities of ings, followed by a question and answer period with Maine and Missouri and at George Washington the Commissioners and staff. Also included in this University. He has developed affirmative actionsegment, the morning segment, are remarks by two plans, utilization and hiring analyses, and work forceMembers of Congress. Late on the morning of the analyses for corporations, and has provided expertsecond day, the hearing component of these protestimony in statistics in a number of legal cases. Hisceedings will commence. This consists offour panels publications address statistics in equal opportunityof public witnesses who will testify with regard to analysis. He received his Ph.D. from the University their knowledge and experience regarding business of Missouri. set-asides. Dr. Mann, you may now start us off. Due to the time constraints, we will be unable to entertain questions from the audience. Underrepresentation and Underutilization: I turn now to the first panel on "Underrepresenta Do They Reflect Discrimination? tion and Underutilization: Do They Reflect Discrim\ ination?" STATEMENT OF CHARLES R. MANN,This first panel will define underrepresentation PRESIDENT, CHARLES R. MANNand underutilization and will consider whether such ASSOCIATESstatistical analyses can reflect discrimination. DR. MANN. By way of introduction to what must,Whether nondiscriminatory hiring practices will at least in part, be a technical conversation, I'd likeresult in work forces reflective of the racial and to recall an incident that occurred when I was at theethnic compositions of the communities from which university. the employees are hired will also be explored. An A department secretary asked a young professoranalysis of the Office of Federal Contract Compli what he thought of her new hairdo, and his response ance Programs' regulations as they relate to underrewas, "Scientists don't make value judgments."presentation and underutilization will also be underTo the extent that we are going to be makingtaken. value judgments, we must, at least in part, departOur five panelists are here: Dr. Charles M. Mann, from being scientific. I am going to try to stress thepresident of Charles R. Mann Associates in Washanalytic end, the scientific end, and the statisticalington, D.C.; Dr. David H. Swinton, director of the end ofthis type ofanalysis. Southern Center for Studies in Public Policy at As in any discussion, we must first have sonieClark College in Atlanta; Dr. Carl C. Hoffmann, agreement on the meaning of the terms. We mustpresident ofHoffmann Research Associates in Chapfirst have some definition.el Hill, North Carolina; Dr. Walter E. Williams, The first term that occurs, possibly the mostJohn M. Olin Distinguished Professor of Economics important, is the term "discrimination." This reat George Mason University; and Barbara R. Berg minds me of the concept of defining intelligence.mann, professor of economics at the University of You have heard that intelligence is what is measured Maryland. by intelligence tests. To some extent, discriminationWe will begin the morning with Dr. Mann. I is what is defined to be discrimination by the courtswould just ask, if you will-we have been deluged and by the regulatory agencies.with paper. I think the people who came this "Underutilization" is not, however, an abstract ormorning had no idea that they would be deluged subjective term. It has a very specific definition.with paper, and we ask you, in some sense, would And since I am going first in this presentation, Iyou please summarize as best you can your paper, think I will present that because we'll all be using it.and then the Commission and the staff can ask Quoting from the Department of Labor regulaquestions. Would that be acceptable to the Commistions, underutilization is defined as "having fewersioners and to the presenters? minorities or women in a particular job classificationDr. Mann is currently president of Charles R. than wbuld reasonably be expected by their availMann Associates Inc., a Washington-based firm ability.'~engaged in statistical consulting and data processing, In making this definition, there are several termswith emphasis on providing services to the legal that in themselves need further explanation. 2 The courts and the regulators have considered underutilization as evidence of discrimination. So one of the questions we want to consider is: To what extent does underutilization measure what you as individuals would consider to be discrimination and what the courts consider to be discrimination? Some consider discrimination to have two compo.nents, one being a historical component and the other being an employer-regulated component. It appears to me that, for the purpose of judging an employer's actions, the only part that is of particular -. interest is the part that is under the employer's control. That is, for the purpose of judging the employer, we must consider the employer's actions versus what they could have been. Underutilization, then, in general, measures the difference between the observed and estimated under some assumed set of values which we call availability rates, profile of minorities and women in the employer's work force. The concept of looking at departure from expecta tion under fixed assumptions is also the general concept of statistical hypothesis testing, which is the reason that statistics comes into play in this area. In fact, it is one of the reasons that statistics is being used in legal applications in recent years, and particularly in the. equal employment opportunity area. In using statistics, perhaps the most important point to remember is that the existence of a statistical relationship, no matter how strong, does not imply causality. Statistics considers whether there is a relationship, but cannot consider what the explana tory reasons are for it.. That is just not a component of this methodology. So an inference of discrimina tion, based solely on statistics, is not possible. One must . bring other things to bear in determining whether discrimination has occurred. To show an extreme example of this, even in the sciences when one studies, for example, crop yield and rainfall, the existence of a correlation does not imply that the rainfall causes higher crop yield without some element beyond statistical methodolo gy. Statisticians and social scientists who use the statistical tools can and, probably more often than they do, should say that they don't know if discrimi nation exists. In fact, that is not a valid conclusion of a statistical methodology. The existence of discrimi nation the existence of disparity, are the terms that may be used, but not the existence of discrimination. We can say that there exists a difference. After that point we stop being scientists and start making judgments. We can virtually always name alternative explanations that have not been eliminated. As statisticians or social scientists, we can simply say that we are unable to consider these other possible explanations or unable to go further along this process. The courts don't have that luxury. The courts, and to some extent the regulators, must come to a decision. Regardless of the strength or weakness of the information presented to them, they must end with a conclusion. The way they achieve this, that is, the way they go beyond the statistical methodology, is to introduce the concept of "burden of proof." That is, the courts obtain legal conclusions of discrimination by drawing inferences based on whether or not an assertion has been proved, not simply on the strength of the data itself. With this in mind, let's reexamine the definition of underutilization. There are basically three components to it which need attention. One is the concept ofjob classification. Some guidance has been provided by the regulatory agencies to the extent that it is suggested that job groups. be similar in wage rate, content, and opportunity. This does not uniquely define job groups, but it does provide a basis for constructing them. The second component is that of availability. And I stress that availability, true availability, can never be known. Consider if someone were to offer you ajob tomorrow, you would think about whether to take that job. You don't know at this moment whether or not you are available for that particular job. The true concept of availability in terms of: Who would accept it? Who has the exact qualifications? Who's overqualified? Who finds it interesting?-is something that cannot be known. What we try to do, and as statisticians what we gather data for, is to try to find a group with known race and sex components that is proportionate to, that in some sense, and in our opinion, matches the group of interest. That is, we estimate availability. In fact, all utilization analyses take place not with availability rates, but with estimated availability rates. By its very nature, the quality of the remainder of the analysis is a function not only of the methodology that is being used for analysis, but of the quality of the estimated availability rate. The third component of utilization analysis, or underutilization analysis, is the consideration of what would· be expected, and whether we have fewer than would reasonably be expected, of minorities and women. There are a variety of other considerations that go into the examination of the three characteristics. For example, in looking at the job classifications, if we adhere too closely to the concept of making them homogenous, we will find that we have very small groups and we will know ahead of time that any reasonable statistical analysis will fail to find underutilization. If we instead define large groups, we are faced with a statistical principle that says as the group gets larger we approach certainty with respect to finding a disparity from our expectation. All of this has to be taken into account and enters into the judgmental portion of performing utilization analysis. With respect to availability, we have guidance in another area, the Teamsters' decision, which I will quote because it is both brief and of general interest with regard to utilization analysis. "Absent explanations, it is ordinarily to be expected that nondiscriminatory hiring practices will in time result in a work force more or less representative of the population in the community from which employees are hired." In considering this statement, we notice that there is a concept of geography, the area where employees are hired. But now we have to question whether, in fact, the statement is even correct. Should we be considering where the employees are hired, or should we be considering where the employees could be hired? The Office of Federal Contract Compliance Programs suggests consideration of where one could reasonably recruit. There are a variety of approaches to the geography question. For example, in the Washington, D.C., area, should recruitment for a company located in Arlington be from Arlington, Virginia, from the D.C. SMSA [Standard Metropolitan Statistical Area], from the Nation? Will the answer differ by job group? ' Similarly, the concept that we will eventually approach the work force percentage leaves open the question: What \f there is a job which has :a characteristic which is dependent upon sex? F9r example, there are jobs that require upper body I strength, lumberjack being one. There have been very expensive studies conducted to show that upper body strength is, in fact, required for those positions. Once that becomes a factor and the distribution of upper body strength among men and women is known, we find that we cannot expect the work force percentage, but rather the percentage of women among people that have sufficient upper body strength is what should be approached. We recall the original meaning of affirmative action; to provide affirmative action to assure equal opportunity in employment. And that, in fact, is the concept we are trying to reach through utilization analysis. The most important issue here in terms of actually conducting an analysis is what should be the basis for comparison: the world as it currently exists or as it could have been and as it might someday be? Since our purpose is to make a judgment concern ing the employer's actions, it appears logical to compare what the employer actually accomplished with what the employer could have accomplished, which is what is under the control of the employer. Otherwise, the employer bears the brunt of society's actions, which are not under his control and, in fact, may have taken place before the business came into existence. When it comes to actually constructing the availability rates, the Department of Labor regulations state that there are eight factors which should be taken into consideration. They are slightly different as stated for race and sex, but cover essentially the same areas. It may be noted that, to some extent, the eight factors are incommensurate. They involve different geographies; they involve unemployment rates. Further, one may question what the relationship is between the general unemployment rate and the availability of rates for specific occupations. In some instances, weighted averages have become fashionable. There is nothing intrinsically wrong with this approach, but monitoring agencies, by placing arbitrary and unrealistic requirements on the weights used, have abused it, to the point of requiring illogical and misleading methodology. Generally speaking, the internal and external availabilities contro1, or at least receive prime consideration, in determining the proportion of minorities and women available for specific positions. It is possible to list the mutually exclusive sources for various occupations, and of course, then a weighting is appropriate, but the resulting weightings will generally differ from occupation. A major source of information for estimating availability rates in this context is that of census data. The 1980 census makes great detail available to the public, more so than the 1970 census, because we occur when considering mechanical engineers and, have available the full 514 occupations with race, say, only had a few employees, say two. Given a sex, and geographic detail. [realistic] estimated availability rate (say 2 percent In addition, the EEOC and the Census Bureau for blacks), we would expect fewer than one black collaborated on what is called a crosswalk and and should not be surprised to see that occur. In this established a mechanism for comparing the occupainstance, there is no threshold below which we tions recognized by the EEOC and those of the would call the result unusual. The courts haveCensus Bureau. Thus, we can modify the census data provided guidance on what such a threshold would to take into account the matched EEO categories be. Generally, it should have a probability below 1 and the jobs within them. in 20. There is, in this example, no event with such a The important point to remember again is that it is low probability. the estimated proportion that is of interest, not the Since the problem we have is parameterized, we actual numbers. We will not be able to list the people must focus on the quality of the parameter estimates that are available. We can only find a comparable group and attempt to estimate representation. It is that we are using. Thus, the quality of the estimated the quality of that estimate that controls the quality availability rates that are of paramount importance. ofthe analysis. We do have checks on our availability rate The third component of the analysis is expectaestimates through the use, for example of applicant tion. Our intuition tells us that if we flip a fair coin flow analysis, considering the people who actually 100 times, we expect to see 50 heads. Ifwe flip that apply for a position. Applicant flow representationcoin 101 times, what do we expect to see? By the differing substantially from estimated availability same logic, we would expect to see 501/2 heads. But, suggests at least the need for further examination of if there is one result we know is not possible, it is the assumptions being made. SOl/2 heads. We are not going to see that. The important point to keep in mind is that So, in fact, the expectation may be an impossible statistics provides a methodology for determining event. What is important is that we expect to see a result close to the expectation, and statistics is what is unusual, but not an interpretation for what is capable of quantifying that closeness. Statistics is causing that event which is unusual. capable of providing a measure of the variation Thank you. which is permissible. We can determine when the CHAIRMAN PENDLETON. Thank you, Dr. Mann. results we have observed are sufficiently unusual You've stayed within your scheduled time of compared to the availability rate that we are about 20 minutes, and we appreciate that. estimating or that we believe to exist, so as to let us Dr. Williams is currently a John M. Olin Distin conclJde that .either our model is incorrect, meaning guished Professor of Economics at George Mason the employer may not be hiring at the rate we University. He has also served on the faculties of consider available, or that we were unlucky. That is Los Angeles City College, California State Universi all statistics can do. It piles up the evidence and at ty, and Temple University. He has written extensive some point says, "We just don't believe we are that ly on economics and minorities, and his most recent unlucky." Therefore, we conclude they are not hiring at the estimated availability rate. book, The State Against Blacks, has been made into a The concept of rejecting an assumption because of television documentary. Dr. Williams serves on the the occurrence of a rate event, an event with low advisory boards of the American Enterprise Instiprobability, is also the concept of hypothesis testing tute, Young Americans for Freedom, the. Reason and statistics. We, therefore, use statistical methodFoundation, the National Science Foundation, and ology to compute that probability based on the three the National Tax Limitation Committee.components of utilization analysis that have been Dr. Williams received his Ph.D. in economics discussed. from the University of California, Los Angeles, and It should be noted that despite the court's men holds a Doctor.of }Iumane Letters from Virginia tioning of the "inexorable" zero, it may even be Union University. Dr. Williams. possible to have zero minorities or women and not be underutilized. An extreme example of this could 5 STATEMENT OF WALTER E. WILLIAMS,JOHN M. OLIN DISTINGUISHED IQ test. Those people, if they were resurrected,PROFESSOR OF ECONOMICS, GEORGE would be quite surprised to find that nearly 30MASON UNIVERSITY percent of all the Nobel prizes held by AmericansDR. WILLIAMS. I'm going to make a few remarks are held by Jews. about my paper and confine the rest of my time to People differ significantly according to age bysome other comments. ethnic group. Russian Orthodox Jews have a medianIt seems just by a casual observer the new civil age of around 45, Polish Americans around 40,rights movement is not a push for equality before the blacks around 22; the median age on Asians islaw, and indeed, equality before the law was the around 31, and for Mexican Americans the medianage is around 16 or 17. dream of the Brown plaintiffs, who strongly arguedthat the Constitution is colorblind. To the contrary, At another point in the paper, in terms of talkingabout statistics, I point out some findings of a report the new vision of the civil rights movement holdsthat the Constitution is color conscious. done by statistics on national education. Fifty-five The position of the High Court of the land is that percent of the black Ph.D.s awarded in 1980 were racial discrimination to achieve certain social objecawarded in education, 2 percent in engineering. Bycontrast, 8 percent ofAsian Americans got Ph.D.s in tives is a form of compensatory justice. This feelingis not only expressed in the Supreme Court rulings education, but 25 percent in engineering. on racial cases, but it's expressed by Justice ThurNow, I'm sure that the universities do not deny good Marshall who said, "You guys have been blacks access to engineering classes and Asians practicing discrimination for years. Now it's our access to the education department. But what turn." explains that difference? A wide difference in ethnic The evolution of the new civil rights is an effort curricula choice is going to lead to significantdifferences in income. Engineers earn considerably by some people to impose greater government more than people in education or high school control as a means to more personal wealth and principals. political power. But for many others, the new civilrights vision represents an erroneous view of the Now, what does all this mean? Is it because the university does not allow blacks to major in the hard world. My comments and my paper are directed to high-paying sciences? Does it reflect preferences? those people who have an erroneous view of the Does it reflect that maybe blacks like education world but who are long on good will and honesty, more than engineering? Might it reflect some other but short on understanding. things that we have not investigated? The creed of the new vision of the civil rightsmovement is that statistical imbalance, underrepreBut if people lament that there are only 2 percent blacks getting engineering Ph.D.s, one is obliged to sentation or underutilization, reflects racial discrimi say, "What is the right percentage of blacks getting nation. These concepts, however, imply that there engineering Ph.D.s, and why is that the right exists a theory on the numbers of people by race or percentage?" sex in given occupations, schools, and income Now, if racial discrimination accounts for few groups. But what is that theory? That is, in the engineers, there are some other things we tend toabsence of racial or sexual discrimination, how many ignore. And some reasonable evidence on why blacks would we find as engineers, etc., etc.? That is, blacks may not major in the hard sciences at the there is no theory. university or are underrepresented in the hard Underlying the creed ofthe new civil rights vision sciences. Part of the answer can be seen by black is that people are all the same. But we know that performance on standardized tests such as the people differ significantly by personal traits, prefer California Achievement Exam, the SAT [Scholastic ences, abilities, at any one point in time and over Aptitude Test], and the GRE [Graduate Record time. 1 Exam], where blacks are well below the nationalOne example is that at the turn of the century the norm on performance on these tests, and well below immigration authorities at Ellis Island held that they the performance of any other ethnic group excepthad to have special IQ tests for Jews because they Puerto Ricans.said that Jews were good Americans, but they had If you look at the black performance on thean intelligence so low that we had to devise a special quantitative portion of the exam, namely, the math 6 part of the exam, it is well below the national norm, view of the world has yielded several premises, and being roughly around 354. And keep in mind, on the one of the premises is that statistical disparities, GRE if you write your name on the exam you get disproportionality, and underrepresentation in in200 points. comes, occupations, education, etc., etc, are moral None of this poor performance changes with the injustices caused by a racist or sexist society. Its level of education. That is, you find the same thing underlying assumptions of this new civil rights at high school, you find the same thing at the vision is that discrimination leads to adverse effects beginning of college, and you find the same thing at on the achievement of those discriminated against; the beginning of graduate school. two, statistical differences imply or measure discrimWhen the Civil Rights Commission and many ination; and this assumption depends on a third, that other organizations make a statement that blacks statistical differences would not arise and persist but have the same number of years of .education as for the fact of race or sexual discrimination. compared to some other group, that statement is The new civil rights vision can be subjected to meaningless. They say, "Well, blacks have the same evidence. For example, Japanese Americans were years of education as some other group, but yet they discriminated against. However, according to the earn less or they have a lower occupational status," 1980 census, Japanese Americans have the highest etc., etc. The statement is meaningless because they family income in the United States; they have the are assuming that years of education is the same highest representation among professional workers,thing qualitatively among blacks and whites. 25 percent versus 15 percent for the rest of theFailing to recognize qualitative differences in population; they have low divorce and crime rates. to misidentify black/white education causes us If racial discrimination can explain all that it is certain outcomes as racial discrimination. Recently, purported to explain, then what about the Japanese? the PACE [Professional and Administrative Career Have the Japanese, as Professor Swinton suggests in Exam] exam was eliminated because it was alleged his paper, had advantages they gained because of to be racially discriminatory. That is, blacks and discrimination, or should we ignore that question? Is Hispanics were doing less well on the exam. You can the Japanese occupational status high because they understand why they would do less well if you look have excluded blacks? Do Japanese benefit from at performance on standardized tests. high family stability and low crime rates because The balance of my comments will focus on the blacks have high family instability and high crime new civil rights vision that is clearly seen in the rates? papers that will be presented by Professors Berg And it is amazing; the whole notion of looking at mann and Swinton. In the interest of common sense, the Japanese and some other ethnic groups such as fair play, and effective policy formulation, I will West Indian American blacks-these people vanish comment on the folly of the new civil rights vision. in the civil rights reports. For exampie, on page 58 This vision holds that racial discrimination, now of the 1982 civil rights report, they say: "In the or in the past, is the bedrock cause of virtually every relatively small number of occupations, Asians were black problem. But we all know that if Z is known to allowed to participate and they were able to attain a be associated ·vith a multiplicity of factors, including moderate level of success." A, one cannot say upon the observation of Z that it Now, this is what they mean: They mean the was caused by A. Asians were allowed in a small number of occupa For example, cigarette smoking is known to be a tions, such as engineering, physics, computer analy cause of cancer. But not even an expert would assert sis. These are high-paying occupations, and they that all cancer is linked to cigarette smoking. In fact, attained a moderate level of success. Well, ifyou call as Mr. Charles Mann points out in his paper, one is that a moderate level of success, white people are on very tenuous grounds positing the cause of any abject failures because whites have not entered into relationship. It is just very difficult to discern cause. After all, not everyone who smokes contracts the professional and technical field to the extent that Asians have. cancer. The new civil rights vision holds that statistical But the new civil rights vision will say with considerable confidence that observed differences differences would not arise and persist without by race and sex are caused by discrimination. Such a discrimination. But what do statistical differences 7 mean? Well, let's look at some of these statistical exception of the South, exceeded one. In 1960 it wasdifferences other than the ones we are familiar with. near parity. Fifty percent of Mexican Americans marry in If we subscribe to the conspiracy doctrine of thetheir teens while only 10 percent of Japanese marry new civil rights vision, we would conclude thatthat early. What does that mean? white males and black females are involved in aThree out of the five highest home run hitters conspiracy against black males and white women.were black. Every time 100 or more bases are stolen Of course, a more satisfactory explanation can beeach year, a black holds the honor. Of the 10 highest found in my book, The State Against Blacks.slugging averages in a season, 7 were German. Now, Much of the new civil rights vision requires adoes this constitute denial of somebody else's civil myopic view of the world. It requires that we ignorerights? the effects of price and income and consider that allNearly 75 percent of NBA players are black and human behavior is a result of individual or grouprepresent the highest paid players. Zero percent of wishes, desires, and attentions. A classic part of thisprofessional ice hockey players are black. Of Amerivision is the 59 percent cliche on the earnings ofca's Nobel prize winners, 30 percent are Jewish, women. This 59 percent cliche holds that women who are also discriminated against. are just as productive as men, but they only receiveThese and many other statistical disparities exist 59 cents on the dollar earned by men, and hence, theamong America's mosaic of ethnic groups. How government must eliminate this rampant sex discrimmuch confidence can we have in saying that it is all ination by equal pay for comparable worth. caused by racial discrimination? For that matter, This 59 percent cliche requires that we believe how much confidence can we have in having that employers are out there paying 70 percentProfessor Swinton's assumption of "equal distribu higher labor costs just to hire men over equally tions ofinherent abilities?" productive women. Even if employers had that kind Another part, and I will be finished in a minute, of of generosity, stupidity, or blind allegiance to theirthe new civil rights vision involves distortion and brothers, they would be out of business as competiselective data presentation. Professor Bergmann tive victims to other employers anxious to cut costsreports and I quote: by hiring the equally productive women.Far smaller differences in costs relative to those ofA recent estimate based on 1981 data suggests that black their competitors has driven many businesses to themen earn 15 percent less than white men with the same industrial trash heap. The 59 percent cliche also number of years of education and experience, while whiteand black women earn 30 percent less. ignores that the income of the husband is jointlyproduced. That is, in other words, just because aGiven the recent evidence of the President's man's name appears on a big pay check and a wifeNational Commission on Excellence in Education, has a paycheck half its size or not at all does notshowing that over 40 percent of black 17-year-olds mean that he produced those earnings all by himselfare functionally illiterate, and given the results of with no help from his wife. This is suggested in part black performance on standardized tests such as the by the fact that married men earn more than CAT, SAT, GRE, and LSAT (Law School Aptiunmarried men, or could employers be discriminat tude Test] tests, it is no less than resolute ignorance ing not only against women but against unmarried to say that years ofeducation held by blacks and that men as well? held by whites is qualitatively the same. The point is not to say that race or sex discriminaSo far as women are concerned, the new civil tion does not exist, nor is the point to say that it doesrights vision omits statistics that might call their not explain anything. The point is: How much ofpremises and assumptions into question. For exam what we see is explained by discrimination? Considple, in 1970, while black male college graduates had erable and mounting evidence suggests that verymedian earnings of only 73 percent of their white little ofcurrent statistical differences between peoplecounterparts, black female college graduates had can be explained by discrimination.median earnings 125 percent of their white counterThe Civil Rights Commission can play an imporparts. For black females, that figure was 99 percent tant role in assuring that all Americans have equalin 1950, 102 percent in 1960. Furthermore, by 1970, opportunity. Its focus should be directed against thethe black-white female income ratio, with the use of government by powerful vested interest 8 groups to cut off opportunities for the poor. The However, on thinking about it, I decided that Civil Rights Commission should question whether really the old Civil Rights Commission had also had the civil rights of people have been denied through its mind made up in truth. So perhaps that is not· as laws like the minimum wage law, the Davis-Bacon bad as it sounded, but I must say that at least the old Act, occupational licensing laws, business regulaCivil Rights Commission didn't hit one over the tion, and a myriad of other governmental acts at head with that fact. Federal, State, and local levels. Let me start by discussing the question of discrimThe Civil Rights Commission should focus its ination. I was very glad to hear Dr. Williams say attention on the fact that blacks. pay taxes just like that maybe there is some discrimination. I think the everyone else, yet are delivered grossly fraudulent evidence that we have indicates that discrimination education by the public education establishment. exists, is extremely important, both by race and by Blacks pay taxes just as everybody else, but are sex, and that it is a crying shame; it's an injustice; it's subject to a level of lawlessness and violence in their a lie-it's not just a mistake; it's a lie, a dirty lie-to neighborhoods that has the full force of a law that say that it is not important. says, "There shall not be economic development in And we need to do something about it because it is a serious blot on our national life. It threatens us black neighborhoods and citizens shall remain huddled in their homes behind bars while criminals are more than, say, the Russians threaten us, and we free to roam the streets." need remedies. If the entire plight of blacks is attributed to racial So I don't think the question is: "Is affirmative action bad or good?" The question is: "What is an discrimination as seen by the new civil rights vision, a large percentage of the black population is doomed appropriate remedy for this situation?" to perpetual despair, degradation, and defeat. My predecessor's talked about engineers. Let me give you a few stories. Thank you very much CHAIRMAN PENDLETON. Thank you, Professor I think that we can just open our eyes and see the racism and the sexism in American life and in Williams. We now go to Dr. Bergmann who is currently American employment practices. The restaurant I professor of .economics at the University of Maryhave eaten in for 20 years has never had a black land. She has also taught at Brandeis University and person waiting on tables, never, in 20 years, not one. has served with the U.S. Agency for International In this hotel where we are sitting right now, if you Development and the Brookings Institution, and as go upstairs to a banquet-I'm sorry to see Mr. senior staff economist with President Kennedy's Abram is not interested in my testimony; I didn't Council of Economic Advisors. For 8 years she has expect he would be. If you go upstairs and have directed the University of Maryland's project on the lunch at a banquet-the last time I was here was at a economics of discrimination. Dr. Bergmann's rebanquet with the Women's Legal Defense Fund, and search and publications have centered on urban there were no female waitresses. I give a course where I try to discuss with my problems and employment policy. Dr. Bergmann earned her doctorate at Harvard students sex discrimination in employment. All my University in the major fields of economic theory, students work, virtually all my students work-at statistics, money and banking, and business cycles. the University of Maryland-and one student raised her hand a couple of years ago and said, "Gee, that's Dr. Bergmann. funny, I'm the personnel director at the Baltimore Washington Airport, and our policy is we only put STATEMENT OF BARBARA R. BERGMANN, PROFESSOR OF ECONOMICS, UNIVERSITY blacks in the food jobs." OF MARYLAND All you have to do is look around. All you have to DR. BERGMANNThank you, Mr. Pendleton. do is go into a department store and see that there is I have to precede my remarks on affirmative segregation by sex in who sells what. And this is action by saying that I was very disturbed to read in reflected in differences in pay. The men are being the paper that you had said affirmative action was paid very high commission rates and the women are dead. That rather reminded me of the Red Queen in there earning the minimum wage. Alice in Wonderland who said, "Verdict first, trial Now, Mr. Williams is telling us about the theory very common among economists that businesses afterwards." 9 would go out of business if they did this. Well, people are given a voice in who is selected. And thatthousands of businesses go out of business every serves a very useful purpose. It serves a productiveyear, but we have never observed any business purpose, because one of the· most unproductive going out of business because of discrimination. So I things is to have dissension and fights and insults inthink there's something wrong with that theory. an establishment.Given that there is discrimination, what do we do So these procedures do serve a purpose, but theyabout it? And how do we diagnose it? also have the side effect of making sure that people I think that affirmative action is in the same are compatible by race and sex, that men don't havesituation as democracy. You know, Winston Churto associate with women as equals, or blacks in somechill said, "Democracy is a terrible system, except cases as equals, that women are not in line to bewhen compared with all the others." And I think promoted to supervise men, and so on. So whataffirmative action also has problems associated with we've got in the workplace is a reproduction of theit but no one has been able to think of any larger society, and that makes for compatibility, butalternative. it also makes for perpetuation of the present dispariFor example, one of the problems with affirmative ties.action is that it is very wounding to the ego ofblacks When thinking about this issue of underrepresenand women who have made it like me and Mr. tation, and I am not a lawyer so this very muchWiiliams. It is, for example, wounding for me to represents a nonlawyer's point of view, I am not toothink that maybe I was invited here because of my interested in the exact definition of underutilization sex, so. that there could be some representation of because I think the enforcement authorities ought towomen rather than for what I know to be my own go after the egregious cases, the case of this sterling qualities. And that is upsetting to me to think restaurant that I eat in where there has never in 20that. years been one black person waiting on tables. We[Vice Chairman Abram returned to the conferdon't need a very finely tuned definition of underutience room.] lization to take care of that particular situation. DR. BERGMANN. But then I think, "Well, maybe Now, I'd like to close by saying that I challengethey did invite me to fill a quota, but it's better to be those who are against affirmative action to come uphere than not here at all, and maybe that's where I with some plans for reducing discrimination which would be if there weren't a quota." don't involve goals and timetables because I for oneA great deal is said about the injustices perpetratwould like to see that. I'd like to see what can beed by affirmative action. In fact, once after I gave a done apart from numerical goals. talk on affirmative action, somebody came up to me And by the way, I am not one who cares very and said, "How would you feel being the mother of much whether you talk about goals or quotas. I'm ina Jewish boy who was not admitted to medical favor of quotas. I think we have a severe problemschool because of some affirmative action prohere, and it needs to be addressed. But I am willinggram?" to which I was able to answer, "I am the to give up my quotas if the people who are againstmother of a Jewish boy, and I know that when I them can come up with an alternative. But the onlycompare him to my daughter and I compare him to alternative that anyone has come up with is to say, the children of my black friends, he is overprivi"Well, let's get some assurances that discrimination leged. Certainly, I wish him the best, but I think it is wiii end, ifindeed it has ever taken place." more important for him to live in a world where But how do you ever enforce anything like that?there is justice than for him to get to medical How do you make any progress on that kind of school." basis? How do you hold people's feet to the fire?I think some of the problems with affirmative And you have to hold their feet to the fire becauseaction have to do with selection processes. Affirma it's a difficult business, trying to integrate. It'stive action louses up the selection process. The expensive; it's annoying. And people's feet have toselection processes are very much attuned to making be held to the fire. The only way that I can see to dosure that the people who work on the job are it is through quotas, through goals and timetables. compatible. People are taken around before they are There is no other way that has been invented.hired and they are sort of paraded before their Now, unfortunately, even in the era under Presipossible supervisors and their coworkers, and these dent Johnson, President Nixon, President Ford, and 10 President Carter, where we supposedly had enforceof the invitation. It was attractive to take up the ment of goals and timetables, in reality there was basketball challenge that Mr. Pendleton introduced very little. Very, very few firms were ever disbarred into the papers a while back largely because I am from Federal contracd~g. I give in my paper an from North Carolina, and I wondered why he chose example of what went on\n one part of the Bell Georgetown instead ofa better team. Telephone Company with re'sJ,ect to . female crafts[Laughter.]CHAIRMAN PENDLETON. Purely because of merit. people. Ifyou look at the data I give in this paper, you'll see there has not been enforcement. There has been [Laughter.] DR. HOFFMANN. Well, fortunately we can decide possibly some fakery, but there has not been enforce ment in this very leading case. who is the better team shortly. So I am waiting and hoping. I am waiting and I found when I started writing my paper that it hoping that we can all have a change of heart, was almost impossible to talk strictly on the subject maybe 4 years from now, and that we won't be of underutilization and underrepresentation without doing what we did under those Presidents, although getting involved in the debate on affirmative action it was better than what's going on now. Now whafs and particularly quotas, goals, and timetables. And going on is insults, insults of people who are down the more I looked into affirmative action, the more I there in the dirt. And that's low; it's low. realized that a very small part of affirmative action So I am hoping that 4 years from now we can get programs as prescribed by the OFCCP and, in fact, a change and we won't be doing what we did under as instituted by most companies involves goals and those old Presidents, but we will start some better timetables. That is a secondary and latter stage ofthe process. In fact, I started to become very irritated at enforcement procedures. And again, I don't think we need to bother with the debate itself on quotas, goals, and timetables the fine points that if it's 51 1/2 percent that's called because it overlooks some very valuable parts to for, is 49 percent enough? We have to go after the affirmative action. I believe the debate on goals and timetables is egregious cases, and there are plenty of them around. · misstated on both sides, and that actually the art and the science of determining underrepresentation and ,Thank you. CHAIRMAN PENDLETON. Thank you, Dr. Bergunderutilization is, in fact, one of the strongest parts mann. of affirmative action because it invites a company to We will now move to Dr. Hoffmann. determine·what a job is and how they use people to Dr. Hoffmann is currently president of Hoffmann fill that particular position, what qualifications are required for that job. It invites companies to look at Research Associates, Inc., a social science research firm specializing in human resource managethe historical ways that they have filled that job and ways they might improve overall the types ofpeople ment/analysis and data processing in Chapel Hill, who fill that position. And affirmative action pro North Carolina. Dr. Hoffman has served as a consultant to a number of major corporations. He is vides some guidelines for monitoring labor market the past director of Educational Services at the imperfections and improving labor markets within Institute for Research of the Social Sciences, Unicorporations and within society as a whole. I am versity of North Carolina, Chapel Hill. He has against goals and timetables as they are prescribed written extensively on human resource analysis and presently in the affirmative action plans and definiteresearch methodology. ly as they are enforced. But there is a great deal to Dr. Hoffmann earned his Ph.D. in sociology at the be saved in the regulations as well as to criticize. University of NorthCarolina at Chapel Hill. I think that affirmative action also has one other advantage in that there are questions that can be asked under affirmative action programs which now STATEMENT OF CARL C. HOFFMANN,PRESIDENT, HOFFMANN RESEARCH are difficult to argue and ask in the Federal courts. ASSOCIATES I take the debate on goals and timetables to be DR. HOFFMANN. Thank you for having me here. stereotypically this form. Proponents argue that they are solutions for past and present discrimination. It is a privilege. When I looked over the names of the people who were presenting, mine was the only The purpose of discrimination is institutionalized in one I didn't recognize. Thank you for the privilege an effort to keep wages of minorities and women 11 down. As long as there are differences that can be irrational job requirements and definitions, minimummeasured by census or global categories among wage laws, and irrational licensure laws.minorities and between sexes, there is evidence of Both sides make an additional mistake, however,discrimination. Quotas are a way of achieving, in that they look at static distributions. One side feelsdirectly, equality and, indirectly, changes in attithat these imbalances will be gradually rectified; andtudes toward minorities and women in society as a the other says that no, they should be rectifiedwhole. immediately. The proponents argue that there are, in fact, few Surprisingly, neither side-and it's largely becauseskill differences in most jobs and most people are of the level of specificity that they deal with-lookscapable of doing a broad range of jobs and can be at the process by which people acquire skills and aretrained for those jobs or easily acquire them, and promoted. People can actually change quickly, andthat, therefore, these differences are unacceptable it is in the nature ofthe American system that peopleand the methods to change those differences are still today start at the bottom as laborers or operaeasily borne by companies. tives, become foremen, and move to· managerial The opponents of goals and timetables argue that positions. In that process, they are developed andthey are, in fact, a subversion of the free market they develop themselves as an interaction with thesystem, that they are essentially a reverse of favoritcorporations. The training and development costsism towards white males, now favoritism towards are costs which are normally borne by corporationsminorities and women, and that, therefore, they in the process of rewarding and developing theircounteract and, in fact, deny the process to which work forces. women and minorities have recently been given Proponents of the regulations, I think, also takeadmission. They tend to argue not that jobs are the simplistic view in that they tend to feel that theyfungible, but that jobs are of such a technical and can set a standard that needs to be achieved.highly qualified type that you have to work hard at Geographic mobility of people, economic factorsobtaining qualifications and years of experience to related to the expansion and contractions of theachieve them. labor forces, the characteristics of individuals beingI think both sides are somewhat myopic, although produced by technical and professional schools, the , both have a good deal oftruth to them. motivations and the transient motivations that existFinally, the opponents of goals and timetables say, in society are, in fact, very volatile and lead to"Of course, there are differences because there are constant changes.differences in background characteristics of minori I'd like to now reduce it to an example-and thisties and women compared with white males, and as is a hypothetical example-of a job that actually, Ilong as there are differences, of course we are going think, exists quite often, especially in the transportato have occupational and income differences." tion field, where there is an entry-level job thatBoth are surprisingly similar in some respects requires upper body strength; this would be lifting ofbecause they both admit to differences in backpackages or bags. Associated with this job are heightground characteristics. They both admit to differ and weight requirements and also a decent amountences in outcomes. They concede historical issues of, of geographic mobility required for movement fromespecially, the position of blacks in American histo site to site.ry, and they concede the traditional role of women Women will be underrepresented in this job in society and in the family. according to their representation in the communityBut both debate on a macro level. Both debate on for a number of reasons: first, a lack of upper bodyabstractions of how these distributions exist in strength, the lesser height and weight of the femalesociety. And frankly, I get confused myself when I population as a whole, and generally a problem ofleave the macro level and go into corporations, geographic mobility, especially among women inbecause then the patterns are no longer very clear. marriages.Both sides also have one characteristic which I The solution as to how women can be entered intoheartily agree with, that there are many market this stereotypic job, from a conservative point ofimperfections and inhibitions in society, among them view is, "Eventually there will be some asymptomunion agreements, work rules, seniority systems, atic achievement of the number of women who are 12 actually capable of doing the job as long as companies hire fairly."_ The activists w,ould argue, "No, that will never happen as .long as men predominate in the job becaus_e men will not think. that women can do the job and women will not think they are capable of getting the job unless the job is opened to them by some mechanical, artificial form." A better solution and a solution that is inherent in the regulation is one which invites the company to look at the requirements of the job. Is it necessary that people be required to lift or have the upper body strength or the height and weight requirements, in fact, associated with what the job requires? And is geographic mobility, a requirement to move to a,dvance, actually necessary in order to develop personnel for management positions? · I think that the regulations-and, in fact, as Dr. Mann testified earlier-invite companies to find out whether or not these requirements are necessary and then to look outside and see who is capable of taking these positions. In fact; a utilization analysis as defined by the OFCCP is to look at an analysis of group representation in all similar jobs after the job has been defined: An analysis of hiring practices for the past year, including recruitment sources and testing, where these people came from, how you got them, and what kind of qualifications they had; an analysis of upgrading, transfer, and promotion for the past year to determine whether equal opportunity employ ment is being afforded. And again, jobs are similar if they have equal content,"opportunity, and pay. The regulations, I think, are basically asking the questions: "Is your internal labor market perfect? Are you drawing people from the maximum supply that you could be able to draw them from?" Now, I think also that this elaborates some stages in affirmative action which I also think are reflected in the regulations. What are jobs? What do you expect of them? How do you fill them? Are people being treated fairly-in other words, drawn from the sources that you recruit from equal to their represen tation in those sources? And how can progress be made to increase the supply of labor for particular jobs? One of the problems with this way of defining availability and, therefore, underutilization is that it varies from company to company. It depends upon how they define their jobs. It depends upon how they perceive their labor markets and supplies. It depends on the promotion processes and the amount of training which they are willing to engage in. This all reflects on the philosophy and the culture within the corporation itself. But, basically, the employment processes can be easily defined and tracked mathematically and statis• tically and then evaluated for their fairness. I use, in my paper, an example of two wholesale food producers working in exactly the same sales environment in Charlotte, North Carolina, where the census states that there is 3 percent minority availability for sales. However, one food producer, Armour Meat Packing, clearly promotes over 50 percent of the people who move into sales from'their internal labor force, many of whom started as laborers, meat cutters, foremen, and clerks. -' Another company promotes very few of their people from within to their sales positions. Again, these people originally started as operatives and clerks and moved into sales positions. One company, by the mix of internal promotion and outside hires, produces an availability figure of approximately 10 percent minority, while the other 14 percent minority, largely because their internal labor forces and the places that they draw from on the external labor market are far more reflective of the general population than the sales figure the census would seem to indicate. The question is: Why should and how do we force a company to consider all of the aspects of its labor force, and should we? I think it's clear that most companies are engaged actively in developing em-' ployment and that the process of affirmative action is merely to elaborate and codify what those rules are for people and provide them this information. It is amazing to me how many times in the 50 or 60 cases that I've done over the past 6'/2 years-how many companies, after a very thorough analysis of labor force has been accomplished, are amazed at the variety of people they have hired to fill those positions. Unfortunately, affirmative action is even more complex than the basic philosophies the companies have with respect to what they define as supply, because there are characteristics within that supply that differentiate minorities and women, among those the interests that they have in obtaining particular jobs, the ability that they have in follow ing through on those levels of interest, the qualifica tions that they have to take those particular jobs or that they see themselves as having. The competition for jobs at particular times varies effectiveness of integrating minorities and womengreatly. It is entirely possible that, at some point in into the labor force.time, people will be totally unqualified for a job, and I think that it is at the level of the corporation and then 6 months later when the job comes open many not at the level of societal debate at which thepeople applying are qualified. And a combination of regulations become particularly relevant. Again, Iall of these events works in some very bizarre ways think that quotas which say that companies areto determine availability and availability figures. required to hire at a particular level are somewhatAgain, I see the goal of the regulations as ensuring silly because I have seen too many companies go outmarket perfection and encouraging companies to and hire women and minorities to fill positions actually acquire good personnel processes because, without having changed the structure of the job.of all of my clients, the clients that have the least And, inevitably, that leads to a large number oftrouble with affirmative action and actually pay the terminations among women and minorities. Yet theyleast attention to it are the ones who pay a great deal have made the numbers game, but they have made it of attention to their employees and to their work unintelligently. But they have made it easily becauseforces. Unfortunately, there are not many of that all they have had to do was hire people. type ofemployer around. Again, thank you very much for inviting me.I would like to read three examples of the CHAIRMAN PENDLETON. Dr. Hoffmann, thankregulations which I find extremely heartening. you.One says that, "A company should ensure that We will now move to Dr. David Swinton.promotion decisions are in accord with the princiDr. Swinton is currently director of Clark Colples of equal opportunity by imposing only valid lege's Southern Center for Studies in Public Policyrequirements for promotional opportunities." Transin Atlanta. Formerly a program director at thelated, that has the profound statement of saying, Urban Institute, Dr. Swinton has also taught at the"Make promotional decisions rationally." State University of New York at Stony Brook, the"Disseminate personnel information internally," City College of New York, and Harvard University.another proviso, "and make sure that promotion He has written extensively on economics and higherinformation is prominently posted, hold special education in the black community. Dr. Swinton'smeetings with employees and unions, and hold plant affiliations include the National Economic Associatours." This translates into, "Integrate the employee tion, the American Economics Association, theinto the company and use the internal labor force to editorial board of the Review of Black Politicalyour advantage. Provide extra information to overEconomy, and Howard University's Institute for thecome employee ignorance." Study of Educational Policy. He received his doc"Reduce seniority in job requirements." I take this torate in economics from Harvard University.to mean, "Check to make sure the labor market isnot defined so narrowly as to increase the price of STATEMENT OF DAVID H. SWINTON, labor." The long term with respect to employment DIRECTOR, SOUTHERN CENTER FORprocesses will, I think, work out. But there are a STUDIES IN PUBLIC POLICY, CLARKsurprising number of companies who are capable of COLLEGEsupporting inefficient employment practices because DR. SWINTON. Thank you, Mr. Chairman, Com technically they are in a very good market position missioner Berry, and other Commissioners. I considwhere they have technical expertise which can get er it a high responsibility to come and testify beforearound inefficient employment practices and essenthis Commission, despite my misgivings that thetially still provide them a profit. Commission had probably already reac~ed a deciI think that one of the beneficial things of the sion about this matter, based on the material that Iregulations-and for me the beneficial part of doing have been able to read concerning Commissionthis paper-was that a great deal of the regulations pronouncements in this area.are involved with the free market system, are Nonetheless, I think it is important to make adesigned to encourage the free market system, and historical record that what this Commission is doingcan be operationalized to measure the ability of, a was not done without sufficient warning about the company to perfect its labor market and still proviqe hazardous course the Commission is taking the civilalso a measure of affirmative action in terms of the rights movement and this Nation on. 14 I am going to speak a little about what I have already written. It's there for you to read if you care to. I tried to write it on a relatively accessible level, although I observed from Professor Williams' remarks, despite that effort, he still was unable to understand what was being said. My view about this Commission is that it was established to be a watchdog and an advocate for civil rights and the interests of minorities in this country. This Commission was not established to be neutral. It was not established to promote the interests of white men. They don't need your help. They control everything in the society. I would like to start my remarks by citing what I thought was our 'assignment. We were asked to talk about the connection between underutilization, underrepresentation, and discrimination. We were giv en a quote and we were asked to determine or to give our opinion about the extent to which underutilization implied the existence of discrimination. We also were asked in the course of this discus sion to comment on the following quote: "Absent explanation, it is ordinarily to be expected that nondiscriminatory hiring practices will in time result in a work force more or less representative of the population in the community from which employees are hired." That is a quote from the Supreme Court decision in the International Brotherhood of Teamsters v. U.S. I observed in reviewing the papers that were submitted that at least three of the papers that commented on that quotation were seemingly not particularly in favor of that quotation. However, each paper then moved to provide explanations of why nondiscriminatory hiring would not .lead to equal representation. The quotation says "absent explanation." If the explanations Mr. Williams ad vanced are accurate and correct, his position would not be inconsistent with the quotation. The quota tion does not say that there should be numerical parity, population parity, under all circumstances. It says "absent explanation there should be parity." If you have an explanation, for example, that black folks are too dumb to be employed proportionately, then, according to the quotation, employment at a rate less than the population representation would be fine. If a legitimate explanation has been established, advance it, and you will be consistent with the policy. So I believe the question is about evidence. It's about explanation. It's about causation. There's a lot of nonsense in this debate, a lot of it, constantly, continuously. There's a lot of misrepresentation about affirmative action guidelines imposing strict racial quotas, reverse discrimination-utter nonsense. Anybody who knows anything about this country, who knows anything about institutions of higher education or any other employers, knows that it is not a major problem in this country that employers are using quotas to displace white people. That's asinine. In the introduction to my written presentation, I attempted to point out the connection between the historical facts of racial discrimination against blacks, by whites, and the establishment of an active equal employment opportunity policy in the early 1960s. Equal employment opportunity and affirmative ~~_fi~_p2li~y_were not{mposed:ouJ o_fth~__blu_e.. on a IK]i\t-0 ~ell-functioning labor mar! at the table. And you may give us a brief biography when you give some words, sir, if you don't mind. I do want to say that on the program we have listed testimony from the Women's Legal Defense Fund, which will be in the record. They did not wa11t to testify this evening. We do have testimony from Ms. Goldsmith, who is president of the National Organization for Women. That testimony has i.been circulated and distributed. And as I understand, Mr. Glasgow agreed to come, but at the last' minute the Urban League has issued a press statement that may or may not be available to all of you today but it can be available to you tomorrow, and they will not be testifying. So let us note for the record that we do have three people who agreed, and two copies of testimony available in your booklets and available also to the audience. Mr. Perlmutter, we'll start with you, sir. We have been having about 20 minutes for summary of testimony, 20 minutes or less, or in some cases more, and then we have had a chance for you to interact with the Commissioners after your testimony is completed. Mr. Perlmutter, would you please begin. Affirmative Action: Underrepresentation and Underutilization STATEMENT OF NATHAN PERLMUTTER, NATIONAL DIRECTOR, ANTI-DEFAMATION LEAGUE MR. PERLMUTTER. Thank you. And thank you for the opportunity to discuss some of my views on this subject with you. CHAIRMAN PENDLETON. Excuse me, sir. I made an egregious error. I have been reading people's biographies into the record, and if you will allow me a minute to read yours, I would appreciate it, sir. The Anti-Defamation League of B'nai B'rith (ADL) was founded in 1913 to stop the defamation of Jewish people and to secure justice and fair treatment for all citizens. Not a membership .organization itself, it is the legal and human relations wing of B'nai B'rith International, which has 500,000 members. The ADL educates Americans about Israel, promotes better interfaith and intergroup relations, counteracts antidemocratic extremism, and strengthens democratic values and structures. ADL National Director Nathan Perlmutter has been active in that organization since 1949. In addition to several positions with the ADL, he also served as a Marine infantry officer, as an associate national director of the American Jewish Committee, and as vice president for development at Brandeis University. Mr. Perlmutter has written and spoken widely on social issues and anti-Semitism. He received his law degree at New York University. Thank you, Mr. Perlmutter. MR. PERLMUTTER. Thank you, sir. I suppose I might open with confessing to a problem that I have with the very title, "Underrepresentation and Underutilization." My problem is with the imprecision in the definition of these words. There was a time, when confronted with underrepresentation or underutilization, say, of Jews in "executive suites," it was a signal to take a look, to probe further, to see whether or not underrepresentation and underutilization meant that there was discrimination, or whether it meant that the applicant pool wasn't proportionately representative of the Jewish community. It may have meant, too, that the competency level of those Jews who had applied wasn't up to snuff. It was a signal to investigate, to look and see why underrepresentation. But I am afraid that today I don't get that message in the use of the terms underrepresentation and underutilization. I have the sense that when the words are used they are a charge, they are a conclusion, and the conclusion is that there is discrimination. And beyond the problem with that too hasty conclusion, something there is in the way in which the terms are used accusingly that suggests that there is a "correct" level, an "appropriate" level, of, say, minority representation in a given shop, and that the correct level is not necessarily based on an analysis of the employee applicant pool, but rather on the demography of the community. This notion that underrepresentation is socially per se wrong has, I believe, contributed to the prescription of quotas as a remedy. It is our feeling that the diagnosis is too often wrong and the prescription is always toxic. The diagnosis is wrong because the disparity between demographic percentages and the composition of a work force, or of a freshman class, though it may be due to discrimination, may also be due to the numbers who applied for positions and to the level of their competency. For instance, to engage in reductio ad absurdum, but it's in the real world, I do not draw the conclusion that basketball teams are antiwhite, although some years ago it was prescribed for a Cleveland school that 20 percent of the basketball team should be white. Quotas, I suggest, are a toxic prescription-a strong term-but the fact is that the inevitable side ·effect is discrimination, discrimination against somebody else. For quotas, by working definition, mean that somebody is arbitrarily being favored because of his or her race, color, creed, religion, sex. That means that somebody else is being arbitrarily punished because of race, color, creed, sex. Yesteryear it was blacks; it was Jews; Catholics, especially those whose heritage could be traced to the Mediterranean. Today those being arbitrarily bumped by quotas are whites. I remember some years ago I was v1s1tmg a university president in the Boston area. I came into the corridor and there was a sit-in of several dozen students blocking the entrance to his office. I recognized one of them and asked what was going on. He told me that the university had a set-aside of dollars, a financial set-aside, for those who were economically underprivileged. But the way in which the money was being given out, assumed as a definition of "underprivileged," black.. And his response was, "We are all either Italian or we're Irish and we're all from Boston, and we're all from poor families and we want our share." There is something else about this concept of underrepresentation that I think is socially mischievous, and I might say antithetical to the democratic principles that we grew up with. It causes us to think of ourselves in terms that are more Lebanese than they are American. I mean by that it causes us· to focus attention on ourselves as members of a group rather than as individuals. Is it too stars-and-stripey to say that our rights as Americans inhere in us as individuals regardless of race, color, creed, sex, and so on, and not because of race, color, creed, and sex? For government to relate to us in terms of our group identity renders us as individuals less visible, less precious as humans. You remember Ralph Ellison's classic, The Invisible Man. What was the black protagonist saying in that book? He was saying, "Look, I cry, I laugh, I aspire, but you don't see me, you don't hear me, you relate to me based on your perception of what my color means. You might not like blacks or you may be patronizing to blacks, but you are never really relating to me as an individual." Well, I am suggesting, with some modifying of the imagery, that the individual who aspires to a jobtraining spot or aspires to admission to this or that college, or aspires to this or that profession, and who is bumped because there is no room for him because he's a male or no room for him because he's white, has been rendered somewhat less visible as a human being than he really is. I want to proceed for just a few moments now beyond the wrongs that are arbitrarily inflicted on people whose guilt may be that they are just born of the wrong color. I'd like for a moment to talk about precedent, and to quote George Washington in his farewell address. It's a short sentence: "The prece dent must always overbalance in permanent evil any partial transient benefit which the use can at any time yield. The precedent must always overbalance in permanent evil any partial transient benefit." Today, benignly intended quotas are meant to include given groups. I submit that once quotas are sanctioned either by law or by custom, they are a precedent. They are a precedent available to less benignly intended people. And that this is not an academic speculation was made evident just 2 weeks ago in the Nation's press. You remember reading of an evangelical talent bank formed by the American Coalition for Traditional Values, allegedly designed to secure positions for evangelicals and fundamentalists in the civil service. Listen to the director of the American Coalition for Traditional Values in explaining his efforts: "We feel we represent 25 percent of the work force. It would be nice if we could have that percentage in government." Well, if other groups who identify themselves by race or by sex claim entitlement to group preference, why not groups who identify themselves by religious denomination? The precedent stands. And pretty soon, if that be the case, Episcopalians or Presbyterians. And we are en route to Lebanese factionalism. These are the reasons we feel the quota system, an expression in some measure of the sense of "underrepresentation," is mischievous. In closing, I would refer back to the formal paper presented to you which reminds you that the ADL, while opposing racial quotas, while viewing underrepresentation and underutilization as no more than a reason to probe as to why this is the case, supports vigorously affirmative action programs such as remedial education, job training for disadvantaged regardless of their race, color, creed, or sex, and we support outreach ~o and recruitment from the minority community. And lastly, we, of course, vigorously support .redress to identifiable victims of discrimination-individuals identifiable as distinguished from group preference. Thank you, sir. CHAIRMAN PENDLETON. Thank you very much, Mr. Perlmutter. Mr.' Shanker is the president of the 580-member American Federation of Teachers. COMMISSIONER BUNZEL. More than that. MR: 'iSHANKER. That's the number we started with. • CHAIRMAN PENDLETON. Okay, 610,000. It's right here, Mr. Shanker; I just blew it. And I am reminded by all people on all sides that I gave the wrong number. It was founded in 1916 to promote collective bargaining for teachers and other educational employees. It now conducts research on teacher stress, educating the handicapped, and other issues, and lobbies for the passage of legislation of importance to education and labor. The AFT presents an annual human rights award and bestows grants in education and labor fields. AFT President Mr. Albert Shanker has been active in education and labor for a number of years. He has also served on advisory and board positions with the A. Phillip Randolph Institute, the United Fund of Greater New York, the International Rescue Committee, the Committee of the Free World, and the Committee for the Defense of Soviet Political Prisoners. He has been a member of the advisory council for Princeton University's Department of Sociology. Mr. Shanker received his bachelor's degree at the University of Illinois and did postgraduate work at Columbia University. He now holds honorary doctorates at Rhode Island College and the City University of New York Graduate School. Mr. Shanker. STATEMENT OF ALBERT SHANKER, PRESIDENT, AMERICAN FEDERATION OF TEACHERS MR. SHANKER. Thank you very much for this opportunity. I'd like also to say at the outset that I agree with the remarks of Mr. Perlmutter. I'd also like to state for the record that the American Federation of Teachers has a unique history on the issues of concern to this Commission. In 1954 the American Federation of Teachers was the only group in the national scene in education that submitted an amicus brief in the historic Brown case which moved to end school segregation. As soon as the Supreme Court decided that case, ·our organization did not merely note it, nor did we ignore it; we proceeded to expel all locals within the organization that refused to integrate within a 2-year period of time. We were also there in Selma and Montgomery. We consider ourselves strong activists within the civil rights movement of this country. It is from that perspective that we strongly oppose quotas. I know "quotas" isn't the title of the discussion today. But when we talk about affirmative action, we are in an Orwellian world where the words don't really mean anything or they mean precisely what the speaker wants the words to mean at any given time. Affirmative action may be sold in one forum by saying, "It doesn't really mean quotas. What we really mean is something separate, meaning affirmative action." But as soon as the stamp of approval is there on affirmative action, the very same discussants may move on to the courts and say, "See that. They support affirmative action. Here's what it means here: quotas." What we have, then, is an Orwellian situation where the same terms are sold under totally different packages and different meanings with different consequences in different forums. The concept of underrepresentation also can present an Orwellian situation. It's not an easy discussion. Anybody who looks at the statistics on where certain minorities are within our society in terms of income and membership in various desirable occupations must immediately sense, from those numbers, that we are facing the consequences and impact of previous racism and some current discrimination of various policies-no question about it. So to question the concept of underrepresentation is not to question the fact that we have problems or not to say that the current state of affairs is desirable; it is not. One can even look at those figures and say, "Yes, I think that there is underrepresentation"and I do. But then I ask myself, "Well, if I say there is underrepresentation, what am I implying? Am I implying that there is a certain number which would mean that representation was proper." I don't want to imply that, because I do not believe that in a free society every group of individuals will line up in proportionate percentages in terms of where they live in neighborhoods and how many are teachers and how many are doctors and how many are lawyers and how many are basketball players or how many are anything else. So one can have a concept of unfairness in looking at certain statistics and wish that things were different and, indeed, that things were better, and want to work to make things better, without implying by that concept that there is some magic number at which representation will be proper. Now, that is not an easy position to take. It is much easier to say, "Well, I'm going to solve this injustice by insisting that all we've got to do is reach a certain number of minorities in every field and everything will be all right." I favor instead the concept of underrepresentation as a signal that something needs to be done. I don't like it if the next question is, "Mr. Shanker, if minorities are underrepresented, what number would lead you to say that they are not underrepresented?" We have faced this issue with respect to various conflicts in different cities and different school districts, when the courts and various commissions come in and ask whether there is proper minority representation among teachers in a given city. What constitutes proper representation? We have had some judgments which have held that if 60, or 70, or 80 percent of the school children in the city come from minority groups, then obviously the proper representation for teachers would be to have the same percentage of teachers from those minority groups as there are students from those groups. I don't know how anyone can arrive at such a ridiculous conclusion, but it happens. Obviously, we do not select the teachers from students. Moreover, the percentages of students in public schools from different ethnic and racial groups are quite different from the percentages of adults from different groups within those communities and cities, and even more different from the ethnic and racial makeup of the pool of college graduates from which teachers are selected within those cities, and even more different from the makeup of those of college graduates who have specifically trained to become teachers. Just listing those different ways of arriving at the proper representation figure indicates the pitfalls. But even then you might say, "Well, how about basing it on the percentages in the pool of college graduates or of those trained to become teachers?" That doesn't give you a proper representation number either. It so happens that, in many places across the country, many minorities (and others) who have graduated college and taken the appropriate courses to become a teacher find that as soon as they graduate, or perhaps after they have been in teaching for 6 months or a year, they can get much better salaries in other fields. Are we going to stop them? If we believe that we should maintain a system of exact representation, should we have laws preventing people who become teachers from leaving the field if it would create some disparity in the numbers and upset proper representation? I support special outreach efforts. I support special training programs and other efforts to increase the pool of minorities qualified to assume the desirable positions in which they are now underrepresented. I certainly oppose discrimination. And for all these reasons-and for the sake of a democratic society-! continue to oppose a concept of representation that entails set numbers: quotas. I now would like to spend a few minutes talking about testing, because it has an important bearing on the issue of quotas. There are tests that have been used for the purpose of discrimination. I don't believe, for example, that a ditchdigger needs to be given an examination in calculus or even in geometry or algebra; there are certain cases where the discriminatory intent of testing is rather clear. But that isn't where we are right now. It is very difficult to precisely define what kind of a test is exactly relevant in the performance of a particular job. Can anyone really prove that one needs to be a college graduate to be a teacher? Can anyone prove that it's good for an elementary school teacher in the first, second, or third grade to know something about Shakespeare or know something about algebra or geometry? I can't prove it, but that is the kind of teacher I'd want to send my children to. I would not want to send my children to a school where the elementary school teacher only knew what had to be taught to the children in that grade. What I'm driving at is that one of the unfortunate consequences of a legal unraveling and enforcement ofaffirmative action programs as quotas has been to reduce standards, to call for the minimum possible; that is not what we should be calling for. In considering the whole question of which examinations are biased; there is a confusion of two concepts of bias. Obviously, if we can show that there are questions on an examination which have to do with certain linguistic usages and which have nothing to do with the performance of a job, and which tend to exclude minorities, then those questions needn't be used. But that isn't the way in which the question of testing bias is frequently used. Instead, as I travel across the country as a strong supporter· bf giving teachers the same kinds of tests that are given to lawyers or to doctors or to actuaries and other professionals, what I'm told is, "The tests~are biased because minorities do not pass them in the same proportion as the nonminorities do." Well, that doesn't prove the tests are biased at all. It may just prove that, as a result of economics, lack of education, previous discrimination, and present discrimination, we still have problems to overcome. It doesn't prove there's anything wrong with the examination. It may mean that we have not yet done enough in other ways for minority groups so that they pass the tests in the same numbers. But that is, indeed, one of the main obstacles today to promoting and accepting and embracing examinations in education and in other fields. It is not a question of whether it is a good test or a bad one or if it would be good for teachers to know more, but whether examinations would have a disparate impact on minorities. Finally, I wouldlike to deal with the question of goals and timetables, for I think that they too suffer from an Orwellian usage. If someone asks me now to speculate as to what percentage of minorities I would like to have in teaching in the future, I'm willing to sit and have a beer or another drink and talk about it. The question sounds very innocuous and very soft and deals with good-faith aspirations and hopes. But clearly, that isn't what's meant, except when you're asked the question initially. Goals and timetables easily become questioned a few years later as to, "Why didn't you reach ~hem? Why didn't you get rid of all the requirements and all the tests and all the obstacles so that you could reach them?" Goals and timetables are then clearly not meant strictly as goals and timetables. Indeed, I'd like to question the very concept of goals and timetables because I think, once again, it reflects a particular Orwellian notion. If I'm asked what is my goal and timetable, I'm really being asked, "What percentage of people of this group or that group do you think is right by some sense of justice to have at a particular time?'' Well, I don't think there's a "right number" at any particular time. For example, I do not resent the fact that large numbers of minorities who are prepared to become teachers get much better jobs elsewhere. I'm sorry we can't keep people who are qualified because teaching does not pay enough or the conditions aren't good enough. But I will not resent it nor will I try to prevent it out of some sense of the right numbers at the right times. I think that what we have here really is a conflict between an effort, which I think is good, to undo the effects of slavery and racism on the one hand, and on the other hand to try to impose a method which is really antidemocratic and basically totalitarian to achieve that aim. I would not want to live in a country where we were all distributed in every job, or in every profession, or in every neighborhood according to their subgroup's proportion in the population. It could not happen in a free society. I think then, that when we ask questions about underrepresentation, we ought to admit that some minorities are underrepresented in certain fields. There have been government policies and history in this country which have resulted in that situation. We should try to do something about it. But we shouldn't do those things which turn us into the kind of society that we don't want to be.c CHAIRMAN PENDLETON. Thank you very much, Mr. Shanker. Mr. Bookbinder, who represents the American Jewish Committee, would you please give us your testimony in some summary form. STATEMENT OF HYMAN BOOKBINDER, WASHINGTON, D.C., REPRESENTATIVE, AMERICAN JEWISH COMMITTEE MR. BOOKBINDER. As I indicated earlier, this will be a spontaneous, extemporaneous, presentation. COMMISSIONER BERRY. Could he tell us something about himself first, Mr. Chairman? MR. BOOKBINDER. I'll do that. I have had a long association with the civil rights movement in this country. Let me just indicate a few examples because they are relevant to my testimony, and I'll only mention those. Before joining the American Jewish Committee, and some years in government service, I was with the labor movement. In 1957-I look back with great joy and satisfaction and some pride that I was part of the intensive lobbying effort to get the first civil rights bill passed since Reconstruction. And I remember very well those hysterical hours and days of negotiations to rescue the bill and get something passed. You, the members of the Commission, probably know this history very well. We were thrown what we thought was a sop, window dressing, "We'll give you a Civil Rights Commission." I remember with some skepticism why we accepted that. Even for us it was useful to have something we could point to. But the bill itself was symbolically very important. But the Civil Rights Commission turned out to be very, very important throughout the years. It's been a very, very important Commis sian. And despite recent differences over the current Commission and the way it was reformulated, I express great hope and confidence in the work of this Commission, and I regret very much that the absence of witnesses tonight is a reflection of the very sharp feelings that have developed over the Commission. I'll get back to that in a moment. But I think this is a Commission that deserves to hear all points of view, and I regret that another point of view on this very important question tonight will not be heard, except to the extent that I will try to reflect that point of view in what I will say in just a moment. I was in the Kennedy administration, in the first years of the Kennedy administration. And one of the things I look back to with some satisfaction is that I was a member of what we called, I believe, the Subcabinet Group on Civil Rights. I was represent ing the Secretary of Commerce at the time and served in that Subcabinet Group on Civil Rights. I remember that very first meeting of the Subcabi net Group on Civil Rights. This is the first time I am talking publicly about it because, having read Harris Wofford's book recently, I see that he did put it in print, so I'm willing to relate the following impor tant anecdotal reference to that first meeting of the Kennedy Subcabinet Committee on Civil Rights. It was attended, among others, by some of the "best and the brightest"-Ted Sorensen, Lee White, Fred Dutton, Meyer Feldman. And one of them-I don't know which one it is, and maybe I'm glad I don't remember which one it is-but one of them I remember saying early in that meeting, "Ladies and gentlemen, you are going to be held accountable for civil rights progress in this Kennedy administra tion." And then this, whoever it was, said, "We have taken inventory of this Congress. We do not expect any legislative help in this area. That is why we are going to have to do it administratively." He said, "One of the first things I want you to do is to go back and see whether there is proper employment, sufficient employment, of minorities"-we didn't talk about women in those day-"and if you feel in your gut that there isn't enough minority employment, I expect you to do something about it, and ·from month to month I expect reports and I expect improvement." And then he added ominously-I remember I was shocked at the time, less shocked now looking back over it-"And if there isn't improvement from month to month, there will be other people sitting in your place in these meetings." I tell you this story because it was before we heard about "affirmative" action, before we heard about "preferential treatment," before we talked about "goals" or "quotas." What was being said was, "There is a way of knowing when things aren't right, and do something about it." Well, some things were done about it. We had lots of "affirmative action." One final personal reference. In 1963, I was asked to take a leave of absence from my government post to put together and direct the Eleanor Roosevelt Memorial Foundation, which was formed soon after the death of Eleanor Roosevelt. I had served on her Commission on the Status of Women. The only project in the 1 year that I served-the only project I look back to with joy again and with pleasure that I helped start-was a project on civil rights, the training of human rights-civil rights functionaries. Now, let me go to the substance here. The absence of witnesses today is for me a very, very heart-breaking business. And although it may not be relevant to the subject of underrepresentation, we are underrepresented in this panel here-I see it's made up fully of "some of my best friends," if you know what I mean, who are overrepresented in a way. MR. SHANKER. But we don't agree. MR. BOOKBINDER. I think it's important-and you'll soon see that-I believe it's terribly important, and I don't know how I can make this as sincere and serious and strong as I possibly can: To the extent that you members of the Commission and the public generally don't understand why there is anger, then we are failing to do our job as public servants and as private citizens. It doesn't have to mean agreement with those who are angry, and I am not .in agreement on specific issues with most of those who are angry. But we need to understand the anger. The anger flows from a widespread feeling that this administration doesn't care about civil rights. It's not only the job of those who feel that way to do something about it, perhaps review their situation, but it's also important for everybody to try to understand that anger. Now, we have heard some testimony already this evening. I agree with almost everything I have heard. And if I am going to shortcut my first statement here, it's not because I don't believe it strongly, but because it's been said, and I want to go on to the second part. I believe, with my two friends here, that a quotaized society is wrong; it's obscene; it's contrary to everything we want. I do not want to go into a room and hear, like I hear very often, if there's a room of 30 or 40 people, "You know, there are only three blacks," or, "You know, there are only four women," or "You know, there are only two Jews." We don't need a Democratic Party or a Republican Party that thinks that its national committees or its conventions or its electors have to be a precise reflection of the mix in the population. I don't like that kind of society. So let me stipulate now that the issue of quotas, which means designated spots for people in designated groups, is wrong; it is"absolutely wrong. But from this point on I'm going to disagree with my two good friends, and I hope they will bear with me and understand the extent to which I disagree, and only to that extent. We in the American Jewish Committee, and I believe in many other Jewish organizations and many other organizations, believe there· is indeed a difference, and an important difference, between goals and quotas. The fact that goals programs can be, and too often have been, distorted de facto into quotas doesn't take away from the fact that there is a very important philosophic, a very important conceptual difference between goals and quotas; a difference which this Civil Rights Commission has recognized in eloquent ways until this year. The fact that there is that difference has to be understood, and it is the job of government, it's the job of management, to enforce that difference. And what is the difference? The difference is that under a goal system that is properly enforced, professionally qualified people make a judgment that in this particular school, or this particular factory, or this particular whatever it is-and it has to be a large enough number for this to have meaning; you can't talk about a group of five people having a goal for its makeup-that in this particular case, a careful study of the labor force and of the available qualified people for that particular job, if there were absent discrimination, if there were no discrimination; then over the next year or two or three reasonable people would expect that there would be roughly 20 percent blacks or 40 percent women or something else, based upon a careful reading of the labor market, and that if at the end of the period it was not approached, the only thing that happens in a goals programs is that there is a requirement to ask, "Why didn't it happen?" There is no automatic sanction; there is no automatic punishment. And then it means that the individuals and the parties involved have a responsibility to say, "Did we correctly evaluate the examination program? Did we do adequate advertising? Did we do a good recruiting job?" That's what a goals program is. And I submit, Mr. Chairman and members of the Commission, if you went back and did the research job I have been pleading for for years-I testified before this Commission 4 years ago and pleaded with you-you could study the history and tell us whether my good friend AI Shanker is right or if I'm right. He believes that the great bulk of programs have turned into quotas. I don't believe that is so. I believe the case that goals become quotas is essentially an anecdotal kind of testimony. It shouldn't happen ever. Let's find out what the story is. I believe most programs in this country are operating as legitimate goals programs. If they are not, we ought to make them legitimate goals programs. That's ail I want to say about that, but I want to conclude by repeating what Nate Perlmutter has said. And in our testimony that we mailed to you, we spell it out. It is unfortunate that even I have had to spend all this time on the one issue of goals and quotas. There are many other important things in affirmative action that have to be done better than they have been done. Had we done these things effectively over the years, we wouldn't have to have all this bitterness, all of this anger, all of this attack and accusation over whether we are doing enough in the quotas, goals, and affirmative action area. We have to do more about training, more about reviews of exams, more about adequate advertising. And above all-and this is not your business; it's not your job; it's not your responsibility-to the extent that our country-not our government alone, but our country-fails to provide sufficient jobs in our country, to that extent we will have this competition, this battle over the available jobs. So on behalf of the American Jewish Committee, I repeat: We are against quotas for the reasons stated better by my colleagues than by myself tonight. I share their judgments about that. But there is another remedy. There is a remedy where the situation seems to require it that there be a system of goals and timetables properly enforced, clearly monitored, modified whenever necessary, in order that there shall be a way of measuring, a way of seeing whether the aspirations we have for greater equality of opportunity are a reality. Thank you. CHAIRMAN PENDLETON. Mr. Bookbinder, thank you very much. There are a few minutes left for questions. I would ask that my colleagues try to ask one question in case there are many questions to be asked, and we can go back for a second round. I'll start with Mr. Bunzel and then move to the other side of the table. COMMISSIONER BUNZEL. Only one question is going to be difficult, but I'll collapse several into one. I was tempted to ask Mr. Shanker what he as doing on the advisory committee to the Department of Sociology at Princeton, since I was a graduate and don't know anything about why a department needs an advisory committee, but I'll leave that aside. My question is for Mr. Bookbinder, whom I have known, and whose career I have followed with great admiration for years. I have read many of the things he has written about the distinction he draws between goals and quotas. Part of my difficulty here is that the discussion-and I'm guilty of this, too, very often-becomes quite abstract. I want to give you an anecdotal story, but it happens to be true, and I want to ask whether or not you think the position I took at the time is the position you believe would be correct and would fulfill your criteria. When I was president of a university in California during the 1970s, one of the first things I did within a few months of taking the job was to send out a memorandum to all the department chairs and deans at the campus urging that affirmative action be put into practice so that there would be no doubt about the search procedures, that we would recruit broadly, and that there would be no more of the buddybuddy system, that we had to reach out as broadly as possible-the whole litany that you are familiar with. And we had several meetings along these lines because I was very committed to this. Several years later one of the administrators brought to my attention, in a meeting in my office one day, the following procedure that was taking place in a department. They had been given a budgeted position to hire a faculty member. In fact, I learned that that position had been given to them the year before. But they had not filled it. And upon investigation, I found out that the reason they had not filled it was because they were setting it aside until they could find a black. MR. BOOKBINDER. I disapprove of that. You don't have to finish your question. I disapprove of that. COMMISSIONER BUNZEL. The argument they made was, "We have set certain goals and certain timetables, and if we are going to reach them we have to do this, because while they are not dealing with quotas we have set goals for ourselves. And if we are going to meet the goals, we simply can't go out and hire the best qualified person," which IS what I was insisting upon. So what I am really asking, Mr. Bookbinder, is this: In practice, would you concede that at least sometimes goals become the functional equivalent of quotas? MR. BoOKBINDER. I thought I said that in my own statement. Yes, I did. I said that even though there are occasions-and more cases than should have been the case-where there have in fact become quotas, preferential treatment in this case, and a setaside- COMMISSIONER BUNZEL. Then if I understand your position, your definition of and your commitment to goals and timetables is based on a test that is not tied to results, but is tied to good-faith efforts. MR. BooKBINDER. Yes, I said that, that if at the end of the stipulated period there has not been a finding that the approximate goals have been reached, that all that triggers at that moment is a review of the practices, the recruiting, and so on, an explanation-and perhaps in many cases it would mean a change in the goal because it turned out to be unrealistic. COMMISSIONER BUNZEL. The reason 1 asked that latter question is because during the years that I was on this campus, I discovered after 6 or 7 years that we had increased the number of women in the administration rather dramatically. This was also brought to my attention. And the women who were appointed to various administrative positions for the first time in the history of San Jose State were not filling a quota, were not filling a goal, were not filling a timetable. We were able to make progress because of the commitment to reach broadly and to hire the best qualified person, which now included pools of qualified women, and that all we needed to do was to broaden the search and make sure the applicant pool was as generous as it should be and as qualified; we didn't have a set goal or a set timetable. But we managed to increase the number of women in the administration rather dramatically. Is it possible that one can make the strides that you and I want to see? MR. BOOKBINDER. Without goals or quotas? COMMISSIONER BUNZEL. Yes. MR. BOOKBINDER. Yes, it is possible. CHAIRMAN PENDLETON. Thank you, Mr. Bunzel. Mr. Guess. COMMISSIONER GUESS. Mr. Chairman, since I can only ask one question, I have a observation and a question for Mr. Shanker. CHAIRMAN PENDLETON. Is that by definition or by two questions? COMMISSIONER GUESS. That's by definition, Mr. Chairman. We have a number of ideas, Mr. Shanker, that have been presented to the Commission that are kind of converging at this point. Earlier today, Professor Walter Williams indicated a disproportionate number of blacks are going into postgraduate study in the field of education. Of the blacks receiving Ph.D.s, 55 percent, I recall he said, receive them in education. And I believe he implied that was because education tends to be an easier field of endeavor than other more rigorous courses of studies. But following that course of thought, I want to be able to conclude from your comments that, if all things being equal and these things continue to develop, the other side of the record is that you would be comfortable if all teachers-at the elementary and secondary level in the United Statesbecome black. MR. SHANKER. I sure would. I have no problem with that at all. COMMISSIONER GUESS. Thank you. Secondly, since the American Federation of Teachers tends to be creative and imaginative, unlike other education associations, in its approach to providing for teachers, another concept that we heard a great deal of today was the concept of the free and open marketplace. Do you think that, with qualifications being in place, we can also extend this concept to the field of employment and particularly in the field of education? And would you see, as we approach a fairness of how we are going to obtain positions, that teaching slots could be bid on, that a potential applicant for a position would be allowed to bid, and all the qualifications being met, whoever was the low, reasonable, responsible bidder would be afforded an opportunity to acquire the position? MR. SHANKER. I would look at the other side of the coin, too. You've got it now, really. You don't even have a low bidder situation. What you have now is something where there are no bidders for these positions, so what school boards do is hire emergency teachers, temporary teachers, substitute teachers. Did you ever hear of an emergency surgeon? Have you ever heard of an emergency temporary lawyer? Did you ever hear of an uncertified dentist being able to work for a couple of years until they hire a certified one? COMMISSIONER BUNZEL. Yes, I've got one now. [Laughter.] MR. SHANKER. You might have an incompetent one, but he is not uncertified. That's the difference. COMMISSIONER GUESS. Mr. Shanker, you have to realize my colleague is from California. [Laughter.] MR. SHANKER. Oh, I do; I do. Seriously, my problem is that education in this country has refused to operate in accordance with competitive marketplace principles. I think you ought to set a standard of what you need in the profession. It should not be a minimal standard that is rock bottom. That is ridiculous. It shouldn't be so impossibly high that you're asking for everyone to be a genius. You don't have that in any field. There ought to be a reasonable standard. And once you set that standard you ought to allow market forces to determine what you have to pay to bring people in. If you can get good people for less, that's fine. Maybe we wiii reach a time when you can pay less, but right now there is no question that the operation of market forces would bring salaries and working conditions in the field of elementary and secondary education higher than they are at the present time. There are some strikes in Mississippi right now. If you want to know what the market is like, consider that Dallas and other Texas school districts that are not noted for being pro union are putting radio commercials on the airwaves in Mississippi trying to recruit the striking teachers there to work in Texas. Now, when you get school districts that basically don't like strikers and don't like unions and don't like illegal activities by teachers trying to whisk away the striking teachers to their districts, you can tell there is a shortage. MR. BooKBINDER. Mr. Chairman, would you give me 30 seconds to add to my earlier response to Mr. Bunzel? CHAIRMAN PENDLETON. Certainly. MR. BooKBINDER. Mr. Bunzel, I said before, with due respect, that we get anecdotal arguments made against goals. Neither goals nor quotas are needed for the Bunzels of this world. I mean that most respectfully. 'fhey are not needed for the Perlmutters or the Shankers of the world. They are needed for a lot of employers and college presidents in this country who do not think and act the way you do. This reminds me to tell you one other biographical part of my story. It was in 1972, as an AJC representative, we called upon Mr. Nixon to make it clear this government is against quotas, but for effective affirmative action. And I worked with a man-and he won't be happy about my bringing him into this record-Larry Silberman, a Republican. He and I worked very hard; the two of us probably did as much to develop and invent the idea of goals and timetables as anybody. He regrets it; I don't. That's just for the record. But what was his point? Why did he agree then? Why did he think there was a need for another remedy other than quotas? Because he knew there are many people-I'II say it out Ioud-in the Interior Department, Agriculture Department, a lot of industries in this country where there aren't sensitive people like you who, without goals or quotas, were determined to take proper affirmative action. So the system is needed for a lot of people who need the prod, something to monitor their work, so they will then do what they should be willing to do without a formal system. MR. PERLMUTTER. Mr. Chairman, my name having been mentioned, may I comment on that? CHAIRMAN PENDLETON. I don't see why we don't spread it around. MR. PERLMUTTER. I will be neither anecdotal nor perhaps anecdotage. It isn't that the Perlmutters or the Bunzels don't need that special help. I can use all the help I can get. The point about quotas is that there is somebody out there who has been arbitrarily shunted aside. And it stacks the argument to talk only in terms of the benefit that somebody is going to get. That's fine. The compassion argument is relevant, and it should undergird our search for formulas that are helpful. But the quota system by definition means that somebody else is arbitrarily being punished. And I submit that they may not be Bunzels and they may not be Bookbinders, but there are innocent people that you don't see who are being pushed aside. MR. BOOKBINDER. That's why we are in agreement and we're against quotas. We are all against quotas. MR. PERLMUTTER. And we are all compassionate. COMMISSIONER BUNZEL. Mr. Bookbinder, I want to thank you for your very generous comments. MR. BOOKBINDER. I meant them. COMMISSIONER BUNZEL. I appreciate that even more. CHAIRMAN PENDLETON. Commissioner Berry. COMMISSIONER BERRY. Mr. Chairman, I can ask either one long question or three quick ones. It's up to you. [Laughter.] CHAIRMAN PENDLETON. Commissioner Berry, I must give you credit. You do ask questions without predicates. Why don't you ask your three? COMMISSIONER BERRY. Mr. Bookbinder, I agree with everything that you said. In fact, when you defined quotas as designated spots for people and designated groups and you said that's wrong, I agree with that, even, absolutely. Everything you said was absolutely consistent with the policy of this Commission before December 1983, as reflected in its report on affirmative action. So I agree with all of that and I appreciate your testimony. The only question I had was whether any member of the panel believes-I had two questions-whether any member of the panel believes that the history of black slavery and emancipation had anything at all to do with the adoption of the 14th amendment, and whether the history of Jim Crow segregation had anything at all to do with the enactment of the Civil Rights Act of 1964. Is there anyone on the panel who thinks that slavery had anything to do with the 14th amendment or did not? What is your position on those two points-anyone on the panel. MR. SHANKER. Well, I think Newton may have gotten the idea of gravity when an apple hit him on the head, but the· idea of gravity had applicability not only to apples, but to Newton's head. COMMISSIONER BERRY. I didn't ask you that, Mr. Shanker. You don't have to answer the question. That's fine. MR. SHANKER. I did answer the question. COMMISSIONER BERRY. I asked whether you thought it had any relevance at all. MR. SHANKER. I did answer the question. The origin of an idea has no relationship to its validity or its applicability. It merely relates to its origin. COMMISSIONER BERRY. Did slavery relate to the origin? MR. SHANKER. Of course. COMMISSIONER BERRY. That's all I asked. MR. SHANKER. I'm sure you didn't want just a yes or no answer. COMMISSIONER BERRY. Does anyone disagree with that? MR. BooKBINDER. No, I don't disagree, but I think I know what you mean to say. If what you mean by that question is that because slavery and the plight of the blacks primarily explained the need for the 14th amendment, that therefore, from this point on we should be blind to the possible damage done to other groups, it shouldn't mean that and it doesn't mean that to me. COMMISSIONER BERRY. I don't mean that, either. I don't mean that at all. I just wanted to know if there was any disagreement about that specific point. If in the black community we were willing to forget all about the history of slavery and Jim Crow, as some panelists today have suggested-you have not, but others have-that we should forget all about that and start with the present, would you, who I understand believe in merit standards, be willing to have everyone who holds a job or business opportunity today be tested by whether they meet merit standards as validated and, if they do not, lose them, whether they're black or white or whatever, and go on a purely merit operation starting today, forget the whole history of slavery and Jim Crow and say, "Okay, we'll forget it; we won't talk about it anymore, and you guys don't have to hear it anymore." MR. BOOKBINDER. I hope you would exempt representatives of national Jewish organizations from that review. MR. SHANKER. Why? MR. PERLMUTTER. Why? MR. SHANKER. First of all, I don't accept the first part of it. I don't think anyone ought to forget the history of slavery or its effects on discrimination in our society, so I don't accept the first part of it. On the second part, I think that if our society in general moves to look into the merit qualifications of all positions, I would certainly say the group we represent should not be exempt. I wouldn't want to be singled out. But I think it makes a lot of sense when you take a look at the advances that have been made in medicine, for example. You can look at a doctor who graduated, let's say, 35 years ago and ask whether he has been so busy working in the field that he has really kept up. I think that if we accept, as a general standard, that qualifications ought to be current and ought to be kept up, and if that's applied to one group or some groups, then I think it ought to be applied to everybody. COMMISSIONER BERRY. Thank you. MR. BOOKBINDER. With all due respect, Ms. Berry, I have never understood why you and some of your colleagues and others in the civil rights community, why you even engage in putting down the merit argument. Why do you want to deride it arid minimize it? COMMISSIONER BERRY. When did I put it down? Mr. Bookbinder, when did I ever put it down? CHAIRMAN PENDLETON. Mr. Bookbinder, if we could- CoMMISSIONER BERRY. May I respond? There is no one in the world who believes in merit more than I do. CHAIRMAN PENDLETON. Even in basketball players. COMMISSIONER BERRY. I believe in merit absolutely, merit standards. If I had had it in my power when I was chancellor at Colorado and provost at Maryland, I would have fired everybody who didn't meet the merit standard of that day. The problem was I couldn't fire them. I wish I could have. MR. BooKBINDER. Okay, I misunderstood you. CHAIRMAN PENDLETON. We have just three more questions. Mr. Perlmutter, I want to say the Cleveland basketball situation was in the public schools, not a professional team. Commissioner Buckley. COMMISSIONER BUCKLEY. If I may, I'd like to address Mr. Shanker. You stated an ideal situation where more minorities, say more black teachers, stay in the teaching profession, and we did receive some statistics this morning that stated that 55 percent of the black doctoral degree candidates went into education. However, the reality of it is that teachers with a bachelor's and even undergraduate students preparing for teaching, when they take the preprofessional test, when they take the competency tests that are coming up in several States-and Texas is one that will be severely affected by it-the minorities are going to be weeded out. How can we assure that we keep more of the minorities in the teaching profession so that they can be there to help some of the minority students, specifically as role models, to have them continue in their education and progress further in the mobilization of the minority groups? How can we have the reality become this-a high school with all black teachers when it's not an all-black student population? MR. SHANKER. In the first place, insofar as the large number of blacks getting doctorates in education is concerned, you should know that there is a disproportionate number of Americans, white, black, and Hispanic, who get degrees in education. Unfortunately, they get those degrees in education because they are easier, as was stated before. If the field of elementary and secondary school teaching could just have a small proportion of all those people who get advanced degrees in education, we wouldn't be facing a teacher shortage. But these people, whether they are white or black, are largely going to take other jobs. Secondly, I would like to relay to you a study of what happened in Florida with examinations. Florida started these examinations earlier than most other States, both for students and for teachers. And their earlier experience was very, very devastatingly negative in that large numbers of students failed the examinations and, therefore, might not have been promoted or graduated, and very, very large numbers of blacks who took the teaching examination failed. But if you look at what has happened over the last 5 years, you will see that as a result of special programs of help and as a result of allowing everyone to know that a standard existed which had to be met, the black students are now scoring at practically the same levels as the white students. And the number of black and Hispa~ic teachers passing has increased each year over the last 5 years. Now, I submit to you that the standard used by Florida is not an exceptionally high standard for any teacher. That is, to be an elementary school teacher in Florida, one must pass a sixth grade arithmetic test with multiple choice questions. If I knew that you were going to ask me this question, I would have brought the test questions here because they are the type of warm-up questions we used to get for students in the sixth and seventh grades. That is, they don't require pencil and paper. There are three obviously idiotic answers and one obviously right answer. All we can say is that if different groups pass at different rates, those groups that are not passing had a poor education and we ought to do something about helping them pass the test. I think if you saw the test, you would ask whether the standard is high enough. But the assistance that has bken given in Florida has resulted in improving the standards of both white and black students and teacher applicants. I also have looked at a program which the Macy Foundation has to recruit blacks into premedicine. It is a fairly small program of reaching out and finding black youngsters entering high school who show some promise. They are not picking those kids who are going to make it anyway. They pick those who are just below those who would make it anyway and say, "They are the ones who have to be helped." So far that program shows that, on the basis of a fairly modest assistance program, the number of blacks who will end up being certified as doctors in this country will double within a very short period of time, without lowering standards or without creating quotas, but by recognizing that there were great handicaps that these children had to overcome and that by reaching them early enough and giving them assistance, they could make it. I might be convinced to go for a quota program if I believed in the inherent inferiority of some people and believed that quotas were the only way that differences could be overcome. I don't believe in the inferiority of different people. I believe there are differences in background and there are disadvantages:_historic, economic, racial, and others-in terms of how certain groups are treated. Therefore, if we make those changes, we can get the results that we want. CHAIRMAN PENDLETON. Thank you. Mr. Destro. COMMISSIONER DESTRO. Just one question. I would address this to anyone on the panel who would care to address it. The comments that Mr. Bookbinder made about understanding the anger out there-they are comments which struck a real chord with me as I have gone out around the country and talked with people about the changes in the Commission and the Commission's positions and how they differ, if any, from past Commission positions. It seems to me that at the bottom of all of this is a real question in the minds of many civil rights advocates as to whether or not this Commission and the people who say they are opposed to quotas have a good faith commitment to solving problems that we all know in our gut are there. How do you propose that we can show that good faith without sliding down the slippery slope of this open-ended language of "underrepresentation" which raises all the subsidiary questions that somebody else is obviously overrepresented. How do we get this across as a Commission and as individuals? MR. SHANKER. I think you ought to be attacking the administration for the reduction in various budget efforts that are precisely designed to help groups that are disadvantaged, to enable them to compete. I think the anger should not be because people are against quotas. I think, in a democratic society, the anger shouldn't be expressed by refusing to come to a body whose composition is the result of a democratic process. I don't happen to like the people who occupy the White House or who sit in the Cabinet right now. But my side lost an election in a democratic society. I recognize that. That doesn't mean I refuse to go to hearings or I refuse to vote or refuse to participate in a democratic society. That is ridiculous. I think the anger is directed, unfortunately, .at the Commission and I think it's rather interesting. The anger shouldn't be directed at the fact that an election resulted in a Commission which has a majority opposed to quotas. I think that's fine. If you don't agree with it, come here and express your differences. I think the real problem is that educational programs and programs that help poor peoplethese are essentially programs of outreach, programs of retraining-are being ripped to pieces by this administration. That is where the anger ought to be directed. You are going to need more quotas after this administration is finished cutting the programs, because the damage will be so great that the only way you're going to get minorities into positions is not through help and not through training and not through assistance and not through outreach. You're going to do have to it by numbers. The administration has done precisely that because it has decided that the only people who are going to pay for its defense program are the poor people of this country. The rich can get tax reductions and the poor get program reductions. I happen to be a strong advocate of defense, but I don't think the way to get a strong defense program is to make one group in society pay for it. So I share that anger, and I think that this administration is dead wrong on a lot of these issues. It's not dead wrong on quotas. It's absolutely right. But if you're opposed to quotas, which I believe is absolutely correct, then you've got an obligation to show you're doing something else that makes quotas unnecessary. That I don't see from this administration. CHAIRMAN PENDLETON. Well, as one who COMMISSIONER DESTRO. Mr. Chairman CHAIRMAN PENDLETON. We'll run out of time if you don't watch out. COMMISSIONER DESTRO. I did ask anybody on the panel. CHAIRMAN PENDLETON. That's right. Mr. Perlmutter. MR. PERLMUTTER. This attentiveness to angerin the late sixties I had a good friend who was a radical, and when I expressed some displeasure with some violence that had taken place, he said to me, "Do you know what it is to be hungry? Do you know what it is to be uneducated, to know that your father and mother were uneducated? Do you know what it is to be locked into poverty and to know that your children, like your mother and father, are going to be poor?" And inasmuch as we were talking about violence, I said, "Well, you can't go into all that sociology to rationalize what the Black Panthers are doing." He said to me, "Who's talking about the Black Panthers? I'm talking about the boys in the North Carolina Ku Klux Klan." Now, the subject of anger out there comes up in this room where we are a family discussing civil rights. The only anger we really mean when we are discussing it is the anger of those who have been attacking the Civil Rights Commission, the new Civil Rights Commission. I submit to you, too, that there is an anger out there that may have manifested itself in some of the voting a few months ago. And it's an anger with the quota system. It's an anger with perceptions of racial preference, which is not a suggestion of prejudice because all the polls show there is less and less of it, but racial preference which is an expression of racial discrimination against persons who feel themselves set aside. Now, as to what a Civil Rights Commission can do, I think a suggestion was made about further studies. But it would seem to me that the least that a Civil Rights Commission can do is stand firmly against civil wrongs. And racism is a civil wrong, whether its victim is black, white, male, female, whatever. You're not going to solve all of the problems. You're only the Civil Rights Commission. But don't contribute to the problems; some studies are in order. CHAIRMAN PENDLETON. Mr. Bookbinder. MR. BOOKBINDER. I first made the reference to anger out there, so let me make a brief comment in the context of the question I was asked. I was referring to the anger of those people who didn't come to the session today for the reasons that they will have to explain, but since you asked the question as a member of the Commission, I will take advantage of it to say this. The answer is a reflection of a disappointment that many of them felt-and I joined them; I'm not going to say "they"; I can say "we" now. I thought-and Linda Chavez knows this well because we communicated with her and we wrote letters to every one of you Commissioners, when this Commission was reestablished. By the way, we had come and testified on behalf of Mr. Abram. We are proud of him. We may have some disagreements here and there, but we do consider this a Civil Rights Commission which deserves serious consideration. We recommended to this new Commission that as it organizes its business, why don't you find areas of substantial agreement with the organized civil rights community, because you are the Civil Rights Commission. There are many things that you and we can work together on. Don't stress that which has divided the community, the quota question. I believe, with all due respect-and I speak for my organization because we said this as an organization-you made a mistake in making quotas and affirmative action the front and center issue. And there is a feeling out there among those that I say are angry that. that is about the only thing the Commission thinks about. So I conclude by saying this-and the fact that I say many of these things tonight I hope doesn't dilute my strong antiquota feeling. But, for heaven's sake ladies and gentlemen, some perspective is needed. The country is not going to the dogs because there are some unfortunate quota things going on. There are very important other issues, the ones Mr. Shanker mentioned, many things that we can point to and say, "We need more work to understand why there is this kind of discrimination or that kind of discrimination. Let's go to work on that." But if the Commission continues to be seen as interested in that single issue of affirmative action quotas, then I think the anger wiii continue and wiii be justified. MR. SHANKER. I don't agree with that position. I think that if you have a period of time in which the courts and the Commission and other groups within government take a position which is far out and way out, and which you disagree with and others disagree with, and then a new group committed to reversing it is elected and, you say, "Well, don't pick on this issue, stay with other issues," that is really to say that when the American people vote, the election doesn't mean anything. Your advice to any new administration is, "Now, be quiet; don't do anything to really change what the other group did." I don't like a lot of the changes that are being made, but I think your advice is, nonetheless, very poor. I also think it's a very poor way to run a democratic society. In the long run- MR. BOOKBINDER. I- MR. SHANKER. I didn't interrupt you. I'm very angry about the administration's economic policies, which I don't think, by the way, reflect the views of the American people. But the American peopleblack, white, Hispanic-are overwhelmingly opposed to quotas. And there is absolutely nothing wrong with this Commission taking that as a very important mission. I agree with what Mr. Perlmutter said: If you are going to support civil rights, you should not support civil wrongs. And in the view of the American people, quotas are civil wrongs, and there is absolutely no reason why this Commission should remain silent on that issue. COMMISSIONER BERRY. Mr. Shanker, you do not speak for the black community. I don't either. But I must point out to you that all the polls that have been taken show that blacks say, when you define quotas as preferential treatment for unqualified people-and I have the polls here, and I have talked about them publicly and I'm very familiar with them. The question always is, "Do you believe that an employer should hire a certain percentage of blacks or Hispanics whether they are qualified or not?" When that question is asked, a majority of the people, including blacks, say, "No." I say, "No." But when most of us talk about affirmative action, and when we talk about statistical remedies, we're not talking about hiring unqualified people. Furthermore, while we're at it, Mr. Perlmutter talked about the Klan and people reacting to the jobs being taken away. I'd like to ask for the record if you know what percentage of jobs have been taken away from whites by blacks through the use of the quota systems since they've been in effect. Is this a major problem in our society? MR. PERLMUTTER. The reference to the Klan was an anecdote that had to do with anger being related to lack of education. It was not a story that related to the quota system. As to the percentages of whites who have been deprived, I have no statistics on it. COMMISSIONER BERRY. It's a major problem? MR. PERLMUTTER. I think it's a useful undertaking by the Commission. But there are many issues of a nature that go to moral judgments on which one doesn't take polls. I didn't take polls when we filed in a long string of civil rights cases as to how many minorities were barred from residential neighborhoods, how many minorities were barred from access to places of public accommodation. We understood that it was wrong to be barred on the grounds of race, and we filed suit accordingly. Similarly here, I don't have figures-and perhaps you might look into it-but if a person is bumped because he's the wrong color or is the wrong sex, that there is no room at the inn, I think that's wrong. And I think it behooves the Civil Rights Commission to propagate the thought that people be hired regardless of race, color, creed, etc. CHAIRMAN PENDLETON. If the Chair could, I want to ask a question about underrepresentation and underutilization. We have strayed a little bit from the topic. And as Mr. Destro, my colleague said, anyone on the panel can answer this question. As we have an increasing number of groups that we deal with or the government deals with with respect to affirmative action or what have you, do any of you believe that underrepresentation and underutilization is a zero sum game, that in order to give something to A you've got to take it from B? MR. PERLMUTTER. What does "zero sum game" mean? CHAIRMAN PENDLETON. It means if you give something to A you must take if from B, or vice versa. Because there's an increasing number of groups-that's a question that's come up before, and I'm only asking you for your advice. COMMISSIONER. BUNZEL. It's a metaphor for a finite resource. CHAIRMAN PENDLETON. I'm not SO sure that's true, Mr. Bunzel. MR. PERLMUTTER. I'm not so sure that was helpful. COMMISSIONER BUNZEL. It was supposed to confuse the Chairman because I usually do. CHAIRMAN PENDLETON. That is true. [Laughter.] MR. PERLMUTTER. The import of my comments on that subject tries to do the following, to suggest that so long as underrepresentation and underutilization is taken on its face to evidence discrimination, or taken on its face to conclude that discrimination has taken place, it leads inevitably to a formula that would somehow relate the task force's racial percentages to the demography of the community. And I think that's the wrong road down which to go. However, it requires· an examination: Is there a reason that does relate to discrimination involved in the underrepresentation in such case? It seems to me that the company or school so guilty has to be encouraged by whatever ways are available, in law and/or persuasion, to rectify their acts of discrimination. My central point is that it does not necessarily suggest discrimination. It may be discrimination. CHAIRMAN PENDLETON. Thank you, gentlemen, for the lively testimony, and the Commissioners, too. We'll take a short break and assemble the next panel. [Recess.] CHAIRMAN PENDLETON. We will convene panel no. 5 on minority and women's business set-asides. This last panel for the evening will address set-asides as a remedy from the perspective of various business organizations. The panelists are Kurt A.J. Monier, Associated Specialty Contractors, Inc.; Laura Hen derson, chair of the Procurement Task Force of the National Association of Women Business Owners; G. Paul Jones, Jr., chairman of the National Construction Industry Council; Fernando Valenzuela, vice president of the Latin American Manufacturers Association, and accompanied by Mr. Celestino Archuleta, who is treasurer of the board of directors of the Latin American Manufacturers Association; and Mr. Dewey Thomas, Jr., executive director of the National Association of Minority Contractors. Before we get into this, Mr. Jerry T. Jones, a member of the board of directors of the National Association of Manufacturers, will not be here this evening. I want to read a letter to Mr. . William Howard, our staff attorney, from the association, received this evening. It says: "Dear Mr. Howard: On behalf of the National Association of Manufacturers, I regret that we will have to withdraw the testimony submitted in the name of Mr. Jerry Jones, President of Sonograph, Inc., and a member of NAM Board of Directors. Upon closer view of NAM's policy, we discovered that NAM has no official statement regarding set-asides. However, withdrawal of Mr. Jones' testimony should be in no way construed to mean that NAM either supports or opposes set-asides. I hope you will accept our apology in withdrawing from the testimony at such a late date. I would ask the panel to bear with us so that we can bear with you. It's been a long day. I would appreciate it if you can take about 10 minutes or so to summarize your testimony. I must say, as one of our staff members said, that this is one of the few times that the Commissioners have read all the papers that have been sent in. So, if you will start off, Mr. Thomas, and give us a summary of your testimony, and then we'll move down the line, and then we'll have some exchange between the Commissioners and the panel. MR. THOMAS. Did the other Commissioners promise to come back even though it's 8:30? CHAIRMAN PENDLETON. I speak for my fellow brothers and sisters. I think all will be here except Mr. Bunzel, who has been sick all day and may not return. Are there any hearing-impaired people here this evening? [No response.] CHAIRMAN PENDLETON. Some of the Commis sioners might be impaired, but we are not able to read sign language. Thank you. Minority and Women's Business Set99 percent against set-asides. I respect their position,Asides since I have been the executive director of NAMCfor the past 5 years, and they have been very, very STATEMENT OF DEWEY THOMAS, JR., consistent in their position. They collected all kindsEXECUTIVE DIRECTOR, NATIONAL of data, and they have stated all kinds of reasons ASSOCIATION OF MINORITY why preference programs, which I believe is aCONTRACTORS misnomer, and/or set-asides don't work.MR. THOMAS. On behalf of the National AssociaLet me just read from AGC's national newslettertion of Minority Contractors, our board of directors, from the spring of 1982:and members, we want to thank the Commission forasking us to testify at this hearing. On three occasions AGC petitioned Congress to sup NAMC was created in 1969 and now has approxi port preference programs for U.S. construction firmsmately 2,500 to 3,500 members in 40 States, the bidding on military construction overseas projects, pointDistrict of Columbia, and the Virgin Islands. ing out that such preference programs are in the bestWe have submitted our formal testimony, Mr. interest of the United States Government, are in the best Chairman, and would like to ask that that be made interest of the construction industry, and are in the bestinterests ofthe United States economy. part of the record. So therefore, I would just like tohighlight some of the comments that we made in our We agree with AGC totally. And since it is in theformal testimony. best interests of doing business overseas, what'sCHAIRMAN PENDLETON. So ordered, Mr. wrong with it being in the best interest of doingThomas. business here in our own country?MR. THOMAS. I guess the whole thing that we are I think the three things that they have pointed outbasically talking about is one of the main reasons are the reasons why set-asides are so important toNAMC was created in 1969. NAMC was not the development ofemerging firms.created because minority contractors were not One thing the government is responsible for-andwilling to work hard. NAMC was not created I guess the antitrust law, monopoly, and other thingsbecause minority contractors were not willing to point to that-is that when a population made up of take the risk. NAMC was not created because the various persons, and a business population, if govcontractors didn't qualify. ernment can identify that there is price rigging,NAMC was created in 1969 because we were monopoly, prejudice, or unfair business practices,being closed out of the marketplace, both in the then the government has a responsibility to step inprivate and the public sector. Therefore, our only and to take corrective action. And that is why thealternative was to create our own organization. government must step in, continue to step in asAs we talk about business in the marketplace and relates to the marketplace for both the private andthe realities of business in the marketplace, we must the public sector.say that a person and/or a company will do business We are not talking about government stepping inwith you because, number one, you qualify; number without reason. I think the figures that are obtainedtwo, they know you; and number three, which in and have been obtained and the data that is kept bysome light may seem intangible but is a very, very the United States Department of Commerce pointstangible aspect ofbusiness, is that they like you. out very, very clearly that minorities have been shutMinority contractors historically have qualified to out of the marketplace and have not had the samea degree, relatively speaking, but they didn't know access to the marketplace as majority firms have.who the procurement officers were; they didn't There are several different set-asides now, publicknow about the marketplace. So if you don't know laws, on the Federal books, starting with Publicsomebody, you us~ally don't like them. Law 85-536, going to small business set-asides, laborAs I move around the country-and I'm so surplus set-asides, the certificate of compliancedisappointed tonight that AGC is not part of this program, the property sales assistance program,panel because I feel that they should have been up Public Law 95-507, and Public Law 97-424.here with us. They got on this morning, and John All of these were brought about because ofSroka did a very nice job this morning in articulating inequities. All of these were brought about becauseAGC's position. Their position is they are 100 and we have been shut out ofthe marketplace. 87 To cite a few figures, during 1983 the Federal Government did $155 billion in prime contracts in construction; 81.4 percent of that went to majority firms, large majority firms. Twenty-nine percent went to smaller firms and minority firms. Of that 29 percent, minority firms, including women, only captured 3 percent of that. I think that points to a gross inequity as it relates to the Federal Government in its disbursing of its money to buy goods and services. So again, we have not had the opportunity as relates to knowing the marketplace, to know that procurement officer. I am always amazed as I travel around the country-and recently I was in Oklahoma City and I saw DOT's building downtown, a typical-looking government building. About a halfmile down the road is the Road Builders Association, and about another half-mile down the road is AGC, well situated to where the action is, well situated to make sure they impact on the action, well situated to make sure they get every dollar that is going to go out as relates to the road construction in the State of Oklahoma. As we surveyed some of our members who have been the benefactors of some of these preference and/or set-aside programs, one of our members, Aceves Construction, out of Norfolk, Virginia, said that he tried several times to knock on the door of the Tidewater area, which is basically a military area doing all kinds of things as relates to maintenance and new construction, but could not open the door. Not until he received his 8(a) certification were some doors opened to him. Not until he walked in the door with that piece of paper were the people willing to listen to him. Not until he was able to hire the necessary people and to create jobs in that area. One of the things we are very, very upset about as an association is that we feel that there is a complete difference between civil rights as the employer and the employee. We feel that we are the employer and that if we have access to the marketplace, then we will create the necessary jobs to create the necessary civil rights for everybody, which is having money in your pocket. That's what it's all about. Talking to one of our members up in the far west, Frances Construction, with a payroll of $250,000, prior to any type of set-aside, his payroll annually had never exceeded $50,000-a competent person, graduate engineer, masters degree in chemistry engineering-all the qualifications whatsoever, but did not know how to get along with and/or get that procurement officer, that GS-10, 11, 12, whoever does that kind of work, to like him and provide him with the kind of information he needed to make sure that he was in the marketplace. Because once he gets to the marketplace, he's going to qualify like anybody else. He has the same credentials as anybody else, but has not been able to get into the marketplace. I have other examples here to show that set-asides and preference programs have been a ·tremendous help to the development of emerging firms in the minority business community. At the same time, America has got something back for it. They've got a decent tax structure for people who are working and paying taxes. I think if we have any problem as it relates to any of the programs that have been discussed all dayand again, Mr. Chairman, with all due respect to you, I thought this morning was just absolutely atrocious with the touches that went on, with the walking out, with all the things that I think are just going to hurt the people that we are supposed to be empowered to assist with government money. I think the intent and the implementation-the intent has been good; the intent is justified; the intent has been properly documented over the years. But I feel that where we fall short has been implementation. And I have some recommendations that I would like to point out to you as relates to implementation. Number one, everything relating to civil rights, EEO-when somebody doesn't do something, you want to go after them for punitive damages. We feel that if more incentives are built into the set-aside program, including establishing a definitive value to the program's objective, that would be a great incentive to make people understand. Today I had the opportunity of hearing AGC and I had to leave. The President was having a briefing on the budget as relates to the Defense Department and as relates to the Peacemaker. And as he gave his 5-minute talk this afternoon at 2 o'clock, he mentioned what a value the Peacemaker is to this country, what a value a strong defense is. And after he departed, a few minutes later Weinberger got up and repeated that same word, "It's of a value to have a strong defense to deter any country from even thinking about crossing our borders." And I still had my mind on the hearings here, and I said to myself, wouldn't it be a great thing when people could stand up and say, "There's a true value to the development of minority firms; there's a true value to the development of small and emerging firms that is of benefit to our country"? So until we can put a value on these programs, they will never be successful. And that's what we must work for, to put a value, to drop the word "disadvantaged," and tell everybody what a value it is to the country. CHAIRMAN PENDLETON. Could you sort of wind up, Mr. Thomas? MR. THOMAS. Yes, sir. The second recommendation would be that the incentives of this program be tied into the increase of grades to the employees. Third would be to encourage long term joint ventures with majority firms to ensure the continuity between MBEs, the private, and the public sectors. Four, better utilization of technical assistance funds now being spent. Five, expand the resources for technical assistance and training in all areas. Six, centralizing all MBE programs and develop ment of accurate.data retrieval, so that when we get ready to go over and/or put a new piece of legislation in, we'll have the proper data to do that. Seven, formally conduct impact studies on set aside programs. Those are the areas we think are very, very important. Those are the things that we feel are very, very important to make sure that the intent of . all set-asides and/or preference programs are fully carried out. CHAIRMAN PENDLETON. Thank you, Mr. Thomas. If I could, I'd just like to read a note about the National Association of Minority Contractors, con sistent with the opening statements about the organi zations. Founded in 1947, the National Association of Minority Contractors' (NAMC) membership com prises 1,000 minority construction contractors and firms wishing to do business with minority contrac tors. NAMC holds conferences, workshops, and seminars and offers technical assistance and consult ing expertise. It also compiles statistics on minority contractors. Dewey Thomas, Jr., has been executive director of the National Association of Minority Contractors since 1980. Prior to this position, he was treasurer director of finance of the Minority Contractors Assistance Project, president of the Trenton Development Corporation, and an economic development and minority loan officer at the Small Business Administration's regional office in New York. He is a member of the National Black Republican Council and has been active in community affairs. He attended West Virginia State College and the City College of New York. We move now to the Associated Specialty Contractors Association, which includes 25,000 members from eight contractors associations: mechanical, plumbing, heating and cooling, electrical, sheet metal, and air conditioning, mason, insulation, roofing, and painting and decorating. Founded in 1950, it serves as a liaison between specialty contractors and general contractors, architects, and engineers in such matters as codes, bidding, and contracting procedures. It also coordinates governmental affairs, labor relations activities, and research and education. Kurt A.J. Monier is chairman of the board of A.J. Monier & Company, a mechanical contracting firm that does a gross volume of business of $6 to $8 million annually. A master plumber, Mr. Monier received his B.S. in mechanical engineering at Texas A&M University. He served with the Army Corps of Engineers and is retired with the rank of colonel. Mr. Monier. STATEMENT OF KURT A.J. MONIER, ASSOCIATED SPECIALTY CONTRACTORS, INC. MR. MONIER. Thank you. Part of this will be a little repetitious of what you just said, but I'll repeat it a bit. Thank you very much for allowing me to present these remarks. As was stated, the ASC is an umbrella organization of eight national associations of construction specialty employer contractors, with a combined membership of 26,000 business firms. However, the segment of the industry represented by these associations consists of approximately 166,000 business establishments, with an annual sales volume of $80 billion and 1,459,000 employees, 95.5 percent or more being classified as small business. I represent a firm that is a member of one of these associations, the Mechanical Contractors Association of America, to which I had the pleasure of serving as president in 1983. My firm is a familyowned corporation, established in 1908 by my father, and now has my son as the present chief executive officer. I received my degree in mechanical engineering in 1935 from Texas A&M University, and I am a registered professional engineer in the State of Texas. My 50 years of mechanical contracting has been continuous, except for 41/2 years of active duty service in World War II, 2 years of active duty in the Korean conflict as a commissioned officer in the Corps of Engineers. Please note that the educational process and beginning of business involvement was during the period of the Great Depression, and I can assure you there were no small business loans or set-aside programs. Debt-ridden and economically distressed firms, mine included, survived on what was gleaned from the competitive marketplace. The personal reference is made to emphasize a background laden with experiences that would hope to lend credence to what is perceived to be constructive critjcism of the program being administered under section 8(a) of the Small Business Act. Much criticism emanates from personal displeasure and/or disagreement with this program or any other program. However, the remarks that I make are as a result of tracking one case history that can be supported by facts and represent a very small tip of a very small "iceberg." From publications and other articles written on the subject, it is apparent that the facts related to this case are no different from those prevalent elsewhere, and that there is a multitude of "iceberg" evidence. The facts surrounding this one minority disadvantaged contractor, who happens to be operating in my local trade area, are as follows. First, he apparently started on the program in 1971 with the award of noncompetitive negotiated contracts on an almost continuous basis, covering not only mechanical, but electrical, general, utilities, parking areas, medical gas systems, and so forth. Secondly, he was prevented from acquiring a noncompetitive negotiated contract in 1975 in the multimillion dollar category for installation of air conditioning in a large existing VA hospital in Kerrville, Texas, and later failed to win the bid on a competitive basis. Third, on contacting the local SBA officials in 1975 regarding the status of this contractor, the statement was made that this firm was about to be graduated. From 1975 to the present, this firm has occasionally been bidding work in the private sector competitively, but has not been successful on many projects, and on one particular small county hospital job, on which he was successful, he had a difficult time correcting a large list of deficiencies for final acceptance, and the class of workmanship was subject to criticism by the reviewing authoritiesthis after 4 years in the program. Fifth, in 1983, this firm was awarded a noncompetitive $3.58 million contract for an automatic sprinkler system in a VA hospital, a 700,000 square foot existing structure, this in spite of the fact that the firm had little or no experience in this specialized area of the mechanical industry. This represented a cost of $5 per square foot on a project for which an established sprinkler company had estimated $1 per square foot during the original construction of the hospital, and $1.50 per square foot as a budget figure for the owners in 1983. The established sprinkler firm was disqualified from bidding because of the minority set-aside. However, our firm having been the original mechanical contractor for the complete mechanical installation made it possible to verify and to monitor the figures as mentioned above, and to state that the DBE contractor received half as much money for just the automatic sprinkler installation as the total mechanical installation cost in 1971 to 1973, which included in that contract the fire standpipes and the fire pumps. The above-mentioned sprinkler contractor was a subcontractor to our firm on the original contract. It is difficult to understand where the $2.45 million excess over legitimate budget estimate could have been applied in the contract that was awarded. And, sixth, apparently after 13 years of set-asides, noncompetitive negotiated work, this firm has still not qualified for graduation. A review of most successful contracting operations would undoubtedly reveal the following: first, the need to have the desire and the determination to learn the basic principles and technology of the field of endeavor; secondly, the limitation of the field of activity to avoid dilution of technical skills and to constantly study to be abreast of the latest developments in techniques and methods; third, a gradual advancement from small to medium to large projects, or in other words, the will to learn to crawl before walking, before running. Expansion in the multimillion dollar yearly volumes requires many years of a gradual growth pattern targeted to definitive plans, not extreme and rapid growth over short periods of time. Fourth, a continuing study of management methods, supervisory techniques, cost estimating, cost accounting, contract planning, scheduling, financing, personnel management, marketing, and many other programs and/or processes that affect productivity. In view of the above and further when considering the time-tested educational systems in place, it is difficult to understand how many firms, minority or .otherwise, can be legislated into a successful business from the top down with the sole judges of achievement being those administrators who for the most part could not possibly have the expertise and experience in all areas to judge when a graduation of a participant should occur. It appears that there are no set standards against which to judge the attainment of competency nor time frames to establish achievement levels for the assessment of halting the participation process. This is contrary to the achievement standards required in our educational system, for the training periods required in our professional groups, to the apprenticeship programs in the building trades groups, to on-the-job training programs, and even to the progressive basic-advanced specialist and unit training in the military. All these have achievement levels geared to time. There is a need for a similar format in the training program in discussion. Apparently from correspondence received, the district office personnel of SBA believed that the participant progress determinations were being made in Washington, D.C. And in Washington, D.C., SBA and government officials think the action is being taken at the district or regional office. With this confusion over responsibility, it is understandable that only 166 out of 4,598 participants have been graduated from the program, indicating further apparent deficiencies in guidelines and operating procedures. Ifpreferential procurement programs are eliminat ed, together with the reverse discrimination that is being implanted, the government and the contractor associations, using a fraction of the money now being wasted, could act as peer groups to qualify, train, and educate minority-owned businesses to compete on t;!qual terms in the construction market. This should be done at the grassroots level, working from the bottom up instead of the top down, with willing, sincere, and dedicated participants. Then, and only the~, could there be expected to be lasting qualified graduates after reasonable periods of participation. By so doing, the process of freedom of choice and equal opportunity for all in a free market will prevail as it has prevailed in the past and should prevail in the future, thus saving the waste of large sums of money and returning to the basic principles that form the basis for the free enterprise system. I am reminded of a remark made by one of our local Congressmen several years ago when he stated that . many well-intentioned laws passed by the Congress are turned over to bureaus for administration without any obligation to provide feedback information to determine whether the intent of the law was being fulfilled. He stated it was impossible to penetrate into the bureau operations to obtain feedback or progress reports to ascertain the results. It appears to a degree that section 8(a) provisions of the Small Business Act fall into that category. Thank you. CHAIRMAN PENDLETON. Thank you, sir. Ms. Henderson. The 1,500-member National Association of Women Business Owners was founded in 1974 by women who own and operate their own businesses in order to identify and bring together such women in mutual support, to communicate and share experience and talents with others, and to use collective influence to broaden opportunities for women in business. The organization holds workshops and seminars and operates an information clearinghouse and a referral service: Laura Henderson, chair of the Procurement Task Force of NAWBO, worked for health-care consulting firms before founding her own biomedical consulting firm, Prospect Associates, Ltd., in 1979. The firm, which offers multidisciplinary services primarily to health groups affiliated with the National Institutes of Health, did $1.2 million worth of business during its first 10 months of operation. During its first year, Prospect submitted 13 proposals for government contracts and won every contract. In its first 10 months the number of employees rose from 15 to 45. During the current fiscal year, business volume will be $2.6 million, with a growing staff of 60. Ms. Henderson received a degree in business at Kings College in North Carolina. STATEMENT OF LAURA HENDERSON, CHAIR, PROCUREMENT TASK FORCE, NATIONAL ASSOCIATION OF WOMEN BUSINESS OWNERS Ms. HENDERSON. The National Association of Women Business Owners (NAWBO) is pleased to have the opportunity to testify before the Civil Rights Commission on the issue of set-aside programs for women-owned and women-operated businesses. As discussed, I am the founder, president, chief executive officer, and sole shareholder of Prospect Associates. Over the past 6 years Prospect has been awarded more than 90 Federal contracts, ranging in value from $I ,500 to $2.I million. We anticipate ourselves for FY I986 to be $3.5 million and a staff of60. The National Association of Women Business . Owners is the only dues-paying national organization whose sole purpose is to work full time nationwide on behalf of women business owners. One of NAWBO's major focuses is to lobby in the national and State capitals to facilitate the movement of women business centers into the mainstream of the economy. NAWBO represents thousands of business owners, constituting 25 chapters. NAWBO is also working on the international front. We have recently established affiliation with an organization of women business centers in I7 countries, and in May NAWBO is sponsoring its first trade mission to Europe. The importance of women to our economy has been the subject of much discussion. The January 28 Business Week cover story states that the influx of women into the job market may be the major reason that the U.S. has emerged so much healthier than other countries from the economic shock of the I970s. Economist Nobel Laureate Paul Samuelson of MIT said in this article, "To the degree that women are getting an opportunity that they didn't have in the past, the economy is tapping an important and previously wasted resource." In her book on Women in the Business Game, Charlotte Taylor said, "The spirit of Horatio Alger is alive and well in America. Few people realize, however, that this spirit has been reincarnated in the body of a woman. A basic American dream, once primarily a male dream, has also become a female dream. The dream is owning your own business and reaping the economic and psychological benefits of hard work, determination, and perseverance." Women-owned businesses are the fastest growing segment of the entrepreneurial community. Today, women own at least 3 million firms, 25 percent of all small businesses in the country, and are going into business at a rate four times faster than men. In I980 women-owned sole proprietorships accounted for $40.I billion in sales. This figure understates, we believe dramatically, the contribution of womenowned businesses to the economy because it does not include corporations. A recent survey by NAWBO indicates that 60 percent of our member enterprises are corporations. In a I984 survey that NAWBO did of766 women business centers, it was revealed that 25 percent had gross annual sales of over $800,000. Seventy-five percent had gross annual sales of over $80,000. They had combined total revenues of more than $0.5 billion, had an average annual revenue of $425,000, and average II full-time employees with an additional I4 part-time or contract employees. Like all small businesses, women-owned business are labor intensive. Sixty-six percent of all new jobs are provided by businesses with less than 20 employees. Seventy-five percent of all new jobs are provided by companies that are less than 5 years old. About half of women business owners are in the service sector, which in I982 accounted for 74 percent of all occupations in the United States. Women go into business for the same reasons that men do: to make money and to have direct control over their career lives. As women continue to establish businesses at a rapid rate, the impact that they have in the small business sector will grow. Women-owned businesses are spreading into all areas of the economy. The report of The State of Small Business stated that government contractual awards were made to women-owned businesses in the areas of operation of government facilities, management and professional services, training, construction, and provision of such goods as ammunition and explosives, vehicular equipment, components, furniture, communication equipment. Statistics on women business owners are very limited and sadly understate the importance of women-owned businesses to the economy. The causes for these data deficiencies are discussed in some detail in our written testimony. Despite almost a decade of efforts to focus attention on womenowned businesses, their characteristics, their value, and their needs, government agencies have not provided a reliable count of the number of businesses in the United States. The Federal Government is the largest purchaser of goods and services in the United States. In 1982 the U.S. Government purchases amounted to more than $159 billion. The Federal Government market remains virtually closed to women-owned businesses. The limited access to women-owned businesses represents a loss of excellent resources to the government and a severe impediment to the viability of female entrepreneurs and business owners. Only $584 million, or 0.4 of 1 percent, of the 1982 value of Federal prime contracts of over $10,000 were awarded to women-owned businesses. For over 10 years the Federal Government has verbally encouraged full participation of women-owned businesses in the procurement process. For the most part, this encouragement has remained at the level of lipservice. In reading the testimony presented during the day, one might conclude that women as a group are included in governmentwide set-aside programs. This is not true. No preferential programs have been established for women-owned businesses, and all initiatives to date have been largely ineffective. Our study in preparation for our testimony today indicates that women business owners who are seeking to increase their participation in Federal procurements face three significant barriers. The first barrier is that most are small businesses in the early stages of doing business with the government. These barriers include the lack of easily accessible pertinent information, lack of financial stability to withstand extended procurement cycles, and the nonrecoverable financing costs required to meet cash flow obligations. Women-owned businesses also face sociological barriers in the form of persistent misconceptions and biases. These barriers have been verified time and again by every study examining the role of womenowned businesses in government procurement and are detailed in our written testimony. Both the subtle biases and the more open forms of discrimination that women-owned businesses in the government face are substantial barriers to full access by these businesses to the Federal procurement market. The misconceptions that persist are due in.part to the lack of accurate and complete data about ' women-owned businesses that have been proven untrue thro:ugh NAWBO's study. There are assertions that women-owned businesses are too small, that they are cottage industries. There are assertions that women-owned businesses do not produce the goods and services that the government needs. This is not true. The third barrier faced by women is unequal access to credit. In spite of the actions that have been taken, we here at NAWBO and through other organizations feel that access to credit is still a serious problem. This serves as a major barrier to a beginning business, since most small businesses have to borrow money during the early stages of development. NAWBO believes in and supports government procurement policies that foster competition. However, procurement history indicates that, left unconstrained, the Federal Government would procure the vast majority of its goods and services from large established businesses, in spite of the documented efficiencies and cost savings of small businesses. NAWBO knows that women-owned businesses can compete successfully in the government market if barriers are removed. We looked at set-aside programs and came up with some categories that we believe should be considered in the establishment and management of set-asides. We believe that for them to be truly beneficial to both the government and the private sector, they should be designed to: facilitate the development of small business capability and enhance the probability of success of the firm; use competition as a driving force; provide an environment that enhances initial growth and allows for fair and equitable competition; reward excellence in growth rather than penalize the successful firms by excluding them from the established client base when it exceeds a size standard; prepare companies to compete in open procurement competition; and provide incentives for program and contracting officers for use of the set-aside mechanism. For the growing enterprise, it is especially important to have access to the largest purchaser of goods and services in the U.S., the Federal Government. Set-aside programs help to provide this necessary access, access which NAWBO is convinced would not otherwise exist if it were not for these programs. NAWBO is, however, concerned that set-aside programs have not been applied evenly across all procurement areas. Set-asides should facilitate entry into all procurement areas and should not result in adversarial relationships between large-small, majority-minority, and female-male-owned firms. Women-owned businesses, as I said before, have no governmentwide set-aside programs. However, women-owned businesses do qualify for small business set-aside programs, small business innovation research programs, and for minority women, the 8(a) program. These are discussed in our written testimony with the pros and cons, so I will move on. In our study for preparing our testimony, our goal was to develop some recommendations that are pragmatic, attainable, and manageable in a real business world, and in keeping with the competitive spirit of free enterprise. NAWBO proposes the implementation of a two-phase program to assist women-owned businesses in gaining access to Federal procurement and overcoming the barriers we currently face. Phase one would last 2 years and would involve administrative and procurement actions that we believe would increase the share of Federal procurements going to women-owned businesses. These are detailed in our written testimony. A failure of these actions recommended in phase one to achieve a steady, significant increase in the share of Federal contract dollars awarded to women-owned businesses within 2 years of implementa~ tion, we believe, would demonstrate that the barriers facing women-owned businesses in trying to do business with the Federal Government are too great to overcome with action short of the set-aside program. NAWBO recommends that if these actions fail, the Federal Government should establish a set-aside program for women-owned businesses modeled after the current small business set-aside program. The set-aside program should not draw on any funds targeted to the small business set-aside, SBIR, or 8(a) set-aside programs. Further, the set-aside program for women-owned businesses should involve both technical and cost competition that duplicates current procurement competition procedures, should offer technical assistance, and should provide incentives for growth, innovation, and job creation. Thank you. CHAIRMAN PENDLETON. Thank you. With 400 members, the Latin American Manufac turers Association's purpose is to assist corporations owned by Hispanic Americans to participate more fully in the free enterprise system. The association was founded in 1973. Its current goal is to secure $100 million in government-related contracts for member companies. Fernando Valenzuela is vice president of the Latin American Manufacturers Association. Prior to his 41/2 years with the association, he worked in the loan department at Hemisphere National Bank in Washington, D.C. He has traveled extensively throughout Central and South America and has been active in community activities. He earned a B.A. degree in Latin American studies at the University of California at Berkeley and has also studied in Mexico. As I mentioned before, he is accompanied by the treasurer of the board, Mr. Celestino Archuleta. Mr. Valenzuela. STATEMENT OF FERNANDO VALENZUELA, VICE PRESIDENT, LATIN AMERICAN MANUFACTURERS ASSOCIATION; AND CELESTINO ARCHULETA, TREASURER MR. VALENZUELA. Thank you, Commissioner. On behalf of the Latin American Manufacturers Association's board of directors and its membership nationwide, it is a pleasure to express our appreciation for your invitation to allow me to address the United States Commission on Civil Rights on minority business set-asides. I should tell you, Commissioner, that Mr. Art Lopez, our chairman, was unable to make these hearings because of a pressing problem, but Mr. Celestino Archuleta, our treasurer, has offered his presence here for us. He is here to present Mr. Lopez' testimony. Mr. Archuleta is the president of National Systems and Research, located in Colorado Springs, Colorado, which is a computer software design company. Mr. Archuleta's firm is an 8(a)certified firm, and he will provide some insight as to his experiences as an 8(a) company later on during this presentation. You gave a short background of our organization. I'd like to give a little more. LAMA is a national industrial association representing over 500 Hispanic manufacturing and high-technology firms located throughout the United States and Puerto Rico. Our membership also includes numerous other areas, companies with experience capabilities in engineering and industrial supply and technical consulting. Your invitation requested that LAMA present its views on minority business set-asides. This testimo ny, therefore, will focus on the effects of the Small Business Administration's 8(a) set-aside program. In the written testimony, . we give several specific examples of companies participating in the set-aside program to illustrate the positive impact the program can have on individual companies. I would, of course, like the full text of the testimony to be presented for the record, but I will just highlight a few of the items here for purposes of discussion. Through the examples we have drawn, we hope to demonstrate to the Commission that certification as an 8(a) minority contractor has resulted in significantly improved business posture for these companies, particularly in three areas. We see an increase in overall sales of the company, an increase in the magnitude of the individual contracts that each company is performing and negotiating, and of course, in addition, these firms are developing as prime contractors to the Federal Government. What I'd like to do is have Mr. Archuleta give you a little insight as to his experience as an 8(a) company before continuing. MR. ARCHULETA. Mr. Chairman and members of the Commission,· my purpose here tonight is to address the SBA program and the process of acquiring 8(a) contracts on a set-aside basis. I have been in the program for several years. Therefore, I feel that I am qualified to speak about the program. My presentation will be very brief. I merely want to highlight and emphasize some of the points about the 8(a) program. Section 8(a) of the Small Business Act authorizes the Small Business Administration to identify procurement requirements and set them aside for negotia,tions witp 8(a) companies. The contracts are awarded on a negotiated basis. It' is.important to point out to the Commission that the :8(a) program is not a give-away or welfare program. Many people are under the impression that the government .is forced to pay noncompetitive prices for purchase of inferior products as a result of the 8(a) program. In actuality, the 8(a) program is simply a certifi cate to secure contracts on a negotiated basis-and I emphasize "negotiated." Once a requirement is identified for the 8(a) program, the next step is the negotiation :of acceptable terms and conditions. The procuring agency dictates all aspects of the contrac tual' agreement, including price, quantities, and quality assurance. ·It adheres to Federal military specifi6ations and delivery schedules. If these terms and cdhditions cannot be met, an agency is not coniRelled to contract with a particular 8(a) firm. The 8(a) program provides a means by which a minority-owned company can negotiate-and again I emphasize "negotiate"-a contract with a given Federal agency. Nothing is given-and I emphasize "given"-to the 8(a) firm. They will not receive a contract at all unless they can successfully negotiate terms and conditions with the buying agency. The 8(a) firms are treated just like any other firm. If a proposed price is too high, they won't get the contract. If the agency feels their quality control program is unsatisfactory, they will not get the contract. If they cannot deliver in the time frames dictated by the agency, they will not get the contract. Once a contract is successfully negotiated, the 8(a) firm must perform according to the terms of the contract or the contract will be terminated by the government. In short, 8(a) contracts are awarded based on terms and conditions established by the government agency, not by SBA or the 8(a) firm. The government secures a service or product as it does from any other supplier. In conclusion, as an owner of an 8(a)-certified company, I want to emphasize that the 8(a) program is not a give-away program. I assure you that my firm would not be in business if I could not deliver a quality service and quality products. What the 8(a) program does provide is the opportunity to compete in a small circle of business. By having this opportunity, the 8(a) firms have a higher probability of being successful than in open competition. Now, I see the 8(a) program as a mitigator of risk so that minorities are willing to risk participation in the competitive arena that has previously precluded their participation. Mr. Valenzuela will present the rest of our testimony. MR. VALENZUELA. What I will be presenting are short profiles. I will select three out of the testimony for the purpose of this hearing. The first one I draw upon is Wedtech in the South Bronx, New York. Wedtech is a high-tech manufacturing company located in one of the most blighted areas of the United States, the South Bronx. When LAMA discovered Wedtech 10 years ago, the company had eight employees, 1,500 square .feet of manufacturing space, and annual sales of less than $200,000. The firm had no prime contracts, and its subcontracts from major aerospace companies averaged around $25,000. Today, 5 years after being 8(a) certified, Wedtech has almost $40 million in sales, over 300,000 square feet of manufacturing space, and some 700 employees, most of whom are from the ranks of the hardcore unemployables in the South Bronx. The firm is making tank components for the Army and powered causeways for the Navy. Their largest single contract to date was for $27 million to manufacture a 6 horsepower engine for the Army. There is simply no manner in which a small job shop in the South Bronx would have been able to secure prime contracts for highly technical items were it not for the 8(a) program. This is one of the most outstanding examples of what can be accomplished by the careful use of negotiated contracts set aside for qualified minority companies. The next example I draw upon is R&E Electronics out of Wilmington, North Carolina. This company was 10 years old prior to becoming 8(a) certified. Sales averaged around $120,000 a year. Its largest contract never exceeded $40,000. R&E had received no prime government contract work. This picture, of course, has changed significantly since entering the 8(a) program. Sales over the last 2 years have averaged around $3.5 million. The largest single contract to date totaled $3.2 million for the installation and maintenance of a 10,000"line phone system for the Marine Corps. R&E would never have been able to secure a contract to install this 10,000-line phone system without the 8(a) program. Generally, solicitations for telephone systems require previous experience in at least three similar systems just to qualify to bid. Here we have another example of a company whose sales are substantially increased, the size and scope of its single contracts have increased markedly, and the company is now a prime contractor to the government. The last example that I would like to point out is Roselm Industries in South El Monte, California. Roselm has been in business for 18 years manufacturing electronic cables, electronic assemblies, circuit cards, radar components, and other electronic items. Before entering the 8(a) program, the company had never been a prime contractor to the Federal Government. During that time, sales averaged around $250,000, and its largest contract never exceeded $100,000. Sales since 8(a) certification show a different company entirely. In 1985 sales are estimated at $1.8 million. Roselm's largest single contract is a multiyear $1.5 million award as a prime supplier to the Coast Guard for radar components. The company currently employs 35 skilled and technical workers in an area of high unemployment, with a projected increase to 60 employees by year's end. Again, we have another example here of a company that has essentially been able to develop into a prime contractor to the government, whose sales have increased sevenfold prior to 8(a) certification, and the size of the firm's contracts have also increased significantly. The key that we are actually pointing to here is that these firms-and there are hundreds of others like them-have the requisite technical capability to become prime contractors to the Federal Government, but have no effective means to penetrate that market without the 8(a) program. I would also like to take this opportunity to address an issue of importance to the association. Our concern is the significant underrepresentation of Hispanics in the SBA's minority set-aside program. For the past decade, Hispanics have represented approximately 20 percent of SBA's portfolio. In California, for instance, where Hispanics constitute around 64 percent of the minority population, they represent only about 31 percent of the 8(a) portfolio there. For the past decade, Hispanics have received approximately 15 percent of the dollar value of all 8(a) contracts. The program now awards over $2.6 million annually in contracts to its portfolio members. The shortfall to Hispanics, because of their underrepresentation in the 8(a) program, is in the hundreds of millions of dollars. Pursuant to management initiatives by the current SBA Administrator, Jim Sanders, we are beginning to see an improvement in the ratio of Hispanic participation in the 8(a) program. Figures for 1984, for instance, show the dollar value of awards to Hispanic 8(a) firms moving up to about 25 percent. We are concerned that these gains be consolidated and improved. We therefore ask that the Commission support SBA management initiatives in requiring SBA to conduct the 8(a) program in a manner that is more fully representative of Hispanics and other minorities which have not fully shared in the program. This concludes our testimony to the Commission. Thank you for providing LAMA with the opportunity to present its views on minority business setasides. CHAIRMAN PENDLETON. Thank you. The National Construction Industry Council, . construction contracts. These savings would amount comprised of 30 construction associations, was established in 1974 to unite professional societies and trade associations to improve the capability and productivity of the construction industry. The council conducts policymaking and legislative activities and sponsors workshops. G. Paul Jones, Jr., is chairman of the board of the National Construction Industry Council and chairman of the Macon Prestressed Concrete Company, a company he helped to found in 1956. His company designs, manufactures, and installs prestressed concrete in buildings, bridges, and other structures. Mr. Jones has also served with the U.S. Army in Korea and worked as a general contractor on bridge projects. A registered professional civil engineer, he received his bachelor's degree in mechanical engineering at Georgia Tech. Mr. Jones. STATEMENT OF G. PAUL JONES, JR., CHAIRMAN, NATIONAL CONSTRUCTION INDUSTRY COUNCIL MR. JoNES. Thank you, Mr. Chairman. It's been a long day, I'm sure, for you and just about everybody here, and I will be very brief. You have indicated activities of NCIC and I will not go into that. But the construction industry is one of the most important contributors to overall U.S. economic strength. Many economists now concede that construction activities led the Nation out of the recent recession and that the present recovery and healthy economy was generated and is currently maintained by a vibrant, strong, recovering construction industry. And I think this is the case in about six of the last eight economic recoveries similarly started by renewed construction strength. At the outset, I must observe that while the council has developed consensus policies on setasides to involve minorities, industry members continue to disagree as to what specific actions should be taken to remedy the present problems in this area. However, it is clear that members of NCIC are in unanimous agreement that existing programs must be modified and that any continuation of the present status quo will serve only to increase resentment and to further polarize members of the construction community. A more practical consideration in this time of.deficit reductions at the Federal level would suggest that failure to change existing programs may add 10 to 20 percent to the cost of Federal to several billions of dollars annually. I would also like to define, for the purposes of my testimony here today, the use of the term "quota." The last panel dealt with that quite a bit. Many euphemisms have been applied to the statutory language developed by Congress over the years for increasing minority business utilization in connection with Federal and Federal-aid work: objectives, guidelines, goals, quotas are all terms which have been used in this context. A goal, which in my mind is a target to strive towards, would permit the best or good-faith efforts of the contractor to be taken into account if the goal is not reached. To those of us in the construction industry who must adhere to these rules, many times applied inflexibly and without concern to the hardships created even to those who are arguably to be favored, this is, indeed, a decree and, in practical application, it is clearly a quota. It is an ironclad requirement in many cases, rigidly enforced. It has been responsible for throwing out the low bid on hundreds of contracts and awarding the contract to the second or third bidder at an increase in price of literally billions of dollars over the life of these programs. The contract may be awarded to the second or third bidder who was considered to have more fully complied with the DBE quotas. I'd like to point out that DBE quotas can be, and many times are, in direct conflict with the requirements in most States that construction contracts shall be awarded to the low bidder in open competition. Many times, if there is only one bidder, the State is prohibited from awarding the contract or even from opening the sealed bid. But if there are two bidders and the low bidder was deemed to be nonresponsive because of failure to meet the DBE quotas, the contract could be awarded at a higher price to the second bidder who might have met the DBE quotas. Even though provisions have been made to waive the DBE quotas in certain cases where it was shown that insufficient minority firms existed to fulfill the requirement, the difficulty of locating qualified minority firms, of reaching an acceptable price for work to be performed by such firms, and of apportioning work to be performed under a contract have led many construction firms to call for either the termination of such programs or for their substantive revision. Many times when there is a single DBE firm available, he or she has a monopoly created for them and they are priced monopolistically. And this is a monopoly that is unregulated by anyone. As a result of these problems, NCIC adopted two position papers on the subject in 1977. In summary, these policies generally opposed the use of preferential treatment for legislatively favored racial classes and, more to the point, the use of quotas to achieve higher DBE utilization in the construction industry. Both of these NCIC position papers are appended to this testimony. Since the adoption of these policies, the council has continued to grapple with this issue while government programs have become more inflexible and pervasive regarding the use of DBEs. As the Department of Transportation, the Environmental Protection Agency, the Small Business Administration, and other Federal agencies adopt quota requirements, more and more construction firms are drawn into the arena of contention and the backlash against the perceived unfairness, as well as the significant increase in cost, of such programs has continued to grow. Mr. Chairman, that racial discrimination is a part of this country's history is an undeniable fact. That it continues to linger is an ugly truth. That minorities of every kind have suffered at the hand of such discrimination, and not merely suffered in a business or economic sense, is incapable of question. But there is another legacy contained in our development. It is a deep and abiding respect for the rights of the individual, and it can be found in the Constitution upon which the legitimacy of all of our laws are predicated. The rights and benefits afforded under the Constitution are guaranteed to the individual. They are, by their very nature, personal rights and not group rights. Under our system of justice, no one is accorded any special treatment or is obliged to suffer any detriment because of ethnic origin, race, or religious preference. Yet, the objective of these set-aside programs is precisely that: to accord a benefit, in the form of an exclusive and protected market, to a class of individuals denominated solely by their racial characteristics or their sexual bias. At the same time, these laws and regulations create a bar to others in our society denying them the opportunity to receive a governmental benefit because they fail to have the racial or ethnic or sexual ancestry or characteristics. Nowhere in the language creating these programs can be discerned any attempt to either measure the recovery by the extent of the wrong complained of or to distribute that recovery equally and fairly among those comprising the injured class. Equally absent is any attempt to limit participation in these programs to those who have actually suffered the effects of discrimination or to seek recovery from those firms who have actually occasioned the discriminatory practices in the past. Neither the innocent nor the guilty, the victim or the victimized, are accorded any different treatment under these programs. Nonminority firms and grantees who have an established history of actively seeking to place contracts and subcontracts with minority firms are afforded no better treatment than firms with a history of discriminatory practices. Good-faith efforts seem to be irrelevant. Similarly, minority firms, which may have long suffered the effects of discrimination, are accorded no more preferential treatment than firms newly created which may have never been harmed by such conduct. The only criteria set forth according entitlement is membership in a legislatively defined racial or ethnic or sexual class. The only criteria set forth excluding entitlement is race or ethnic background. The concepts of individual accountability, of individual compensation and reward, of individual rights are totally abandoned. In an industry characterized by fierce, heated, open competition, another criterion has been established: Award the job because of racial or ethnic or sexual characteristics. We cannot agree with this approach, no matter how temporary, no matter how well intended. The national government, by resurrecting race as a relevant criterion for the disposition of benefits in our society, as opposed to individual merit and ability, sends a clear message to all its citizens: Any ethnic, religious, or racial or sexual group which possesses the political power to negotiate a settlement in the legislative branch of government can take all it can as fast as it can for as long as it can. To correct or eliminate some of these problems, established contractors could be encouraged and given incentives to subcontract to DBE firms. This could be in the form of training to DBE firms, counseling with them, tax incentives for the successful completion of projects by DBE firms, and so forth. Those DBE firms that succeed in the marketplace will find many contractors clamoring for their services. The shams and front organizations that are set up to take advantage of this mismanaged and misdirected program of monopolistic practices will no longer be able to exploit the well-intentioned effort to bring more minorities into the construction industry. Arbitrary quotas and subsidies to firms, some of ,whom are unqualified and would not be allowed to bid if they were not minority firms, should cease, and qualified firms, not needing the quota or subsidy to compete, should not be counted toward DBE quotas. The low bid in open competition should be the criterion for awarding of construction contracts. Incentives to established contractors can· help train and develop minority firms who will be able to provide the low bid effectively in the rebuilding of America. The following came from a newspaper column that I read this morning. It dealt with civil rights and the physically handicapped, but it would be equally applicable, I think, to the subject at hand: . We overlook the fact that justice in the matter of the economics of the marketplace is not necessarily achieved by the same measures as justice in the matter of race. To achieve justice we need to separate these items. Racial discrimination was a socially created thing which could be modified through changes in society's laws. But no matter how sensitive a society tries to be, it cannot by law wipe away all the unpleasant consequences of economic success to one individual and lack of economic success or even economic failure to another. Humane legislation is one thing. Civil rights are another. Strange as it may seem, Mr. Chairman, activist zeal is no substitute for clear thinking if one really hopes to achieve justice. Thank you, Mr. Chairman and members of the Commission. CHAIRMAN PENDLETON. Thank you, Mr. Jones. As I listened to the testimony-I'm taking the prerogative of the Chair because of the late hour-I must say it was balanced with different opinions. Mr. Thomas, I assume you do not agree with Mr. Jones nor Mr. Monier. I'm only assuming, but to set that up as an absolute hypothetical, what is it that the three of you could talk about that would get rid of ~et-asides that would make you comfortable, and probably· Ms. Henderson and Mr. Valenzuela and Mr. Archuleta comfortable, that they could compete in the marketplace. Each of you has stated your position, ··but I'm not sure I understand what a remedy might be. What do you think that remedy might be, Mr. Thomas? And other panelists may answer. MR. THOMAS. Well, I think there are some alternatives and there are some remedies. For one thing, NCIC, it appears by what Mr. Jones says, takes a very strong position against all set-asides. If I remember correctly, it was at the September meeting of '84-and I was a part of that meeting, being at that time part of that coalition-he' championed a resolution to be passed by NCIC to do away with all set-asides. If I remember correctly, that was voted down by the body. So I'm kind of twixt on this firm stand now and take into consideration that perhaps something happened in between that I don't know about. But that was tried by that coalition, and again I state that it was voted down at that time. I think the main reason it was voted down was that some of the smaller associations within that body said it was too firm a position to take. It was too much of a negative position to take, that setasides and preference programs are a reality. They are public law. And I think this renders room for compromise and to crystalize what we disagree oil and also crystalize what we agree on and come up with something that we all can live with, and also to make sure that minority contractors in no way, shape, or form are closed out of the market for various and sundry reasons other than if they don't qualify, which, again, I feel if you don't qualify, you should be closed out of the marketplace. · I just feel that digging our heels in left and right is not going to help anybody in this room or anybody that we represent. It is time for compromise. It is time for alternatives. It is time to stop talking to each other and start listening to each other. CHAIRMAN PENDLETON. Mr. Monier or Mr. Jones? MR. JoNES. I must say, Mr. Chairman, that the programs do exist and they are set aside for preferential treatment. I think the question to be asked is: When do they cease? There have been some statistics that the average cost or the premium cost for the set-aside programs is in the range of 10 percent. I think that is several years old, and I think it may be as much as 20 percent now in some cases. Yet, there are also statistics that show that the average profit margin of the construction industry is less than 5 percent. At what point in time do we say that a firm has to CHAIRMAN PENDLETON. I hate to say this, but Igraduate and compete on its own without the benefit really don't have an answer to the question. I've of preferential treatment or subsidies? heard the problems, I guess, and I see someThere are alternatives, though, I believe. I men semblance of something. But it does seem to me attioned some about creating incentives. There have some point there's got to be some way that this isbeen two general areas of alternative programs. The discussed. . program is to have experienced firms to try to deal Mr. Thomas is saying-and I happen to agree in a training or counseling position with the minority that minority contactors feel as though they are firm or the disadvantaged firm and to bring them qualified. I hear Mr. Jones saying that he's still got along. On the one hand, they say you can do this to be trained by an experienced contractor before through government agencies, to counsel with the you can come in. Is that what I understood? firm. On the other hand, they say you can do it in MR. JONES. No, Mr. Chairman, you misunder the marketplace with contractors. stood me if I said that. There are qualified contrac I would certainly favor the latter. I think the tors that I don't think need to have the program, nor marketplace can do it more economically and more do I think they should be counted toward participa efficiently and more successfully. And I believe tion in the program. There are other contractors that through joint ventures, partnerships, training, giving have been described here today that are trying to some kind of incentive to the general contractors tobring themselves along and to give them training so compete and either training by a Federal agency or by other contractors or by some other program can they can compete in the open marketplace withoutthe benefit of additional subsidies would be the way earn a place or can achieve those positions so theycan compete in the marketplace. to go. But no one has ever come up with a conceptor a timetable as to how long one of the minority I'm saying two things: Number one, the contracfirms has to be in the program before it can tors that are not qualified could go into joint graduate. ventures or partnerships and by experience in In addition to that, there are experienced qualified finance and technical training and expertise come to a position where they can compete in the market firms that have been doing business for 10 or 20 place. And I'm saying that other firms that are years that also get the benefit of the disadvantaged established should not be allowed to count toward firms strictly because oftheir ancestry.CHAIRMAN PENDLETON. Mr. Monier. DBE participation. They are already successful. MR. MONIER. I think he just mentioned the same Why give them a premium of 10 percent or 20thing I would mention on joint ventures, to be able percent when they don't need it to compete?to transmit to the disadvantaged contractor or the CHAIRMAN PENDLETON. Just one more question.minority contractor the ability to establish himself in Do you feel as though these set-aside programs tendan ongoing position. The thing that is rankling is the to socialize business and increase the bottom line, orfact that there is an ongoing situation with no do they just bring people in in a way that makesterminal point. There is no graduation situation in them eligible for the marketplace, and it is good formany ofthese respects. the country to have increased costs, and therefore,In addition to that, there are many offensive you have more taxes. Is that what I'm hearingpractices that are created, not only by the minority people say here? but by the majority contractors, that are completely MR. JONES. It's not good for the country to haveshams in the way these quotas are met. I don't think increased costs because the taxpayers have to payyou have to go into detail on that except to say that for the Federal financing.it circumvents the intent of the program itself. CHAIRMAN PENDLETON. Somebody here said itThe other thing I would like to emphasize again is would increase costs. I think you, Mr. Monier, saidthat it certainly is hard for me to reconcile why some companies have increased costs and you have acontractors who have been successful in their higher award. Is that what you said earlier?practice, both by experience and economically MR. MONIER. That's right.because of their minority position, are suddenly put CHAIRMAN PENDLETON. Does that mean it would in as a quota-acceptable minority contractor just be a cheaper way of doing business if you didn'tbecause oftheir minority situation. have these programs, or are you saying because we 100 MR. THOMAS. I don't think that's quite accurate. I have the programs, the costs are higher to the have heard a lot of figures thrown around. I've government? MR. MoNIER. I'm saying that the way the programs are being administered the costs are higher. year, just taking the State of Colorado alone, the MR. JoNES. The last issue of Engineering News price rigging in that State alone cost the taxpayers Record said it was the general consensus that the more than any increase of any type of set-asidepremium is in the neighborhood of 10 percent. One within the State. If my memory serves me correctly, person said 9; another said 10. It's approaching 20 out of $50 million in road construction, repairs, andpercent in certain areas in the South. what not, the price was escalated somewhere aroundCHAIRMAN PENDLETON. Ms. Henderson, how do 25 percent just because of the bid-rigging factor. you feel about that? And of all the contractors in that State that did road Ms. HENDERSON. First of all, I think we are construction, about 50 percent of them participated painting a lot of set-aside programs with one brush, in this bid rigging. So I think that that has had a which is the 8(a) program, and I would like to be bigger dollar impact on the American taxpayer than sure that, as we talk about set-asides, we differentiate any increase in costs, which is questionable, by small the 8(a) program from the other programs. I think, minority businesses. for instance, the small business set-aside program has MR. MoNIER. I would like to object to that resulted in cost savings. When small businesses have because that implies that the contracting in general is been brought in and then allowed to compete bid rigging, and I absolutely would not agree to through the set-aside programs, the costs have gone anybody making that remark about our association down. So I want to make that point very clear, that as far as that is concerned. they do not always end in an increased cost. CoMMISSIONER GuEss. Mr. Monier, let me see if I can redirect the thrust of the question. Did I I find myself, perhaps rightly so, in the middle of this table, halfway between Mr. Thomas and Mr. understand you to say that your father started the firm with which you are associated? Jones. MR. MONIER. Yes. CHAIRMAN PENDLETON. I think you have compaCOMMISSIONER GUESS. Did I also understand you ny. to say that it's in the State ofTexas? Ms. HENDERSON. And I believe that there is a MR. MoNIER. Yes. responsibility that the Federal Government has, as COMMISSIONER GUESS. Did I also understand you the largest purchaser of goods and services, to be to say that he passed this firm on to you, or did you fair in access to who can enter that. Because if you buy it from him? are taking that much of the economy and putting it MR. MoNIER. No, I took it over after I got out of in the hands of the Federal Government, we have to college and after a brief period in field operations. be sure that viable companies are not stopped by COMMISSIONER GUESS. You did inherit the firm, barriers. then, from your father?I don't think open access exists. I do not believe MR. MONIER. Inherited what was there in 1935, if that small businesses as a whole would have the you want to call it that.opportunity to compete and win without small COMMISSIONER GUESS. Wauld it be correct for business set-asides. me to assume that you are over 40 years old? I think it's more complicated when you go to MR. MoNIER. Yes, indeed. women-owned businesses and minority-owned busiCOMMISSIONER GUESS. Say for purposes of disnesses, and those are issues that have to be dealt with cussion that in the State of Texas at a point in time if they are viable parts ofour economy. there was a similarly situated black. Would he have CHAIRMAN PENDLETON. Commissioner Guess. had the same opportunities to enter the marketplace COMMISSIONER GUESS. I yield toin the State ofTexas then? CHAIRMAN PENDLETON. -somebody. MR. MONIER. Absolutely. MR: THOMAS. Can I just say something on the COMMISSIONER GUESS. Would he have had the price impact? opportunity to pass on to his children a firm similar CHAIRMAN PENDLETON. Yes. to yours? 101 MR. MONIER. As far as I'm concerned, I don't see COMMISSIONER BERRY. I preempted him because any reason why he would not have. I was surprised by the answer because I had just COMMISSIONER GUESS. No, that was not my read something. question. My question was: Would he have had an CHAIRMAN PENDLETON. All right, you can beopportunity to pass on to his son a firm such as your unpreempted then. father passed on to you? COMMISSIONER GUESS. If Mr. Monier contendsMR. MoNIER. I see no reason why not. that a similarly situated black would have had the COMMISSIONER GUESS. At that point in time same opportunity, which I would be surprised towould he have had that opportunity? hear, in the State of Texas to acquire a firm and MR. MONIER. Yes. participate in the competitive, open, and free marCOMMISSIONER BERRY. Mr. Guess, may I interketplace without constraints as he was, then I guess irupt you. have no other questions, Mr. Chairman.Mr. Monier, you say in your written testimony CHAIRMAN PENDLETON. I just want to make one that until 1964 most construction, including plumbpoint, if I may. Is there a certain percentage of ers, did not permit blacks to become apprentices. I minority contractors that anybody knows of whowas reading your testimony, and you talk about how are active in the various crafts and trades who dothey changed over time, and that the work was not look for governmental work because it's apassed on from father to son, and it was not racism; problem?it was nepotism. Is that in your testimony? MR. THOMAS. I asked Mr. Argrette, a member ofMR. MoNIER. That's correct. my board, to accompany me today, and he can COMMISSIONER BERRY. If that is the case, how address that very well for you.could a black in the State of Texas, or wherever he CHAIRMAN PENDLETON. How many minoritieswas; have the same opportunity at that time to even avoid this whole situation, who have an entreprebecome qualified? neurial alternative so they do not have to get intoMR. MoNIER. It's not in there, but I know of some this situation of Federal contracts? Is there athat are there that did that. It's because of the reality number?of doing business and wanting to do business or getin business and having the wherewithal and the MR. ARGRETTE. Mr. Chairman, I wouldn't knowtenacity to do it. the statistics. I wouldn't know the exact number. But ifCOMMISSIONER BERRY. In other words, what I could just add a highlight in that same area, withinyou're saying in your written testimony is not my business, I'm not an 8(a) contractor. I have not hadaccurate. You say the people couldn't-! read it. It's any governmental loans. I am told that I have doneright here somewhere. something in the industry and have reached some levelMR. MONIER. I'm saying in general, in the ofminimum success in the construction industry. organized labor sector, there have been cases where I use the phrase, "as a minority business enterthere was a problem; I was able to get them in prise." I am on the board ofthe National Associationapprentice programs, yes. of Minority Contractors. And I am a financial and aCOMMISSIONER BERRY. You said, "In some parts very loyal member along with these two gentlemenof the country it was accepted practice until 1964 to on the AGC because, from a business standpoint, I exclude as an apprentice anyone who was not the said I couldn't throw stones at the AGC and theirson of a journeyman member of the sponsoring opposition to the quotas and set-asides unless I wasunion or of one of the sponsoring employers partici on the board. There are other minority contractors outpating in the apprenticeship training program. This there who went into business, as I did, with an attemptpractice was not founded on racism or prejudice, but to penetrate the industry, because I wanted to be a good on nepotism." And you go on and describe-subcontractor to the industry.MR. MoNIER. That was in the union. Mr. Chairman and other Commissioners, the onlyCOMMISSIONER BERRY. But you're saying that in way that I could have gotten to this level now in theTexas blacks could become plumbers. city of New York-and I'm 100 percent union-wasMR. MoNIER. Well, they were and they did. because of the rules and regulations around quotas.CHAIRMAN PENDLETON. Commissioner Guess, As a good businessman, I am attempting to be sowere you preempted? that I will have a business from a minority stand 102 point as Mr. Monier-and I am ready to go to Texas represents should get the additional cost rather than now. I don't have a son, but I could pass it over to the government agencies. CHAIRMAN PENDLETON. Commissioner Berry. my daughter who, because of going into the construction industry and running the business, by COMMISSIONER BERRY. Today we had some business objectives and good business tactics, learnquestioning as to, whether minority firms-and I ing from the majority contractor-and I like many guess women-owned firms-hired more minorities and women than firms that were not minority other minority contractors take offense. I'm very owned or women owned. Can any of you tell me the competitive. I have never put another penny on top of a bid to win it. answer to that in the case of the firms you are Now, that may have been why my track record familiar with? has been so good. But the majority contractors I Ms. HENDERSON. I can tell you as relates to work with in the framework of New York, within women-owned businesses. Many women-owned bu sinesses have almost 100 percent women employees. the Big Eight or the Big Ten-I'm not on Long They also have a very good record in hiring Island; a lot of major contractors have been indicted in my fair city out on the island. But in the other minorities. My company has 45 women, 15 men, and boroughs where I work, I am as competitive as any about 13 minorities. other majority contractor. MR. VALENZUELA. In the Bronx we have Wed tech. The bulk ofthat 700 figure that I quoted comes But I know, in the real sense of the word, Mr. from people who live in the Bronx, essentially does a Chairman, I am only here because of the quotas and the rules and the regulations, which I would support lot of the training there at its own costs. The black because it would help other minority businesses and and Hispanic and Puerto Rican employees that he women's businesses to get into the mainstream. And has as laborers come from there. I'm not asking for anything. I'm only asking to learn The same situation with Roselm. Probably around to do the business as well as you, your father, your 60 percent of his employees are from the Hispanic grandfather, and that your sons will follow. community of Los Angeles. We don't have any empirical data, of course, on You keep talking-and you didn't use the word; I will use it-that is why the majority contractor now all of our members. Amertex, which is another is grasping at the new guidelines that are out on the company that we cite in the testimony, hires directly from essentially some very high unemployment [inaudible]. That gives the majority contractor something that he can financially put his hands areas in Puerto Rico itself. MR. THOMAS. The same is generally true. Most of around to say, "I want to work within the framework of the rules and regulations." AGC is against the companies we represent are in the inner cities quotas, but those majority contractors who say, "I around the country, and I would say a good am here to do business and to make business" are educated guess is about 80 percent of their employworking within that framework, and they're using ees are ethnic minorities. that. COMMISSIONER BERRY. Mr. Jones, you were CHAIRMAN PENDLETON. Is there any other com-talking about the Congress-! think you said the ment from anybody? Congress had resurrected the idea of race to deny benefits to some people by enacting these set-aside COMMISSIONER BERRY. I have a few questions. MR. ARCHULETA. Yes. programs, or some statement similar to that. When CHAIRMAN PENDLETON. Where did the "yes" you say resurrect something, that means it was dead, and you invigorate it, if I understand the term come from? MR. ARCHULETA. Right here. I would like to correctly. Was race used to deny benefits to some address another point Mr. Jones made. For example, people before the Congress started the set-aside he suggested that subcontracting would be a more programs? Was there an historic denial ofbenefits to economic approach. I myself have entered into some some people? MR. JONES. Not to my knowledge. subcontracting arrangements, and I know that the prime contractor will add the cost of his general COMMISSIONER BERRY. In other words, blacks were never denied the opportunity to participate in administration in addition to his fee. I can't see how that can be more economical. I think the statement is certain kinds of activities because of their race? Is that what you said? self-serving. What he is saying is that the firms he 103 MR. JONES. I think it is obviously a fact that there some of the States and cities would enact set-aside has been discrimination in this country, and it is programs? Did they have any basis at all for doing it, obviously a fact that there were relatively few black or was it just some irrational act on their partcontracting firms in my area of the country. But because they wanted to violate the Constitution? there were some, and there have been some for MR. JoNES. No, I think it was because of politicalyears, and they are successful firms that have been pressure. passed down from father to son, as was asked earlier. COMMISSIONER BERRY. All right.The point I was trying to make is that if you say CHAIRMAN PENDLETON. I think it would bethat this percentage of work is going to be set aside appropriate if the record shows that the hardestor is going to be allocated to minority firms, they are working person here today was the recorder. Wedoing it strictly because ofthe race. appreciate that. COMMISSIONER BERRY. My question was about [Applause.] the word "resurrection." It was as if it never existed CHAIRMAN PENDLETON. Let the record show before. I was only concerned about that. that. But the last thing I'd ask is: Do you have any idea These proceedings are adjourned until tomorrowwhy, in view of your analysis, the Congress and morning at 8:30. Thank you all for coming. 104 PROCEEDINGS March 7, 1985 about 30 days and those who want to submit CHAIRMAN PENDLETON. Could we assemble, please. We had considerable discussion about baskettestimony or statements, please feel free to do so. Is there anyone here who is hearing-impaired? ball yesterday, and I would like to enter into the record the article from the morning Washington [No response.] CHAIRMAN PENDLETON. Seeing none, you can Post's sports section, "Talent and Hard Work Made Maryland Junior ACC's Top Offensive Force." I rest. Thank you very much. want to welcome you to the second day of the This morning we start with panel 6. Gentlemen, Commission's consultation/hearing on Selected Affirmative Action Topics and Business Set-Asides. we had a long day yesterday, and we are fresh and During yesterday's proceedings, the participants ready to go today. Things are working better for us addressed underrepresentation, underutilization, and today, I think. whether or not they reflect discrimination. Business Panel 6 is "Affirmative Action as a Remedy for set-asides as an appropriate remedy for discriminaDiscrimination in Employment and Business Con tion were discussed, as well as the current state of tracting: Strategies for the Future." The last panel of the law with regard to affirmative action and setthis consultation component of these proceedings will assess the results of both preferential and asides. We heard remarks from one member of Congress. We also heard the views of a number of nonpreferential affirmative action in employment and business contracting. What remedies are appro business organizations and interest groups. The first panel today, which will address affirmative action priate for discrimination in employment and business strategies for the future, concludes the consultation contracting will be addressed. segment of these proceedings. Following the consulThe panelists include Dr. Finis R. Welch, profes sor of economics at the University of California at tation segment of these proceedings, we will have Los Angeles; Dr. Nathan Glazer, professor of public witnesses who will be testifying with regard to their knowledge and experience about set-asides. education and sociology at Harvard University; I do want to add to my opening statement and say, Larry M. Lavinsky, partner with the New York law firm of Proskauer, Rose, Goetz & Mendelsohn; and contrary to Commissioner Berry's comments yester Leonard, assistant professor of day, we will have witnesses and will have a hearing Dr. Jonathan S. industrial relations at the University of California at section where the public may tell us their experi Berkeley. Welcome, gentlemen. ences with set-asides. It is just important to note that We will start with Dr. Leonard, who is currently we could not open up the hearing any longer than assistant professor at the Organizational Behavior the afternoon, and there was a very long list of and Industrial Relations Group, School of Business witnesses and persons who wanted to testify. On behalf of the staff and my fellow CommissionAdministration, and research associate, Institute of ers, we regret that we couldn't do that, but I will Industrial Relations, at the University of California at Berkeley. He has written on affirmative action announce later that we will keep the record open for 105 and reverse discrimination, on unionization, and on ment behavior rather than the selection of blackeconomic issues involving the black community. He intensive establishments into the contract program. has held research positions with the Ford Founda Another question that arises is whether affirmation, the National Bureau of Economic Research, tive action has worked across the board or whetherand the Massachusetts Institute ofTechnology. blacks are only getting low-skill jobs. My evidence is Dr. Leonard received his Ph.D. in economics at that, indeed, the demand shifts are higher in theHarvard University. high-skill occupations. In other words, affirmativeIs there some kind ofbias going on? action also seems to help in terms of helping blacks COMMISSIONER BUNZEL. What? get the higher level jobs. CHAIRMAN PENDLETON. Bias toward Harvard. A third question deals with the efficacy ofWe have a lot ofpeople who went to Harvard. compliance reviews. My evidence is that complianceDr. Leonard, go right ahead. reviews seem to be effective. The establishmentsthat have undergone compliance reviews have high Affirmative Action as a Remedy for er growth rates for blacks than the nonreviewedDiscrimination in Employment and contractors. It seems to be more than just an exerciseBusiness Contracting: Strategies for the in paper pushing. Future So far most of my discussion has been about blacks. What has happened to Hispanics, other STATEMENT OF JONATHAN S. LEONARD, nonblack minorities, and females? There the evi ASSISTANT PROFESSOR OF INDUSTRIAL dence is more mixed. In particular, white females' RELATIONS, UNIVERSITY OF CALIFORNIA, BERKELEY growth, at times, seems to be hindered by compliance reviews, and it also seems to be hindered where DR. LEONARD. Thank you. their initial share is large, although the evidence isIn the past few years, I think there have been at not conclusive on that.least two major lines of criticism of affirmative For nonblack minorities, affirmative action seemsaction. The first is that affirmative action doesn't to be more effective in large establishments. work; therefore, we should get rid of it. The second There is a famous story out of Philadelphia aboutis that affirmative action does work; therefore, we bicycling. A construction contractor hired a set ofshould get rid of it. blacks and put them on bicycles and rode themI would like to address myself to just the first of around from one construction project to another inthose two lines of argument and not at all to the front of the inspectors. That leads you to the second. In other words, what I am going to be question of whether the gains engendered by affirconcerned with is the question: What impact has mative action are transient. affirmative action had? My evidence, looking at a subsample of theI was fortunate enough to gain the cooperation of establishments that have been reviewed, is thatthe Department of Labor to do an evaluation of blacks, minorities, and females have lower turnover affirmative action between 1974 and 1980. That rates than do white males in such establishments. Istudy involved looking at more than 70,000 estab don't believe that the gains engendered by affirmalishments with more than 16 million employees, tive action have been transient. based on their EE0-1 forms. Let me briefly summaAt the same time, I would argue that economicrize the results ofthat study. growth itself is surely one of the more effectiveThe most important one, I think, is that black means for increasing employment of minorities andemployment share grew faster at the establishments females: members of protected groups. That is that were under the affirmative action obligation because the establishments that are growing canbecause they were government contractors than at better accommodate the pressures of affirmativenoncontractor establishments in similar industries action.and regions, controlling for growth rates and other My finding, and the findings of others, thatcharacteristics of the establishments. I take that as affirmative action has been effective then raises whatsaying that affirmative action under the contract I believe to be the most controversial question: Hascompliance program has been an effective program this reduced discrimination or has it gone beyondfor blacks. This seems to reflect changed establish-that and started to induce reverse discrimination? 106 My findings still are more tentative because they quotas, they are not being rigidly enforced, but are based on more aggregated data, but they also neither are these goals and timetables as vacuous as some other critics have suggested. give me a chance to look at Title VII. There are two subresults. Based on my empirical work and on that of the The first is that establishments that have had classfour or five other economists, including Professor action suits under Title VII increased their black Welch, who have now looked at this, I think the evidence is now pretty clear that affirmative action employment tremendously, and Title VII has a much larger impact on given establishments than does work. It has been successful in promoting does affirmative action. employment in the contractor sector of blacks. The second finding is that the relative productiviThere is also some evidence it has also helped ty of minorities and females has not significantly nonblack minorities and women.declined as their employment shares increased. I In conclusion, I would say that while this is think one of the most important arguments against certainly a controversial program, the argument that it should be disbanded because it's ineffective affirmative action is that it's forcing the firms to pick doesn't strike me as one that has a strong empirical less qualified minorities and females, that it's forcing establishments to pick from the bottom of the barrel. foundation. Ifthat were the case in a substantial fashion, then we Thank you. would expect productivity to go down where the CHAIRMAN PENDLETON. Thank you, sir. Dr. Nathan Glazer is currently professor of pressure had been greatest. education and sociology at Harvard University and The tentative evidence is that I have not yet found significant evidence. of such a productivity decline. I coeditor of the journal Public Interest. In the past he has served as professor of sociology at the Universi interpret that as saying that some of the large efficiency costs that have been attributed to affirmaty of California at Berkeley and on the staff of tive action and Title VII are overstated. Commentary magazine. He has also taught at Smith That leaves me with two more questions. One is: College and was a Fulbright lecturer in Australia and India. He has served on a number of Presidential How could enforcement be improved? I looked at task forces on urban affairs and education. His books the targeting of affirmative action and tried to infer whether it was targeted as you might expect an and major monographs include The Lonely Crowd, Beyond the Melting Pot, and Ethnic Pluralism and antidiscrimination program to be, or whether it was targeted as you might expect an earnings redistribu-' Public Policy. Dr. Glazer received his doctorate in sociology at tion program to be. My evidence suggests that it has not been targeted Columbia University. against discrimination. By that I mean that the establishments with the lowest proportion of minoriSTATEMENT OF NATHAN GLAZER, ties or females do not have a significantly higher PROFESSOR OF EDUCATION AND SOCIOLOLOGY, HARVARD UNIVERSITY probability of coming under a compliance review by DR. GLAZER. Thank you, Mr. Pendleton. the OFCCP or its predecessors. Again, that refers to I was very taken with Mr. Leonard's first lines on the period between '74 and '80. I think that could be criticism ofaffirmative action. He does seem to have improved. I also looked at goals and timetables. These have a point. Some people have said it doesn't work; get been criticized ·on two mutually inconsistent rid of it. Some people have said it does work; grounds. The first is that "goals and timetables" are therefore, get rid of it. And I was pondering what I was saying. I'm saying, in measure, both. It has just a polite euphemism for quota. The second is that worked in some measure, and it's a question of the goals and timetables aren't worth the paper theire written on. They are just an exercise in paper whether we still need what is an expensive, intrusive, and complicated operation. Mr. Leonard's pushing. work has shown just how expensive affirmative I think the truth lies somewhere in the middle. Goals are vastly inflated. Firms that promise to hire action is. Let me say that I do take seriously the Commis 10 minorities usually end up hiring 1. On the other hand, firms that promise to hire more do actually sion's request that we discuss preferential affirmative hire, more. I take that as saying that if these are action. I do think we have a problem in that all of us 107 supporters and opponents of the goals and time preferential affirmative action often want to movetables, the statistical targets approach, tend to fall against this policy generally and eliminate it in Stateinto the language ofjust saying "affirmative action." and local action as well as Federal action, and inI think we are talking about preferential affirmative private and nonpublic institutions where it exists inaction, which is controversial, and specifically the very large sectors voluntarily, as well as in contracrequirement on contractors to reach certain levels of tor firms now required to have such policies. employment of minorities and women within certain But I think it does make sense to think of policiesgiven periods of time. I do think that this does in the packets in which they come in reality. Ainvolve preference, and that ha~ become the issue. change in Federal affirmative action regulationsVery often when we are looking at statistics, we seems, in view of the attitudes of the present are being told in general what has happened in the administration and the relative ease, legally, ofsixties and seventies, and that in general includes, changing these regulations, to be the most likelyclearly, more than preferential affirmative action. I change. So it is most reasonable to think of thatthink the two fine economists up here with us have change, and consider potential effects of a limitation done very good work in trying to distinguish, by the of preferential affirmative action on the prospects of study of contractor versus noncontractor firms, the minority groups and women. specific impact of goals and timetables as against I realize I have left aside an issue which I know is everything else that happened. not addressed to this panel, but which has beenBut we do have to keep in mind the "everything much discussed, and discussed yesterday, and Ielse," and we have to ask ourselves whether, in the should say a word on that. That is the degree tocase of a change or abandonment of the more which those gaps in employment income, promostatistically targeted approaches, everything else tion, between the target groups and the white maleschanges and to what extent everything else changes. can be attributed to discrimination. I have written aThat is one of the themes I concentrate on in the good deal about it, and I think there is no way ofbrief paper I have written for the Commission. changing anyone's mind on this.Thus, one of the things that would continue, one I do feel that the issue has become almostof the policies that would continue, would undoubtimpossible to analyze. I am impressed by the factedly be the prohibition against discrimination, the that a sociologist of great skill and competence,Civil Rights Act, which no one challenges. And Christopher Jencks, who some of you may recallwhat would also continue would be the very strongly criticized Thomas Sowell's books in an substantial agency, the Equal Employment Opportuarticle in the New York Review ofBooks, has recentlynity Commission, with its budget of three or four written an article to be published shortly where hetimes that of the Office of Federal Contract Complisomewhat reverses position-! should not attributeance Programs, which oversees the prohibition that to him; let him reverse his own position-inagainst discrimination in employment. which he just sort of throws up his hands on theI assume the Justice Department will still be at problem of: Are we dealing with discrimination inwork. I see it still at work. I assume that various these gaps?State requirements would still exist. I assume that He says the figures have too many anomalies. Hevarious local requirements would still exist. asks, as others have asked: Why is it that groups thatMuch of the news dealing with what we call we believe were subjected to some or a great deal ofaffirmative action, or could call affirmative action, in discrimination in the past-Jews, Irish, Catholics,the newspapers today actually deals with State Italians-do better economically than other groups,action and with local action, local actions that may like Scandinavians, who it is generally believedrequire 10 percent of contracts in set-asides or State faced no or very little discrimination? requirements that involve oversight of employment He points out that, overall, these days Catholicsin State agencies, and so on. do better than Protestants. I know he has looked atSo I do want to narrow my presentation literally some controls for that, like who lives in the countryto the goals and timetables approach, that part of and who in the city, and so on. He points out that ifaffirmative action overseen by the Office of Federal we were to use relative income as a measure ofContract Compliance Programs. Now, perhaps I discrimination, we would have to explain why blackhave narrowed it too much. It is true opponents of West Indian women with 9 to 12 years of education 108 were making 122 percent of the average for equivaaffirmative action. I was contacted as a critic and a lent white women in 1969-before affirmative action sociologist who might assist them in various cases. was very general. The group was then small. The .next time was very On this issue I have given up analytically. I think large. I addressed their audience-it consisted althe issue is really one of what kind of differences most entirely ofaffirmative action officers. The third time they didn't ask me. It was clear that industry among groups politically can we live with, or what had found a way to live with this and is perfectly differences from the point of view of their social happy to live with it, and I don't know if its living consequences shall we live with. So I will say no more about the question of justice in this area, with it would change if certain rules changed. though I think it is an area that inevitably we cannot I agree with Robert J. Samuelson, who analyzed what the effect of a reduction in strong enforcement escape. So now the question is an exercise in considering would be-and I quote him: the effects of a policy different from preferential affirmative action. And it does require us to keep in These pressures [the aggressive use of antidiscrimination place the other elements that determine occupational laws, including affirmative action] have changed the way labor markets work. Many firms have overhauled person choice and income. It would be an act of demagogy nel policies. Recruitment has been broadened. Tests to assume that if we do away with Federal preferen unrelated to qualifications have been abandoned. Promotial affirmative action everything else changes, that tions are less informal. When positions come up, they are the civil rights law is no longer in effect, that the posted publicly so anyone (not just the boss' favorite) can EEOC is no longer funded or operative, that the apply. Formal evaluations have been strengthened so that, when a manager selects one candidate over another (say, a courts shift 180 degrees in their interpretation of the white man over a woman), there are objective criteria. Constitution and the laws and other Federal regulations, that State and local antidiscrimination com Equally important, women and blacks increasingly are missions, laws, regulations become inoperative, that plugged into the informal information and lobbying net all the internal rules and regulations that create a works that remain critical in hiring and promotion decidegree of affirmative action within employing agensions.cies-public, private, and voluntary-would become ineffective, that the organizations of minorities and I believe as important-and here is a suggestion women that now press for fairness or preference possibly for the Commission in terms of the future would fall dumb and powerless. Perhaps a political research, in answer to your question as to valuable research of the effect of affirmative action in the late philosopher can assume all this, or an econometrician. A policy.analyst must deal with more realistic seventies-would be some effort to find out what has happened to these institutionalized procedures alternatives, and that is what I have chosen to do. I come to the position, then, that because of the that were brought into existence in response to forces that keep in place a system of employment antidiscrimination law and affirmative action procedures ih the eighties. It would be revealing to and promotion that, on the whole, does not discriminate against minorities or women-and introduce consider what the effects of 4 years of, I assume, many elements of preference-that not much would somewhat slackened enforcement, and more than change. The fact is that the procedures that require that, the expectation of slackened enforcement, has fairness have in large measure been institutionalized. been. I would not deny the role of preferential affirmative The reality of looser enforcement and expectation action in institutionalizing these procedures, along of looser enforcement has, I assume, not been with 1all the . other elements I have listed. And if without effect, but I think it has been of much less someone now wants to attack me for inconsistency, effect than the supporters of strong enforcement they would be quite right in saying I attacked believe. Let me refer again to extremely modest and, you affirmative action quite early, but now I'm taking the position that these institutionalized measures in might argue, not relevant experience of what has existence, will~stay in existence. My own experience happened to affirmative action in the universities in the context of what we assume is looser enforcement suggests that. .I recall the first time I was contacted by an since the Reagan administration came in. By the industry group which was terribly worried about way, I don't know if that assumption is true. That is 109 part of what we have to find out. Do the field And you have to realize they are not arguingofficers operate differently now? against employment laws. This practical column just But let me just say that whereas I read less in the tells you how to live in the environment. papers and hear less about pressures from govern "More are being created in court decisions"-thatment agencies on universities to prepare affirmative is, more employment laws. "An employer-big oraction plans, and we see less conflict, nothing has small-can find itself charged with employmentchanged in the way universities actually proceed on discrimination because of its hiring or firing pracaffirmative action. tices," and so on. All the posts must still be advertised. That isinstitutionalized. The Chronicle ofHigher Education Restrictive job requirements can get a company introuble. It may be discriminatory to have an educational is fatter with advertising, which initially was exbarrier to a position (like only high school graduates needpanded for affirmative action, than ever before. In apply) if it can't be justified as necessary to doing the job. my institution, and in many others I know about, a If warehouse workers lug 100-pound loads, requiring an special effort to find minority and female applicants applicant to show such strength is justified. But if workers for all posts is stiii required and that has not usually lift only 25-pound loads, then requiring an abilityto lift 100 pounds could be ruled discriminatory against changed. Deans and other administrative officers women.still look more favorably on a proposed female orminority appointment than a white male appointIn other words, all those kinds of rules that we inment. That hasn't changed. this audience know very well.The pressure that helps maintain these policies, In February 1984, after 4 years of the Reaganfrom women and black faculty, graduate students administration, small employers who are presumablyand undergraduates, and from minority groups, has ignorant about this and don't have as many lawyersnot changed. guiding them are being warned, "Watch out."So, it's an open question. I wonder whether I relate this only in terms of the question: "Whatanything has changed in industry. I think one would else would change if we were to give up the goalsand timetables approach?" find out a great deal if one were simply to examinethe various kinds of advice which go to industry on Now, I would say a second thing has not changed,how to behave regarding employing blacks and and this refers to the nature of the American women. political system. Much of the change we have seen I am very impressed with a column in the Wall has not been-and this is a bias we are all subject Street Journal, one of their advice columns, on the to-a result of a change in the law as such-Title left-hand side of the first page of the second section, VII, 1964 affirmative action requirements, and so on.Women are different from what they've been; blacks which I'm sure you all know is advice to business. are different from what they've been. Women areThis is advice to small business of February 4th of changed in what they expect to get and what they this year, and they say: aim at. Blacks and perhaps, as some have said, otherminorities have also changed in terms of what theyWhat's wrong with asking a woman job applicant these expect and what they get, what they will fight for, questions: Who takes care of your children when you're at and so on.work? What if they get sick? How does your husband feel We ignore how much of the changes we have about your taking business trips? What would he say if amale employee went, too? seen are a result of the changes in the groupsthemselves and a change in American society. I might say not only women and blacks are different,These may seem like reasonable questions, but, in fact, whites are different, too, and employers are differ they could be construed as biased against women and ent. Again, you may say they are different because could embroil the employer in charges of discriminatingagainst female job applicants in violation of Federal or of all these laws; they are not only different becausestate laws because male applicants aren't asked such of all these laws. Those laws themselves reflect aquestions. change in opinion that occurred. I would point out that one of the biggest changes we have seen in"Employment laws," this column continues, "conwomen has nothing to do, in my judgment, with tain many traps for the unwary." law, and that is the enormous increase in women in 110 law and medical schools. There have been very few and promotion, and in certain kinds of tests blacks cases in this area. That enormous increase has do poorly. And our efforts to revise those tests so they do better have not been very successful. occurred, I would say almost entirely, 90 percent, as a result of the change in women's own desires as to I could well see the restriction of affirmative what occupations they wish to pursue. action to the groups that need it most or the group So let us not ignore the changes we are looking at, that needs it most. I could also well see-and I changes that result not from Jaw, not of regulation, would urge-that we set a time limit on how long but of changes on the side of desires, abilities, and such policies operate. We are well aware that time limits can be expectations of the target groups. CHAIRMAN PENDLETON. Could you take about 5 extended almost indefinitely, as in the case of the Voting Rights Act. Nevertheless, the idea that more minutes? DR. GLAZER. I will be finished in less than 5 preferential affirmative action is a policy for a limited time is a reasonable one to put into the public minutes. Thank you. arena. It would protect blacks from the most radical I think, finally, we must take a variable position in effects of a cold-turkey abandonment. I have given regard to these requirements. I think, in part, that is reasons why I don't expect such effects to occur happening. I don't know what is happening to even in the case of abandonment of preferential Asians in the case of affirmative action, but I think in a word these requirements are silly. We already affirmative action required by the Federal Governhave a group that, if you want to use the language of ment. Cautious limitations of these policies would signal to all that we expect this to be a society in representation and utilization, is overrepresented-! won't say overutilized. Here, by the way, Mr. which a strict enforcement of fairness and nondiscrimination will satisfy all groups. Pendleton, I will give the answer to the question you The benefits of preferential affirmative actionraised yesterday-my answer. You said, "What is a even for the black group are sufficiently ambiguous, fair share?" I would say a fair share is what results from a fair process. The fact that there are three particularly when we take into account the fact that times as many Asians at Harvard as their proportion it is not at all effective in reaching the most disadvantaged and problem-ridden strata of that in the population does not mean they have an unfair share. It means they have operated through a population, that such a policy could be justified, process that has given them a share. Everyone even if it is perhaps utopian to expect that it will attain wide acceptance. agrees that process is fair, or most people agree that Fears of what it might produce could be moderatprocess is fair. I think a fair share is what results ed if it were combined with vigorous attention tofrom a fair process. those elements in the education ofblacks that lead toWell, we cah certainly begin to restrict the reach those test scores of all types that are at present a of affirmative' action. We can certainly agreetho~gh now we get into. the politics of 'how you substantial barrier to black achievement in the drop one group-that for Asians all this is a mistake. absence ofpreferential affirmative action. I do say that in the present budgetary climate, I Even though Asian groups will come back and say, suppose more vigorous action on the education front"Yes, the Japanese are doing well, but look at the is not to be expected, but I agree with my colleague,Filipinos," and so on. But people can play that game Mr. Lavinsky, here on my left, whose paper I have endlessly. The Asian students at Harvard said, "Yes, we are well represented, but what about the poor had the opportunity to read, that this is the area in which we ought to work for this serious problem of Chinese in the ghettos?" But, "What about the poor anybodys in the ghettos at Harvard?" the black group. I would think for Hispanic Americans we can Thank you. CHAIRMAN PENDLETON. Thank you, Dr. Glazer. consider a substantial limitation. I give the reasons in Mr. Lavinsky is currently a partner in the New my paper. For the black group in particular-and here is my Yark law firm of Proskauer, Rose, Goetz and Mendelsohn. Active with the Anti-Defamation last' point-the consequences of a departure from League of B'nai B'rith for over 17 years, he has preferential affirmative action could be quite serious. And this is, I would say, largely because of tests. spoken, written, and litigated extensively on civil Tests play such an important role in employment rights issues. He has coauthored briefs to the U.S. 111 Supreme Court in such major affirmative action Furthermore, because of the extensive educationalcases as DeFunis v. Odegaard, Regents ofthe Univer disadvantage encountered in minority communities, sity ofCalifornia v. Bakke, and Kaiser Aluminum and meeting the numbers can mean employing less Chemical Corporation v. Weber. qualified minority applicants over more qualifiedMr. Lavinsky earned his law degree at the New white applicants. Such preferential programs areYork University School of Law. perceived as being unfair and effective only in thesense ofdeflecting government pressure.The substantial progress made by minorities in the STATEMENT OF LARRY M. LAVINSKY,PROSKAUER, ROSE, GOETZ & workplace and elsewhere is the result of manyMENDELSOHN, NEW YORK, NEW YORK factors. However, even if one were to assume thatsuch progress has been the direct result of preferen .MR. LAVINSKY. Thank you, Mr. Chairman. tial affirmative action, the results have been tooI am grateful for the opportunity to participate in costly. For minorities, the preferential approach hasthis affirmative action consultation because I considdiverted attention from the need for better educationer the unfinished business of bringing minorities into and training and created stereotypes that stigmatize the mainstream of American life and the means by qualified individuals. For nonminorities, it has ren which that is accomplished to be one of the most dered the concept of equal opportunity illusory. For important problems confronting our society. society as a whole, the result has been increased At the outset, I would like to repeat the definition divisiveness and a loss of confidence in laws that of preferential affirmative action set forth in my treat some people as more equal than others. paper, namely, any approach through which an I believe that OFCCP still has an important roleindividual is given a job, educational, or other to play in encouraging government contractors to opportunity which would not have been forthcomcontinue and to improve their affirmative action ing but for his or her race. Special efforts to recruit efforts. That role, however, after almost two decqualified minority-group members for a job, educaades of numerically oriented affirmative action,tional, or other opportunity would not, under that should be fundamentally changed. Government-redefinition, be preferential. quired goals and timetables should be eliminated,In my paper, I have summarized the development with a corresponding shift in emphasis to qualitativeof preferential affirmative action under Executive ly oriented programs that focus on providing a solidOrder 11246. I have also discussed the cases in foundation for the future. which a bitterly divided Supreme Court has given For companies that already have good substantivelimited approval to the preferential approach in programs, government-required goals and timetablesvarious contexts. are unnecessary. For those that do not, governmentThe Court may be in the early stages of reconsid required goals and timetables virtually ensure aering how to reconcile the dual goals of affirmative preferential result. action and nondiscrimination. Whatever its future All individuals hired should be required to meetcourse, however, it is important to bear in mind that, the same basic standards, thereby maximizing theat least with respect to voluntary affirmative action, likelihood of success both for entry-level positionsthe Court's function is merely to define what is and in terms ofupward mobility. legally permissible. Within the limits defined by the Nonpreferential affirmative action would not reCourt, our concern should be to encourage affirma quire a return to rank-order listing on standardized tive action programs that are both effective and written tests or preclude the use of flexible hiring oraRpropriate for a free and open democratic society. admissions criteria. Broader, more flexible criteriaFor reasons discussed in my paper, preferential designed to consider the entire person can be ofaffirmative action is often neither effective nor value to all groups so long as the flexibility does notappropriate. While emphasis on numbers may be become an instrument for racial preference. statistically impressive, it pays only lipservice to The problem of educational disadvantage of mieducation recruitment and training, the crucial norities must be squarely addressed and overcome. qualitative component of affirmative action. It freAffirmative action recruitment should begin farquently lacks a methodology for systematically earlier than college or even high school. It shouldattracting good long term employees. begin in elementary school so that talented minority 112 youngsters are motivated to fulfill their potential and the achievement of a level of education training and to not drop out along the way. The business competence that will permit minorities to compete on an equal basis in the labor market without community should be made aware of the financial need of many of these youngsters for part-time and artificial support or other government intervention. summer employment. Likewise, government conThank you. tractors should be encouraged to participate in CHAIRMAN PENDLETON. Thank you, Mr. Lavin special educational programs in public schools withsky. We now move to Dr. Welch who is currently in a local minority community. This approach is not utopian. It is a practical way professor of economics at the University of Califor of enlisting the assistance of the private sector to nia at Los Angeles, as well as the chairman of help accomplish what overburdened local school Unicon Research Corporation and president of systems cannot achieve for their students. OFCCP Welch Associates. He has formerly held positions at would continue to monitor affirmative action plans UCLA's Institute for Social Science Research, the of government contractors. However, instead of the Rand Corporation, the City University of New present emphasis on utilization analysis and negotiaYork, Yale University, the National Bureau of tion over numbers, their review would involve an Economic Research, Southern Methodist Universievaluation of the nature and quality of the program ty, and the University of Chicago. He has sat on the sponsored by the contractors and whether progress editorial boards of a number of economics journals is being made. and has written extensively on many topics. Dr. Welch received his doctorate in economics at Good-faith efforts would be the essential factor in determining compliance and not merely a code the University of Chicago. word for numbers as at present. As noted in my Dr. Welch. paper, many elements of nonpreferential affirmative action have already been used effectively. For STATEMENT OF FINIS WELCH, CHAIRMAN example, we know that clear commitment of top OF THE BOARD, UNICON RESEARCHCORPORATION management to affirmative action is essential. Likewise, those in charge of the program should be held DR. WELCH. Thank you. accountable for its effectiveness, qualitatively and in There are a few definitions of affirmative action terms of good-faith efforts. floating around. I am going to be speaking in fairly An effective plan might include, among other general terms about the nexus of laws that have been things, recruitment at colleges with high concentraassociated with nondiscrimination. And when I tions of minorities, summer employment programs speak about Federal contractors, you can think of which can serve as a recruitment device for young that as affirmative action-preferential affirmative people, in-service training opportunities for employaction, I suppose. There are a few exceptions to the general rule, ees, sensitivity training for managers and supervi~ sors, open and responsive internal complaint procewhich is that over the past quarter-century earnings dures, and sponsorship of special educational proof black men have increased in comparison to the grams in high schools within the local minority earnings of white men. In the 1960s the census showed that on average black men earned 59 community. percent as much as white men. You may be familiar Such an affirmative action plan deals both with seeking out qualified minority candidates for present with the 59 percent number in another context. The number from the 1980 census is 74 percent. employment and planting the seeds for increasing the pool of qualified minority applicants for the One-third of the wage gap vanished in two decades. future. At the same' time, it avoids the handicaps of To get an idea of the kind of change that we saw preferential programs. It does not create a percepover this two-decade period between 1960 and 1980, tion of unfairness. It does not stigmatize its beneficonsider college graduates in their early fifties in ciaries; it does not result in a dilution of standards. 1960. Relative earnings of blacks as a percentage of Most importantly, such nonpreferential programs, white men were about 55 percent. If you move to coupled with continued enforcement of the antidisthe 1980 census and look at young college graduates-so that I'm taking advantage of calendar time crimination laws, will eventually make possible the realization of the ultimate aim of affirmative action, as well as age to look at a broader view-if you look 113 at young college graduates, say during the first 5 increased by a multiple of eight, and cases broughtyears out of school, relative earnings of black men before EEOC grew from I5,000 to 50,000 per year.were 92 percent as high as earnings of white men, OFCCP at this time was spread through 11 govern moving from 55 to 92 percent. ment agencies, but the central office budget and That is the most extreme change that you can find funded positions in the central office multiplied in the data. If you want to find a case where you do seven to eight times. All of this happened in 5 years. not see much change, look at less educated workers. The period since 1975 has seen continued growth, Take people, for example, who have not attended evidenced both by charges brought before EEOC high school. If we compare the same people in their and cases filed in Federal court. But the rate of early fifties in I 960, we see relative earnings of 70 growth has been reduced. percent-blacks earning 70 percent as much as Consider case filings in Federal court under Title whites. If we move to the youngest in 1980, relative VII. Separate counts were not made before 1970. In earnings of 73 percent, a .03 change versus roughly a 1970, 340 cases were filed. In 1975, 3,900 cases were .40 change in the two contrasts. filed. The figure for 1982 is 7, 700. There is, indeed, a general pattern of gain, but the Beginning in 1966, private sector employers with largest gains have gone to the most educated. Ideally, we would like to know the role of affirma100 or more employees and Federal contractors tive action in all this, but my work at this time is with 50 or more employees and $50,000 or more incontracts were required to report annually on their inconclusive. The pattern that existed in 1960 wasone where younger blacks generally compared more employment in each of nine occupational categories. favorably to whites than did older blacks, and the The reporting forms are EEO-ls. Summaries of work I have reported elsewhere suggests that the these forms show that since 1966 about half of relative status of blacks would have improved private sector employment has been in firms that without affirmative action. The question is whether report. Three-quarters of that employment is among it would have improved as much, and in some Federal contractors. isolated cases perhaps even more. In 1966, black men, black women, and whiteIn an attempt to understand changes in wages, I women were 90 percent as likely as white men tohave turned to two additional sources of data. One work for reporting firms-slightly underrepresentdescribes budgets and caseloads of monitoring agened. Since then, representation has increased, butcies, together with filings under Title VII in Federal most notably for blacks. For black men, the patterncourt. The other looks at private sector employofemployment shifts from nonreporting to reportingment. In the second, I exclude employment by firms continued until 1974. After that there's been nogovernments and educational institutions-even appreciable change. Two-thirds of the 1966 to 1974Harvard-and look at the changing distribution of change had occurred by 1970.remaining employment between three types of firms: In 1966, black men were 10 percent less likelythose that do not file EEO-I reports, those who file than white men to work for firms reporting towith EEOC who are not Federal contractors, and EEOC. By 1975 they were 25 percent more likelyFederal contractors. than white men.The first type of data suggests three relevant The pattern for black women is more extreme, butperiods to EEO enforcement: a consolidation period is similar in many respects. Most of the change hadlasting until 1970 when firms began filing EE0-1 occurred by 1974, and most of that came beforereports and affirmative action plans. There was a 1970. Unlike black men, representation of blacktrickle of cases during this period that made imporwomen continued after 1974, but not by much.tant case law, but the numbers weren't what they We have the anomaly that the employmentwere going to be. response led enforcement activity. I don't know whyBy and large, my interpretation is that during this this happened, but let me offer some suggestions.period firms and monitoring agencies were simply The most obvious is that firms took the law seriouslytrying to figure out what all this was about. and brought their hiring into line. Once there,Then, between 1970 and 1975, there was real continued growth was unnecessary. Another is thatacceleration, a tenfold increase in filings in Federal as enforcement activity grew, firms decided to fightcourts, EEOC's budget tripled, case resolutions rather than to continue to switch. 114 My own favorite hypothesis is that increased litigation taught firms that body counts are not enough. Vulnerability to charges of discrimination in pay and promotion remains. As a practical matter, it is simply much harder to define norms for hiring than it is to detect differences in pay and promotion between protected and nonprotected groups. Whatever the explanation, the data are clear that emphasis changed after 1974. Now return to the wage data. The clearest picture between I 960 and 1970 is that young black men gained the most, and within the young, the greatest gains went to the most educated. Between 1970 and 1980, the greatest gains occurred for older men and erased the lead earlier achieved by the young. Overall, between 1960 and 1980, there is no pattern showing differences in changes by age group, but there is a very clear pattern showing that the largest gains went to the most educated. What has been the role of affirmative action in this? It is anybody's guess. Mine is that there has been a strong pro-skill bias which is reflected in the largest gains of the most educated. There surely is more to the education story than affirmative action, but I do think affirmative action has played a role. In fact, . Professor Leonard commented that his research shows greater demand increases at higher skilled positions. That, at least, is my suspicion. Why do I suspect this? There are two reasons. First, the information flowing to EEOC and OFCCP makes representation by occupation easy to compute.· A natural result is to emphasize places where representation of minorities is least, and that is in skillt!d positions. A second point is that the litigation threat produces conservative behavior. A firm that hires protected workers and then either terminates them or does not promote them at similar rates to white men is at risk. If you are going to gamble, why not hedge and select those who have at least been able to stay in school? In this sense the program is not egalitarian. Among minorities, it helps those who would have done best in any case. is the i skill bias objectionable? Is it something you'd like to see in an employment program? The advantage is that it creates incentives for acquiring increased skills. The disadvantage is that it penalizes firms for!taking risks. I conclude with an example. Consider a single occupation and assume that in the relevant market blacks account for 20 percent of the workers available to hire. A firm is considering two policies, a conservative one and an affirmative one. The conservative one involves hiring and promoting at a 20 percent rate. The affirmative policy involves hiring at a 25 percent rate by taking some who otherwise would have been seen as marginal. The average promotion rates of marginal workers are lower. So let's assume that under the affirmative policy 22 percent of the promotions would go to blacks. The affirmative policy hires and promotes more blacks, but with it, blacks are less likely than whites to be promoted. My understanding of current law is that a firm following this policy would be liable to be found guilty of discrimination in promotion against blacks. A firm following the conservative policy would not. Thank you. CHAIRMAN PENDLETON. Thank you very much. We will open the questions with Professor Bunzel. COMMISSIONER BUNZEL. Thank you, Mr. Chair man. Professor Glazer, let me ask you a question that intrigues me, perhaps because one of your several comments teased me. Before I concede that you have reversed your position on a number of issues on affirmative action, let me ask you a broad question, and then let me put a more specific one to you. The broad question is this: How much of your writing and thinking on affirmative action has been reversed by the finding that preferential affirmative action has worked? Your previous arguments, it seems to me, in all of the writings that I have read, have been on a different level of analysis. Would I be right in concluding that in your book, Affirmative Discrimination, for example, that you addressed different kinds of concerns? And what I want to ask is: Have you abandoned these concerns? DR. GLAZER. Well, I probably was too brief in suggesting reversal. I think that everyone's views change a bit over time. I appreciate the fact that you are a reader of my earlier views, and it is true they were on a different level of analysis. They were of a more political and social kind in terms of: What are the consequences of setting up categories by race and ethnicity and operating on the basis of them? Insofar as there are arguments as to whether it works, economic arguments and so on, it's true I did not go into them in any particular depth, but I suppose I also felt they were not decisive for me. You're right, I was dealing with a different kind of issue. I was dealing with the effects of these policies on the self-conceptions of minorities as to their worth and value, motivations that they would have toward advancement and so on, and effects on the overall social and political fabric. I do think, in the past, I was a little more negative as to what those effects have been. On the whole, I don't like preferential affirmative action. On the whole, I think we have not done too badly in confining its spread. That has been in part a result of political struggle. As you know, there have been implications that this kind of categorization would go beyond the four original groups, and in a small measure it has. I thought, on the whole, this was a bad way to go. I still think it's a bad way to go. It hasn't been as bad as I thought it would be; the conflict has not been as severe. I also suggested this, in earlier writing, that one can make somewhat differential arguments as to the different target groups, as I suggested here. I do think on a political level, on a moral level, on a legal level, and on a constitutional level, the claims of blacks, I think, are the greatest. The 14th amendment was written for them and so on. I won't go into the legal analysis. But I do think one can see arguments in a variety of ways which suggest that this would have been better for all of us had we not tried to make a general analysis of all the groups in American society and decide that some are in and some are out. That was a mistake. COMMISSIONER BUNZEL. Let me follow this up with an attempt to flesh out something else that I know you have been concerned with. You have written elsewhere, quite eloquently, that there is a tension between efforts to raise educational standards in this country today and the disturbing and disquieting performance of blacks on various tests, and that if standards are raised in the search for excellence in the name of more rigorous curricular requirements and so on, that this performance gap is likely to widen. Is this an argument, with respect to blacks, for a continuing preferential affirmative action? DR. GLAZER. It is an argument primarily for greater efforts in the educational sphere. But I know that those efforts, first, may not be as extensive as they should be, and secondly, even if they are as extensive as they should be, there is no reason to think that they result in equal achievement. This may well be misunderstood, but the fact is that there are so many complex historical and other elements which affect some overall average for a group that to take the position that if we work harder we will end up with equal percentages at each level is unrealistic. It never has, and I don't doubt that it ever will. I think a second element must be brought in. Ifwe raise standards it means that we will have a problem of a larger rate of black failure. The question then is, What are the political and social consequences? For example, we now have a situation of about 6 or 7 percent blacks-a little less than that-in law and medical schools. That is a result of a number of elements. One is the increased number of blacks applying, though that has dropped off recently, but another is the preferential action of the schools. I think one must develop a kind of balance here. I would not like to see preferential action increase. I think it would have terrible consequences if we were simply to say, "And now we are going back to law school aptitude tests, medical school admission tests as the sole criteria." It would mean, perhaps, a reduction by two-thirds or one-half, and it would be of such a dimension that I think, from the point of view of social peace, we have to make some modification there. Just one more word-I know these answers are too long. When you refer to different criteria then and now, one of the criteria I've always used is the criterion of a kind of peace and harmony among the different groups in this country. I think initially much of my criticism of affirmative action is, I think, that it disrupted a degree that could exist. I think now a too radical abandonment would disrupt also. In other words, one has to move cautiously in this area owing to the institutionalization of these measures and the expectations created by them. COMMISSIONER BUNZEL. Does this bring it closer to home in terms of Harvard University? Is their preferential admission policy with respect to blacks the kind of policy you would like to see continued? Or do you have some problems in terms of a theory of limits, or in terms of cut-off scores, or how they do this? I mean, there is preferential admissions and there is preferential admissions. And I'd be interested in knowing whether or not Harvard's policy here with respect to the preferential treatment it gives to black candidates fits with your sense that we ought not to go cold-turkey, but that that particular policy should continue-or do you have some problems? DR. GLAZER. I have some problems with it, and it raises another kind of issue in that Harvard may have a better pool to pick from and, if its policies were to become more general, other schools might run into great difficulty. From the point of view of Harvard, which is obviously not a national interest point of view, its policy sort of works. It has a decent representation of different groups, and it maintains a mix between academic and other kinds of standards nonracially related. The second point I would raise is that I do believe that we must give scope to voluntary action. I think there is a lot of good will in this country-excuse me for that Pollyannaish comment, but I will say that. As I point out, a lot of what has happened is the result of people thinking, "We want to do more for minorities; we want to do more for women; we want to change our policies." I would hesitate to see a rigorous application of law, which is possible, in which any kind of preference becomes impossible. Governmental preferences, to my mind, are more dangerous than private preferences. Private preferences are variable. Governmental preferences are universal. Governmental preferences mean you throw the argument into a public arena where all kinds of conflicts become more intense. So one part of my answer to your question is that insofar as it is a system of private preference, based on what the institution feels it can do or should do to the degree it's pushed and to what extent it's hurt, I do not oppose it. COMMISSIONER BUNZEL. One more question? CHAIRMAN PENDLETON. Fine. COMMISSIONER BUNZEL. Mr. Leonard, if I can ask you just a simple kind of question. At first I wrote down here I wanted to be certain I understood what your definition of affirmative action was because you claim that it has worked. And as I listened to your paper, I think in large respect your comments defined itself or defined the term generally speaking. But I want to ask you this. There has been considerable talk this morning from the panel that preferential affirmative action has worked. Quotas also work. Is it your argument that because quotas work or preferential affirmative action works, that this is desirable and sound public policy? DR. LEONARD. No. My argument was that you cannot reach a conclusion that you should get rid of it because it doesn't work. That was the force of my argument. COMMISSIONER BUNZEL. Do you have any particular comment to make as to whether or not the policies which undergird preferential affirmative action goals and timetables, the quota mentality, or whatever you wish to call it-is this the kind of policy position-do you have any feelings that this ought to continue, or do you not address that question? As an econometrician, do you try to avoid those questions? DR. LEONARD. As an econometrician, I do try to avoid those. questions. What I have tried to do is give you an appraisal of what this program has done that will withstand the judgment of my peers. COMMISSIONER BUNZEL. I'm trying to see whether or not, built into your analysis of what works, one should be able to infer some policy implications? DR. LEONARD. Of course, there are people who would be glad to take a much stronger policy position. A lot of those people aren't here today and I wouldn't presume to take their position. COMMISSIONER BUNZEL. I wouldn't either. DR. LEONARD. Let me just say this. What I thought was the most controversial question here was: Given that it has worked, that the contract compliance program has helped more blacks get jobs in the contractor sector, has that reduced productivity? Has that induced reverse discrimination? I think that is still a question that deserves a lot more research than has been focused on it. The evidence I have been able to get to date is tentative evidence, but it is that there has been no significant reduction of productivity in sectors that have increased their hiring of minorities and females the most. That is very tentative evidence, and there is more work to be done. But on that basis, I would say that these programs-by these programs, I mean affirmative action under the contract compliance program and Title VII-have helped to reduce discrimination. And as long as they are helping to reduce discrimination, I think those are good programs. CHAIRMAN PENDLETON. Are you finished, Mr. Bunzel? COMMISSIONER BUNZEL. Apparently. COMMISSIONER DESTRO. Can I just follow up on that question? CHAIRMAN PENDLETON. Certainly. We all want a piece of this conversation. COMMISSIONER DESTRO. This is a question that I had for Dr. Leonard with respect to the statistics that you have been using with respect to decline in productivity. Why is it that you are focusing on decline in productivity? It seems like the operative assumption of that focus would be that the blacks who are being hired are unqualified and that businesses would allow those individuals to stay on the payroll and thus affect productivity. Wouldn't the more relevant statistic be the retention rate in that context? DR. LEONARD. Well, if you're addressing the retention rate, I can tell you that black and female turnover is actually lower than that of white males in the subsample of firms that have been reviewed. The reason I looked at productivity, however, is tha:t I thought one of the major criticisms of affirmative action preferential treatment was that it was forcing .firms to hire the less qualified, that instead of hiring or promoting the best person when the best person happened to be a white male, they would be forced to go to second best. That argument implies that second best is less productive. And with a fine enough measure-and I don't claim to have one-that should show up in terms of reduced productivity overall. COMMISSIONER DESTRO. While I agree with you as to the genesis of the basic argument, I would question whether or not a business would allow people to stick around long enough if they found that they were nonproductive and would just have a legitimate business reason for firing them, and it would show up in the retention rates. But what you're .telling me is that the retention rates don't reflect the legitimacy of that argument any more than the productivity rates do. DR. LEONARD. That's right. I don't see a higher turnover rate for minorities and females. I also I think Professor Welch has given you some idea also of the problems with firing, because the kinds of pressures we are talking about apply across the board to personnel decisions. CoMMISSIONER DESTRO. Mr. Chairman, I will defer back. I just wanted to follow up Commissioner Bunzel's question. CHAIRMAN PENDLETON. Why don't you ask one or two more? COMMISSIONER DESTRO. No, I'll follow with other questions. CHAIRMAN PENDLETON. What I've heard in the exchange between Dr. Glazer and Dr. Bunzel is that I'm always going to be an underachiever unless·! get something preferential. And that disturbs me. I'm trying to find out from the panel, now that I've heard that: Who is the majority population in America from whom I, as a qualified black, need to be preferentially protected and also stigmatized? Who is it that I'm being compared against? With this large universe of minority populations in this country, and as my colleague, Mr. Destro, has so ably fought for the inclusion of Euro-ethnics-I'm trying to find out who it is that I need to be protected from. I want to compete against that person. It seems to me I'm competing against other minorities in the process of college admission or in the process of a job. To be frank with you, I didn't know I was disadvantaged until I was 35 years old when they passed this War on Poverty program, and they said, "They've got some programs over there for you because you're black." And I was always taught a little differently. Now, maybe something is wrong with me. But who is it from whom I need to be protected? We're talking about all the minorities and predominantly black minorities. Who is it? It's got to be somebody. These are special protections and preferential treatment, and I want to know from whom do I need to be protected? DR. GLAZER. Yourself. COMMISSIONER GuEss. Yourself, Mr. Chairman. [Laughter.] CHAIRMAN PENDLETON. I'll take that from both of my colleagues, but that's no answer. I can take care of me. But from whom is it? I'm looking at the Federal budget now, and-Mr. Horowitz has written a good special analysis for the past several years-there's almost 13,000 Federal employees and a half-billion dollar budget, and the budget grows every year and minority groups increase every year, and there is some phantom out there from whom we all need to be protected. Who is it? DR. GLAZER. Well, I don't know if that's a rhetorical question. The basis of my argument is there is less to be protected against than one thinks. I think there is a lot of fairness in this society. But I also think that there are historical factors which have affected groups and which are going to make things come out very bad if som'ething special isn't done. And I don't think that is true generally in areas of employment. I think there are a few special areas, paiticularly test-based areas or certain kinds of testbased areas, where we do have a problem. CHAIRMAN PENDLETON. Now, Dr. Glazer, are you familiar with the New York City policemen's examination from patrolman to sergeant? DR. GLAZER. Yes. CHAIRMAN PENDLETON. That was the case where the NAACP and I think the Mexican American Legal Defense Fund, if I'm not mistaken, got together with the New York City Personnel Department and said, "Now we're going to have a new test that is not a biased test, and everybody should be able to pass the test." It was a television tape, and you were supposed to record how you would treat the incident if you were a sergeant. The results were almost the same. And people are still saying "discrimination." Do we say that we continue to do testing until we have lowered the standards for the test until we have more mediocrity in public employment, and is that good public policy? DR. GLAZER. No, I don't think we should. I do think we have been able to examine these tests more closely than we have in the past. We know there is always a lot of nonsense in tests. I don't think it was a mistake to look at these tests so closely that we got rid of all the nonsense and made them as honest and fair as we could, and we saw there was still a problem-well, that should lead us to think even further about just what the problem is. And I don't know what it is. CHAIRMAN PENDLETON. I think the first group of people 'that were admitted for the examination were admitted because of the consent decree; and they were put in because of a sense of a correction to racism and some to evidence a sense of racial-ethnic proportionality. And then when we get people in, now. it's important to promote them, and we find we don't have the talent we thought we had when we took them in. This,conversation is about blacks primarily, which also ,bothers me a little bit. There are other minorities in this: country that probably have some of the samt: problems. But we are the ones who get stigrhatized whether we pass or don't pass the tests. Arid someone says, "If you do pass, I'm not so sure you: really; passed it." If we don't pass it, "You shouldn'fhave passed it in the first place." ,'So the, expectation level or perception is underachi~venient, and I'm wondering if underachievement doesn't wind up being a discriminatory tactic. I'll pass it on to my friend on the right. COMMISSIONER GUESS. Mr. Chairman, you frighten me. CHAIRMAN PENDLETON. I always do. COMMISSIONER GUESS. First, I'd like to see if I can respond to your question. I don't think the protections or the preferences or the programs that we are discussing today and that we discussed yesterday are necessarily designed for the Clarence Pendleton, Jrs., or the Francis Guesses of the world. However, I do think there are a vast number of black Americans and other minorities who have not been as fortunate, who have not been as privileged to move into the mainstream of American society as a result of their status, as you and I. And I think the term has been thrown around by Professor Glazer, among others, that we may be anomalies in this whole system that we're talking about. And I'm quite sure in any casual review-if you walk along 14th Street, you'll find black men who are standing huddled on the corner around a fire and you may get a better view of the people we're talking about. That is my unexpert opinion, Mr. Chairman. Professor Glazer, you also appeared to play fast and loose in your presentation. You used terms like, "It is impossible to determine; inconclusive and indeterminate; skepticism as to our ability to make any determination; simply too many anomalies; the figures don't support any good theory; my accounting itself is incomplete; I speak only from very partial experience and knowledge." However, you go on to support your conclusions by relying on the scientific method of investigation which measures, quote, "advertising," and "what you hear," end quote. Then you point out, "The fact is that, in fact, some affirmative action hasn't worked," and I assume you get that as a matter of fact. Then, as a matter of fact, you also go on to point out it is not needed any longer, only to come back and assert, "I don't know, but I think." Professor Glazer, I guess my question would be: First of all, would you suggest from the presentation you have made to this Commission that it meets, since we have looked at your affiliation with Harvard, the rigorous standards of scholarship that one should expect from someone from that university? DR. GLAZER. Well, that is a hard question. Let me give you my answer. You are dealing with a complicated question of policy. You have here on this panel two people who have told you what the economic analysis can say to you, and one person has told you what legal analysis can say to you. The fact is, you add this all up and you don't really have-and this is no criticism of anyone-an answer to the policy question. When you ask a question, "What would happen in the absence of!"-and you're talking about a program of goals and timetables which was developed in the late sixties, early seventies, has been in existence more or less in various ways until nowone has to estimate from very loose kinds of things. And I have suggested one thing which I hope the Commission will take up-a study of the practices that exist in corporations. I have not referred to earlier work of mine, but I have looked at these practices. And these practices, whatever their origins, are somewhat institutionalized. There are rules, rules as to what tests you can use, as to what questions you can ask, what things you can take into account, what things you can't, and so on. I was assuming that much of this was common knowledge in this informed group. And operating on the basis of this common knowledge I said, "If you get rid of goals and timetables, not much is going to change." I can't guarantee it to you. But as you know, for example, much of the change that we are talking about took place before goals and timetables or before goals and timetables were very heavily in use. The economic material is filled with anomalies, if I may use that word, for more change occurred under Nixon than under Carter. Well, the economist can explain that. Maybe times were better under Nixon than under Carter. What I'm saying is that I am taking into account research that exists. I have to deal with that to consider what would be the effect of a change in policy. Information that might be relevant to it does not exist, and I'm giving you a judgment, and of course, you can dismiss that judgment. COMMISSIONER GUESS. In your judgment, Professor Glazer, since you indicated the data may be incomplete in some instances, if you don't know, what do you feel? Do you feel that blacks still encounter barriers to employment in this country as a result of them being black? DR. GLAZER. Yes, I feel they encounter barriers to employment. COMMISSIONER GUESS. Ten percent of the time? Twenty percent of the time? DR. GLAZER. I think it is impossible to say. Too many things are going on simultaneously. And I think that a kind of across-the-board policy on the assumption that it is massive and general is wrong. COMMISSIONER GUESS. So are you concluding that it is not massive and general? DR. GLAZER. I'm concluding today that it is not massive and general, yes. COMMISSIONER GUESS. And it's just casual in its application? That is what you feel? We have already concluded that it is impossible to ascertain the facts. What do you feel, Professor? DR. GLAZER. I feel it is variable. I also feel that it has to be itself disaggregated to other kinds of elements, elements of employer experience, employer expectation, and so on. I have given my judgment. It is my judgment that one problem with the preferences we have is the kind of unrest and political conflict that would occur in their absence is such that, at least for blacks, I would think that they should be maintained for some period of time. COMMISSIONER GuEss. Mr. Chairman, since Professor Glazer has concluded what I feel, I'll pass. COMMISSIONER BUNZEL. Mr. Chairman, may I make one quick comment? Is it possible, just to borrow an idiom, Professor Glazer, and a shorthand idiom, that rather than being a simplifier you just happen to be a complexifier? DR. GLAZER. Well, I know that to be the case. My answers are always too long. They always go, "On the other hand." COMMISSIONER BUNZEL. I didn't mean that invidiously. I meant you just happen to see problems in their more complex nature and that they are not easily reduced to simplified answers. DR. GLAZER. I accept that. That is true. CHAIRMAN PENDLETON. More protection. Commissioner Buckley. COMMISSIONER BUCKLEY. Dr. Glazer, in your paper on page 12 you talk about what is happening now, and you talk about how 4 years after Reagan came to office, you have a lot more people saying, "Watch out." You also make the statement: "Four more years of Reagan and 4 more years of conservative judicial appointees may wear down this structure more in the next 4 years than in the last." I would like to be real clear as to whether this means that if we remove the emphasis on preferential affirmative action, retaining affirmative action programs, as otherwise understood in that area, that we might see that instead of making more progress toward the entry of all groups, not just blacks, as I kept hearing all day today and yesterday, but of all people having an equal access to whatever they want, that we will not be reverting rather than going forward. I want to be sure I understand what you mean. DR. GLAZER. We all know that there is an elaborate structure that we are talking about to prevent discrimination and to encourage affirmative action. I have indicated the elements of that structure, and that may be a way of saying that were one to look at every element, one needs a book. And the book isn't even there. We don't even know, although I have seen some surveys, how many States have preferential requirements, how many cities have preferential requirements, what they specify, how many firms have it, and so on. Now, what I'm saying is that 4 years, I think, has not changed this structure much. There's been an awful lot of talk, but very little action. The regulations are in place. I think there has been an expectation that you can probably get away with more. I don't know if any statistics show that, and I don't know if it has any consequences, in view of everything else in place, in view of the fact that you can be sued under Title VII even if EEOC is not being as tough as it used to be. So when I'm saying that things may change in 4 more years, I was really thinking specifically of the preferential affirmative action area. We have seen the Supreme Court case, the Stotts case, and we will see some more, and we may have some new appointments and things may change. Let me just say what are my expectations. I do not expect that any discrimination law which operates on the basis of the statute will be as affected by this further 4 years as affirmative action requirements which have a weaker legal base. I hope that's an answer to your question. If not, I'll pursue it. CHAIRMAN PENDLETON. Mr. Lavinsky, just in response to. Mr. Glazer-if you don't mind, Mr. Destro. EEOC has now said that they are going after individual victims of discrimination. They are going to litigate only these cases. Does that come more in line to what you're thinking about in your paper, that is, they are going after individuals; they're not going to group remedies. And one question that was. asked of Chairman Thomas, "What about the nonvictims?" And, of course, his response was the question, "What about the nonvictims? And we're only going after those victims and put them in their rightful place so they will be made whole." How do you feel about that? MR. LAVINSKY. First of all, I think that we want to see vigorous enforcement of the antidiscrimination laws, and that is as true of the individualvictim as it is of the big class actions of 5 years ago or 10 years ago. The question of what you do about the nonvictim, where you have a pattern and practice of discrimination, is something that the Supreme Court has begun to address-Stotts is some indication of it-but I have a feeling that we're going to see a lot more of that kind of questioning within the Court as to what you do do when you find a pattern and practice of discrimination. My own feeling is that, certainly, I want to see vigorous enforcement by the EEOC of individual cases. I want to see that in classaction cases that the victims of discrimination, those who were actually turned away, those as to whom there was a chilling effect and they didn't apply because they felt it was useless to apply-people that are actual victims receive the full remedies provided by law. The question of the nonvictim, where you get, in effect, a quota or ratio hiring on the basis of race, with the platform being the class action and the finding of a pattern and practice of discrimination, I think can be handled much better without using ratios, by appointing a master to oversee fair hiring, and good-faith affirmative action efforts. In other words, what I'm saying is that when you find a pattern and practice of discrimination, the actual victims, the specific victims of discrimination, ought to be made whole. Beyond that, since the firm or the company that has been found to be guilty of a pattern and practice of discrimination may not be able, at least at the outset, to get rid of the discriminatory bars, I would appoint a master who would see to it that the discriminatory bars are dropped and that good-faith affirmative action efforts are made. I would not impose a quota. I would not impose goals and timetables by government or by court, because as I have tried to say in my remarks and in my paper, I think that the numbers obscure what really has to be done. Much more important than the numbers in the long run is the actual outreach, the actual efforts in terms of training and recruitment, the actual efforts in terms of education. And I might say that Professor Glazer was sort of the eye of the questioning. The question was asked in various different ways. The question of, "Is there rampant discrimination today? Why are we sitting here concerned about minorities and particularly blacks? What is preventing their full entrance into the mainstream of American life at this time?'' My own feeling is that the problem is not so much discrimination. I think that industry, that schools, that American society has learned a great deal over the last 20 years, and that the problem is not rampant discrimination anymore by any means. I think that the problem of the effects of past discrimination essentially relates to educational and financial disadvantage. But it is the educational part that is particularly the problem. There always have been highly qualified blacks and other minorities, but the question is whether there are enough of them to be able to fill the increasing demand that we want to see, the increasing employment of minorities, not only in lower level positions, but to the highest level of positions, as lawyers, professors, and so forth. It is when you are talking about increasing the numbers of minorities in these positions that you have to look to see: Do you have a sufficiently large pool of qualified minorities-not merely marginally qualified, but good, solid minority applicants-that can provide the base for the future? It is there that the need occurs for further education, for further training. And that's where I think affirmative action ought to be directed, and that's where I feel it is not directed today because of our preoccupation with numbers. CHAIRMAN PENDLETON. Thank you, sir. Ms. Buckley, do you have another question? CoMMISSIONER BucKLEY. No. CHAIRMAN PENDLETON. Mr. Destro. COMMISSIONER DESTRO. I have a number of questions. I'd like to address the first question to Dr. Welch. On page 25 of your paper you indicate that affirmative action enforcement, in your view, is essentially more favorable to the most skilled protected workers. What I heard in Commissioner Guess' question was the overriding concern, I think, of most affirmative action advocates for, as he put it, the people on 14th Street, the unskilled workers who by all measures are being left out of all this. How do you reach them? Do your numbers suggest any revisions in affirmative action policy that would reach out to them? DR. WELCH. Well, that's what I was referring to at the end of my talk. I think the way litigation occurs today and the way monitoring occurs, firms are really penalized for taking risks. And the people on 14th Street are risky employees. If your attrition rates are too high as a firm, you come under closer scrutiny. You can be taken to court and the prima facie case is made. It's up to you to then show objectively-you can show anything objectivelythat there is a bona fide business justification for the lack of retention. But the obvious response by an employer is to fuzz the issue, to show a bona fide recruiting effort and not hire employees at risk. And it is that aspect, that side of affirmative action, that concerns me most. That's the reason that I pointed out earlier when I said to look at the people with the least education, and over this two-decade period you don't see much by way of improving the relative status of blacks. Where you see it is among college graduates, and less so for college dropouts, and on down the line. It's clearly a strong pro-skill bias, whether it's operated absolutely to the disadvantage of less skills. Whether they are worse off today than they otherwise would have been is an open issue, and I don't think we can answer it. COMMISSIONER DESTRO. So you actually led into another question that I'd like to address to anyone on the panel who would care to address it. One of the arguments that was made in Dr. Swinton's paper yesterday related to the question of the current prognosis for the black community as a whole and whether or not it is better or worse. He seemed to indicate that the numbers are now on a downward trend, that the prognosis is actually worse now than it was 10 years ago. Is there any data that would support that? He didn't have any in his paper. DR. WELCH. Yes, there's always data that will support anything. [Laughter.] DR. WELCH. I'll come back to that point. CHAIRMAN PENDLETON. We are so advised reading other papers. DR. WELCH. Actually, I'd like to come back to that because I'd like to speak to the productivity issue that's been on the floor today. You know, I've been working black-white income data for a little over 20 years now, and it had been very, very clear since the midsixties on that things are not what they once were. Every situation I have ever been in, in which you present this kind of evidence, the response is, "No, they're getting worse." Yes, they are getting worse under the kind of general push that we've seen, moving from 0.6 to 0.75 in a two-decade period. In the broad sweep of history, that is incredible. COMMISSIONER DESTRO. Does anybody else want to address that question? Dr. Leonard, do you have any thoughts on that, the general proposition that things are getting worse in the black community? Sometimes it's attributed to lack of enforcement; other times it's attributed to the economy. Is there anything in your work that would indicate whether or not (a) it is getting worse and (b) what it would be attributable to? DR. LEONARD. Let me first add that I have the greatest respect for Professor Welch's work and I find it quite convincing. One question that has been raised is whether affirmative action has contributed to that. Professor Welch has already said that's an open question. The evidence that I've seen is that where you have the strongest affirmative action-cities or industries where you have a high proportion of contractors-even the low-skilled blacks are helped. Even those with less than a high school education are helped, although the effect does seem to be stronger for those with greater skills, and I think Professor Welch's arguments about that are probably valid. COMMISSIONER DESTRO. Okay. MR. LAVINSKY. I'd like to make a comment on this as well. I think that the problem faced by minorities is a problem that is faced by various groups; where you have a lot of poor people within a community. You're getting a technological society where education has a great deal of significance and where the number of jobs and the kinds of jobs available for the uneducated are dropping. The result is that if we are going to be able to avoid an even sharper cleavage between those that are moving upward and the subsociety which really remains moribund and perhaps even has a deteriorating condition, the key again is education. You've got to be able to take the young and train them. Otherwise, even if there is great success in moving many minorities into skilled positions, you are going to get a greater and greater cleavage between them and the poverty stricken that are going nowhere. But the key to it is education. And if affirmative action is going to really have the social benefits we all want for it, we have to address the educational problem in the public schools. It's got to begin early on because I think once you get to the high school level; it's too late. You've got to take youngsters from the very beginning and work with them. And I think that up until now affirmative action concerns have not gone back that far. They've got to. We've got to begin earlier. Otherwise, you are going to see some benefiting greatly and an awful lot of people going nowhere. COMMISSIONER DESTRO. Thank you. COMMISSIONER GUESS. Mr. Chairman, could I follow up with a question to Mr. Lavinsky? CHAIRMAN PENDLETON. If you make it short. CoMMISSIONER GuEss. Thank you, Mr. Chair man. On your last point when you were speaking of education, and in speaking of the necessity, which I wholeheartedly concur, of our enhancing the educational opportunities made available to all our children, do you think, as it has been suggested in these hearings previously, that institution of a tuition tax credit will lead toward that improvement? MR. LAVINSKY. I don't think that a tuition tax credit will .have all that much of a . difference. Tuition tax credit, I gather generally, applies when you are talking about going into college, going into more advanced education. My concern-! think it's a help, but I think that there are enough scholarships around and enough financial assistance around so that good students can get by. My concern is with those that are lost so early in the educational ladder, lost in public school, so that they never could make use of the tax credits. I think that we must see to it that our elementary school education is good enough so that people can make use of the tax credit. I'm afraid that they alone come too late. COMMISSIONER GUESS. Attorney Lavinsky, on that same point, do you feel that the institution of a voucher system at the elementary and secondary level, which would provide parents the choice of having their children attend either public or private, parochial schools, would be of value to the enhancement of this educational system you think is so crucial? MR. LAVINSKY. Let me say that there is an institution right here in Washington which has been very effective in placing minority youngsters into private schools. They raise funds, and from everything I've seen in terms of the literature and in terms of the results, they have been very good. They have gotten their youngsters into all sorts of fine schools, even Harvard, and they have taken them out of poor public school systems. I think that is very important. I'd like to see that increased. If we are talking about money available at the public school level, the elementary school level, to be able to take youngsters out of poor school systems and put them into a good private school, yes, I think it can make all the difference in the world. The long range need, however, is to upgrade public education. CHAIRMAN PENDLETON. Commissioner Destro. COMMISSIONER DESTRO. I'd like to ask Mr. Leonard two questions. I think that they are somewhat related. On page 30 of your paper, the first paragraph, you indicate that the most important and controversial question about affirmative action is, and I quote: Has this reduced discrimination, or has it gone beyond and induced reverse discrimination against white males? This is also the question on which our evidence is least conclusive. The finding of decreased employment growth for white males is not sufficient to answer the question since it is consistent with other possibilities. That's the end of your quote. My question to you is: Isn't the assumption in that quotation that a finding of decreased employment growth for white males-isn't it the assumption that the question of reverse discrimination is one that you answered in the aggregate rather than with respect to its impact on the individual? DR. LEONARD. That turns out for me to be a question of the data I have. I would like to know what happens to individuals. The only kind of information I had access to was more aggregated information. I think any of us could think of individual cases of discrimination or of reverse discrimination. I think, from a public policy point of view, you really want to know what the most prevalent type of case is. And that is not something you can answer by citing an individual case on one side or the other. COMMISSIONER DESTRO. All right. My last question is for Mr. Lavinsky. I'm going to ask you, if I can-I know this might not be fair and, if it is not, please tell me. But really, as one lawyer to another, if I can ask you to step outside the area of employment discrimination law for a moment, could you address the general question of the law of employment relationships and the developments in the law with respect to such things as employment at will or employment contracts? Because that was lurking in the background of the Hishon case. As I recall, there was a contract claim based on the reasonable expectation that she would be considered fairly, and a claim that was part of the contract. So isn't there somewhat of a confluence in the operation of employment contract law and civil rights law: generally, that you have to have a good reason to fire somebody or a good reason not to promote, and aren't both moving in the direction of better protection of minorities and all workers generally? MR. LAVINSKY. This is an area that's in the process of evolution. I come from New York where the old rule that employment at will can be terminated at any time and for any reason began changing a couple of years ago, but has not really changed very much. Yes, there is, under New York law, an exception to the rule that you can fire for any reason in "at will" employment, where there have been promises made or where there is a company manual that says that you can't be fired except for cause, but New York hasn't gone much further than that type of situation. California is much more liberal and has an abusive discharge kind of concept. Other courts have implied a requirement that discharge be for cause. Actually, the problem isn't as difficult for many, many workers as what I have just described, because many of them are unionized or under collectivebargaining agreements, and there you do have a requirement of discharge for cause. I think there is going to be a lot more gyration on that subject before we come to any ultimate conclusions. But for our purposes, trying to bring it into the affirmative action area, in a certain sense the more protection you have for existing workers, while that certainly helps the minority existing workers, the less turnover you may have and the more difficult it is to be able to achieve substantial changes. Also, the whole question of the seniority system compliance program is costly-and it might behas been-well, the Supreme Court was trying to costly just in terms of paperwork, you don't have todeal with it in Stotts. They tried to deal with it be a Federal contractor if you're selling paper clips.earlier. If you're selling F-15s, I then don't think you have aIn a certain sense, it is fascinating to see the tradechoice, but if you're selling paper clips, you don'toff that occurred at the time Title VII was passed. have to be a contractor. Then the argument is, if it's There were two basic trade-offs, as I recall the really that costly and what you are doing is sellingdebate and the history. One of them was the paper clips, which you could sell easily to theprotection of the seniority systems, bona fide senioriprivate sector, you can opt out. I think Sears is onety systems, and the Supreme Court, by and large, example ofa company that did opt out.has honored that. So I modeled it as a tax. That doesn't mean thatThe other was a provision that there will not be white males are necessarily paying for affirmativeproportionality, a requirement of proportionality. action. It could be the case that either the costs areThat, in Weber, was largely abrogated in terms of negligible, because you can easily find qualifiedvoluntary affirmative action. minorities or females, or if there are costs, theyCOMMISSIONER DESTRO. Thank you. could be borne by other parties, in particular by theCHAIRMAN PENDLETON. Ms. Chavez. taxpayer.Ms. CHAVEZ. At the risk of simplifying things COMMISSIONER GUESS. Ms. Chavez, could we getagain, I'd like to ask Professor Glazer-not based on the other members of the panel to respond to theyour feelings, but based on the work that you have first question you asked Professor Glazer? Is disdone in affirmative action over a long and illustrious crimination in employment today, which Professorcareer-do you believe that discrimination on the Glazer previously indicated is impossible to deterbasis of race and gender today in employment is the mine, the exception or the rule, where he claims it isexception or the rule? now the exception? Dr. Welch?DR. GLAZER. I believe it is the exception. I will DR. WELCH. My impression is it is the exception,simplify it that way. and it was not 30 years ago.Ms. CHAVEZ. And do you believe this is a marked COMMISSIONER GUESS. Mr. Lavinsky.change from conditions, let's say, 30 years ago? MR. LAVINSKY. I said it before in one of theDR. GLAZER. I think it's an enormous change, yes. responses and I'll say it again. I think there is aMs. CHAVEZ. One question for Dr. Leonard. vast-a vast-difference in the climate today thanAs I recall, last year you did a study of the Office was true 10 years ago or 20 years ago. And you haveof Federal Contract Compliance Programs, and my to understand that the problem of what we callrecollection is that in your analysis you referred to discrimination has changed drastically. The malevoaffirmative action programs as operated by the lent type went out long ago. The residue-and IOFCCP as a tax on white males. First of all, is that think even that is fast disappearing-was attitude, ancorrect, that that statement was made in your study; attitude that was so subtle one didn't even know oneand secondly, if so, could you explain it? had it.DR. LEONARD. I should point out first that I'm an I mean, for example, the rubric, "Oh, that's aeconomist. I don't have to apologize for that. man's job." And in a sense one of the wonderful[Laughter.] things-and I think it was unintentional, but one ofDR. LEONARD. When I started thinking about the wonderful things about the way the Jaw is set upaffirmative action, I tried to model it as an economist is that defense counsel teaches the client.would. One way of modeling affirmative action is as For example, I saw a situation where there werechanging the relative prices, wages, of these protectno women in a particular type ofjob. It was a heavyed group members or of white males. You can think duty job. But I noticed there were about three 200of that as either a tax or a subsidy. You could pound women that had applied, and they probablyalternatively have thought of it as a subsidy for the could have moved those carts better than I could.empl.oyment of protected members. And I asked how come none of them had been hired,I think part of the argument is one raised by and the answer I got was, "Oh, this is a man's job."Professor' James Heckman of Chicago, which is: If And I said to this fellow, "There is no such thingyou 'think affirmative action under the contract as a man's job anymore." 125 So attitudes have changed. The overt discrimination, I think, is largely gone. The attitudes, I think, have substantially changed. And I think today we are really largely dealing with the effects of past discrimination, with the disadvantaged, rather than any sort of virulent discrimination. COMMISSIONER GUESS. Professor Leonard. DR. LEONARD. I would agree with my copanelists that we have made tremendous progress certainly since the passage of the Civil Rights Act of 1964. If you looked at the current wages of blacks compared to the wages of whites, controlling for education, background, and ability as best you could, I think you'd still find some differences. COMMISSIONER GUESS. Excuse me, Professor. The question is: In your expert opinion, in the employment process, in making the selection, making decisions predicated upon the employment process, does discrimination on the basis of race enter as a variable as an exception or as a rule? We can understand the progress. We are talking about what happens in the marketplace right now. Does this exception occur 6 times out of 10 or 9 times out of 10? DR. LEONARD. I don't know the answer to that. Ms. CHAVEZ. My question is: Is employment discrimination on the basis of race or gender today the exception or the rule? DR. LEONARD. As I was saying, I think if you examined a wage equation, you would still find some unexplained differences between blacks and whites. Ms. CHAVEZ. I'm not asking about wages. I'm asking about whether decisions on who to hire, who to promote, and other employment decisions-is it an exception today or the rule as it relates to race in general? DR. LEONARD. I don't know the answer to that question. CHAIRMAN PENDLETON. Mr. Disler. MR. DISLER. I wanted to ask a couple of questions of Professor Leonard if I could, and I think one or two of the other panelists might want to comment. CHAIRMAN PENDLETON. They can't hear you in the back, I don't think, Mark. MR. DISLER. I was struck, Professor Leonard, by your comment that it is not necessarily the case that white males are paying a price under the affirmative action program that you were looking at. I think you made that comment on page 30 of your paper. But I wanted to ask you, in connection with the tax description that you used earlier, or even the subsidy, however you want to describe it, about a couple of remarks in your paper. I want to quote a couple of them to you. I don't want to take them out of context. On page 8 you say: Between 1974 and 1980 black male and female and white female employment shares increased significantly faster in contractor establishments than in noncontractor establishments. The other side of this coin is that white males' employment share declined significantly more among contractors. And on page 22-let me read the whole paragraph because again I'm concerned not to take it out of context-you said the following in reference to your table 3: The major finding in table 3 is that neither absolute minority nor female employment increased, but that both minority and female employment shares did increase. This is because the contraction in employment that did occur was almost lily-white and predominantly male. Most of the average employment decline of 27 was accounted for by white males, whose employment fell by 21. Put another way, while white males averaged 57-63 percent of initial employment, they accounted for 78 percent of the employment decline. Since females and minorities typically have lower seniority, they are usually found to suffer disproportionately more during a downturn. And then this sentence: In this perspective, the finding here that white males accounted for most of the employment decline is itself striking evidence of the impact of affirmative action. My question is: I am not confused by those remarks, but your unwiilingness to attribute it to the goals program. And I wanted to invite your explanation. DR. LEONARD. I think the first thing you have to recognize is that when you have a pie you can have at most 100 percent of that pie. If you are talking about shares, proportions of that pie, if one share is going up, somebody else's share has to be going down. You can't have 110 percent of the pie. Now, you can either say that affirmative action has helped increase protected group shares, or you can say it has helped decrease white male shares. Those are two sides of exactly the same coin. They may have different connotations, but they are the same fact. As far as the tax question, if you look at the sectors where affirmative action is most predomi nant, if you look at the cities and the industries where the proportion of contractors is highest, you will find that white males and black males both have relatively high pay. Now, that might have something to do with the predominance of defense contractors, I don't know. It does seem to be the case that even white males in the contractor sector have relatively higher pay. The evidence on page 22 that you referred to shows, I think, some striking evidence that white males' employment share has declined. I think that is true, in general, for contractors. It is particularly true for the reviewed contractors. The evidence on page 22 is looking at a subsample of contractors who have undergone multiple compliance reviews. Those are the largest. The evidence on page 22 doesn't mean that any individual white male was laid off because he was a white male. What it does mean is there is a change over time in the employment shares of the white male, and it is going down. MR. DISLER. I take the thrust from your paper to be that the overall program has caused an increase in black male employment. You seem to shy away from saying that the flip side of the coin is due to the very same program. DR. LEONARD. No, I do say that. MR. DISLER. Why are you not willing to say that that is a price that those white males are paying as a result of the program? DR. LEONARD. There is also some evidence that white males' wages are higher in the contractor sector. MR. DISLER. Not for the ones who have been laid off. DR. LEONARD. Well, it's not clear that anyone has been laid off because of this program. MR. DISLER. Let me ask you something else. Your research indicates that the employment of black males has increased more rapidly in the government contractor firms. Is there any evidence-and, indeed, is this a legitimate question to ask?-that affirmative action has increased net employment opportumt1es overall, including noncontractor groups, for black males or other particular groups for whom the::regulations are aimed at increasing employment? In other words, is the OFCCP program shifting black males from one set of employers to 'another? Is that hard to say? DR. LEONARD. No, Professor Welch has, in fact, produced some of the best evidence on that. I'll leave that to him. But let me say this before I do. If you 'look at the noncontractors, their black and minority shares are also increasing. Now, the question is: Where are all these blacks coming from? I think that is something that Finis has a better answer to. MR. DISLER. Did you want to comment, Professor Welch? DR. WELCH. I'm waiting to hear what my answer is. [Laughter.] MR. DISLER. So are we. DR. WELCH. The question is too big. We don't know. We know that employment is shifting toward the monitored sector. Where are they coming from? I think the presumption is obvious. We also know that firm size is declining, and white men are moving toward smaller firms. MR. DISLER. Professor Welch, you indicated earlier that you wanted to comment on some of the productivity discussion, either among the other papers or in reaction to questions. DR. WELCH. Well, I wanted to comment on Jonathan's comments about productivity, simply because I don't think the numbers support your interpretation of them. The comment that you are making-and it's one that you have made before in print-is that there really is no evidence to suggest that there have been efficiency losses on the part of the firms who have responded most vigorously to affirmative action pressures. I think that's right; there is no evidenceand I say that having read your paper. But, Jonathan, I simply think you misinterpret your own numbers. You could as easily argue exactly the opposite conclusion from your data. The only interpretation that you have is that the productivity of the firm depends upon what its skill mix is now, what the race and sex composition of its workers is now, and not what it once was. In the numbers that you report, you do argue that, on average, output per unit of labor input is lower for a firm the higher the fraction of employees in that firm are female and the higher the fraction of employees in that firm are black. Now, that presumably is an adjustment for the differences in average educational levels, in the case of blacks versus whites, to differences in average years of work experience possibly for women-or for whatever. I would agree that that observation does not speak to the productivity issue. But I would disagree that a historical race-sex composition of employment says anything about efficiency now. And that is the interpretation that you are trying to give the data, and I don't think it withstands it. CHAIRMAN PENDLETON. We have time for just one more question. I'm sorry; are you finished? MR. DISLER. I wanted to let Dr. Leonard respond. CHAIRMAN PENDLETON. All right. You have a little thing going there. DR. LEONARD. I took some pains when I presented that to say I thought there was a lot more work to be done in this area. I think it's the most controversial area. It's something I hope, with the cooperation of the government, to do some more work on. I do think that the argument depends on who the burden of proof is on. If the argument was that affirmative action and Title VII have imposed significant and substantial productivity losses, then I would say that case hasn't been made convincingly yet. By the same token, I would have to agree with Finis that the converse case has also not been made convincingly enough. CHAIRMAN PENDLETON. No more questions? MR. DISLER. No. CHAIRMAN PENDLETON. Mr. Bunzel, you may have the first and the last word. COMMISSIONER BUNZEL. Thank you. CHAIRMAN PENDLETON. Equal opportunity. COMMISSIONER BUNZEL. Someone has said someplace that there are two types of people in the world: those who try to divide the world up into two groups and those who do not. Or in another variation, I remember hearing someplace that an optimist is a person who believes that this is the best of all possible worlds, and a pessimist is someone who believes the optimist is right. [Laughter.] COMMISSIONER BUNZEL. One of the things I am impressed by, and have been for the last 15 or 20 years of my life, and is reconfirmed here today, is that there are, in fact, for certain purposes, two kinds of people-people who do not disdain the humble fact and, therefore, find their opinions very often in flux, subject to change, and in many respects, therefore, are often able to question their own views, are skeptical of lots of opinions, and are constantly looking for evidence to support what it is they believe. On the other hand, there are people who have strong opinions and very rarely let the facts get in the way of those opinions. In fact, if they do, they tend to disregard them. I am impressed by the kinds of arguments that have been exchanged here today and the points that have been made. When Ms. Chavez asked if discrimination was more the exception than the rule today, I think I heard virtually everybody except Mr. Leonard answer the question that it was the exception. When I have asked this question, I have been told that the problem is that that kind of discrimination has perhaps been reduced, but what we have today is much more subtle, and it is institutional discrimination, for example. Now, I have worked in various institutions-no, I've worked in various universities as one form of institution. I have never understood entirely what institutional discrimination is and what it is not. And I think perhaps my last question is to Professor Glazer, first, and to the rest of the panel: Can you help me understand, in fact and in practice, what institutional discrimination really means and what it does? DR. GLAZER. I think institutional discrimination is a misnomer. If it refers to such things as tests or procedures which have the inadvertent effect of discriminating, we can name it more directly and we can deal with it, and we have dealt with it. It very often tends to refer to something else, which is that legitimate institutional procedures and needs run into a problem of the fact that different groups qualify in different ways for the functions it needs. I don't think that is institutional discrimination. That is a problem of examining that institution's assessment of its needs. If one says there is institutional discrimination in the police forces because they used to hire only men, and despite being hit over the head a good deal, they still think they need more men than they need women, I don't think it's institutional discrimination. It's a question of what is a policeman or a policewoman for. MR. LAVINSKY. I think I can give you an example. There are many others, but one that came to my mind as I heard Professor Glazer speak is the attitudes about women. And I will take it in the law and what things were like 20 years ago, when a woman would routinely be subjected to such questions as, "Are you married? Do you plan to have children? Are you pregnant?" and so forth. The obvious institutional assumption was that the female lawyer would not be as dependable, would stay for a short time and leave, and so forth. That is gone. It's gone because women have proved themselves in the legal profession. Women have had their children-and I've seen them in our office with their children running around on the carpet while they're doing their work. They are fine associates. They are fine partners. And we learned that. But 20 years ago, yes, there was institutional discrimination. Law firms had an erroneous assumption about women. That's gone. I think that I could probably come up with 10 other examples of other minority groups where those types of things are gone. That's the subtle kind of problem that was very prevalent. I think it is much less prevalent today and hopefully will be gone tomorrow. COMMISSIONER BUNZEL. Mr. Lavinsky, I can share part of what you're saying because I was with a university 20 years ago as an assistant professor and was arguing at the time that there weren't many women in the department, and I thought it was necessary to find out why. And there were all kinds of norms that were part of the sixties and late fifties. Some of them today no longer exist at all, part of the consciousness-raising of today. Lots of things which women themselves didn't think they could aspire to, they now take for granted. Thus, they have moved into law schools, medical schools, and all the rest. What I am confused about is why that is institutional discrimination. It seemed to me to be simple prejudice on the part of men, and some women but mostly men, in the institution or the university itself-the men who were in a position to make decisions about whom to hire, whom to consider. Why isn't that individual discrimination? It seems to me that institutions are run by people. MR. LAVINSKY. Well, that is true. In that sense almost every institutional decision is made by people, probably made by one or two individuals. It's really a matter of changing attitude. And I think the reason we use the expression "institutional discrimination" is that attitudes are contagious. You don't have to be a bigot, you don't have to intentionally dislike anybody to have misconceptions and stereotypes. Those are the kinds of attitudes you want to change, and where an institution acts on them through its hiring arm-1 have heard it called systemic discrimination, discrimination so subtle you don't even know you have it. It is an educational problem, and it has to be dealt with. But I think it is far less today. And I think that the more exposure business and professions have with capable minorities and women, the more they see successful performance, the more you break down these institutional prejudices. CHAIRMAN PENDLETON. We thank you all for coming to this session. We will now take a break until about 11:10 a.m. [Recess.] HEARING CHAIRMAN PENDLETON. Before we begin this session, I would like to enter into the record the correspondence between our staff and the groups that did not appear, as well as to make certain that the groups who did submit testimony, that their testimony is made part of the record. Is that agreeable to the Commissioners-the letters exchanged between our staff and the people who are not here? I'd also like to say I have another letter from an organization, International Personnel Management Association, that has given us a resolution with respect to affirmative action goals, which I will turn over to you to make as part of the record. I forgot to do that earlier. We now move to the hearing part of this combination consultation/hearing. The witnesses will be testifying with regard to their knowledge and experience of set-asides for minority-and womenowned businesses. The witnesses reflect a wideranging view with respect to these important affirmative action issues. We received a large number of requests from organizations and individuals wishing to be heard at these proceedings. Time and scheduling, however, permitted us to hear from only a few of these parties. We do not have a separate portion of the proceedings for members of the general public to testify. Staff was asked to put together a streamlined version of a combined event. In putting together this event, we invited a number of advocacy organizations, individual experts, and business people. The hearing component which we are now beginning includes the business people. The hearing record, however, will be left open for 30 days following the conclusion of this session today, and all interested persons may submit any written statement or comment regarding these issues. I will turn to Commissioner Buckley who will read the rules. COMMISSIONER BUCKLEY. At the outset, I should emphasize that the observations I am about to make on the Commission's rules constitute nothing more than brief summaries of the significant provisions of the Commission's statute. The rules themselves should be consulted for a fuller understanding. Staff members will be available to answer questions which arise during the course of the hearing. In outlining the procedures which will govern the hearing, I think it is important to explain briefly the special procedure for testimony or evidence which may tend to defame, degrade, or incriminate any person. Section 3(e) of our statute provides, and I quote: If the Commission determines that evidence or testimony at any hearing may tend to defame, degrade, or incriminate any person, it shall receive ·such evidence or testimony in executive session. The Commission shall afford any person defamed, degraded, or incriminated bysuch evidence or testimony an opportunity to appear and be heard in executive session, with a reasonable number of additional witnesses requested by him, before deciding to use that evidence or testimony. When we use the term executive session, we mean a session in which only the Commissioners are present, in contrast with sessions such as this one in which the public is invited and present. In providing for an executive or closed session where testimony may tend to defame, degrade, or incriminate any person, Congress clearly intended to give the fullest protection to individuals by affording them an opportunity to show why any testimony which might be damaging to them should not be presented in public. Congress also wished to minimize damage to reputations as much as possible and to provide the person an opportunity to rebut unfounded charges before they were well publicized. ! Therefore, the Commission, when appropriate, convenes in· executive session prior. to the receipt' of anticipated defamatory testimony. Following the presentation of the testimony in executive session and any statement in opposition to it, the Commissioners review the significance of the testimony and the merit of the opposition to it. In the event we find the testimony to be of insufficient credibility or the opposition to it to be of sufficient merit, we may refuse to hear certain witnesses, even though these witnesses have been asked to testify in public session. Testimony which may tend to defame, degrade, or incriminate another person is not permitted by witnesses in an open session. An executive session is the only portion of any hearing which is not open to the public. The hearing which begins now is open to the public and the public is invited to attend all of the open session. All testimony at the public session will be under oath and will be transcribed verbatim by the official reporter. Everyone who testifies or submits evidence or data is entitled to obtain a copy of the transcript. In addition, within 60 days after the close of the hearing, a person may ask to correct errors in the transcript of the hearing of his or her testimony. Such request will be granted only to make the transcript conform to testimony as presented at the hearing. All witnesses are entitled to be accompanied and advised by counsel. After the witness has been questioned by the Commission, counsel may subject his or her client to reasonable examination within the scope of the questions asked by the Commission. He or she also may make objections on the record and argue briefly the basis for such objections. Should any witness fail or refuse to follow any order made by the Chairman or the Commissioner presiding in his absence, his or her behavior will be considered disorderly and the matter will be referred to the U.S. attorney for enforcement pursuant to the Commission's statutory powers. If the Commission determines that any witness' testimony tends to defame, degrade, or incriminate any person; that person or his counsel may submit written questions which, in the discretion of the Commission, may be put to the witnesses. Such person also has a right to request that witnesses be asked to appear on his or her behalf. All witnesses have the right to submit statements prepared by themselves or others for inclusion in the record, provided they are submitted within the time required by the rules. Any person who has not been asked to participate in the hearing may be permitted, in the discretion of the Commission, to submit a written statement in this public hearing. Such a statement will be reviewed by members of the Commission and made a part of the record. Witnesses, including those in any open session, at Commission hearings are protected by the provision of Title 18, U.S. Code, section 1505, which makes it a crime to' threaten, intimidate, or injure witnesses on account of their attendance at government proceedings. The Commission should be immediately informed of any allegations relating to possible intimidation of witnesses. Let me emphasize that we consider this to be a very serious matter, and we will do all in our power to protect witnesses who appear at the hearing. Copies of the rules which govern this hearing may be secured from a member of the Commission's staff. Finally, I should point out that these rules were drafted with the intent of ensuring that Commission hearings be conducted in a fair and impartial manner. In many cases the Commission has gone significantly beyond congressional requirements in providing safeguards for witnesses and other persons. We have done that in the belief that useful facts can be developed best in an atmosphere of calm objectivity. We hope that such an atmosphere will prevail at this hearing. With respect to the conduct of persons in this hearing room, the Commission wants to make clear that all orders by the Chairman or Commissioner presiding must be obeyed. Failure to obey will result in the exclusion of the individual from this hearing room and criminal prosecution by the U.S. attorney when required. The security officers stationed in and around this hearing room have been thoroughly instructed by the Commission on hearing procedures, and their orders are also to be obeyed. CHAIRMAN PENDLETON. It is now my duty to swear in the clerks. [Neal Devins and Susan Lee were sworn.] CHAIRMAN PENDLETON. Now I'll swear m the witnesses. [Donald Leslie, Thomas C. Stewart, and Ralph D. Stout, Jr., were sworn.] CHAIRMAN PENDLETON. Is there anyone here who is hearing-impaired? [No response.] CHAIRMAN PENDLETON. Panel!: Donald Leslie is president of Johnson Electrical Corporation, Hauppauge, New York, and a master electrician. The firm serves as general contractor on public highway jobs involving electrical retrofitting of existing highways and as electrical subcontractor on new highway construction and expansion. The firm:employs 10 to 50 persons and grossed about $4 million in 1984. Tom Stewart is president of Frank Gurney, Inc., Spokane, Washington, and holds a B.S. degree in civil, engineering from Gonzaga University. The firm, serves as a subcontractor on public highway jobs, installing fences, guardrails, medians, road stripes, and traffic signs. The firm employs 15 persons and grossed about $2.5 million in 1984. Ralph D. Stout, Jr., is president of Southern Seeding Services, Inc., Greensboro, North Carolina, and holds a B.S. in civil engineering from North Carolina State University. The firm serves as an erosion control subcontractor on public highway jobs, employs 20 persons, and grossed about $1 million in 1984. TESTIMONY OF DONALD LESLIE, PRESIDENT, JOHNSON ELECTRICAL CORPORATION, HAUPPAUGE, NEW YORK; TOM STEWART, PRESIDENT, FRANK GURNEY, INC., SPOKANE, WASHINGTON; AND RALPH D. STOUT, JR., PRESIDENT, SOUTHERN SEEDING SERVICES, INC., GREENSBORO, NORTH CAROLINA MR. HouLE. Mr. Leslie, before we start questioning, I understand you have a written statement for the record. MR. LESLIE. Yes, I do. MR. HouLE. W auld the clerk please pick up copies of the written statement. Mr. Leslie, would you please state your full name, address, and occupation or affiliation for the record. MR. LESLIE. Yes. My name is Donald Leslie. I reside at Spring Hollow Road, St. James, New York. I am president of the Johnson Electrical Corporation in New York. MR. HoULE. Thank you. Again for the record, Mr. Stewart, would you please state your full name, address, and occupation or affiliation. MR. STEWART. My name is Thomas C. Stewart. I reside in Spokane, Washington. I am a civil engineer and a licensed civil engineer in the State of Washington and am president of Frank Gurney, Inc. MR. HouLE. Mr. Stout, would you please state your full name, address, and occupation or affiliation for the record. MR. STOUT. My name is Ralph D. Stout, Jr. I live on Currycut Place, Greensboro, North Carolina, and I'm president of Southern Seeding Services, Inc. MR. HouLE. Mr. Leslie, would you briefly describe your firm's problems with set-aside programs? MR. LESLIE. Well, to do that, sir, I would have to start in the beginning and have you understand exactly what it is we do in the Long Island area. We are a specialty contractor in the basic electrical construction industry, in addition to doing highway traffic signals and highway lighting work. When the program was first developed, it didn't seem to be much of a problem because the rules seemed to be pretty lax. But in the past few years they have been developing into something that is becoming extremely unworkable. They are unworkable in the situation that the area that I work in represents an area that is suburban in nature and has approximately 2.7 million people, of which approximately 6 percent of that represents minority persons. The industry is a very technical one. It is one that you just cannot legislate into existence contractors who are qualified to do the work. At the same time, we are a public works contractor. We are under bond to perform. We are in a hard-money bidding process where we bid a firm contract price for a particular project, and we must perform within the guidelines of the specifications. The State of New York in most of its building type of work has a separate bid law which requires that there be four separate bids for every buildingtype project, which immediately eliminates a lot of scope of the work in the construction industry from a particular contract. For instance, when I bid on a public works project, I would bid for the electrical work and that work that is shown under the electrical sections of the specifications. That is done mostly, if not all, by inhouse personnel. We very seldom subcontract anything. We are basically purchasing anything from the outside, such as supplies, equipment, specified lighting fixtures, and such. The same holds true for our work on the highways. As a prime contractor we would bid for work that is basically reconstruction of traffic signals and/or street lighting. We also have some minor general construction work in our contracts. In the confines of our specifications, we are very limited as to what we can do. In addition to that, we have to deal with the fact that we have a labor agreement with obvious referral procedures that have been standing for some 25 or 30 years with my firm. When the program came out, as I said earlier, it wasn't too difficult on certain highway jobs to adhere to it, because we could, on the highway work, find contractors that were in the general construction field that were doing curb type of replacement and asphalt work and so forth. Short of that, the minority firms are nonexistent in the technical ends of the industry. When I say nonexistent, not totally nonexistent, but for the terms of this program, they certainly are. We find it very difficult to find anyone even willing to bid on the work. In addition to that, we have various State agencies that have different compliance officers with all sorts of different rules and regulations and all sorts of different criteria as to who is and who is not a minority. So you can see now it is getting a little complicated in that we really have a lot of difficulty just sorting out what the rules of the game are, just by what agency we happen to be working for at the time. I might point out that we work for all municipal agencies, including school districts, fire districts, the department of transportation, and so forth. The State department of transportation happens to have the most stringent rules with regard to minority business enterprises that exist in the area. They insist that you only utilize minority business firms that are shown on their particular list, which is practically nonexistent in my field. In fact, in my district which is the regional district for the highway department, there are no minority electrical contrac tors that are approved by the department of transportation. There are some general-type contractors, some landscape-type contractors, and some consultants. MR. HOULE. Mr. Leslie, due to time considerations, we do have the record of our interviews with you and your written statement. Let me ask you to briefly describe the loss that your firm has suffered from set-aside programs. MR. LESLIE. I'm sorry if I went into a longwinded explanation, but I felt it was important so you would understand where we're coming from. The losses occur, sir, when we are unable to attain the goal for the various agencies and are unable to bid the project because we know we would be held responsible for meeting those goals or quotas. Just recently, in 1985, my firm has been unable to bid two projects-one was for a traffic signal reconstruction job for $1.8 million, and the other was a highway lighting job for $2.7 million-because we were unable to obtain any response whatsoever from qualified minority contractors to do any subcontract-type work. That is where my firm is being hurt, sir. It is being denied the right to bid the work unless we utilize some devious method of getting around the regulations, which we have been very reluctant to do. MR. HouLE. Let me ask you this, Mr. Leslie: In your opinion, has the set-aside program truly assisted women and minorities that are in the construction trade in your area to become qualified? MR. LESLIE. I really don't believe so. The setaside program as it exists today is really a crutch. It is being handed out in the form of dollars, and we talk with numbers and we talk with projects of millions of dollars worth of work being given out, and so much of that has to be given to minority firms. Whether that firm is qualified or not, we are going to have to give that work out to them because that's what the people running the compliance offices want. They will not accept, for the most part, good-faith efforts. That is almost an impossibility to get a waiver on. And we are now forced to deal with all sorts of different situations to meet those goals and quotas. And you have to understand that the only way I get a job is by being low bidder. And it would not be in my best interest or my firm's best interest to discriminate against anyone except those that do not have the low price. We are looking for qualified people that can do the job at the best possible cost and develop those people into subcontractors that we can work with. MR. HoULE. You indicated, Mr. Leslie, that you had problems with the good-faith waiver process. Could you briefly describe your experience in that regard? MR. LESLIE. I had one particular instance where the minority firm that I had bid the job with was disqualified after the bid for a legal reason, and the State of New York Department of Transportation would not allow me to use them. At this point in time, I had to go back out onto the street and publicly look for additional minority participation, and at that point in time, there wasn't any available because of the workload in the area. It doesn't take much of a workload to fill up the capacity of those firms that are working in the minority business enterprise program. So by the time all of this came about and developed into all the good-faith efforts that I had to go to to prove to somebody that was 300 miles away that there was no one else to take the place of that previously disqualified minority subcontract, some 7 or 8 months went by. This was on a highway project that had approximately a 12-month completion date. By the time I got a waiver, we were into December. The project was delayed up until that time, and we could not resume work until spring. My completion date was in March. I am now working into the March-April-May area, completing the work with another subcontractor, along with my field forces, and I have been at this point subjected to liquidated damages for engineering charges on that additional time overrun, and no appeal was even heard of that issue. They just deducted it from my payment and sent me my final payment. That was it, take it or leave it. MR. HouLE. To get back to your earlier statement on whether or not the set-aside program is truly assisting women and minorities in succeeding to qualify in the trade, you indicated in testimony that the use of corporate shells was becoming widespread. Would you describe your experience with that, Mr. Leslie? MR. LESLIE. Yes, that is the common practice in areas other than the department of transportation because the department of transportation's rules are so strict as to who in fact they will or will not accept. But other State agencies and villages and counties and towns will allow you to utilize minorities that are off the general Commerce Department list, and basically, the minority does not have to show that they are an ongoing viable firm in the business that they choose to bid for work in. Those areas have been the areas where the 5 percenters come into play, where you cover whatever minority goal there is just by contracting with whoever it is that you have in mind at the time to develop that goal for you, and you pay them 5 percent of that program for the right to utilize their name as a minority. MR. HouLE. Mr. Leslie, what is your recommen dation on methods that could be used to help women and minorities enter and succeed in the construction trade? MR. LESLIE. Well, sir, I think the important thing here is what we heard a little earlier. It's education, especially in my field which is very technical in nature. It takes some 8 or 9 years to develop into a contractor in my field that is viable in the industry, and that has the expertise to know what to bid, how to bid it, how to proceed with the project, how to conduct their business, and so forth-how to perform for the bonding companies and secure the bonds, how to get the financing. There are all sorts of areas that you just can't take somebody off the street and say, "You are now an electrical contractor," no more than you could do it in the law field or the medical profession or anywhere else. MR. HoULE. One last question, Mr. Leslie. Do you believe there is a buddy or an old boy system among contractors in your area that works to the disadvantage of women and minorities? MR. LESLIE. That, I feel, is absolutely outrageous. That doesn't exist. As I said earlier, a contractor is looking for an experienced contractor with the expertise to do the job at the low price because he has to be the low bidder. The only way he will get to be the low bidder is if he uses the low bidders, so to speak. The contractor doesn't care what color his subcontractors are. We are basically colorblind. I know it's going to be hard for some people to believe that, but that's the fact. MR. HOULE. I appreciate that, Mr. Leslie. Thank you very much. Mr. Stewart, would you briefly describe your firm's problems with set-aside programs? MR. STEWART. To go back not too far, just a little bit to where we come from, we are a subcontractor. We do highway guardrails, signing, and striping. We have been in business for 25 years. In September of 1980 we received a letter from the Washington Department of Transportation-incidentally, our work area is Washington, the northern Idaho panhandle, and all of the State of Montana. We received a letter from the State of Washington in September of 1980, and they indicated in that letter that forthcoming would be mandatory goals for minority business enterprises, and those goals were at that time going to be dollar amounts. We began to notice that shortly after that when the contracts began advertising with minority business enterprising dollar amounts, those dollar amounts did, indeed, fit about what the amount of work would be in the contracts that would be subcontracting. In other words, if it were approximately a million dollar paving overlay job and there was $100,000 of guardrail and signing and items there that were normally specialty items, then that was the dollar amount that was put on that contract for a minority goal. Therefore, in 1981 we began to really feel the impact of these minority goals because prime contractors were rejecting our low bid in favor of minority bids that would fill the goal. I would like to bring forth at this time-1 do have testimony. Included in my testimony is documentation of exactly what was happening in 1980, 1981. And recently we did receive letters from a lot of prime contractors who did relate what the cost comparisons were on the jobs we were low bidder on. Some would not. MR. HoULE. Those are in your written statement? MR. STEWART. Yes, they are. MR. HouLE. Would the clerk please pick up those statements. Mr. Stewart, specifically how has your firm been harmed by the set-aside program? MR. STEWART. Any business is regulated by its own economic demands. When your work volume is up to where you have enough volume of work to sustain the overhead and so on, your prices go up. When you don't have work and you have overhead and insurance that goes on, your prices go down. Our prices went down to where we are estimating better than 50 percent of the time we were low bidder on jobs, and we couldn't get the work. Our bids were rejected. That is the harm when you have this insurmountable obstacle that you don't have any control over. MR. HouLE. During the last 2 years, Mr. Stewart, has your firm found it necessary to accept work that was sub-subcontracted from apparent women-or minority-owned corporate shells on set-aside jobs as a means of maintaining its percentage of public works sales? MR. STEWART. Indeed, in the latter part of September, we felt that we had exhausted every plea for help that we could think of. We wrote our Congressmen, our State legislators, prime contrac tors, our own AGC. In the latter part of September, we just felt, out of fear for our own survival, that we had better commence a business work activity with minority companies. We did so in the latter part of 1983, and in 1984 we did work with minorities. On December 20, 1984, one of the minorities that we had worked with had a compliance review with the State of Washington Contract Compliance Bureau. The contract compliance officer expressed a verbal disfavor with his association with our company, and at this time there hadn't been a formal written compliance status of that particular minority company. However, after deliberating the outcome of that and taking notice of the more stringent rules regarding working with minorities, as of January 1, 1985, we halted any work or bidding activity with minority companies. Since then we have been on our own. In the Montana bid-letting of January 1985, we were low bidder on three jobs. We did not receive award of a single contract. Instead, one of our competitors in Montana was awarded one of the larger jobs-it was a $200,000 job. One of our competitors who is a certified minority was awarded the job at a price $34;000 higher than ours. MR. HouLE. Do you believe it's a widespread practice of women-and minority-owned subcontractors that they subcontract all or substantially all of their work to minority firms that actually do the work on public works jobs? MR. STEWART. In our own experience, we have found that there are varying levels of bona fideness in minority companies. Some are really great. They don't need any help from anybody. They beat us at the bidding table. They don't need any help from anybody to complete their work. They are good; they are efficient. And others bid on smaller jobs. They take care of their smaller jobs. There are others-in general, we have knowledge of those that perform basically no useful function at all. MR. HouLE. Do you believe, Mr. Stewart, that there is a buddy or old boy system among contractors that works to the disadvantage of women and minorities in your area? MR. STEWART. I do not. The discrimination that I am aware of going on in our area is against subcontractors like myself. The Spokane area has an approximate 10 percent minority population. I be lieve I have heard that number somewhere. We have an elected black mayor. One of the most prominent, sought after lawyers in the Northwest is a black man. There hasn't been a discrimination history in our area as such, as has been explained in other areas that I have heard of in the United States. I would like to say that, getting right to contrac tors, for contractors to discriminate is just about completely unacceptable. For us to do a favor or reciprocate a favor or for a minority firm even to reciprocate a favor with one particular contractor when you're a sub like we are, it would. MR. HouLE. Mr. Stewart, some observers claim that some women-and minority-owned enterprises, relying on a perceived share of the construction market through set-asides, do not take all available steps to become more competitive. Would you please comment on that statement? MR. STEWART. I would say, in general, there are probably minority businesses that we have encountered of two types. To go back just a little bit further, in the State of Washington, I believe there are about 15 contractors in the DBE Directory listed as doing guardrail work. In Montana, I believe there are four or five. It's in that range somewhere. Of those, there are varying degrees of the ones that we are familiar with, that we have observed in one way or another. It ranges from the ones that are competent who don't need any help, to others who prime contractors have, as in my documentation there, called us in to finish their work. MR. HouLE. Thank you. Mr. Stout, before we begin your questioning, I believe you have a written statement you'd like to submit for the record. MR. STOUT. Yes, I do. MR. HOULE. Would the clerk please pick up the statement? Thank you. Mr. Stout, would you briefly describe your firm's problems with set-aside programs? MR. STOUT. Yes, I appreciate this opportunity. Our company, as introduced, is Southern Seeding Service, and we are a specialty subcontractor performing'erosion control or grassing work, primarily on the highways in the State of North Carolina. I do make the point that we are basically a subcontractor. That puts us in a very unique position. Prior to the 1982 Surface Transportation Act, we had experienced some negative impact from the various Executive orders that related to the set-aside program and the setting of goals in the highway contracting industry. However, with the 1982 Surface Transportation Act, we found ourselves basically legislated away from our primary business market. For example, our fiscal year ends January 31. For fiscal years ending 1979 through 1984, our highway volume averaged approximately 45 percent of our total business volume. During that 6-year period, for 3 years it averaged 54 percent, 55 percent, and 58 percent. For the year just ended, January 31, 1985, our volume of highway work was less than 10 percent. The last highway job of any size-and I point out we are a small business with 20 employees-the last highway job that we received was March 22, 1983. And that job was somewhat less than $63,000. Along with the Surface Transportation Act, we tracted, and that makes folks like us bear the brunt ofare now finding that municipal governments, the the whole set-aside program as it relates to givencities, the counties, and so forth, are also setting up projects.various goals which are contrary to our best inter MR. HOULE. Mr. Stout, could you please give usests. some specifics of where and when your firm hadI have here a weekly bulletin from the Carolinas either lost jobs or on which it was the lowest bidderbranch, AGC, which says, "Durham adopts or which you believe it was the lowest bidder orM/WBE program." That's the city of Durham, simply not bid jobs due to set-aside requirements?North Carolina. The program as adopted established MR. STOUT. We know we've lost jobs. At onethe following goals: any contract $50,000 to time we tried to create a relationship with what I$249,999, 25 percent; $250,000 to $499,999, 30 call a legitimate minority contractor, a contractorpercent; and any contract over $500,000, a goal of35 who had been in business prior to the days of setpercent. asides and goal programs, and who was in an alliedI would point out that in the past we have done a business-he was a grading contractor. And throughlot of work in and around and for the city of a discussion with our attorney and their research, weDurham. We have since December 1984 bid on a were encouraged to believe that we might effect anumber of jobs in the city of Durham. However, to · relationship where we could, in turn, get some workthis date we have received no contracts from them. through these people. MR. HOULE. Mr. Stout, in your opinion has the We bid some jobs with the understanding to the set-aside program in your area helped women and primes that if this worked out we would in fact beminorities enter and succeed in the construction doing the work as a sub-sub.trade? As it turned out, after meeting with the highwayMR. STOUT. I don't think it has, and I'll answer people, going over the contract that we had putthat this way: I see two types of contractors. I see a together where we guaranteed to bond the job; weminority disadvantaged or woman contractor who is guaranteed to finance them; we guaranteed to paygoing to be in business, period. this party a fee in order to help them in that way-itMR. HOULE. Mr. Stout, do you have any specific came to be that it was just not something that was examples ofthat that you could give us? going to work.MR. STOUT. Well, let me finish. You're getting me We ended up losing about four jobs in thisoff track here. particular instance, one of which the general conMR. HOULE. All right. tractor subsequently subcontracted to a minorityMR. STOUT. As I say, two types of contractors. firm from Virginia, who called me on two differentThere is one who is going to be in business whether occasions and asked me to subcontract the workthere's a goal program, set-aside program, or not. from him, and I told him, "We can't legally do this."Then I see contractors who are in business because He asked me to put my people on his payroll and toof the goal program. It has been my experience-! lease the equipment to him, and I told him no, wehave seen that in both instances. weren't interested in doing business that way, so we I do want to point out one other thing that I think didn't get the job. We bid it and were supposed to is very, very important as the total goal program have gotten the job and we didn't, and we were justrepresents to us. In the State of North Carolina most going to stay away from it.of the highway contractors have historically done MR. HouLE. Any other specifics, Mr. Stout,most of the work that they bid on. For example, where either your firm lost bids or just didn't bid?you'll have a general contractor who is in the MR. STOUT. Well, there is another one wheregrading and paving business. And he will do with his there was a general contractor who had a job that heown forces, his own equipment, most of the work had subcontracted to a minority firm, and thethat he bids on. He has historically subcontracted minority firm was not experienced in highway work.certain specialty items-guardrail, fencing, seeding They were having a tough time, and they finallyand mulching, the business we're in. gave the job up, and this firm, in turn, subcontractedSo what happens is that these general contractors, it to us.to meet their goal, are still wanting to subcontract He later bid another job, which was quite a bitthe specialty items they have historically subcon-larger, and it came at a time when we were quite 136 desperate for work, and we had a tremendously low price on it. When I gave him our bid the night before the letting, he said, "Well, these numbers sure look good. You did such a good job for us on that other job and got us out of that hole, we sure hope to use you on this job." When I looked at the tabulations, which are public figures that show the unit prices, this contractor had used our numbers right down to the penny on each item we bid on. After the contract was awarded to him and I went to see him-I really went to see him to collect the money he owed me for the last job-I started talking to him about this job, and he said, "Well, we're going to have to give that to so and so." I said, "What do you mean?" He said, "Well, we had these minority goals to meet and one thing and another, and they're going to get the work." Now, I don't know if he gave that job to the other party at a lesser price or a higher price, but it really doesn't make any difference to the taxpayers because they're going to pay the price that the general contractor bid. But we lost that job for that reason. MR. HoULE. Thank you, Mr. Stout. Mr. Chairman, I have no further questions. CHAIRMAN PENDLETON. Mr. Guess, do you have any questions? CoMMISSIONER GuEss. Mr. Chairman, I would like to start by expressing appreciation to the panelists who have come to this public hearing. Mr. Leslie, if you don't mind, you indicated when the question was asked as to whether you believe there is a buddy system among contractors that works to the disadvantage of women and minorities, that that proposition was, and I quote, "outrageous," end quote. Do you have in the State of New York an association of contractors, a road builders association, or some other professional group, which bands together for the purposes of advancing your profession? MR. LESLIE. We have many, sir. COMMISSIONER GUESS. In your opinion, do these types of associations constitute a buddy system? Are relationships established through these associations which could act to advance the members of the association? MR. LESLIE. The only association that I can speak for, sir, is the one that I belong to, and I can say without question that it does not. It is merely an educational association. And, frankly, I think what you're asking there may violate some antitrust laws. We are, in fact, going out of our way to avoid those types of situations. COMMISSIONER GUESS. Does your association have a reasonable number of minority and/or women members? MR. LESLIE. I can't quote the exact number, but I know we have some of both, and I think they are probably more representative in our association than in the general industry. What I mean by that is that we go out of our way to encourage the minority contractors that are legitimate to become educated and join our association. When I say "educated," educated in the pitfalls of our particular business, technically and businesswise. COMMISSIONER GuESS. Earlier Mr. Stout indicated that he had participated in a bid on a job where numbers were released prior to the bid being submitted, and that he subsequently did not receive the award after the successful bidder had used his numbers verbatim on that bid. Do you think this tends to also constitute-what I'm trying to get at is your definition of the antitrust relationship vis-a-vis the old buddy system. I see a difference between the two. MR. LESLIE. When I referred to an antitrust-our association is one of electrical contractors, sir. Any time we would divulge prices to one another, that would be a violation of the antitrust laws as I understand it. The prior reference that you were making was one where the subcontractor bid to a general contractor. And let me tell you, sir, that goes on every day in the week. They shop us from pillar to post, and they'll use us whether we're green, purple, or black. COMMISSIONER GUESS. Is there a buddy system there? MR. LESLIE. A buddy system? The only buddy system there is, sir, is one of dollars. Whoever is low bidder is going to get that work. COMMISSIONER GUESS. I understand. Mr. Stout, you also indicated-and I thoroughly enjoyed hearing someone speak in a tone and tenor as someone from the South that I could understand after the last 2 days. You're the only person I've been able to understand. They tell me they don't want me to talk too often because I talk kind of funny. [Laughter.] COMMISSIONER GUESS. Do you think that the And where we're at today, I can look at anybody,receipt of a government contract is a right or a minorities, whites, anyone. If there is a possibleprivilege? chance that they can receive help in any way, weMR. STOUT. Give me that again, please. feel that that's just great. If the government wants to COMMISSIONER GUESS. Do you think the receipt help anyone in various programs, we know that that of a government contract to perform public service help would have been very welcome to us in days is a right or a privilege? where we were starting out, or even in days when MR. STOUT. I think any person should have a we were going along in our business trying to grow. right to seek a government contract if they so desire. The thing we see at this time is that the mandatory COMMISSIONER GUESS. And the award of that goals in the present programs are discriminating contract then becomes a privilege? against companies such as ours. All we would ask is MR. STOUT. Well that there be in the bid document, where the prime COMMISSIONER GUESS. Well, my next question contractor has to show what the minority prices are would be: Do you also feel that the use of public and which minority companies he used, we ask why funds to expand the base of entrepreneurship among can't there be a document made part of that bid, a those whom historically have been denied theopportunities, the inner markets in some area, is an page, that says, "These are the nonminority bids,"and therefore the government and everyone con appropriate use ofgovernment power? cerned can at least view the comparisons. MR. STOUT. I do not think it's the appropriate use. COMMISSIONER GUESS. Do you feel, particularly So, then, to get on to answer your question, we in looking at North Carolina-do you think that feel the good faith efforts and affirmative action are definitely-they are probably even necessary. That historically during the time that you first entered this part would go into the philosophical and the abstract market that blacks and other minorities and womenhad an equal opportunity to enter that marketplace of others who believe that these are the directions totake. as you did? MR. STOUT. I was not walking in their shoes. I The part we feel is that the good faith effort andthe affirmative action probably are necessary, that have seen other people come into the business, thesame business I am in. I have seen people come into the only thing we would like to see is that contracthe business who had no one to push them along but tors-for instance, to give a quick example, contractheir own efforts, their own desires. I don't know of tors A, B, and Call bid a job. contractors A, B, and C any reason why any person could not have done that all use a nonminority low bid for their subcontractif they had wanted to. ing. COMMISSIONER GUESS. Mr. Chairman, I have one Contractor A had two minority bids, contractor Bfinal question for Mr. Stewart, and I'm just also had two minority bids, and contractor C had sixtrying to expand my understanding ofthis area. minority bids. In looking at possible approaches to what has Possibly contractor C has performed a betterbecome the subject of a good deal of debate lately, good faith effort than contractors A or B, andand recognizing that it has been the testimony possibly A and B were lower bidders than bidder C,brought before this Commission that the approach but at least in that way there was a contractgovernment has taken on set-aside programs is requirement there to fill. fraught with error, would you consider an approach The way it is now, the prime contractor is forcedfor the acquisition in whole or in part of existing to flat out discriminate against subcontractors suchcontracting firms on the part of minorities or other as ours and fill the mandatory goals, or his bid isdisadvantaged citizens a viable mechanism to move deemed unresponsive by the DOTs. There is nous toward where we're trying to get? waiver. He either fills the goal or he risks losing theMR. STEWART. Indeed, to answer your question, job. like where we come from, we spent 20 years COMMISSIONER GUESS. Mr. Chairman, for thebuilding and growing a business. There were insurrecord, let me indicate that I think Mr. Stewart'smountable objects, doors slammed in our face. It answer to my question was enough. And I would was the old, "Go for it and keep trying and keep also beg the indulgence of the Commission by askingworking," and it started from nothing. one final question ofMr. Stout. 138 Mr. Stout, in your testimony you indicated that, "These programs are contrary to our best interest." Can you give me a definition of "our?" MR. STOUT. To every American. COMMISSIONER GUESS. Thank you. CHAIRMAN PENDLETON. I have several questions. Mr. Stewart, who is the minority population in your area for which the goals are set? Who comprises that minority population? MR. STEWART. The minorities in the Spokane area are mainly black. I believe the minorities in the Seattle area are mainly black. I don't have exact statistics on that. CHAIRMAN PENDLETON. Do you know of anybody else that is included that might be a subcontractor or business person, that may be included as a minority in any one of your areas other than black? All three of you. MR. STEWART. The Indians in the State of Montana and the rest of our area. MR. STOUT. We have Indians also. CHAIRMAN PENDLETON. Are women also included? MR. STEWART. Yes, sir. MR. LESLIE. We have a different set of goals for women business enterprises, sir, other than minority business enterprises. CHAIRMAN PENDLETON. Mr. Stout, what does affirmative action mean to you? MR. STOUT. Affirmative action to me, Mr. Chair man, means that any person should have a right to seek that goal that he wishes to obtain. CHAIRMAN PENDLETON. You think there should be some white goals in this process? MR. STOUT. If we are going to say Indians, black-white, yes, there ought to be some white goals. CHAIRMAN PENDLETON. Mr. Stewart, what does affirmative action mean to you? I'm asking you the same kind of question. MR. STEWART. I've been the head of our EEO program since 1974, and affirmative action is to me definitely dedicating a part of my time to promote, upgrade, hire, etc., the blacks and minorities and women for work in our company. It's doing some thing. CHAIRMAN PENDLETON. Mr. Leslie, what does affirmative action mean to you? MR. LESLIE. I can answer what we're doing about it, sir. CHAIRMAN PENDLETON. No, no, that's not what I want to know. I want to know what it means to you. I want to know what you've got to do something about. It's got to mean something before you can do something with it. MR. LESLIE. My affirmative action, sir, is to go out and seek those minorities that are qualified to achieve the goals of the program and to include them in my work force, and we do so, sir, in our minority business enterprise program. CHAIRMAN PENDLETON. We heard testimony from the last panel; I think it was Mr. Glazer or Mr. Welch who indicated that he thought the affirmative action process was institutionalized. Do you happen to think that that's the case so we could drop it now that it is institutionalized and that there would be a good-faith effort made by contractors to other people? MR. LESLIE. Are you asking me, sir? CHAIRMAN PENDLETON. Yes. MR. LESLIE. Oh, absolutely. Again, I revert back to my original testimony where I said that I, as a business person, am looking to do business with people that are qualified in their trade or business to perform and produce at a reasonable level or at a low price so we can get the job together. Now, I don't care what color they are, sir. MR. STOUT. I would like to respond to that, if I may, Mr. Chairman. CHAIRMAN PENDLETON. Fine. MR. STOUT. This goes along with another question that was asked about a buddy network. Shortly after I got involved in this business and got into the highway field, it became apparent to me that the general contractors that were receiving bids from firms like ours were looking for one thing and one thing only, and that was the low bid. I had made a statement that I could get a blank piece of paper and create a fictitious company on that piece of paper and walk out on the streets of Raleigh and find somebody off the street and fill in some numbers and have him take it in, and these guys would accept that as the low bid no matter how much lower than what it should have been that it might be. That has been proven to me by a number of different firms that have come into the State of North Carolina from time to time, and they're coming from another area; they're used to doing work one way, and their costs are one thing, and they come into the State of North Carolina and they bid ridiculously low prices and they get all the work. sense of graduation or some indication made by theWe had one outfit from Georgia one time who came State that this person is now a viable contractor andin and took about three lettings in a row. They just can compete on an equal basis with everybody else?got all the erosion control work and all those MR. STEWART. I don't know that I am referring to lettings, and they subsequently went bankrupt. any one particular MBE contractor in my statement,COMMISSIONER GUESS. Mr. Chairman, could I other than one that possibly-I did refer to a job infollow up with Mr. Stout on something that he said Montana that I was low bid on. Is that what you'reto you? referring to? CHAIRMAN PENDLETON. Go ahead. COMMISSIONER DESTRO. No, what I'm referringCOMMISSIONER GUESS. This is on something Mr. to is on page 2 of your statement you say, "Due toStout responded to you. set-asides, the city of Spokane's only curb and gutterMr. Stout, you opened up a very interesting MBE contractor has received virtually all the city'sconcept in your response to the Chairman's question contracts for that type ofstreet work."on the definition of affirmative action. This is what I MR. STEWART. That possibly is a letter that Iunderstood you to say, that maybe we have reached received in response to inquiries on feelings fromthe point where we need a goal or a set-aside or a prime contractors as to where we would stand infixed number for white contractors. their bidding process were we to be the low bidder.Would you be comfortable if, in the distribution of Is that part ofmy testimony?public funds, and at the same time maintaining the COMMISSIONER DESTRO. I'm pretty sure it is. Thisintegrity of the public purchase system, you had the is in the interview with you.distribution of contracts awarded by a fixed number MR. STEWART. Oh, I see. Okay. where only white men could bid on a percentage COMMISSIONER DESTRO. You were responding to·and only other groups could bid on a percentage, questions about it being ludicrous to consider localand only other people could bid on another percentMBEs disadvantaged. You refer to-apparentlyage, based on your definition of affirmative action? there are three curb and gutter contractors in theMR. STOUT. I don't think that's proper. I don't city of Spokane, that one of them is on the ropes,think that's the way to do it. I don't think in today's one of them gets all the contracts, and the other onetime we need a goal, period. seems to get some of them. Is that the situation in The way I understood the Chairman's question, if Spokane? there are going to be goals, shouldn't there also be MR. STEWART. It definitely is the way that I amwhite goals. I don't think there should be goals, told by the one that is hurting real bad. He has period. indicated that. I do have knowledge of the others. ICOMMISSIONER GUESS. Okay, I understand. have knowledge of the concrete company thatThank you, Mr. Chairman. supplies concrete to all these companies, and I knowCHAIRMAN PENDLETON. Mr. Destro. that it probably-! say probably-is pretty muchCOMMISSIONER DESTRO. I have a couple of true of what is happening. There is a tremendousquestions for Mr. Stewart, if I may. I am intrigued imbalance there of the curb and gutter businessby one of the comments in your written testimony because the city of Spokane does paving, and withabout the MBE in Spokane getting all the work. Is their paving does curb and gutter work. And thethe designation of that MBE dependent upon a curb and gutter work, with the 10 percent mandatoFederal program, or is this the State of Washington's ry goals, definitely unbalances the way the workprogram in operation? goes for the curb and gutter people.MR. STEWART. This is the State of Washington's COMMISSIONER DESTRO. Well, how does it work,program in operation. The State of Washington is then, with respect to the bidding on this curb andsomewhat of a leader in the Northwest for setting up gutter work? Does the MBE come in lower somestandards for certifying minorities. times, or does it work out to a mix, or do the otherCOMMISSIONER DESTRO. Assuming this is the two contractors generally come in lower than theState of Washington's program, is there any indicaMBE? How does it work by way of mix?tion, to your knowledge, of how long this contractor MR. STEWART. I know how it works when ouris going to be the preferred contractor, or is it just company is involved. We do not bid curb and gutterstretching out into the indefinite future? Is there any work. I think what I had done was mentioned there 140 a case that I was aware of. Like any other subconMR. STEWART. Performance-and that is a real tractor, I have an awareness of what goes on within good question. Performance is preferred by prime my area with bids that I am familiar with, so to contractors. Performance is preferred. But when they have mandatory goals to fill, then performance speak, and of course, I am aware of the people in our has to be set aside so that minority goals can be area and what goes on, and that is probably what I filled. was referring to there. CHAIRMAN PENDLETON. Bob. COMMISSIONER DESTRO. I'll tell you the reason I COMMISSIONER DESTRO. I have one other ques asked the question, because you had in here the tion I'd like to ask. Mr. Stout raised it in his situation of a local MBE that was getting a lot of testimony. Mr. Leslie, I think, alluded to it, and in work. Yesterday's testimony indicated that one of this interview that Mr. Stewart has, he mentions it the reasons for the existence of MBE programs is to specifically. And that is the question of the phenom create a viable base in the minority community of enon of the inhouse MBE. qualified contractors. What I was wondering is if Now, I understand from Mr. Leslie's testimony there are any indications in the State of Washing that the State of New York is not willing to put up ton's program as to when that process is completed with that. Apparently the State of Washington is, as to an individual contractor. And then does the and apparently the State of North Carolina-if it'sbusiness have to shift over to another MBE, or does really true that you can put that on a form and fill in the same one keep getting it? names and fill in numbers, the State of NorthDo you understand the thrust of my question? Carolina doesn't really hawk it that much, either. Is MR. STEWART. I do understand your question that the case in Washington and North Carolina?completely, and it is a very simple answer. No, there MR. STOUT. In the North Carolina area, it is is no time frame. There is no time frame that I am much, much stricter than it was a few years ago. aware of where an MBE has graduated, so to speak, And in all candor, it is something that we have and is no longer-looked at. But it is something that we decided thatCHAIRMAN PENDLETON. It's in perpetuity, Bob. we're going to stay away from.COMMISSIONER DESTRO. No dollar amount, eiCHAIRMAN PENDLETON. Thank you very much, ther? gentlemen.MR. STEWART. No dollar amount, either. MR. LESLIE. I'd like to clarify something I think COMMISSIONER DESTRO. And that assumeswas attributed to me. I think if you look at the State Commissioner Guess is asking-my questions all of New York, there are probably hundreds of assume that the individual is not the low bidder. You varying agencies. The one agency that does not put wouldn't have any problem if the MBE is getting it up with it is the Department ofTransportation, State because it's the low bidder, would you? of New York. MR. STEWART. I'd have no problem with that at COMMISSIONER GUESS. The others do? all. I think any contractor would see that competiMR. LESLIE. The others you just fill those papers tion is a necessary thing. That is part of the free out and do what you have to do to get the job done, enterprise system. And the whole point with our because otherwise you're not going to get it done, company, with our area, with our business commusir. nity is, it just doesn't make any difference what color CHAIRMAN PENDLETON. Thank you very much. that man is. We will adjourn until1:30 promptly. CHAIRMAN PENDLETON. Mr. Stewart, I'm sur[Recess.] prised at your answer. Mr. Stout said that anybody can bid low and do the job. I think one of the AFTERNOON SESSION problems I've heard some of you say is you keep CHAIRMAN PENDLETON. Gentlemen, I'd like to going back to the same person if they do the job swear you in. right or not, which is a part of Mr. Destro's [Ted F. Brown, Joel L. Burt, Donald L. King, and question-do you keep going back to the same Patrick R. O'Brien were sworn.) person because that's the MBE, irrespective of CHAIRMAN PENDLETON. Ted F. Brown is presi performance? Does performance ever enter into this dent ofT. Brown Construction, Inc., Albuquerque, program at all from those who monitor it? New Mexico. It's too bad Ms. Chavez is not here. 141 She knows something about Albuquerque. He holds MR. O'BRIEN. My name is Patrick R. O'Brien. I'ma B.B.A. from Hardin-Simmons University in Abe a general building contractor from Portland, Oreline, Texas. The firm serves as general contractor on gon. Would you like my address?public highway construction, employs 60 persons, MR. HOULE. Yes. and grossed about $14 million in 1984. MR. O'BRIEN. 1236 14th Street, West Linn, Joel L. Burt is equal opportunity officer and safety Oregon. and loss control manager of Copenhagen Utilities MR. HouLE. Mr. Burt, would you please state and Construction, Inc., Clackamas, Oregon, and your full name, address, and occupation or affiliation holds an A.A. degree from Mount Hood Communi for the record. ty College. The firm serves as a prime underground MR. BURT. My name is Joel Burt. I live at 9005 contractor on utility, water, and sewer system Northwest Anna Court, Portland, Oregon. I repre construction, employs 60 to 250 persons, and sent Copenhagen Utility and Construction. grossed about $7 million in 1984. MR. HOULE. And, Mr. King, would you please Donald King is secretary of King Construction Company, Hesston, Kansas, and holds a B.A. in state your full name, address, and occupation oraffiliation for the record? philosophy and theology from Wheaton College. MR. KING. My name is Donald L. King. I reside The firm serves as a general contractor on public at 154 Terrabury Lane in Wichita, Kansas. I am highway construction, employs 85 to 125 persons,and grossed about $10 million in 1984. secretary of King Construction Company out of Patrick R. O'Brien is vice president and general Hesston, Kansas. We are bridge contractors.COMMISSIONER BUCKLEY. Before we continue, is manager of OTKM Construction, Inc., of Portland, Oregon, and holds a B.S. in construction engineering there anyone in the room that is hearing-impaired or from Oregon State University. The firm serves as requires any kind of assistance for this session? Hearing none, thank you. general contractor on commercial, industrial, andpublic works construction, employs about 35 perYou may continue. sons, and grossed about $3.7 million in 1984. MR. HOULE. Mr. Brown, before we begin the Counsel. questioning, I believe that you have a written MR. HOULE. Thank you, Mr. Chairman. statement that you would like to submit. CHAIRMAN PENDLETON. Excuse me. When you MR. BROWN. Yes. see me walk out, I have to go up and find out where MR. HOULE. Commissioner Buckley, I wouldthe money is up on Capitol Hill. move that Mr. Brown's written statement be admitted into evidence.TESTIMONY OF TED F. BROWN, COMMISSIONER BUCKLEY. So ordered.PRESIDENT, T. BROWN CONSTRUCTION, I MR. HOULE. Thank you.INC., ALBUQUERQUE, NEW MEXICO; JOE~ Mr. Brown, would you please briefly state your L. BURT, EQUAL OPPORTUNITY OFFICERAND SAFETY AND LOSS CONTROL firm's problems with set-aside programs?MANAGER, COPENHAGEN UTILITIES AND MR. BROWN. The worst problem I have with theCONSTRUCTION, INC., CLACKAMAS, agencies-OREGON; DONALD L. KING, SECRETARY, MR. DISLER. Excuse me. We are going to have toKING CONSTRUCTION COMPANY, HESSTON, KANSAS; AND PATRICK R. wait until a Democratic Commissioner appears,O'BRIEN, VICE PRESIDENT AND GENERAL according to our rules. Will you hold on a minute MANAGER, OTKM CONSTRUCTION, INC., while we round them up. We lack a quorum. I'mPORTLAND, OREGON sorry for the delay, but we will have to wait until MR. HOULE. Mr. Brown, would you please state Mr. Destro arrives.your full name, address, and occupation or affiliation [Recess.]for the record? COMMISSIONER BUCKLEY. If we can reconvene atMR. BROWN. My name is Ted F. Brown, general this time, Mr. Destro is present.contractor from Albuquerque, New Mexico. COMMISSIONER GUESS. Madam Chairman, IMR. HOULE. Mr. O'Brien, would you please state would like to note for the record that once again theyour full name, address, and occupation or affiliation Democrats are a day late and a dollar short.for the record? [Laughter.] 142 The other day there was a $4 million job. A set COMMISSIONER BUCKLEY. We will resume and, aside job went for over $400,000 over the engineer's again, our apologies to the panel. estimate. I think this is just bad for the taxpayers. COMMISSIONER DESTRO. And I would like to note In addition, to meet some of these goals we have my apologies formally for the record as well for to idle some of our equipment. We have actually just being late. gotten out of some specialties because we can't do MR. HoULE. Mr. Brown, would you please briefly this work anymore because we have to turn this part state your firm's problems with the set-aside pro ofour work over to a minority firm. grams? MR. HouLE. Prior to implementation of set-asides MR. BROWN. Well, the agencies have made it in the Albuquerque area, Mr. Brown, was it your quite clear to us that they will not award any experience that there were large numbers of estab contracts to us if we do not meet their goals. They lished minority construction firms there in the localhave essentially told us, "Meet the goals at any trade?cost." This often means that we have to go find MR. BROWN. There was a reasonable number ofDBE firms, and they don't really want to bid or minority firms already established.they're trying to hold out. You have to go beg some MR. HoULE. Do you believe, Mr. Brown, that of these people to give you subcontract bids. there is a buddy or an old boy system among Sometimes it's just difficult to find a sufficient contractors that works to the disadvantage of number of people to meet the goals that have been women and minorities? set up. We have even had subcontractors come to us MR. BROWN. Not in our area. It absolutely is not. and say, "Write down whatever number you want, A businessman just can't afford to discriminate in and add 15 percent to it, and we'll do the work for this kind of work. What we look for is the best bid. that." And they'll take care of it that way. Well, That is not necessarily the lowest bid but the best that's just essentially a sham deal. bid, the one that gives a good price plus good But in the end, what we end up doing, is we must delivery and has a past history of good quality work. add a premium to our bid in order to use some of the MR. HoULE. Some observers claim that some women-and minority-owned firms relying on a quotations that are low. We must reject some bids perceived share of the construction market do not that are low from nonminority firms, which is really take all steps available to be more competitive. not fair. And we have noticed that some of the Would you please comment on that statement? better firms over the years who have done good MR. BROWN. I think a few people have tried to work can't get work anymore because we have to take advantage of the fact that they have to have meet our quotas. And they're just pulling out of the you, or that we have to have them. We have had work. They are not around anymore. So we are instances where, in finally obtaining a quote, we actually losing good people. asked the subcontractor if he would· furnish us a So many of these percentages, I think, are just a performance bond, and he says, "No, I'm saving my statistical thing with inaccurate statistics. And if we bonding capacity for some real work." go to the agencies and we are short on a goal, or if MR. HouLE. Briefly, Mr. Brown, how would youwe protest their program, they just treat us like suggest assisting women and minorities entering andbigots. succeeding in the construction trade? MR. HouLE. Could you give us some specific MR. BROWN. Well, I think one thing, just general examples as to how your firm has either lost jobs to ly speaking for minorities in general-not necessarihigher bidding firms or just failed to bid jobs ly subcontractors, but all of them-in our educationbecause ofset-asides? al system if we just do one thing and teach them MR. BROWN. Well, we have actually been harmed impeccable English, I think this would do a lot to in that there are jobs that the Bureau of Indian help the self-image these people have to present to Affairs let, that are Indian set-aside jobs, 100 percent people. I think this would do a lot to promote the set-asides for total Indian firms. And there are no cause. real Indian highway contractors in New Mexico. Generally speaking, I think the elimination of this Most of the time we can't even get a set of plans on program is really what is needed and just let the free these jobs. enterprise system work. Anybody can draw up a set 143 of plans and anybody can bid a job. There's nothing MR. HoULE. Were there other jobs that your firmto lock them out. failed to bid in the last 2 years? MR. HouLE. Thank you. MR. O'BRIEN. In my testimony you will find myMr. O'Brien, do you have a written statement that example B. After those two projects, we completely you'd like to submit? left the public bidding market. We just felt that as MR. O'BRIEN. Yes, I do. difficult as it was to secure work in Oregon at the MR. HouLE. Commissioner Buckley, I would time on a public basis, being low was a rare move that Mr. O'Brien's written statement be occurrence. And when you were low and then did admitted into evidence. not get the work, it just wasn't worth the effort. It's COMMISSIONER BUCKLEY. So ordered, and the a very expensive process to prepare a bid. We spend, clerk will please pick it up. on a million dollar contract, anywhere from $3,000 MR. HouLE. Thank you. to $4,000 or more. And you do that three or four Mr. O'Brien, would you please state your firm's times a week for any given number of weeks, and experience and problems with set-aside programs. after a while it just becomes a futile effort. MR. O'BRIEN. Our major problem is with the way MR. HouLE. In your opinion, Mr. O'Brien, has the the MBE programs are administered by local bodies.Being a building contractor, we don't normally deal set-aside program helped women and minorities inOregon to enter and succeed in the construction with the Federal Highway Administration. Most of trade? the public money that is spent on our projects is MR. O'BRIEN. No. administered and handled locally with some Federalassistance. So the MBE set-aside programs are MR. HOULE. Why? passed down from Federal to State to local. And by MR. O'BRIEN. What has happened is we have a lot of regulation now, of course, and through the the time they get down to our level, I'm sure you natural process of regulations, people have deter may find some of those plans unrecognizable. Andthey suffer in interpretation. They end up quite a mined ways to circumvent the regulations. So rightnow in Oregon, and it sounds like most of the other few times being settled in court. We ourselves havelost two projects by what we feel was misinterpretaStates, we have minority companies started up with tion ofthe MBE plans. a minority head and a white Anglo-Saxon work MR. HOULE. Would you very briefly categorize force and management force. And essentially youthe problems that your firm has had, the type have one minority that is being benefited by the problems? tremendous amount of money that the FederalMR. O'BRIEN. Well, the first example I have, of Government is spending to go to the second biddercourse, is a project we did, about a $3 million or the third bidder who happens to have the 10project. The plan was very specific. Any contractor percent MBE participation. And the impact on thethat attains a 10 percent MBE goal and has a low bid local minority community is maybe one or twowill, of course, receive the project. Ifthe low bidder people. does not attain 10 percent MBE participation, then Again, in Oregon we're talking about millions ofthey will go to the next bidder, and if that bidder has dollars that are just being wasted.10 percent MBE participation, he will be awarded MR. HOULE. So in your line of construction, it isthe contract. really only a couple of minority firms that seem toAs it turned out, we were the only contractor to be substantially benefiting from the set-aside prohave 10 percent MBE participation. The contracting gram? agency allowed the low contractor to go back after MR. O'BRIEN. There are a couple offirms that I'mbid time and secure his MBE participation, which sure are benefiting. On the other hand, I know quiteeffectively meant that subcontractors that were low a few minority firms in our area that don't evenat bid time were bumped, and new subcontractors bother to participate in the MBE program. They justwere brought in to bid the work. This in itself is a feel they don't need it.real circumvention of the bidding process. This MR. HouLE. Mr. O'Brien, do you believe thatcontractor came up with 8.5 percent after the bid there is a buddy or a good old boy system among and was then awarded the contract, contrary to the contractors that works to the disadvantage ofMBE we were working with. women and minorities? 144 MR. O'BRIEN. Absolutely not. I feel there is no doubt that the general contractor is looking for the low responsible bidder to do the work. Ifhe uses any other practice, especially on public work, to acquire his subcontractors, he is not going to get the job. And it doesn't matter what color you are or what sex you are. MR. HOULE. Some observers claim that there are women-and minority-owned businesses that rely on a perceived guaranteed share of the construction market due to set-asides and, as a result, do not take all the steps available to become more competitive. Wauld you please comment on that? MR. O'BRIEN. We do see that, primarily-well, I feel in our area we have some minority contractors that could be determined to be opportunists. They see an opportunity to get work to make some money, and so they enter the construction field for that very purpose. They have an advantage over their competition, and they are using that advantage to benefit them. An example would be a project that we bid several years ago. We received painting bids. The painting bids ranged anywhere from $10,000 to $20,000. The MBE bids started at $50,000 for this very same project. Again, I know this particular subcontractor involved on the MBE side, and he has made a practice of going around and, "I'm an MBE contractor and here's my bid." MR. HOULE. You are referring to so-called corpo rate shells? MR. O'BRIEN. I wouldn't say this guy is a corporate shell. I think he has a legitimate indepen dent business and doesn't appear to be connected with anyone, but he certainly is taking advantage of the process. MR. HOULE. Would you say that problem is fairly widespread in your area? MR. O'BRIEN. I wouldn't say it's widespread. I'd say it's common. MR. HoULE. One last question, Mr. O'Brien. What changes, if any, to the set-aside program would you recommend to make it more efficient? Mk. O'BRIEN. Well, I don't know if we could mak~ changes for the current set-aside program to make it more efficient. What I would suggest is that we need to determine how much money is being wasted with the current set-aside program, and if we are to be able to use even a fraction of that money to set up educational programs at the community college level, maybe even in the high schools, both remedial and higher education type programs, and give these people some tools to work with, and let them get into the major construction markets and start out at the bottom and work their way through the construction industry. I think the opportunity is there, but we need to give them some basics. We can't start them out at the top and expect them to succeed. MR. HOULE. Thank you, Mr. O'Brien. Mr. Burt, I believe you have a written statement you'd like to submit. MR. BuRT. Yes, I do. MR. HOULE. Commissioner Buckley, I move that the statement be admitted into evidence. COMMISSIONER BUCKLEY. So ordered, and will the clerk please pick it up. MR. HoULE. Thank you. Mr. Burt, would you please state what your firm's problems have been with set-aside programs. MR. BuRT. Yes. We have not always been a prime contractor, naturally. We were a subcontractor for many years, but most of our work now is prime contracting. So we know the experiences, and we have been hurt on both sides of the fence, you might say. One of the ways that we have been hurt, to give you a specific example, is that we were low on a job, $8.2 million light rail project, and we were low, incidentally, by $747,000, which is a considerable amount. Due to some mitigating circumstances we were unable to obtain the 15 percent required goal. We only obtained 11 percent. And I suppose we were naive enough to think that all of our efforts prior to that to obtain the MBE goals would suffice, and I'm referring to the good faith efforts. Two months later, $20,000 in attorney fees, they said, "Well, your efforts just weren't good enough. You didn't get the goals." So that is one specific way, and that happens quite frequently in our part of the country, and apparently all over now, from what I understand today. Another way it's hurting us, it forces contractors to make decisions that literally affect the survival of their company. They would make decisions that ordinarily they wouldn't make, but due to the present program they are forcing the contractor to do things they ordinarily wouldn't do. MR. HoULE. Such as? MR. BURT. Well, one particular example would be, because one has to obtain the goals now, there is no question that you would need to get your 10 percent, or whatever the goal may be. If you cannot find a subcontractor, that's part of your problem, but if you can find one and, for instance, he can't be bonded, then you have to make a decision whether to accept this subcontractor without bonding. And bonding, incidentally, just for the record, is not a type of insurance. It is a guarantee that if you cannot perform the work, you will pay for the damages incurred. So it's not an insurance policy at all. It's based on your assets. The point I'm trying to make here is, even if we wanted to bond someone, it is not our decision. Bonding companies are allowed to make prudent business practice decisions, and they often say they won't bond this subcontractor. So the contractor has to decide: Does he assume all the risk? And often, to get the job you have to. And we have been damaged a couple of times because of MBEs defaulting, and we had to go in and pick up the pieces, and they weren't bonded. MR. HOULE. Specifically, Mr. Burt, you had earlier mentioned the effect of bonding and good faith efforts and also your firm's experience with a couple of urban mass transit jobs. Would you briefly describe your experiences there? MR. BURT. With the good faith efforts? MR. HOULE. Yes, and with those UMTA jobs. MR. BURT. Well, just a real brief background. We are a specialty contractor, specializing in under ground construction. On this particular project, there was a large portion of the underground involved for this project, and we were going to sub out the other portions for our MBE portion. Prior to bid, it was quite obvious that we just couldn't find anyone to quote on these jobs. We almost went out there and dragged them in and begged them to bid, but it was either too big for them or too sophisticated a project. So it was obvious that we weren't going to be able to make our full 15 percent, and we knew that. So we went out of our way to try and exceed those eight steps that the Federal Government has laid out for good faith efforts. One of the problems was the second bidder did achieve his goal, but he did it because he subbed out our type of work; incidentally there happen to be three other minority underground contractors in the State of Oregon. So he made the entire MBE goal with just our portion of the work, if you will. ., So that put us at an unfair disadvantage. He could immediately fill his entire quota with just one portion of the job that he wouldn't do anyway, whereas it was just the opposite with us. We went through the steps, and UMTA finally said, "Well, you apparently didn't make the goal, so therefore, your efforts weren't good enough. We'll deny you any relief." So from that day on we have resigned ourselves that this will never happen again. We will obtain our goals, and if we have to, either we'll pass the job up- MR. HouLE. Mr. Burt, briefly, because of time, would you also relate your firm's experience with the $10.5 million UMTA job, the default of your subs? MR. BURT. Right. Bonding is a particularly sore issue with contractors because you must recognize that the Federal Government does not acknowledge subcontractors. The prime is held totally responsible. If your subcontractors don't perform, that's your problem. So we make it an across the board policy always to get bonding. If we cannot get bonding, then we have to go in and pick up the pieces. We had a $10.2 million irrigation project for the Bureau of Reclamation, and because we were prudent enough to get bonding-these were nonminorities, incidentally-and we had an 80 percent failure rate of subcontractors. Fortunately, they were all bonded, so the bonding company stepped in and they picked up the tab to complete the project. MR. HoULE. Thank you, Mr. Burt. I realize you do have other testimony, but I believe it's included in your written statement, which we will certainly be reading. Mr. King, would you briefly state your firm's problems and experience with set-aside programs? MR. KING. First of all, I do have some testimony to submit. Would it be possible to do so at this time? MR. HouLE. Certainly. Commissioner Buckley, I move that Mr. King's written statement be admitted into evidence. COMMISSIONER BUCKLEY. So ordered, and will the clerk please pick it up. MR. HOULE. Thank you. MR. KING. Yes, I can certainly tell you about our experience. Most of our work is done for the Kansas DOT, and the set-aside work in that State is basically a two-pronged requirement. We have the WBE or women's business enterprise, and we have the DB or disadvantaged business, meaning minority-owned businesses. We fully understand the intent of this requirement, but in plain and simple terms it just is not working. To briefly summarize some of the problems we have had, after the expensive and extensive bid solicitation letter sequence that we follow, we often find that the response rate is extremely low, somewhere in the 10 to 15 percent range. The responses that we do receive are quite a bit higher for minority contractors than from nonminorities. But this places us in almost a Catch-22 situation, because if we use the higher subcontract price, we may not get the project because we are not low bidder. But by the same token, if we do not use that price, we may not fulfill our minority quota. MR. HoULE. Do you have any specifics, Mr. King? MR. KING. Yes, I sure do. As far as one particular-well, two jobs. One was in August of 1983. We were low bidders on a KDOT bridge project. Our total bid was $177,000, but because we did not meet our quota, it was given to a second bidder who was $10,000 higher. In April of 1980 we were low bidders on a Federal Aviation bridge project. Our price was $490,000, and again it was awarded to the second bidder because we had been unable, even through a good faith effort, to meet our minority quota. We have also had the unpleasant experience of having two minority subcontractors default on us. In both cases they were very costly. One cost us in excess of $35,000, and the other was in excess of $12,000. MR. HouLE. These were costs that your firm had to bear? MR. KING. That is correct. These are cold cash figures. They do not include time delays, transferring of crews, and other administrative nightmares. MR. HOULE. Do you believe, Mr. King, that the set-aside program as you observe it out in Kansas is significantly assisting women and minorities to enter and succeed in the construction trade? MR. KING. You know, it depends on how you choose to define success. By success, if you mean playing by the same rules as most who have established themselves, namely, hard work, sound business practices, and open competitive bidding, yes. They are going to receive sufficient help, and they will succeed. But on the other hand, I think if by success you mean continued unfair bidding practices, instant gratification through government quotas, and the false sense of security that goes with it, then I really question whether they are going to be helped. In my opinion, the greatest way to help women and minorities succeed is not by encouraging them to go into their own business in a premature or untimely fashion. It really is quite a cruel joke to lead them along and allow them to think that this is going to be an easy road. MR. HoULE. Do you believe there is a buddy or an old boy system or network among contractors in your area that works to the disadvantage of women and minorities? MR. KING. No, I do not. I think if such a system existed it would be counterproductive to the goals that have been established for the 1980s. MR. HOULE. One last question, Mr. King. MR. KING. Yes. MR. HoULE. How would you suggest that the setaside program be amended, if at all, to make it more efficient and fair, in your opinion? MR. KING. First of all, I would place some sort of graduation or sunset clause. By that I mean once a minority contractor has been operating under this program for 2, 3, or 4 years-you name it-then they would have to either graduate or move on in some fashion. I think more rigorous qualification tests should be given. Also, prime contractors should not be held responsible for the incurred debts of the subcontractors. I would also add if a firm is inactive or dormant for an extended period of time, they should be withdrawn, because it's not helping them to be on the rolls if they are not truly going to be a legitimate contractor. MR. HOULE. Commissioner Buckley, I have no further questions. COMMISSIONER BUCKLEY. Thank you very much. Commissioner Guess. COMMISSIONER GuEss. Thank you, Commissioner Buckley. I just have a couple of questions, members of the subcommittee. Mr. Brown, first of all, you indicated in your presentation before the Commission that agencies in the State of New Mexico, I presume, indicated that you should meet your MBE goals-and I quote-"at any cost," end quote. Now, are you willing to assert, as I think I heard you say, that you were advised by public officials in the State of New Mexico that in pursuit of this program you should never take cost into consideration regardless of it, that you should meet these goals at, quote, "any cost." MR. BROWN. What they told us is, "Price is no object. Meet the goal." COMMISSIONER GUESS. And you want this contained in this public record? MR. BROWN. That's what they said. COMMISSIONER GUESS. Would you be willing, for any further review of this matter, to state who those public officials are? MR. BROWN. Yes, I would. COMMISSIONER GUESS. Mr. O'Brien, you pointed out that one of the prime considerations is that this program has not assisted minorities and that millions of dollars are being wasted. First of all, I'd like to ask you: Do you have any farmers in Oregon? MR. O'BRIEN. We have quite a few farmers in Oregon. COMMISSIONER GUESS. So you support the farm price support subsidy program? MR. O'BRIEN. Not as I understand it right now, but I have to be honest with you, I've been too tied up in this testimony to really pay attention to it. COMMISSIONER GUESS. Do you support any activity to aid and assist farmers in Oregon, that is, operating out of the Federal Government? MR. O'BRIEN. If you're talking about assistance in the form of low-interest loans as an example or perhaps, if I could put it into terms of the construction industry-let's say we have minority subcontractors and the government were to guarantee performance and payment bonds for these subcontractors and take the risk oftheir financial responsibility off the backs of the general contractors, then I would certainly support something like that. COMMISSIONER GUESS. Well, would you support a cash payment to minority contractors-some differential, say? MR. O'BRIEN. No, I would not. Personally, I don't think anybody benefits by having money handed to them without earning it. COMMISSIONER GUESS. Okay. I agree. However, if that program was made available, regardless of the process through which it was made available, would you encourage farmers in the State of Oregon to take advantage of it? MR. O'BRIEN. If the program involved some type of low-interest loans with a repayment schedule and that type of thing, I'd certainly- COMMISSIONER GUESS. Let's say that the program involved a program by the Department of Agriculture to make cash subsidies available to farmers. Would you encourage farmers in the State of Oregon to take advantage of it? MR. O'BRIEN. Well, again, I'm not in favor of subsidies at all, to be honest with you. COMMISSIONER GUESS. In all due respect, Mr. O'Brien, you haven't answered my question. Would you encourage- MR. O'BRIEN. It's a difficult question for me to answer. I'm not a farmer. COMMISSIONER GUESS. No, but you're a citizen of the State of Oregon. Would you encourage your fellow citizens in the State of Oregon who happen to be eligible for a farm subsidy program to take advantage of it? MR. O'BRIEN. I would certainly encourage them to take advantage of available government programs. COMMISSIONER GUESS. So in that instance, as you point out, all the minority and MBE participants were doing was taking advantage of the process. Would you also encourage them to take advantage of the system? MR. O'BRIEN. Well, again, I think the system could be set up quite differently to allow minorities to take advantage of the system. Right now, the way the system is set up, very few minorities are actually taking advantage of the system or benefiting by it, at great expense to the Federal and local governments. COMMISSIONER GUESS. Okay. Mr. King, you indicated in your testimony before the Commission that you have had a couple of minority subcontractors default. You had two. I believe you gave specific examples. MR. KING. Yes, we had two. They were both grading contractors. COMMISSIONER GUESS. And they defaulted on the project. MR. KING. That is correct. COMMISSIONER GUESS. Have you ever had a subcontractor of majority status default on a project? MR. KING. No, not in the 35 years of our company. COMMISSIONER GUESS. Is there any evidence that majority contractors default on projects other than in the State of Kansas? MR. KING. I'm sure that would exist, that possibil ity, yes. COMMISSIONER GUESS. You indicated emphatical ly, as did other members who have appeared before the Commission, that no buddy system tends to exist in the construction industry; is that correct? MR. KING. That is from my viewpoint, yes. COMMISSIONER GUESS. Let me assure you that everyone else who has testified on that question has also indicated in vigorous terms that no buddy system exists in the construction industry. Could you venture a guess as to why there seems to be such widespread belief that a buddy system does exist in the construction industry? MR. KING. I think the construction industry as a whole has had a bad image in the past. And we have perhaps been the last frontier of the major businesses to become more sophisticated, if you will. We now have computers in our offices just like everyone else. I'm sure that a buddy-buddy system existed in the past. I think we are ridding ourselves of that problem, and due to the current Federal regulations that we are having to deal with, a contractor would be an absolute idiot to proceed with a buddy-buddy system. COMMISSIONER GUESS. So what I understand you to say for the record is that no buddy system exists today, but it possibly could have existed in the past. MR. KING. That's quite possible. COMMISSIONER GUESS. I have one final question, Mr. King, which is a follow up to the question I asked Mr. O'Brien, and I will assert in this instance that there are farmers in the State of Kansas. MR. KING. That is correct. COMMISSIONER GUESS. Would you encourage farmers in the State of Kansas to take advantage of · those programs that are made available to enhance and provide artificial stimulus into the market? MR. KING. I wotild encourage them to, if they felt it was the best thing to do in the long run. COMMISSIONER GUESS. So do you support or do you take issue with the President's veto of the farm aid bill? MR. KING. I cannot speak to that issue. Like Mr. O'Brien, I have been tied up with this and I'm not going to touch that. COMMISSIONER GUESS. But you do support Fed eral entry into the agricultural market? MR. KING. I refuse to answer that question. COMMISSIONER GUESS. Okay. Thank you. COMMISSIONER BUCKLEY. Mr. Disler. MR. DISLER. I just wanted to follow up a line of questioning with both Mr. O'Brien and Mr. King, notwithstanding the fact they are not farmers. Mr. O'Brien, when Commissioner Guess put to you the question as to whether or not you could support a farm support program for the farmers of Oregon, did you not assume, implicit in Mr. Guess' question, that that program was open to farmers of both races? MR. O'BRIEN. I definitely assume that. MR. DISLER. And do you sense as a citizen of this country that there is a distinction of some significance between a set-aside program that is based on, let's say, farmers, older people who get social security, poor people who might get welfare payments-those kinds of subsidies open to people of both races, those kinds of programs on the one hand, and a program that sets aside on the basis of race? Do you sense some kind of distinction along those lines, I wonder? MR. O'BRIEN. I sense a loaded question. MR. DISLER. It's a leading question, not a loaded one. CoMMISSIONER GuEss. That's right, Mr. O'Brien. I have another one for you. [Laughter.] MR. O'BRIEN. Again, when it comes to just flat subsidies for people that have particular problems, I certainly think that if they have a distinct disadvantage in matters of survival or education or handicaps of some type, or age, they definitely should be addressed. But on the other hand, I think if we are talking about able-bodied people that have the ability to succeed, whether it's in the normal course of business or what have you, then I don't think that subsidies should be permitted. Did I get around that all right? MR. DISLER. Whatever your answer is, is valid as far as I'm concerned. I was just wanting your opinion. Mr. King, when the question was put to you, did you assume that subsidy was open to farmers of both races? MR. KING. That is correct. MR. DISLER. Do you see a difference between programs that set aside on the basis of size of business, occupation, that are open to people of both races, as opposed to programs that are open to only-MR. KING. Yes, I do. There is a difference. COMMISSIONER GUESS. May I, CommissionerCOMMISSIONER BUCKLEY. Are you through? MR. DISLER. I am. COMMISSIONER GUESS. Mr. O'Brien, let's go back, following up on the General Counsel Mark Disler's question. What's his job now? [Laughter.] COMMISSIONER GUESS. I just read somewhere he got a promotion so I didn't know if they made him super General Counsel or General Counsel to the third power or something. MR. DISLER. With a greater subsidy. COMMISSIONER GUESS. A greater subsidy to the General Counsel. [Laughter.] COMMISSIONER GUESS. Mr. O'Brien, implicit also in my question, did you presume that the basis of these programs was the fact that minorities and women have historically been denied entry into the marketplace? MR. O'BRIEN. Well, again- CoMMISSIONER GuEss. And were they historically denied entry into the marketplace by virtue of their race? MR. O'BRIEN. I certainly cannot deny that. COMMISSIONER GUESS. Mr. King, did you make the same presumption? MR. KING. No, I did not. COMMISSIONER GUESS. So do you feel that minor ities and women have historically been denied entry into this marketplace? MR. KING. Not within my frame of reference, no. COMMISSIONER GUESS. Not within your frame of reference. Okay. I looked with care and Mr. King's nose did not grow, so I take his word for it. [Laughter.] COMMISSIONER BUCKLEY. Are you finished? CoMMISSIONER GuEss. For the time being, Com missioner. COMMISSIONER BUCKLEY. Commissioner Destro. COMMISSIONER DESTRO. The first question is for Mr. O'Brien. You said, as I recall, that you have now moved out of the realm of bidding on some of these government contracts because it's such a hassle; is that correct? MR. O'BRIEN. Hassle, I think, is an understatement. COMMISSIONER DESTRO. All right. I'm just getting the thought across. In terms of bidding on nongovernment contracts, what is your experience over time since you have opted out of the government contract bidding process with minority contractors bidding with you on these nongovernment contracts? Do you find that the percentages are the same or not the same, that you're getting a different range of responses in your bids? MR. O'BRIEN. As I mentioned earlier, we do deal with minority contractors without government insistence that we do. In our private work we have minority subcontractors working for us at this time. We also have subcontractors that, as far as I'm concerned, would definitely qualify as minority contractors, but they don't fit the government definition and so they are not allowed to be minority subcontractors. COMMISSIONER DESTRO. Would you explain that for the record? What do you mean by that? MR. O'BRIEN. I'll be more specific, yes. I have a painting subcontractor in particular that is an Egyptian. He is now a citizen of the United States. He looks Egyptian, he sounds Egyptian, but he paints very well. He is a Coptic Christian. In his own country he is a minority-a very disadvantaged minority in Egypt-and yet in this country he does not qualify as a minority contractor. And he has managed to succeed in this country as a painting contractor without any assistance from the government. COMMISSIONER DESTRO. Some of the defined minorities under the EEO characteristics or the MBE characteristics-when you work with them, do you have any companies that would fit your definition of a minority company that may not be 51 percent owned by a minority? MR. O'BRIEN. Well, the companies that we deal with on a private basis, of course, that's irrelevant as to who owns them. But I would say the minority companies that we deal with are solely owned by that minority, and there are no outside influences, other than the standard banker, bonding agent routine. COMMISSIONER DESTRO. YOU said your primary problem, as I recall, was with the administration of the MBE programs. MR. O'BRIEN. That is correct. COMMISSIONER DESTRO. Does the State of Oregon have different standards than the Federal standards for its projects, or are they the same? MR. O'BRIEN. No, the State of Oregon is not the only government in Oregon, of course. We have all levels of government, all the way down to the smallest school districts. In fact, we have even compounded our problem by adding another level of government we don't have in other areas, and that's a tricounty service district. So the end result is all of these governments, if there is any Federal money involved at all, have adopted some form of Federal guidelines for MBE programs. And every single one of them suffer to different interpretation. In our area, we must have 10 or 12 different certified minority business enterprise price lists. Some government bodies you can bid for that project-you have to be on their list in order to use that MBE in the project for your MBE participation, and in other government bodies they are not qualified because they are not on their list. COMMISSIONER DESTRO. Okay; thank you. Mr. Brown, there is a question I wanted to ask you based on your testimony. As I recall, you said that there were no Indian contractors in New Mexico; is that correct? MR. BROWN. Well, what I said was there is no real Indian highway contractors. There are some Indian contractors. Typical of what has been happening is perhaps an Indian house contractor, house building contractor, will bid a highway job, an Indian set-aside highway job. What he'll do is he will go to a nonminority firm and say, "I want to bid this job. I don't want to fool with it. You just give me the price; you do the work. I'll mark it up and turn it in, but I don't want to have anything to do with this. You do all the work." That's the kind of thing we see. COMMISSIONER DESTRO. Are you a New Mexico native? MR. BROWN. Yes. COMMISSIONER DESTRO. Why in your experience would you say there aren't any native New Mexican Indian contractors? Doesn't that say something to you about access to the market? MR. BROWN. I don't know there have not been any. Perhaps it's been-well, I think that we have made addicts of the Indians. We have addicted them to the government. And they don't know how to get along without the government doing things for them. And there is not really much Indian enterprise of any kind. COMMISSIONER DESTRO. What about the experience with respect to access of those same Indians to the majority contracting firms, working in them as laborers and being promoted up through the ranks? Has there been any problem in your recollection that the Indians have faced with that? MR. BROWN. No, the construction work forcesI'm speaking for our work forces-when we are working in an Indian area, we hire a large percentage of Indians. We have a job right now in Arizona that I think about 90 percent of our work force is Indian labor of all types, including supervisors. COMMISSIONER DESTRO. How many of those supervisors are you going to take with you when you leave the Indian area? MR. BROWN. We'd love to take some of them, but they won't leave the area. COMMISSIONER DESTRO. What about in New Mexico? You mentioned Arizona. I'm looking at the question that I think that a number of people have raised in terms of an old buddy system, but I'm not looking at it in terms of a buddy-buddy system but the natural progression of people through the work force and then kind of out on their own. It just surprises me that you're telling me that there are no big contractors after all these years. What explains that? How many Indian supervisors do you have in your New Mexico work force? MR. BROWN. It depends on where we are in the State. I'd say New Mexico is similar to Arizona. If we are in an Indian area, we have quite a few of them. When we move away, they generally do not want to move off the reservation and wish to stay there. COMMISSIONER DESTRO. One other question for Mr. Burt. You talked, I think, at the greatest length about the process of bonding, and I need to understand a little bit more about the process of bonding. And you indicated that even if you wanted to help them get a bond, you might not be able to. At least in my own mind, where the fuzziness, where an antidiscrimination lawyer would look for discrimination, is in the term "responsible bidder," and that it's possible to turn somebody down as a responsible bidder if they can't get a bond. If they can't get a bond because they have never done any work before, then it becomes a Catch-22 for them. How do you get around that kind of a problem? MR. BURT. That's an excellent question. I'm glad you brought that up. The bonding process, as I mentioned, is one of the touchiest subjects with the contractor because the bond is not automatic. One has to have assets. But it is no different with a minority contractor than with anyone starting out. You just don't buy a pick-up truck, put your name on the side of it, and say, "Now I'm a contractor." You can do that as long as you don't have any equipment or anything else, but as soon as you go to buy equipment, which you need to do the contracting, just like any banker is going to say, "Where are your assets? Can you pay for it?" when you bond a project you may be able to be bonded to, for instance, a $50,000 limit, but you may be bidding on that portion of the job that may be $200,000. So you have to have something to show the bonding agent that if you default or you cannot do the job, what can he sell to make up the difference? Again, everyone experiences the same thing, whether you're a minority or a majority contractor. It's really irrelevant when it comes to bonding. Another important point I would like to make is that if a prime contractor cannot be bonded, then he is rejected, as you mentioned, as a nonresponsive bidder. But this was one of the problems we had trying to get across to the Federal Government, that as soon as we reject a subcontractor, whether it be minority or majority-we do the same thing with everybody-then we suddenly are discriminating or we don't meet the good faith effort goals. COMMISSIONER DESTRO. Let me go back to Mr. O'Brien-and this will be my last question. You were asked the question about subsidizing farmers. If the program for minority business enterprises were not tied to the percentage goals but were aimed at helping people to get started, like providing almost a guaranteed bond for the minority business enterprise, would you have as much problem with it as the process we have now? MR. O'BRIEN. Well, as Joel was trying to tell you, the biggest thing that a contractor takes on when he assumes a contract is the risk, whether it be your laborers or subcontractors leaving you with financial responsibility for their unpaid bills, whatever you have. I would say you would be eliminating one government would guarantee the performance and payment bonds for these subcontractors. payment bonds for these subcontractors. COMMISSIONER DESTRO. Would you think that would help their entry into the market more than the present? Because you have been talking about how these things aren't working. Would that kind of a system work better in your mind than the present system? MR. O'BRIEN. It certainly would work better than the present system, but we'd have to keep in mind that we are still talking about ability to perform also; and in the private bonding industry, the sureties try to determine the ability of the particular contractor that's making the request, find out if he is competent to make these types of requests for the projects he is trying to undertake. And I think the government would have to make that effort, too. And if they find a minority contractor that is deficient and is trying to request bonds for projects that they cannot handle, then I suggest it might be the government's responsibility to try to upgrade that person. COMMISSIONER DESTRO. Thank you. COMMISSIONER BUCKLEY. If I may, what I'd like to do is kind of establish a frame of reference, for my benefit anyway. I apologize for taking you through this. Mr. O'Brien has already told us that he does use minority subcontractors in both private and public bidding in his contracts both with government entities, and all the varieties of government entities, and private bids. May I get a response to that question from the other witnesses. Do you use minority subcontractors in both private and public and, if not in both, why not? MR. KING. Yes, we do use minority subcontractors in nonfederal types ofjobs, yes. MR. BROWN. We do also. MR. BURT. Yes, indeed, we do. COMMISSIONER BUCKLEY. Again a frame of reference question for you. When you use these minority subcontractors or MBEs or whatever you choose to identify them as, do you find, say, as an exampleand I don't know what your particular situation would be-if you use, say, subcontractors in five different areas for a particular project, do you find that most of your minority subcontractors will lie in only one area, or do they generally cover the whole scope, if I may ask the question of all four. MR. O'BRIEN. Being a building contractor, we find we have a broader range of minorities participating in different trades. What we do not find, of course, is a preponderance of minority contractors in the mechanical and electrical trades, which I consider to be a big problem. I think we need to encourage more participation in those more technical trades. COMMISSIONER BUCKLEY. How do you propose to do that? MR. O'BRIEN. Well, again, we can't continue with this top-down education we are giving people. We can't interject them at the management level, assume that they are contractors, and then teach them how to be one by giving them work and letting them fail. Itjust doesn't work that way. With the electrical and mechanical trade, do just like I think the majority contractors have learned their business-start at the bottom, help them with their education at the very basics, getting them into trade schools or mechanical or electrical engineering schools, and let them be hired by the majority companies and work up the ladder if they have the ability to do so. And I can guarantee you, sooner or later if they start climbing that ladder, they're going to get a little itchy and they'll probably spin off and form their own companies, or if they're happy they'll stay right where they're at and they will be gainfully employed. COMMISSIONER BUCKLEY. Mr. King, if we can go back to the question of the variety of subcontractors first. MR. KING. Yes. In our experience, most of the subcontracting we have done to minorities has been in the area of seeding, fencing, and small cement contracting. I wish there were more legitimate and qualified grading contractors, but unfortunately in our area there do not seem to be. COMMISSIONER BUCKLEY. That was the area where they defaulted? MR. KING. That is correct. COMMISSIONER BUCKLEY. Mr. Brown. MR. BROWN. We found minority subcontractors in a number of different trades. We don't seem to find quite as many-in fact we don't find any-in the areas where it's very capital intensive, such as grading or crushing, which requires a large spread of crushing machinery, or asphalt production-that type of thing. CoMMISSIONER BucKLEY. Mr. Burt. MR. BURT. Yes, I have a similar experience with Mr. Brown. We can find no paving contractors in Oregon that I know of, at least that can do a large project. [ think the point that needs to be made is that it is very capital intensive. You may have $10 million worth of equipment just to do a project. So that is probably one of the reasons. COMMISSIONER BUCKLEY. What I'm hearing you say is either they do not have the proper education or they do not have the right money, but it's not racial; it's not a race situation that is limiting them to that category; is that correct? Is that accurate? MR. O'BRIEN. Yes. MR. BROWN. That's right from my standpoint, but I'd like to add I was referring mainly to subcontractors because there are some general contractors that do work in that area. I think what has happened is they have graduated from being a subcontractor into being a general contractor. And these types of things where we don't find people-it really doesn't lend itself too well to subcontracting because that's the job, and that's what our business is. What we try to subcontract out is the items that we don't specialize m. COMMISSIONER BUCKLEY. We are running short of time, but I have one question for Mr. King. You equated-and I hope I didn't misunderstand-disadvantaged with minority. You said DBE equal to MBE. Can you tell me how you can graduate from being a DBE if you are a minority? That's what I heard you say. If I was wrong- MR. KING. The reason I equated the two is because that's what the State of Kansas has done. COMMISSIONER BUCKLEY. How do you graduate in that system? As I understood it, you would always be a minority. MR. KING. That;s precisely why I think they should change the regulations and move them out from this stigma, if you will. CoMMISSIONER BucKLEY. Yes, Mr. Guess. COMMISSIONER GUESS. One final question for Mr. O'Brien. Mr. O'Brien, in the summary of your testimony it indicates-and I quote-"The set-aside program has adversely affected race relations." Were you suggesting by that that you or other contractors in your area have become racists or bigots as a result of this program? MR. O'BRIEN. No. What I am inferring there is that there have been great strides made in civil rights, as we all understand, over the last few years. You know, let's face it, our past is not pure. Our industry has gone through some major transitions, and I think definitely in civil rights. What is happening is we have people in Oregon whose livelihoods are being threatened right now as a result of the MBE programs the way they now exist. Their businesses that they have worked at for many, many years are disappearing. Their markets are gone. And these people, unfortunately, are developing a very negative attitude about minority participation in construction. And if your own livelihood is threatened, I'm sure you can understand their position. COMMISSIONER GUESS. Thank you very much, Mr. O'Brien. COMMISSIONER BUCKLEY. Thank you very much, gentlemen. We certainly appreciate the time you have taken to come here before us. On behalf of all of the other members of the Commission, we appreciate your being here today. We'll take a 5 minute break, but be back in 5 minutes, everybody, please, so we can continue. [Recess.] COMMISSIONER BUCKLEY. The third panel for this afternoon includes-if I can please have the three witnesses who are present here right now stand up, please. [Theodore A. Adams, Jr., Susan Hager, and Elaine Jenkins were sworn.] COMMISSIONER BUCKLEY. This third panel includes Susan Hager, who is a partner in Hager, Sharp and Abramson, Washington, D.C.'s, .largest woman-owned public relations firm. The firm was founded in I 973 and had revenues of $1.4 million last year. Ms. Hager is a member of the board of directors of the National Association of Women Business Owners and chaired its national convention in June of 1984. Her firm works predominantly for clients in the nonprofit sector. Clients include the League of Women Voters and the National Federation of Business and Professional Women. In the Federal sector, Ms. Hager has done work for ACTION, the volunteer agency. Elaine Jenkins is founder and president of One America, Inc., a management consulting firm in Washington, D.C. Ms. Jenkins is president of the Council of 100, an organization of black Republicans. She holds a masters degree in philosophy of education from Ohio State University. One America, founded in 1970, is engaged in minority and small business development, management information systems, and manpower development. The firm has been listed in Black Enterprise magazine's top 100 black businesses. The firm entered the 8(a) program in 1973 and is scheduled to graduate in March 1986. Approximately 85 percent of its volume is 8(a) work. Theodore A. Adams, Jr., is president of Unified Industries, Inc., a systems design firm. The firm, headquartered in Springfield, Virginia,.has offices in 10 cities and did $16 million in business last year. Unified Industries was in the 8(a) program from 1974to 1982. Mr. Adams served 22 years in the U.S. Army, retiring as a lieutenant colonel. He is the former head of both the National Association of Black Manufacturers and the Minority Business Legal Defense and Education Fund. MR. DISLER. I'd just like to note that we had two other members for the panel, Frederick Williams, who was actually here today, but there was an emergency and he had to leave. If he is able to get back before the end of the day, we can add him to the last panel. And Larry Wardlaw, from my home town of New Haven, Connecticut, became ill and was unable to come down. We are disappointed they couldn't join us, but perhaps we could solicit written statements from them to be submitted within the next 30 days. COMMISSIONER BUCKLEY. That's fine. Are you ready? TESTIMONY OF THEODORE A. ADAMS, JR., PRESIDENT, UNIFIED INDUSTRIES, INC., SPRINGFIELD, VIRGINIA; SUSAN HAGER, HAGER, SHARP, AND ABRAMSON, WASHINGTON, D.C.; AND ELAINE JENKINS, PRESIDENT, ONE AMERICA, INC., WASHINGTON, D.C. MR. SCHULTZ. I'll ask each of you, beginning with Ms. Hager, to please state your name and address for the record, and also the name of your business and its principal activity. Ms. HAGER. Name and business address? Home address? MR. SCHULTZ. Your personal address. Ms. HAGER. Susan Hager, 3633 Everett Street, N.W., Washington, D.C. The name of my firm is Hager, Sharp and Abramson, Inc. It's a public relations firm. MR. ScHULTZ. Thank you. Ms. Jenkins. COMMISSIONER BUCKLEY. May I ask that you speak into the microphone, please, so that everybody can hear you. Ms. JENKINS. I'm Elaine Jenkins, and I live at 3333 University Boulevard West, Kensington, Maryland. I'm president of One America, Inc. It's a management consulting firm. MR. ADAMS. I'm Theodore A. Adams, Jr. I live at 5902 Mount Eagle Drive, Alexandria, Virginia. Unified Industries is an engineering support company. MR. SCHULTZ. Ms. Jenkins and Mr. Adams, first, will both of you describe, please, briefly your experience with set-asides and how set-asides have helped your firms. MR. ADAMS. Do you want to go first? Ms. JENKINS. If it were not for the 8(a) program, · One America would not have survived, because women business owners in 1970 were just coming into the picture in reality. There was neither the sentiment in the country nor the opportunity. There was the will on the part of the best of those of us who formed the firms. There was the need for what we did. But there was not the opportunity of recognition at the level of support that helped us along the way. The technical assistance that was given-1 came out of the teaching field and just decided that I had some skills, and my husband was going to stay with the Federal Government, and I ought to have the opportunity to not only invite other members of my family but people, other women-we now have many men.,-but when we first started we tried to encourage women to join us. The technical assistance that was given to us, the opportunity to demonstrate that we could perform in an area that really is very difficult-we don't make widgets; we do evaluations and studies and operational programs in the human service area. People ask, "What does One America do?'' We have to say that we got into the international field, particularly in African countries. I think there is no question about-as a woman business owner I can tell you I've joined every organization that's come along with women. We tried to get iri as organizations to attract prime contractors, to say, "Hey, let us in." There was a lot of money spent by women organizations; there was a lot of yelling and screaming to say, "Hey, let us in." And if it hadn't been for the SBA program, I don't think it would have come about. ' MR. ScHULTZ. thank you. Mr. Adams. MR. ADAMS. I furnished you this document earlier. Was a copy of it made available to each mehlber of the Commission? MR. ScHULTZ. Is that the one you gave me when we talked? MR. ADAMS. This is the Small Business Administration 8(a) program, "A Program Under Attack." And it has a preface, "Lies, Half-Truths, and Misconceptions" on one side, and on the other side it has "Truths." Was this document made available to the members? MR. ScHULTZ. No. We can make that a part of the record now, if you like. MR. ADAMS. Would you make it a part of the record, please. COMMISSIONER BUCKLEY. So ordered. MR. ADAMS. The staff attorney earlier stated to me that we didn't have to have written testimony and that we would be required to answer questions. However, in sitting and listening to the last panel, I feel before I answer questions that I should at least make a statement so that everybody will understand exactly where I come from and what participation I've had in drafting the laws that you are discussing today. Do you have any objection to that? MR. DISLER. No. COMMISSIONER BUCKLEY. No. MR. ADAMS. First, I came here today from a meeting with the Senatorial Trust. The Senatorial Trust is a group of Republicans. I'm a staunch black Republican. I was very disturbed to read in the paper that Congressman Mitchell had refused to testify before this Commission. The reason I was disturbed was because I felt that he probably is the most qualified or was the most qualified to state why the program has been under attack since its inception and why it was created. So I'd like to take the liberty to mention a few of those facts. Insofar as my personal background, I think I'd have to start there. I was born in 1929 so I'm not as young as a lot of people think I am. I have four grandchildren-five grandchildren. I forgot the latest. I was raised, like your Chairman, in an area of deep, well-entrenched segregation. In 1947, being a very poor boy, I joined the Army. In those days there was a quota. And the quota that was in effect was zero blacks in the United States Army, as it was known. That was the quota. In other words, you had all blacks in one army, and theh everybody else was in this other army. In fact, the quota was so pervasive, even though having been trained as an infantry combat soldier, I was not allowed to join a combat division, but instead was made a stevedore and then placed in the engineers, the same outfit that the earlier fellows were testifying about. The next quota I ran across was in applying for engineer officers candidate school. And the quota there was well announced and well understood. The quota was one, one black per class. I was lucky enough to make that quota. In doing that, we also changed the system because even though they had a quota of one, I wound up number one in my class. I was the only black who had ever graduated number one in this class. And we broke another quota because the quota for being on the faculty at the engineer officers candidate school at Fort Belvoir was zero, zero blacks. That was the quota. I broke that quota because I joined the faculty. This, of course, was in the Corps of Engineers. After spending 22 years-the last year of my service in the military was in Vietnam, and a strange thing happened in Vietnam. We had captured a North Vietnamese lieutenant right after the Tet campaign in 1968. We were questioning this lieutenant, and in perfect English he asked me why I was in Vietnam. And, of course, the only thing I could ask him was, "Where did you learn to speak English?" It seems that he had gone to school in the United States and was fighting for the North Vietnamese Army. After returning from Vietnam, I decided at 39 to retire-! was very young-because I felt I had to get involved in the plight of blacks in this country. I looked around and I was intrigued by what Richard Nixon was saying about black capitalism and how the Republican Party had an alternative to solving the plight of blacks in the United States by getting them involved in the capitalistic system. I worked for a year, managed and ran an all-black manufacturing plant, and was asked by Leon Sullivan to help form and organize the National Association of Black Manufacturers, with a mission of designing legislation that helped make up for past discrimination that had been suffered by blacks and women, but at that time primarily blacks. My Republican credentials, I think, are immaculate. I'm a member of the Senatorial Trust, the Republican Leadership Council. I helped John Warner get elected in Virginia. I am currently a member of the Council of 100. And I am very disturbed that there are certain Republicans, certain black Republicans, who have taken the liberty of saying they speak for all black leaders and all blacks in the Republican Party, and they are against quotas, set-asides, and what have you. This one helped frame them. Insofar as Unified Industries is concerned, the reason we passed the 8(a) program, or Public Law 95-507, and the reason President Nixon wrote Executive Order 11625 was because of past discrimination. And let me explain to you why these rules were written and the efforts were necessary. And I will make it very simple so that everybody understands. It's like two fellows were playing poker, a white guy and a black guy, and the poker game was 300 years long. It was a long poker game. Naturally, the white guy had all of these chips, piles of chips. You can call it Las Vegas, you can call it General Dynamics, you can call it Chrysler-all these other chips that he had piled up all around the country. Then all of a sudden somebody passed a law and said, "You can't play with a marked deck anymore." . So the white guy said, "Okay, great. Everything is equal. There is no more segregation, there is no more bigotry, there is no more racism in the country, and everybody operates off the same set of rules." Well, that sounds good. He started dealing the cards and the black guy said, "Hey, wait a minute. When are you going to give me back some of my chips?" And that is really what this session is about, giving back chips. I also note, and I brought with me, the press articles where the Supreme Court has said, "Hey, goals, timetables, set-asides are legal." And we won that case against some of the same contractors that were testifying earlier. I also have with me a piece of paper that was signed by Ronald Reagan that says, "Goals and setasides are necessary to right past wrongs." And frankly, as a Republican, I'm sick and tired of him taking that bad rap. But here is a piece of paper, and I offer this for the record. You will notice, gentlemen, on this piece of paper it was sent to every head of every agency in the United States Government. MR. DISLER. It will be so accepted. COMMISSIONER BUCKLEY. So ordered. MR. ADAMS. Thank you very much. I find it very difficult to testify at this council mainly because we have Mr. Pendleton as the Chairman, and I read his article last week where he called all black leaders racists who believe in set-asides or any special treatment. And based on that, I find it very difficult because, in so doing; by inference he's calling the President a racist, and I resent it. Now, as to Unified Industries and what we are all about, Unified started out as a three-man operation. After I had probably teed off everybody in Washington in getting this legislation passed, I felt I had outlived my usefulness. We started out on the 8(a) program because we realized that 90 percent of the government market was handled through negotiated bids, and that only 10 percent were formally advertised bids based on low price. We also understood that unless you had some program that would force government contractors that had been raised and educated in an atmosphere of bigotry and prejudice, that no one would ever break that cycle. We also recognized that if you look at the top DOD contractors, the 100 top DOD contractors and the 100 top DOD research and development contractors, you will see the list is exactly the same, that the only way to get into the government or DOD defense area is to go through the R&D route, which takes hundreds of millions of dollars. So, hence, we used the 8(a) program. And in listening to everybody, when we designed the program, we heard testimony where white manufacturers and white businessmen said, "Hey, we really want to help minorities, but it's expensive. It costs us money." So in the legislation-and anytime anybody testifies to that fact, I refer him back to the law, because in the law we wrote-and I'll quote: "Notwithstanding any other provision of law, every Federal agency, in order to encourage subcontracting opportunities from small business concerns and small business concerns owned and controlled by socially and economically disadvantaged individuals as defined by paragraph 3 of this subsection, is hereby authorized to provide such incentives"-and OMB defines those incentives as dollar incentives-"as such Federal agency may deem appropriate in order to encourage such subcontracting opportunities as may be commensurate with efficient and economical performance of the contract." So every time somebody testifies that it's costing ·the government money to do business with minori ties,. they are testifying out of ignorance because they don't understand the law or the regulations. Unified grew from 3, as I said, to a little over 300 individuals in a period of 10 years. And, of course, I could not do anything with the ownership of that company until I graduated from the 8(a) program. Immediately upon graduation, I formed an employee stock option company, so at the present time all my employees have ownership in Unified Industries. MR. ScHULTZ. Thank you. MR. ADAMS. I thank you. MR. ScHULTZ. Let me direct this one to you, Mr. Adams: How could the 8(a) program be improved? MR. ADAMS. Very easily. You could probably remove a lot of the regulations that have currently been written that inhibit the performance of a contractor to perform in a marketplace. Let me give you an example. The first one is graduation. Two years ago, the Small Business Administration held hearings, and they traveled to at least three or four major cities. They heard 200 presidents testify as to certain changes that had to be made in the regulations. These changes were proposed by the Small Business Administration. Out of the 200, there was only 1 person that agreed with the changes that were put into effect. That question has been asked, and the answer has been ignored. The other thing I'd like to refer you to-and this was also given to your staff attorney-is the "Casey" study. Casey, the current head of the CIA, did a study when he was working in New York, and the question was: Using empirical data, how long would it take to reach viability? Using empirical data-and here's the chart [indicating]-this data has not been disputed. It was further upheld by the Wharton School of Business. They said it would take 20 years and you should be doing at least $40 million. There are very few 8(a) companies that are doing $40 miilion a year, but yet they are being told to graduate and compete with the big boys, mainly because such outfits as Associated General Contractors have tried to convince the American public how unlawful the 8(a) program is. MR. ScHULTZ. One more follow up, and then we'll move along. Mr.· Adams, what barriers in the market have you faced and do you continue to face? MR. ADAMS. The primary barrier that we face is what I call the trickle-down barrier. It is a barrier that has been set up, as I said, over a period of 200 or 300 years. This barrier says that people tend to do business with their friends. Now, it was very fashionable 12 years ago to have black friends and black acquaintances. Since that fashion has changed, and you notice it at clubs and what have you-and, in fact, the organizations I belong to, there are very few blacks who are members of these clubs. And most of the deals are in this social environment. And believe it or not, ladies and gentlemen, that's where deals are done. That's where joint ventures are created. That's where tips are given and passed out. The question I thought you would ask is why I chose not to go into the construction business. The reason I didn't is because I knew, from being on the other side, that it was the most corrupt of most of the industries in the country today. The old boy network one of the counselors alluded to is alive and well, believe me. And unless you know somebody, there is very little you can do. In fact, in some cases there were some companies that had five and six companies under different names. They would submit different bids on these contracts to perform certain work. So if you are a black company and you wanted to bid, where did you fall? You'd lose every time you bid. The other trick that was used, and is still being used: A minority company will go in and they will inundate them with bids-inundate them, paper after paper. When you get ready to prepare a bid or a proposal on a contract, it can cost you $4,000 to $50,000 to $100,000 to do the proposal, just to write the proposal. Restate your question. I think I went astray. MR. SCHULTZ. I think you answered it. I was asking you about the barriers you faced. MR. ADAMS. Those barriers are still there. Another thing that most minorities find when they try to go into a new area, there is such a thing as buying in. And minorities always face the buying-in situation. We have a company in Watts called Univox, Univox of California. Univox started out as a small electronics company, and today they are a multimillion dollar company, probably one of the only companies I know that is making a major item for the United States Government. By that I mean an item that's on wheels that a black soldier can reach over and put his hands on and say, "Hey, this was made by black folks in the inner city or in the ghetto." It works better than any other machine that's ever been produced. It was produced cheaper. The costs kept going down every year ahead of schedule, and it exceeds all the quality standards that were set for it by the Federal Government. Now, the fear this company has is that the major competitors will buy the contract or buy the business away from them. For example, say in the case of Univox, they are in a new industry, and the potential in that industryis, say, $100 million-let's say a billion dollars. Well, if I'm General Dynamics or if I'm Brunswick or if I'm any other major company and I look at that business, I can say, "Hey, I'll buy it." So you put out a contract and put out a bid. You take the first one at a loss. You make it up on the changes or you make it up on the follow-on. Now, another white business can lose that con . tract and go over and sit on the side and say, "I'll get it the next time." But you get a minority company in that situation, you buy one contract and he's dead. Now, those situations exist. There's another wel fare program- MR. SCHULTZ. Can we move along, Mr. Adams, and share the panel. I'd appreciate that. Did you want that SBA report marked? CHAIRMAN PENDLETON. Can we copy the "Ca sey" chart and give you the report back? MR. ADAMS. I'll give you the whole report. CHAIRMAN PENDLETON. Thank you. MR. ADAMS. The name of the report is "A Case for Government Support of Minority Enterprise." MR. ScHULTZ. Ms. Hager, you have never applied for 8(a) certification. Why is that? Ms. HAGER. Basically because the 8(a) program was established for minority men and women and not for majority women. Women as a class are not included in the 8(a) program, so therefore, I did not apply. MR. SCHULTZ. Do you feel there ought to be set asides for women-owned businesses and, if so, why? Ms. HAGER. I think that set-asides would make an enormous difference. I guess I don't think they are politically feasible right now, so it's not something that I'm pushing. But I do think that set-asides have made a difference for minorities, for example, that, in fact, prior to the set-aside program, prior to the 8(a) program, there were very few minorities doing business with the government. And now people may talk about whether or not it's a very high number or whatever, but there certainly has been a change. And I do think that if it, in fact, works for the group and it works for the government that it makes sense. I also think that for those companies like Mr. Adams' company who have graduated from the program and the pool of competitors has been enlarged that the government can do business with, that is obviously to the advantage of the government and the taxpayer. MR. ScHULTZ. Let me ask you this, and then, Ms. Jenkins, I will ask you also. We have heard a lot of talk today about a buddy system. Is there, in your opinion, a buddy system among Federal contractors as your primary sector, and between Federal contractors and subcontractors, that works to the disadvantage of your firm? Ms. HAGER. Yes. There is definitely an old boy's network. Somebody called it friends. I mean, come ()n, we all know that. People like to do business with people that they know and people they feel comfortable with. I think that is partially human nature. I think some of the contracts I have with all these women's organizations, that some of the men in this room would have a tough time getting away from me, .because they feel comfortable with. me and because I understand·the way they do business. Well, that is one tiny little place where that works to my advantage. Most of the time it works to my disadvantage because, in fact, as we all know in the government contracting, women may own 25 percent of all small businesses, but when we're getting less. than half of 1 percent, there is an enormous discrepancy. I have. personally been in a best and final situation in a negotiating session with a contracts officer, and I know I lost the contract because I was a woman. His main question was, was I married and who took care of my children. And he really wasn't interested in how I had my finances lined up and the fact that I got the highest number of technical points and the lowest bid. MR. SCHULTZ. Ms. Jenkins. Ms. JENKINS. Could I go back to the question you asked Ted a few minutes ago: How could the 8(a) program be improved? MR. ScHULTZ. Certainly. Ms. JENKINS. I think that there should be an opportunity to prepare for graduation. If the Federal Government has invested some money and time and effort in helping certain firms and does believe that now they are .ready to come off the program, I think that as you go into the turn of that there should be some concentration to be sure that the specialties that have been developed are well known in the fields where the firm is therefore going. For exam ple, if it's in an international field, then I think we should have an opportunity in the next year to increase our business so that when we come away from the program we will be able not only to help other firms, but we can compete. So I think better preparation for the graduation should be done. I think there should be some matching that goes on. I listened to the previous testimony this afternoon, and it didn't seem to me that there was an effort or an interest or a concern of those people who were talking to say that they would on their own try to match up with those businesses, minority businesses, which they thought could work with them and stick with them. I think certain agencies in the Federal Government in the last 4 or 5 years have slipped, have not responded to the Executive order, have been very haphazard in their interest to support the program. And there, again, the prime contractors and some of the agencies would be responsive, I think, if they knew what businesses related to that. particular agency. Since the SBA is planning to do less about its loan program, I think they should start now to work with the banks that are interested in cooperating with the program, and there are those banks that are interested. And I think that loans can be made, and I don't necessarily feel that loans have to be made from the Federal Government. Now, about the buddy system. I think persons should be rotated away from their positions for responsibility of helping this program succeed if they have become too smug in recognizing only some certain companies. They will tell you in certain agencies today to walk the halls-that's what it's called. "Go here and see this project person-and I'm sure if you go over there you will be well received," and so forth. Well, that is simply not true because certain program officers are accustomed-it's less work to have to suggest any new businesses. So I think we have to look at some very smug perhaps we might call them bureaucrats, but we don't want to offend the bureaucrats, but some rotation, not firing, but some rotation out. The peace that this country needs is an economic understanding of how this country works. This country works on economics and on the private sector and the entrepreneur business. I would guar antee, no question, that if those people who are going to build the MX started now looking for minority firms and women-owned firms-and they can find them-you would not have the fight against the MX because those people will get to the Congressmen. Now, women do talk to their preacher and their Congressman. We are very good at that. So it seems to me that it's some kind of foolishness on the part of the huge contractors to not realize that they could be a part of the lack of division in the country if we were to do that. Another thing that I think could happen is the retired persons or the persons who are being let out of government positions could be encouraged to look for 8(a) companies to give their high-level technical expertise to. We are gradually getting some resumes that are voluntary to us. They have heard about this. And we are looking at those very closely. We don't always find that what they are offering we can use. But that's what I would suggest, that there be more of a marriage, a match, within the Federal Government to try to have things work. I guarantee you-and Commissioners, please-if the 8(a) program is abruptly abolished, if you think you have heard an outcry, you haven't begun to hear it because there are so many businesses in the various States. All you have to do is look at the directory that is put out by regions of S(a) companies. If you haven't, you should get it. It's all over this country. And that means that there are many, many, many successful businesses beginning within their States and their counties to serve the country. Have you ever wondered what it is like to be a majority of a minority in a city and see how much money goes into changing the traffic signs and wonder who puts those out, and wonder whether there are any minorities, and certainly very few women. Have you looked at this city and realized, for example, how much horticultural business there is here? Women know how to water plants and to care for plants and to do things for· plapts. But I don't think very many women business o\vners are in the horticultural business in a city like this. I wouldn't know, but I have asked. But there are certain service industries that we would know are almost natural. The care of the elderly right now, for example. It would be smart to encourage women to go in that business. An 8(a) firm could come along and get the technical assistance, because the elderly are always going to be here-1 hope so. We had for a long time the nursery care of children, but now it's the elderly as a new business. And that's what SBA does. It's supposed to look at the forecasts and see where the country is going and encourage businesses to go in that direction. MR. SCHULTZ. One more question before we turn to the Commissioners. Ms. Jenkins, joint ventures, a topic you and I talked about. You have had some experience in that area. Tell me, what is your opinion ofjoint ventures between majority and minority firms as a method of bringing more minority businesses into the procurement arena? Ms. JENKINS. It's an excellent way to do it, and we are hoping to venture more with the white firms, as well as with the black firms. The advantage with the black firms or the Hispanic firms-and we are both-whoever has the higher expertise in one area sort of matches that. The problem with the joint venture is· the turfdom. And that's the biggest hangup that you have: Who's going to get the overhead or who's not going to get the overhead? Who's going to handle the biggest bulk of the service that you're using and who's qualified to do it or not? But I think that joint venturing-! wish I had been in the construction business because I'd like to take one of these guys on here and ask him if I couldn't joint venture with one of them. MR. ScHULTZ. Mr. Chairman, I yield. COMMISSIONER GUESS. Thank you, Mr. Chairman. Who's in charge now? CHAIRMAN PENDLETON. Mrs. Buckley. COMMISSIONER BUCKLEY. Mr. Guess, you may continue. COMMISSIONER GUESS. Thank you, Ms. Buckley. Mr. Chairman, in your absence we discovered that my rejection of authority was not limited to you. I also rebelled against Commissioner Buckley while you were gone. So we have concluded that it's nothing personal. It's my overall objection to the board. CHAIRMAN PENDLETON. You just don't like minorities,•Mr. Guess. . COMMISSIONER GUESS. Welcome back, Mr. Chairman. CHAIRMAN PENDLETON. Thank you, sir. The budget hearing went well. COMMISSIONER GUESS. Thank you. Mr. Adams, I want to start by concurring with your observations pertaining to the history of the use of the various programs that we are discussing today. I would also concur, though not as thorough ly, in establishing similar political affiliations and embrace the free enterprise system may find it, it's still appropriate to do so. identifications, and would concur with the history as MR. ADAMS. That's correct, sir. In fact, the relates to simultaneous service in Vietnam and a Supreme Court said that. recognition of what occurred during the Nixon COMMISSIONER GUESS. And so simultaneously administration, and applaud your resentment of could we conclude that the occasional tampering those who take issue with the generally accepted with the system, because of race, could also be view of what President Reagan has indicated in appropriate? terms of the thrust this administration should take in MR. ADAMS. That's 100 percent. If it wasn't for these programs. that, we really wouldn't need a government, would However, the previous panels were given a point we? of view from this Commission pertaining to other COMMISSIONER GUESS. And can we also conclude various programs designed to assist a group of from what you are saying, Mr. Adams, that the people, though not necessarily by race, and that is reason that we can't embrace this appropriateness is the farm price support subsidies. From your perspec because the industry that you identified may find tive, in the State of Virginia~ do you support the use barriers to competition in that marketplace.of farm price support subsidies? MR. ADAMS. That's correct. MR. ADAMS. Mr. Commissioner, I'm against all COMMISSIONER GUESS. Madam Chair.subsidies. I'm against all set-aside programs. All COMMISSIONER BUCKLEY. Thank you. right? And I answer that question because every Commissioner Destro. body says . that, and when you think about it, COMMISSIONER DESTRO. A couple of questions. everybody is for that, to be against these programs. Following along the line of Commissioner Guess' Ifeverything were started from zero today, I would question, Mr. Adams, I noticed in your interview say we wouldn't need . any of these programs. All material you indicated that, assuming that all setright? But I understand that without these so-called aside and subsidy programs would be abolished, set-aside programs that we have in being, that great you'd be willing to go along with it. I guess that segments of our society will be damaged or hurt. means the same as going back to zero; correct? Therefore, I am not so ignorant to understand that MR. ADAMS. That's correct. if you didn't have a subsidy program for the garment COMMISSIONER DESTRO. But you said absent that, manufacturers, that we would lose thousands and you feel minority set-aside programs are approprithousands of jobs in the South that are currently ate, and I can understand that too. But the rest of making garments; that if you did not have the your comments seem to talk about the problems that subsidies for the automotive industry or the subsidies emerging companies have getting on their feet and for those industries that are subsidized via protective staying on their feet. tariffs, that certain damage would be done. We had a series of questions earlier in the So for me to say, "Hey, I'm not for it," I can't afternoon about racially neutral or ethnically neutral speak for the farmers. I'm saying that if those set-aside programs. Would you be just as satisfied subsidies· are necessary to promote the overall good with the 8(a) program if it were redefined in terms of of the country, then it is up to Congress to examine emerging businesses that need help getting on their the goods and the bads of those subsidies, to pass feet in dealing with the government? laws to stop or start those subsidies, and it's up to the MR. ADAMS. No. President of the United States to implement proCOMMISSIONER DESTRO. Why not? grams that enforce the laws that are passed by MR. ADAMS. Because that's not what the 8(a) Congress. program was supposed to do. You have a small CoMMISSIONER GuESS. So what I understand you business program that was designed for that pur to say, Mr. Adams, is that the free, open, and pose. The 8(a) program, as it was originally enviscompetitive marketplace sometimes is not free, open, aged-and if you go back and look at all the ·and competitive, that government in order to make testimony that was given to pass 95-507, the basis of the program was not a program to start companies this system work, feels compelled to tamper with it; as such, but a program to get a fair and equitable and that the occasional tampering with the system, share ofthe market. regardless of how offensive we as a people who 161 And, sir, if you permit, I'll quote from the law. It segregated against; and three, if he had come here insays: "That the opportunity for full participation in a 1947 when I joined the Army, he'd have beenfree enterprise system by socially and economically classified as white.disadvantaged persons is essential if we are to obtain COMMISSIONER DESTRO. All right. Now, let mesocial and economic equality for such persons and turn to Ms. Jenkins for a minute, if I can. I have twO improve the functioning of our national economy." questions. It further goes on to say: "Many such persons are One is that in your firm's summary it says that 85socially disadvantaged because of their identification percent of the work you do now is 8(a) work, and I as members of certain groups that have suffered the know you talked about the graduation requirements. effects of discriminatory practices or similar invidiIs there any concern of assistance being given toous circumstances over which they have no conyour firm in obtaining non-8(a) contracts? trol." Ms. JENKINS. There's the encouragement to· do it,So what I'm saying, sir, is that, in order for the but that is one of the areas I said I thought SBApendulum to stop, it first must go to the other side. could be improved in. And I was over there recentlyAnd that's what these programs were designed for. to talk with them about this, and I think they are They were designed to give minorities an opportunilooking at the picture. ty, only on Federal programs, those programs We would like them to help us know-forsupported by tax dollars, to sit down and negotiateexample, take DOT; we have done some work fornot be given-a share ofthe market. them, too, and in the international field there areI guess the thing that bothers me and disturbs me some biggies-we would like them to say, "Thisso greatly is those organizations that are condemn firm has done very well in your particular area. Whying these programs now have a 90 percent market don't you take a look at One America and see share. And they are quibbling over the 10 percent whether you could use them." for women and minorities. I don't understand that. If We have neither the kind of money nor the kind as a businessman I had a 90 percent market share, of marketing that does that-I don't care how muchwhy would I try to steal or take away or block those money you make; you're always staying aboveboard less fortunate than I from at least participating in the in this kind of situation. The more contracts you get,·marketplace? the more money you're going to put out, etc., etc. SoCOMMISSIONER DESTRO. I don't quarrel with in getting ready for it, we do want to have that kindanything that you have said so far. I guess what I'm of assistance, and I am talking to them about that.trying to do is get a sense for what you understand MR. ADAMS. Could I add something to what sheby the meaning of the statutory phrase "socially and said?economically disadvantaged." Does that by definiCOMMISSIONER DESTRO. Sure, go ahead.tion mean a minority firm, or would you be willing MR. ADAMS. It was a very interesting questionto expand that to include firms like Ms. Hager is you asked, and it really is proof beyond 'any talking about, which are disadvantaged in other reasonable shadow of doubt how prejudice and ways due to sex. They may not be economically discrimination really exist today in 1985:disadvantaged as such, and they may not be socially I tried to tell you earlier that the Federal Governdisadvantaged in the same way, but there certainly is ment said, "Big contractors, we will pay you to doa sex-related disadvantage. business with minorities, up to 10 percent additional MR. ADAMS. If I had to rewrite all the laws and profit you can make if you do business withthe programs, I would create special programs only minorities."for those who have been discriminated against If you just take the top 100 DOD contractors,institutionally; i.e., if women had been discriminated they could employ every 8(a) contractor you haveagainst-and they have, white women, black wom and the 8(a) program could go away if they woulden, brown women, all women; they couldn't even be willing to sit down and negotiate with very ablevote-that should be taken into consideration. firms and give them business.On the last panel there was a gentleman who said Now, the reason we put that paragraph in thehe knew a minority, a fellow from Egypt who was a statute is because when we were testifying to get thisminority. One, nobody asked him to come to the law passed, every majority businessman came in andUnited States; two, through legislation he was never said, "Hey, I'd love to do business with minorities. I 162 can find them, good ones, but it costs too much sure Ted said that as he was getting ready-"for us money." That excuse can no longer be used because to have all the business we can." And we will go out the statute will pay them a premium to do business and get-and we are doing it now. We are inviting in some white firms, incidentally. We are. One with minorities. But there's nobody beating down Elaine's door, and to this date I haven't had anybody America, and we believe this country can only beat down my door except when a government thrive on being one country. But do you know how agency says, "Hey, unless you go out and find some much legwork and money it takes to market? minorities, you can't have the contract." But on COMMISSIONER DESTRO. Yes, I understand that. I guess my question really goes to the disadvantaged. their own they just don't do it, sir. Part of it you have described as being an 8(a) firm, COMMISSIONER 0ESTRO. That was going to be my next question to Ms. Jenkins. On page 3 of your and people say you've got your share, and it's not your turn now. But the other part is the way that interview notes you talked about how the Catch-22 is created, and when you try and go out and get these contracting officers perceive you. some additional work, then the government conMs. JENKINS. I don't believe that's true, sir, right tracting agents apparently ask you, "How many at this moment. I really don't, right at this moment. word processors do you have? How many computWe are competent; okay? So they are not hammer ing at "can we do it" any longer. ers do you have?" I understand the problem you are describing is The disadvantaged will always be there, certainly obviously a chicken or the egg kind of situation, but in my lifetime, and maybe in yours and you are is the problem in your judgment that they perceive much younger. There is no way possible that a black and person, an Hispanic person, a woman in business, you as a, quote, "minority" or 8(a) firm, therefore, they ask you those kinds of questions? Or can catch up in this country very soon. is it that they perceive you as an emerging firm and, COMMISSIONER DESTRO. I think you've answered therefore, ask you the questions, whereas if you had my question. Thank you. been an established firm, they'd just assume you CoMMISSIONER BUCKLEY. Mr. Pendleton. could get the work done and that you would find the CHAIRMAN PENDLETON. Ms. Hager, how did you extra word processors, etc.? capitalize your business? Ms. JENKINS. I think it's the latter. First of all, we Ms. HAGER. Retirement. I started with my last are perceived as, "You've gotten your share." That's paycheck and I took my pension out, and with the worstpart of it. "You've gotten your share and another woman, Marsha Sharp of the firm, we put you ought to be thinking to graduate." together $1,300 of cash and opened an office on COMMISSIONER DESTRO. Let me stop you for a Connecticut and K Street. CHAIRMAN PENDLETON. What were your gross minute. You've gotten your share of what? Ms. JENKINS. "You've gotten your share of numbers last year? Ms. HAGER. Last year it was $1.6 million. contracts and you ought to be able to do thus and so CHAIRMAN PENDLETON. How long have you and tP.us and so." Now, when they say, for example, "You have got been in business? a $3.5 million contract"-that is not $3.5 million a Ms. HAGER. It will be 12 years in June. year. That is strung out over a period of years. And CHAIRMAN PENDLETON. Now, I come to my you have the travel and all the costs that go with it. second question. Mr. Adams clearly spelled it out, We do work internationally and we're proud of and I think rightly so-l know rightly so-the 10 what we do in Africa, in the health-support serpercent set-aside for minority businesses, and women vices-in the Sudan, by the way. We are very proud are considered to be minorities in this sense. of that, and we're going to piggyback on that, and Ms. HAGER. I beg your pardon? we're going to increase that. But every time we CHAIRMAN PENDLETON. In this SBA thing, wombegin to do that, the program looks over your en are considered to be minorities.. Ms. HAGER. No, they are not. In the 8(a) program shoulder and says, "Well, wait a minute. Is it One you're talking about? America's turn again?" The position we're put in there is the Catch-22 CHAIRMAN PENDLETON. No, I'm sorry. Last thing. Now, what we're going to hammer at is, "You night Ms. Henderson said there should be a special ought to be very glad in the next 2 years"-and I'm set-aside or special opportunity program for women. 163 Would you happen to agree with that? Would you and said, "Look, there's a 90 percent set-aside forbuy into that if there were a special program for white males in this country." women? CHAIRMAN PENDLETON. I thought that Bakke'sMs. HAGER. Yes, I would buy into that, but I problem was there were 100 slots open to minorities believe she said if you couldn't come up with and only 83 open to him. anything else to sort of start to change the percent MR. ADAMS. No, he was complaining about the 10ages. I think that was according to several years percent set-aside for minorities. And what I said wasdown the road. As I read that testimony, she somebody should have asked Mr. Bakke, "Whyproposed several other things first in hopes of that. can't you compete in the 90 percent set-aside for But there is no question that a set-aside program white folks." would make an enormous difference to my business. CHAIRMAN PENDLETON. I guess my point is that Yes, I would be three times the size I am now. in this case blacks could compete for the whole 100 Would I take advantage of it if it were there? Yes, percent, and he could only compete for the 90,I would, definitely. which was his problem. There was a total of 100CHAIRMAN PENDLETON. Mr. Adams, just a coupercent for minorities, but only 90 percent forple of quick questions. You mentioned the 10 Bakke. That was his problem, I thought. percent set-asides, the 10 percent versus the 90 MR. ADAMS. A little earlier, Mr. Chairman, Ipercent. testified to the extent that this Commission mustAs a minority contractor did you ever say, "I consider under its charter the trickle-down theorywant to take the 90 percent pot and not the 10 that has allowed the majority population to gain anpercent pot," or does the government restrict you overwhelming advantage from their fathers, theirfrom being in the 90 percent pot? grandfathers, their great-great grandfathers, andMR. ADAMS. It's the set-aside program that what have you, and all this advantage was gained atpermits me to operate in the 90 percent pot. Without the expense of blacks and other minorities.it, I'd be restricted to the 10 percent pot, which we Take Washington, D.C., for example. Washington do operate in. is a city that is controlled by blacks politically, but I CHAIRMAN PENDLETON. Okay. defy you to go out of this office and within a fiveMR. ADAMS. In other words, we bid on contracts. block radius walk out and touch a building that isCHAIRMAN PENDLETON. When you gave your owned by blacks. Now, that's a trickle down. Now,testimony, it was like you had to stay in the 10 we will probably own some buildings. Maybe mypercent pot forever, and I wasn't sure whether that son will own one of these apartment buildings orwas true. what have you, but it will be very difficult in my MR. ADAMS. No, in my testimony I :was sayinglifetime to do it.CHAIRMAN PENDLETON. I mean, in the last CHAIRMAN PENDLETON. I have no further quesanswer you gave to somebody about 10 percent tions.versus 90 percent. I got the impression you meant COMMISSIONER BUCKLEY. Ms. Chavez.you could only be in the 10 percent pot-"Why Ms. CHAVEZ. No.should somebody complain about them having 90 COMMISSIONER GUESS. I have one.percent when I'm limited to 10 percent?" COMMISSIONER BUCKLEY. One question. Rebuttal.MR. ADAMS. Okay. Clarence, I recall-Mr. ChairCOMMISSIONER GUESS. Madam Chair, I'm surman, I recall prised you think that there's anything that's been CHAIRMAN PENDLETON. "Clarence" is all right. said here today that I'd feel compelled to rebut.MR. ADAMS. I do recall the statement. What I was One of the things that has fascinated me duringsaying was-it's like the Bakke case. What Mr. the 2 days ofthese hearings and the consultation hasBakke complained about was that 10 percent was been the concept of fairness. We've looked at fairbeing set aside for minority students. What no one share, what one would consider their fair share toever said was that Mr. Bakke was not smart enough be.or too dumb to compete in the 90 percent arena, and By and large I have concluded that the definitionthat argument went all the way to the Supreme offair share that has been presented during the last 2Court. When we defended the 10 percent set-aside days is one's fair share is whatever they can get. Ifon the public works bill, we brought out that fact you can get 100 percent of it, then that's your fair 164 share. And I've also heard during the last 2 days that Mr. Blunt is president-elect of the Greater Washington Board of Trade and the first black so elected. the fair share everybody is looking for, at least prior to hearing Mr. Adams, was all of it: "I want it all." He is a brigadier general in the U.S. Army Reserves. Now, Mr. Adams, what do you consider your fair A graduate of the U.S. Military Academy, Mr. Blunt served 14 years in the U.S. Army. He holds masters share? MR. ADAMS. I ran that study, too, about 10 or 12 degrees in civil and nuclear engineering from the years ago. Massachusetts Institute of Technology. Tyroc ConIf you look at the population, the percentage of struction was an 8(a) firm from 1972 to 1983 and the population we represent, and if you arbitrarily never did more than 25 percent of its volume in 8(a) today said, "I want to redistribute the business"work. and I'm just talking about the Federal Government Clarence H. Braddock is president of Automated Sciences Group, Inc., a systems engineering firm business-"and give it to blacks," we couldn't handle it. headquartered in Silver Spring, Maryland. The firm did $15 million in business last year. Mr. Braddock However, as a black I must, for the sake of myself has worked in systems design with Burroughs, ITT, and my conscience an:d that of my children, say that I feel a fair share for blacks and a goal that we Aerojet General, and Litton Industries. From 1972 to 1979 he was chief of the Systems Analysis should strive for is parity, that we should be willing and able to control and contribute to the wealth of Division, Federal Railroad Administration. He then this great Nation at the same percentage of the joined Automated Sciences Group. population that we represent. Automated Sciences Group is an 8(a) firm and is COMMISSIONER GUESS. Ms. Jenkins, what do you scheduled to graduate in April 1987. Seventy percent of its business is 8(a) work. The firm has 450 consider your fair share to be? Ms. JENKINS. Whatever the government is putting employees across the country. Toni Y. Luck is founder and president of Luck out, I want a part ofit. CoMMISSIONER GUESS. Ms. Hager, what do you Manufacturing, Inc., a Washington, D.C., baked potato and meat-packing concern. Formed in 1984, consider our fair share to be? Ms. JENKINS. What my male counterpart makes. the firm did $20,000 in business in its first year. CoMMISSIONER GuEss. Mr. Chairman, for the Revenues are expected to top $1.5 million this year. record I want to express that I consider my fair Luck Manufacturing is finalizing a $540,000 enterprise zone package with the District of Columbia share to be it all. I want it all. [Laughter.] government. The firm will obtain a plant and CHAIRMAN PENDLETON. The record so notes that equipment for its baked potato endeavors and will you want everything. sell the potatoes from carts in shopping plazas. Ms. Luck has been approached by McDonald's, Pizza CoMMISSIONER GuEss. I want it all. Hut, and Amtrak. [Laughter.] Ms. Luck has been a minority entrepreneur for CHAIRMAN PENDLETON. I want to thank the many years, founding a magazine and a cosmetics panel. Thank you very much. company. She holds a B.S. in economics from We are going to stretch for the sake of the Fordham in 1980, and has completed Jl/2 years of recorder. [Recess.] study at Georgetown Law School. She is a former CHAIRMAN PENDLETON. We will start the fourth administrator of legal services with Mobil Oil and final round. I remind my colleagues of the fact Corporation. that we have to be out of here promptly at the Jerry Davis is president of Unified Services, Inc., witching hour when this panel ends. a Washington, D.C., janitorial services firm, which Roger R. Blunt is founder and president of Tyroc he founded in 1971. This year the firm should approach $10 million in business. The firm has Construction Corporation, a building construction firm in Washington, D.C. The firm did approximateoffices in New York and Florida. Among its projects ly $11 million in business in 1984 and was included in is the cleaning of the buildings at the Kennedy Space the Black Enterprise magazine list of the top I 00 Center, often requiring totally dust-free environblack businesses in America. ments. 165 The firm was 8(a) from 1972 to 1982. In the of building a food manufacturing plant in Washing beginning, 90 percent of the firm's business was 8(a). ton. By the time of graduation, the percentage had been MR. ScHULTz. Mr. Braddock. reduced to 15 percent. MR. BRADDOCK. My name is Clarence Braddock. Mr. Davis enlisted in the Army and rose to the I'm president and chief executive officer of Autorank oflieutenant colonel. In Vietnam he command mated Sciences Group, Inc. We are headquartereded a battalion of over 700 men. He retired from the at 700 Roeder Road in Silver Spring, Maryland. Wemilitary in 1970 after 26 years of military service. are engaged in systems engineering, office automaMr. Davis is a graduate of the smaller company tion, and computer-related services for the Federalmanagement program of Harvard University's Government and for the State and local governGraduate School of Business Administration. In ments.1980 he was a delegate to the White House ConferMR. ScHULTz. Thank you.ence on Small Business. The first question is for Mr. Davis and for Mr.Welcome to the panel. Blunt. First Mr. Davis: Would you describe brieflyNow I have to swear you in. your experiences with set-asides and how they have[Roger R. Blunt, Clarence H. Braddock, Jerry helped your firm?Davis, and Toni Y. Luck were sworn.] MR. DAVIS. Okay. First of all, I'd like to say that ICHAIRMAN PENDLETON. Please be seated, and want the record to reflect that I agree totally withcounsel will start with the testimony. the testimony of Ted Adams. Our careers paralleled.We were in the Army together. Everything he wentthrough, I went through, and in terms of getting on TESTIMONY OF ROGER R. BLUNT, the 8(a) program, we did it at about the same time. PRESIDENT, TYROC CONSTRUCTIONCORPORATION, WASHINGTON, D.C.; Insofar as my experience with the 8(a) program, asyou heard a minute ago, we were on the program for CLARENCE H. BRADDOCK, PRESIDENT, AUTOMATED SCIENCES GROUP, INC., 10 years. I am absolutely certain that I wouldn't beSILVER SPRING, MARYLAND; JERRY in business today, or certainly not at the level that IDAVIS, JR., PRESIDENT, UNIFIED am, ifit had not been for the 8(a) program. SERVICES, INC., WASHINGTON, D.C.; AND Just very briefly, the program allowed me, num TONI Y. LUCK, PRESIDENT, LUCKMANUFACTURING, INC., WASHINGTON, ber one, to establish a track record, which is very D.C. important in business. It enabled me to assemble and MR. SCHULTZ. I'm going to ask each of you, train a top-notch management team, including my beginning on the left with Mr. Davis, if you would self, because when I started in business I did nothave a business background. And then, most impor again for the record, state your name and address tantly, it helped me to establish a solid bankingand your business and its principal activity. relationship. I was able to do that rather quicklyMR. DAVIS. I'm Jerry Davis, Jr., the president of because of the set-aside program. Ifit had not beenUnified Services. We are located here in Washingfor the set-aside program, I wouldn't have been ableton at 2640 Reed Street, N.E. Our principal activity to do that. of business is contract cleaning, janitorial services, By the way, I'd like you to know that today wefor both the public and private sector. employ 1,000 people, and they all pay taxes and theyMR. ScHULTz. Mr. Blunt. are drawing salaries. MR. BLUNT. My name is Roger Blunt. I am the MR. ScHULTz. Thank you. chairman of Blunt Enterprises which is located at Mr.. Blunt, your experiences and how it's helped 2018 Fifth Street, N.E., in Washington, D.C. your firm.MR. SCHULTz. And the nature of your business? MR. BLUNT. Yes. I formed my business in 1972 MR. BLUNT. The nature of the business is confrom scratch, and after it was formed my firststruction, construction management, and engineer contract that I won competitively was to repaveing. Missouri Avenue. Subsequent to that, I heard aboutMs. LucK. My name is Toni Luck. I'm president the 8(a) program, got registered in it, and after a few of Luck Manufacturers. We are located at 3005 years received some contracts, which I found wereBladensburg Road, N.E., and we are in the process of great assistance to me in evening out my work 166 because that showed a different kind of stability. program, principally because I was limited in the capital structure. My organization had a quantity of And, of course, I don't come from a family of borrowed money, and it wasn't able to amass the cowboys, so I can't say we've been in the ground kind of bonding that enabled me to build up a big beef business for 20 years. So that 8(a) piece gives uS a different kind of credibility and allows us to break work program. into another industry. And that particular business The problem I had with the 8(a) program was that will provide over 200 jobs. So it's something that we it was inflexible and did not recognize my strategy have been very seriously looking at, and the 8(a) will toward diversification. And while it promised me help in areas of high risk, it precluded my ability to be of assistance. branch out and do other things I felt capable of MR. SCHULTZ. Mr. Braddock, did you need the doing. So in the midseventies, as I recognized the assistance of set-asides to become a successful 8(a) program would be of less and less assistance, I business owner? MR. BRADDOCK. I think without question, al began to diversify and to do those new things that would take me into a new arena. though I'd like to parenthetically, or maybe not I would say, on the other hand, in the early parenthetically, add not without a great deal of trial seventies, were it not for that particular set-aside and trepidation. Let me say a few words about the 8(a) program. It program for procurement assistance, certainly no is one that is fraught with a lot of schizophrenia, and money assistance, because some of the jobs I got I probably shouldn't have taken-they were jobs they I think, as with most government programs, there's always a lot of slippage between the formulation of put in the 8(a) program that I think should not have the policy and the implementation. been there. But I will. say that if it were not for at least that balanced work program I had in the early In my judgment, the purpose of the 8(a) program years, it might have been difficult for me to reach was to provide an opportunity, as such programs have in the past, for those who were perceived to be this particular level. lacking in the resources or conditions that would MR. SCHULTZ. Ms. Luck, you have applied for allow them to achieve some kind of equity in 8(a) certification, but only after being urged by society. And at least in the formulation sense, it was others to do so. Do you feel that you need 8(a) in intended to be a program to provide opportunities order to be successful? Ms. LucK. Well, let me just separate two of my for emerging businesses owned by socially and economically disadvantaged persons to have an businesses. We have a retail operation, which is what the Chairman alluded to in terms of our potato opportunity to develop to some sort of critical mass so that they would have a fair chance of surviving in business, which needs no subsidy or set-aside because it's retail and operates in the direct marketthe competitive marketplace. Tracking back to something that Roger has said place. ·However, we have found the opportunity to be in and I think in his case it was peculiar to his sort of business-in the implementation sense the 8(a) pro another business; which is ground beef. And in order for us to really take full advantage ofthat opportunigram is unfairly restrictive and rigid. It almost ty, like from a McDonald's or from a Wendy's who dictates to the corporation what its business should have a seasonal buying pattern, an 8(a) contract be, which is foreign to any principles of business that keeps us, as Mr. Blunt has said, in a work kind of I know. mode, because those contracts go 52 weeks a year. The program as it is implemented began to be Like in the Department df Defense, they buy 51 more of a contract assistance program, trying to help weeks a year'. In the very cold months, McDonald's as many as they could. There were, at last count, buys less. So when you tool up a factory at the rate over 2,000 firms in the program. There seemed to be of $2 to $3 million, you can't really afford to be a mood within the program to try to help every body. And I think that that has worked to ·the slow, because those pieces of equipment have to be detriment ofthe program. paid for, etc. If you look back at the recent history in the In our discussions, when I have gone to banks or changes in the program, even the concept of even to ·a McDonald's to sell our ability to produce, they have been more impressed that we were in the graduation came about primarily from the cries of S(a) process and that we will be becoming 8(a) either those minorities who felt they couldn't get 167 into the program because there were too many firms women; it shuts out blacks; it shuts out Hispanics. in there and nobody ever, quote-unquote, got out, or And as has been said earlier, those kinds of meetings,from a large majority of firms within the program as Mr. Adams stated earlier, are where the deals arewho felt they had no contracts. made. Yet, within the business world in general, I think I got to McDonald's through an old boy network.we see it work in the so-called 80-20 rule. My point I did not call up the president of McDonald's and heis that those people who have some business experwas ecstatic to talk to me. You know, I knew tise, who have a product to sell and the know-how someone who knew him and he made arrangementsto do that, with an 8(a) program are penalized for for me to talk to them. But had that contact not beendoing that in terms of their ability to go out and made, I wouldn't have been able to walk . to market. The 8(a) program in its simplest form is a McDonald's door and say, "Listen, I grind beef. Cancertification. It sure is not a condition of birth; it is I do yours?" It really doesn't work like that. not a stigma, but the program seems to make it so. But I would like to add, before we get anyHaving said that, the program has been helpful to further-and I'm always concerned when black folkus in the sense that it gave us an opportunity to go have to justify .something that creates an equity out and engage the client, convince them that we situation-these programs for white folks are subsihad a service that met some of their needs, and dies. They are called sole-source situations. Whenbecause I had the certification I could then work to we want to build a missile, we go to one missile encourage the 8(a) program officials to allow me to builder. It's no problem. do that job. When we talk about black folk, we talk aboutWe had an awfully hard time over the first 5 or 6 welfare situations, set-aside situations. So as has beenyears of the corporation-and the corporation is stated, you set up a whole stigma situation that is tonow some II years old. I joined it 51/2 years ago. Up create a system of equality. And I think from youruntil that time, the company was almost forced to panels that you have assembled, there is not a blacktake the work the SBA was going to give it. What entrepreneur who wants anything. The only thingwe adopted was then a strategy of going out and that we want is for the racism to get out of the way,finding our own work and fighting like hell to get and you can't do that unless you're in an environ-·the SBA to allow us to have the work. ment to make money. And those kinds of things areWe have been successful, I think, but without that closed. And one of the ways it's closed is throughcredential, without that ability to go to the client, the old boy network.engage him, and use the 8(a) certification as a way to First of all, they don't tell on each other. So a lotquickly bring that contract to fruition, we would not of the information we find-Mr. Davis has men be anywhere near where we are today. tioned that he knows-it's through someone saying. MR. SCHULTZ. Let me direct this question to the I mean that's not public knowledge. People do notentire panel, whoever wishes to answer. Is there a write articles about it. It's not in the Washington Post.buddy system out there? We have heard testimony Black business people in America wear 12 hats. Weabout this over the course of the last couple of days. have to run our business. But then we have to doIs there a buddy system out there and, if so, does it espionage. We have to find out who's doing what towork to the disadvantage of minority business whom, when, where and how. We have to stay inenterprises? business; we have to stay afloat; we have to feed MR. DAVIS. But of course. We could talk about families. We have to do so many things just to bringthat all day. We know it's out there; we who try to our product-you know, I'm almost sure sometimesoperate in the marketplace, and we who are minorithat someone sets this up, because if we ever got aties. I can speak most authoritatively about my chance to participate in a free market system, whiteindustry. I know that the buddy system is out there. folks would be in trouble, because we go through aI know that they gather and they decide who is lot just to be where we are.going to clean what building, and I am basically I think we need to start talking about some verbaltalking about the commercial market. It's there. hygiene when it comes to what is for black folks,Ms. LucK. I'd like to add something too. There that's the welfare side; and whatever is for Grum7are organizations of folk who get together-and it's man, that's a sole source bid; that's the best way to really basically an old boy network and it shuts out do it, the most efficient. There's a whole different I68 kind of language. And I think we have to really start laying out the language for us. You have asked that question over and over about the buddy system. I don't know if it breaks down, because I'd like to do business with black folk, and I don't want to 10 years from now be accused of doing business with black folks because it's a buddy system. But I think it does hurt us because there is a visible racial barrier to being in those clubs. Once you're in there, you certainly have been allowed to get there, but the problem is getting in there, and it does hurt. MR. BRADDOCK. Could I make a comment? MR. SCHULTZ. Mr. Braddock. MR. BRADDOCK. I think within the arena of Federal contracting that there is a buddy system, but it's a much more insidious kind of a buddy system. If you look at the term "preferential"-and I think it's ironic that, as I read the press, there is a big hue and cry about the evils of preferential programs. Yet, if you read Webster, it simply says, "A preference for or an advantage." And what we are really talking about is the fact that society has always used preferential programs as a means of curing its perceived ills. It is also ironic to state that the so-called preferential programs like an 8(a) program that everybody gets upset about was fostered because of a perception on the part of society that the then-existing preferential program was causing somebody some pain. Whenever you take a step to help those who are disadvantaged, then those other folks are going to get upset. Within the arena of Federal contracting, the kind of buddy system that works is the preference for the known commodity, the older existing company, the IBMs. That is insidious in the sense that if you balance it off against some of the myths about the 8(a) program, where you get poor workmanship, · there's fraud and abuse, and it costs too much money-you read the paper, and that ain't peculiar to us, friend. They are withholding money from General Dynamics. They've had $800 toilet seats. We didn't create that. So the fraud and abuse is not peculiar to the 8(a) programs. But what happens is if we didn't have them, the government would still spend this money with the known firm, the larger firms first, maybe with some of the well-established so-called small business sec ond, and then, getting back to what Toni is saying, with minorities· last because we are perceived as incapable, incompetent, and if I know my textbook, that sounds like racism to me. MR. SCHULTZ. Mr. Blunt, in the construction industry is there a buddy system? MR. BLUNT. Well, I'm not so sure I can answer that question-and I haven't heard the panels and the people who have presented. I have been at it well over 12 or 13 years. I can make a few observations. I would say that the first observation is that the set-aside programs do not appear to be working. Had they been working, quite frankly, there would be a lot more people in the situation such as we find ourselves-emerging. I rather suspect our problem is one of credibility and performance and getting on the inside to demonstrate that we can deliver. And that is a difficult thing. When you deal with humans or deal with the procurement process, they are not going to take any chances. There are a lot of risks out there. And that brings me to the point of discussing construction versus regular goods and services. Construction is perhaps the most risky enterprise we have in our system, where a designer who responds to an owner's needs creates a set of specifications and limits his liability, where the marketplace throws in a bid for a certain price to deliver in accordance with those plans and specifications, where mistakes are made and everything has to be done on schedule or ahead and within a budget. In that kind of a competitive environment, I rather suspect that people are not going to voluntarily reach out and find minorities. I think in that kind of environment for construction we need to provide incentives and strong mechanisms to make people reach out. It has been my observation that the majority of construction contractors are in a peculiar position. On the one hand we are saying, "Find a minority," and on the other hand we're saying, "We're going to take the lowest price." I have to explain that a little. Quite frankly, contractor A might reach a very competent and capable qualified minority firm, but contractor B may not. Quite frankly, voluntarily, just adding someone to the list and trying to compete against contractor A is a dangerous enterprise. Add another dimension. It is quite natural for a contractor to protect his market. And if that large contractor recognizes that he has to give something away in a competitive environment whereby he may be limiting his market, he is not likely to do it. I say that the government has the ability, through its procurement process, to affect the equation. And it seems to me if they could provide opportunities for the larger contractors that they otherwise might not have gotten and require them at the same time to work in joint venture with minority firms, it is possible with that kind of benefit the majority contractors might do something. Just to set it in perspective, I would say that the typical very large construction contractor, the majority construction contractor, does most of his business on a negotiated basis in the private market. What the minority firms are struggling to do is to be able to compete in that private market with the majority firm. They can't do it without a reputation, they cannot do it without bonding, they cannot do it without good access to credit, and certainly, they can't do it without good management teams to bring all of that together. The government can create an opportunity because it has goods and services that it has to procure. The government has to find a way to do that in achieving some kind of incentive for the majority firm so that they, in a competitive environment, will find a mechanism to increase the work that minority firms are doing. It is difficult. Had it not been so, we would be further along today. MR. SCHULTZ. This system you propose, if you could have an incentive-driven system as you have described-we have heard a lot of testimony about shams or fronts or shell organizations-would it also serve to minimize the likelihood of those existing? MR. BLUNT. If it is done in a very open way, I could say, off the top of my head, conceptualize a system that might work. For example, a two-stage procurement whereby ·firms are invited in the marketplace to respond to a requirement, one of the requirements being that they joint venture with a minority firm, and, say, a minimum of X percent. In that first stage, where you examine the technical capacity to perform, the financial strength, the credibility, who would be the sponsor, what relationship the majority firm would have with the minority firm, it would be pretty easy to examine the details of that joint venture as to who is putting up working capital, what the share of the profits would be, what the share of the liabilities would be, and what affirmative activity on the part of the general contractor would be to help the small firm. It could be that he doesn't have to put up a bond. It could be that the small contractor only has to put up a limited amount of working capital, and if more working capital is required, basically, it could be put in by the majority firm without attacking the percentage. There are a number of ways. And I would say after that first stage where three, four, or five firms would come in with their proposals to joint venture with minority firms, a certain three might be selected to compete on price. The government could always determine a fair and a reasonable price, and I submit to you that the competition would bring that in at the market price or below in a competitive environment. And then, of course, one would want to examine the results of this effort to see how the joint venture worked, the penalty being, of course, if the minority firm was abused, some sanctions would be applied. Now, what would make a majority firm want. to do this? It seems to me that in certain cycles of our procurement we find 18 to 20 to 30 firms picking up invitations and sometimes responses by 18 to 20 or 30 firms. Take a $30 or $40 million project-it would cost a significant amount of money to be put together by a large firm. So as a result, they tend sometimes not to want to put the price together when you have so many firms like that, and they walk away from it. The government may not be getting the best performance or the best contract. In fact, in an environment like that, the tendency is for someone to make a mistake or someone to take it at a very low price, and while the government benefits in some respects, it has an awful lot of problems. But I'm saying to you that if a contractor could be assured that he's got a one out of a three chance after that technical phase of winning, he would certainly put out a lot of effort. And it seems to me this might be one mechanism. The concept here is give some kind of a benefit to the majority firms to give them a reason why they could reach out to the minority firms and build them because the government cannot. MR. SCHULTZ. Let me ask the entire panel, beginning with Mr. Davis: You have mentioned the barrier of the old boy's network. What other barriers do you see to the success of your firms-now and in the past? MR. DAVIS. First of all, we do have the old boy network. We have the financial institution. You have a problem with them in terms of getting a line of credit, especially when you're just trying to get started. Then, of course, we have a barrier we can't do anything about. We are so highly visible because we are black, and when we walk in trying to sell our goods and services, people have to get used to that. Because the truth of the matter is, it's only been in the last. 20 years, maybe, that blacks have been in business. For instance, when I was growing up, my family didn't sit around the table talking about business because going in business for blacks in those days was not a viable option. You could be a school teacher or a preacher out of my home town. So those are some of the barriers. They are traditional barriers and everybody knows about them. I know about them the instant I walk in trying to sell my service to somebody. MR. SCHULTZ. Anybody else on other barriers you face? MR. BRADDOCK. Let me make a comment. I think one of the most significant barriers is perhaps the barrier of perception. I heard one of the Commissioners say earlier-and I think I heard him rightthat it should be okay for society in the form of this government to periodically, for the purpose of righting some wrongs or correcting some deficiencies, to distort the free enterprise system and to take care of those folks. I think that right now the thing that really infuriates me, even at hearings like this and when I read the papers, is that we have this constant perception, this blind belief, this blind faith, that the free enterprise system in the marketplace is the way it should be. I have heard the term, "What we really need to get to is a colorblind society." And that scares me to death. Because again I refer you to Webster from the scientific definition, "Inability to distinguish be tween colors." Read it carefully. It also says-and let me read it: "Not noticing or considering." Then it finally says, "Blind, insensitive, oblivious." And what I'm saying to you is that where we sit in our society, I think the set-aside programs have been very· helpful. They have not been anywhere near as helpful as they could have been because every 4 years, 2 . years, we get somebody who says there ought to be free enterprise. And as soon as we get off that dumb podium and look at the realities of what ~goes on out there in this free marketplace-in the time of Plato the marketplace was such a bad place that kids weren't even allowed to go, and that tells you something about the marketplace. So in this marketplace minorities are, indeed, children. If this government does not recognize what is real out there and put its full faith and support behind it as they do with the zero coupon bonds, then we are never going to be able to take the full advantage of whatever the set-aside programs are. MR. SCHULTZ. Mr. Blunt. MR. BLUNT. I would say in construction-and I'm sure the earlier panels have dealt with it-one of the real barriers is access to surety support, bonding. And I say that the general contractors who have the responsibility to deliver to an owner or to the government are being asked to take on a risk that they traditionally pass off to someone else. The contractor manages the work, coordinates it for a fee, and if he has to deal with the minority community and the emerging small businesses, he is going to be coordinating or dealing with work at that level, and he is going to be taking on something which isn't his traditional risk area. In talking with majority firms and asking them this very question, I repeatedly get the answer, "You give me a minority firm or any firm that can give me a bond and I'd be happy to deal with that firm. I can adjust and we can negotiate price, but if they can't come up with a performance bond, then basically I'm not going to be competitive with my other people in the marketplace." More and more today, general contractors are becoming construction managers and passers-on of risk. And to the extent that the small firms cannot come up with this kind of surety support, they can't play the game. That is a significant, real, continuing barrier which can be corrected by money, by indemnities, by the government who could create maybe an improved mechanism to deal with. But unless that is handled in the construction arena where we are dealing with risk, very high risk, it may not be possible for small firms to emerge and continue and to grow, even those firms that want to stay small, the specialty firms. Ms. LucK. I'd like to also add to Mr. Braddock's comments-the entire promise perception-we can not get bonds; we have problems with access to capital; we have problems with access to knowl edge; and all that comes out of the public perception of being a minority and also the public perception that the government is standing around handing out to minorities all these wonderful deals. As many success stories that are in 8(a), you have horror stories in the 8(a) program by insensitive bureaucracies. Companies can't hold out 3 or 4 years while the wheels grind, because you also have humans who are administering those policies who have perceptions that you have this black company that is getting something. What I'd like to see come out of these hearings is the fact that we start talking openly and honestly, that America has yet to participate in the free enterprise system. We have subsidized the automobile industry; we have subsidized the airline industry-we have subsidized transportation, period. We have subsidized farmers. We have subsidized every known entity in this country. Whenever there has been a problem with them, we have come and stepped· in. We subsidize banks through something called the FDIC. But they are called different things because the majority is writing the rules. And I think the most important thing is that someone write some rules that say, "Black folk are now coming up to the table. We have been in this country this year 430 years and we are now coming up to the table to get a parity share, no more and no less." But as long as we keep saying, "Blacks are getting this other thing," like the majority isn't getting that other thing, we're always going to have people administering whatever it is that is handed down legislatively in a haphazard way. So that is always going to be a barrier. And sometimes when you access capital, you cannot get a bond. You have money and you can't get a bond. Or you have a location and you can't get money. Or you have both of those things and you can't get customers, because there's this perception of black folk that they don't do it as good as white folk. And I have to agree, I don't know any black folk who have sold $800 toilets. If I did, I'd be in that business. I could sell 10 a week, you know, and retire. And I think that's real important. But whenever it comes to us, it's a whole different kind of perception. So I think if you gentlemen are very serious about this, the thing that needs to be thought about is how we are perceived. I don't think that I want set-asides forever because I don't like the idea that there is 90 percent over there, and this set-aside thing is for me. I want to jump in there. But how do I get in there? How do I access that business? How do I get into a new business? How do I provide employment for other black folk if I can't break into those industries that have traditionally not been allowed for us? So I think the biggest barrier is the skin color. I can't do anything about it, and if I could, I'm not sure I would. I think it's all right. But I think you have too many human elements of people who are sitting behind a desk earning $30,000, $35,000, and angry that this black person has the audacity to write a business plan that can make $20 million. And they are bringing with them 430 years of that. So without some thought to. that, we are always going to have that problem. We are getting ready to go into the 21st century, and black folk are really in a little worse shape than they were 100 years ago. Because now we can conceivably sit at the lunch counter and conceivably ride at the front of the bus. But we don't make buses, and we have that capability. We don't provide food in large numbers. Black folks don't make food. We don't do a lot of things that we are capable of doing, and that is because of that physical barrier. I'm not sure what we do with that. I don't know how you get into the minds of those humans and say, "Listen, let's go for fairness because unless you do it froni your end and we do it from proving we're· capable business people, we'll always be talking about this." We'll have this kind of hearing in 10 more years about how come the Asian Americansthey're the fastest growing population; so are the Hispanics. Black folk aren't going to be the largest. And we'll still be talking about this kind of stuff. Sci I am concerned about that public perception that this is a handout kind of situation.. And I challenge those people because we are very serious business people. You have Mr. Davis employing 1,000 people. That's serious. There aren't a lot of white firms that do that. So when you see the examples of failures and all those kinds of things, that's not what is really happening. We are out here taking care of some serious business. We'd like you out of our business as fast as possible. We'd like to do $20 million and get graduated so we can go on and do $50 million. We really want to do that. But what is perceived is that we are just hanging out in this program because we don't really want to be in the free enterprise system, and that is really not the truth, and I think we need to change the perception. MR. SCHULTZ. Mr. Blunt. MR. BLUNT. I spoke of one barrier being bonding, and as we know it's tied to capital. Of course, I'm sure we all recognize that .another barrier is lack of equity because, with sufficient equity, we could weather the economic cycles and the . downturns. But there is another barrier. It's a real barrier out there, and that happens to be the natural concentration of power in certain segments of certain industries. I think we recognize that they would not have an antitrust law if that were not so, but I would say that minority firms, small firms, any firm that is emerging, needs at least a helping hand from the government, not necessarily to break up these cartels, but to facilitate a competitive environment. To the extent it does so, it will lower the cost of goods and services and perhaps do a favor to lots of majority contractors. That, in reality, exists when large contractors indicate that they can't find minority firms to do, say, landscaping or guardrail work, but that· typically is what is spoken of when I hear the Associated General Contractors or others, and I'm not really casting these stones there. I'm basically saying that in some markets it is quite obvious it would be very healthy to create small businesses and new opportunities for a healthy environment that would help us all. · So to the extent the government has a procure ment control in certain areas, it should have a policy which facilitates this kind of competition. To the extent we can 'work a joint venture between majori ty and minority firms to facilitate that, I think we will achieve some of our objectives in growing and prospenng. MR. SCHULTZ. Thank you, each of you. I yield to the chairman. CHAIRMAN PENDLETON. Sorry I was out of the room. I had one ear on what you were saying and one ear on the telephone. · If I could just ask a question. Mr. Davis, you and I and Mr. Adams are in the real world, and I just want to pose a scenario and see how you react to it. I can remember living here before the time of integration in Washington, D.C. l remember when the black conimunity before it became a ghetto was a very viable • kind of community, and a lot of it centered around U Street and some parts of 14th Street and some parts of far northeast and some parts of Florida Avenue. In 1954 when Mary Church Terrell and others integrated the Peoples Drug Store at 14th and New York Avenue, the first theater downtown to admit blacks was the Plaza Theater at 14th and New York A venue, and that became symbolic of a couple of things. We were denied entrance to white economic domains. And after we were allowed entrance, we couldn't go downtown fast enough to spend the money that we spent in black communities in many of the stores. You can recall when you couldn't sit at the lunch counter in Lansburg's or Kahn's, or your parents certainly couldn't try on clothes in Garfinckels. They might be able to try on a little something in Lansburg's. It is my belief that we didn't protect black economic institutions when we did that, that as we moved away from what we thought were viable businesses, we ran away and didn't say, "Well, wait a minute, white folks; we have some acceptable institutions this way" and begin to prop up black businesses. That happened in a lot of towns, Pennsylvania A venue in Baltimore, the uptown area in Philadelphia, !25th Street and the like in New York. And the community suddenly died as we began to move out. What I applaud you for is trying to make it in that world that a lot of us deserted. And that is extremely difficult. I don't know how it is you assemble the minority and the black dollar to do what used to be done when they were viable businesses. That is not so much a question as it is a situation that I think bears some consideration. Now, I'm chairman of the board of the San Diego County and Local Development Corporation, and we're an SBA 503 program, and we're the number one 503 program in America, and in 5 years or less we have $120 million on the ground in capital and equipment, and we have been able to combine some 7As with that. And there are close to 10,000 jobs created and saved in that process. I know that SBA is thinking about cutting all that out because the debentures we sell come from the Federal Financing Bank. I don't know what all the answers are, but I would hope that at some point in this whole process we could begin to talk from some historical base about what it is that legitimizes black people in business and minority people in business that at one time was legitimate. I wonder whether or not we delegitimize ourselves or whether or not somebody else did it to us. I have very strong feelings about that, and it was a aside, and not to have minority people and other sad day when I began to see U Street crumble. people blamed for the same principle. That is whereWhen I see my black brothers and sisters all over my head is, and that is why I'm opposed to them town· in all kinds of places that they were never in because there are preferences all the way around,before, it bothers me about where the black commu and I don't want anybody blamed for anything. nity is that they talk about. You guys know that in Mr. Guess. many cases if you had to depend upon blacks to COMMISSIONER GUESS. Mr. Chairman, based onsupport your business, you'd be in deep trouble. what I have just heard you say, logic would dictate So I don't know what we are really talking about from your analysis that it was the desegregation of except I know that you want to survive. And I put public facilities in the city of Washington which ledthat on the record just because I think it's important to the disintegration of black communities, and asto do. And I applaud you all for what it is you have such, logic ,would dictate that the viability of thebeen able to do in the face of great odds. I do believe black communities would be enhanced if we were toyou want to be in the free enterprise system. I really return to a segregated society. Please tell me mybelieve it. And I'm just sorry that the only way you logic is incorrect.can get into it is with the complexities of a CHAIRMAN PENDLETON. It's incorrect, sir. What Igovernment program that may be here today and am saying is that I think we had the obligation may be gone tomorrow, like anything else. with hindsight-to protect the institutions that weI happen to believe that import quotas are sethad in communities and not to destroy them becauseasides. I happen to believe, in contrast to some other we moved in and out of them. I do think that therecolleagues, that farm subsidies are set-asides. And I should be integrated communities, but we cannotalso believe that tobacco subsidies are set-asides. If blame the black community for its own progressthat is going to be the case, then I don't like setwhen a lot of us have left it. I'm only saying that asides like you don't like them, Ted. But I'm clear from the standpoint of observation, Mr. Guess, andthat you're going to have set-asides. And we have in no way do I talk about resegregating America.concentrated this discussion primarily on minority In Baltimore, we know that when the Baltimoreset-asides, and I think the discussion needs to be a city government decided to make the houses availbroader discussion with respect to who gets the fair able in intown Baltimore, they sold them for $1.shake in this country and who has access to the There was a caveat to the $1; you had to spendresources. $50,000 to fix them up and bring them up to code. I'm not talking about whether or not the Defense So where we talk about one kind of development, Department is right or wrong. But why is it that we you know, in a sense that was a different kind of ahave to have a hearing that in a sense castigates subsidy, if you will, but based upon the people,people who are trying to make it and does not whether they were black or white, Mr. Guess, thatcastigate those who are making it, based upon the had the money to move back downtown. And a lot very same principle that governments put out? of the people that moved out could never moveI would just hope that at some point, Ted, we back.could drop our acrimonious discussion and differSo I just want the record to show, in terms of myences about where we are and talk about the broader opposition to set-asides and the kind of treatment,picture and do some comparatives. You and I all I'm not talking about it against minorities and blacks.know that that's the way things go down. I wish the whole thing would be reviewed. That isI'm sorry, my colleagues, that I had to wait until my only point.the last part of this consultation/hearing to say that. COMMISSIONER GUESS. Mr. Chairman, a finalCOMMISSIONER GUESS. Mr. Chairman, could· t point, and this is an extension of the point you and Imake an observation on what you just said? had in a private conversation yesterday, but sinceCHAIRMAN PENDLETON. Just let me end. you injected it for the record, I'd also like to takei don't know what kind of recommendations you this opportunity for the record to invite you to movewant to make to us in terms of where we go with back into the black community as I have done..tliis, but one of my own in the process of when this CHAIRMAN PENDLETON. Mr. Guess, I make myhearing record is put together, I do want to talk own decisions about where it is that I want to liveabout what else in this country is a government set-and what I want to do like everybody else does. 174 . COMMISSIONER GUESS. Thank you, Mr. Chairman. . ·MR. BRADDOCK. Mr. Chairman, may I make a comment? CHAIRMAN PENDLETON. Yes, sir. And you and I know each other, Mr. Braddock. MR. BRADDOCK. We were here at the same time and went to school right across the street from each other. I think what we have to put into real sharp perspective is exactly the scenario that you talked about. But, again, we talk about perception. We grew up and all of our perception about what was good and what was bad we got from the majority. So whatever it was that they had, we wanted to have. When schools were desegregated, when theaters were, we were euphoric. Freedom is worse than cocaine. It's the worst aphrodisiac. You want to go out.and do it without ever examining it. We had theaters· on U Street that were six times better than the theaters downtown, but it didn't make any difference. A case in point, the Kappas used to have a dawn dance every year over at the Armory-a great affair. They desegregated the hotels. We couldn't wait to go to the Hilton where it cost us 12 times as much to have the same affair and had a hell of a lot less fun. It takes a long time to get over that euphoria. CHAIRMAN PENDLETON. I agree with you. M:R. BRADDOCK. I think we are finally getting to do that. Right here in this town now there's an organization of black churches which are forming their own insurance agency so they will collect those fees. They are doing collective banking. It took us a while, but we're finally getting smart. Now, whether we go back into the neighborhoods, I'm not sure. I'm saying we have been on a freedomtrain. We got- CHAIRMAN PENDLETON. -to oblivion. · MR. BRADDOCK. We got equal access to education, to jobs, to housing. Now we have the final piece, which is the equal opportunity to go out into the business world. Now, with respect to set-asides, I would like to foresee a ·world without them. I don't. That is idealistic because, in order to do that, you are going to have to change the minds of men, and that is not going to happen in anybody's lifetime. So I think it's a good and proper function of the government-and it's not perfect because it's human beings-to do whatever it has to do to correct whatever the ills it sees in any segment at any given point in time. I would love to be accepted as I am, but I'm not. Thank you. Ms. LucK. Mr. Chairman, you might not want to say that integration wasn't such a good idea, but I can say it because we are now faced with $190 billion-blacks in America spend $190 billion .annually. I'm not so sure I wouldn't want to be in that exclusively. And I think we have to really consider past 20 years ago. From Reconstruction, blacks have been in business. Blacks have been providing services to each other. And I would like to agree with my fellow panelist, we have really gotten too euphoric about this thing called freedom, and I'm not sure we have it. So I'd like to go on the record to concur with the Chairman, first, and to say that I ·would like to market in that $190 billion market. But we don't respect each other in that market. And it's quite true that if I sold my products to black folk, I don't think I'd be selling a lot of them. And that is because we have lost the idea that we do good business. I'm not sure that cutting things out or putting things on is the idea. I think the whole thing is publicity, PR. If you guys want to spend some money, do some PR about it's good doing business with black folk, and let black folk see that it's good to do business with other black folk. But I have personal problems with integration. I thought it could have gone backwards. I thought the Apollo was pretty neat. I'm from New York, and I thought it would be nice for white folk to come up there and go to the Apollo as opposed to me going downtown to 42nd Street. But I think we have to rethink ourselves. But, Mr. Pendleton, I think that's something black folk have to do, and I don't think you can decodify it. CHAIRMAN PENDLETON. I think you're right. Ms. LucK. I think we have to feel it. But the critical thing we have to keep going back to that is very important, as you have said, is that there are so many people that are subsidized. We're not the culprit. I was saying to someone today in another meeting that I was afraid that the farm situation is getting ready to get us in a riot. Black folk always g.et it when something is wrong. I mean those probably are our farms-you know what I mean, the 40-acre and the mule farms. But the farmers are getting ready to get real mad. And they are getting ready to get mad at black folk, because they're going to be able to put up that we got these set-asides. We become.the scapegoat. So I'm always concerned. I don't know if I'm so happy about having a separate State so they can cut · the water off. I'm just concerned that all these things that put us over here make us appear that we are doing something other than the United States. Like I said, I would like to see free enterprise come to America. It's in Japan; it's in Germany; it's now hit Russia. I would like to see free enterprise come to America, and subsidies and government intervention get out of the way. If Mr. Blunt has a good product, he makes it; if Mr. Adams has a good product, he makes it and sells it; if I make a good product, I make it and sell it without somebody buying my bad product. We have cheese sitting somewhere that's molding because the cheese industry made too much, and nobody wanted to buy it. CHAIRMAN PENDLETON. That's right. Ms. LucK. So it's sitting there molding, and then they give it to old black folk with rio bread. So we sold the cheese twice that nobody wants, and people are angry because we get 10 perceAt of something that we can do 20 percent of. So I'm not sure I want this public dissection for minorities over here. Bakke was ~reated becarlse there was something to create. I'm not even sure I want even more laws on the books; because eyery time we put one on the books somebody creatively files away and takes something else from black folk. So I don't know if I need any more laws at all. I think it's real critical that we start talking ab~ut everybody. I agree with you. We should broaden this up-bring the farmers in, bhng the dairy industry in, bring Amtrak, bring eVerybody in ito justify. Black folks are always justifying what sho4ld have been ours because we helped build this coqntry-and everybody has heard that before, but we keep forgetting it every few years.; Ifthe administration changes, we've got to have-we always are ! commentary. i · I kind of had mixed feelings to even come becatise I'm fueling the commentary. To come is not lso good; not to come is boycotting. Black people get mad at you if you don't come. White people say' you ain't got no courage. I mean you're really in b1ad shape. So we have to start getting very clear why we even come to this. And if I'm going to be subject to it, let's start to put in the mechanism that black folk are not asking for anything more than we deserve. The set-aside program should be something you get into; you get out as quickly as possible. But it's· no different than buying cheese and having it sit in a warehouse or buying wheat and burning it. I think we have some critical things we are not looking at because we are always looking at us. CoMMISSIONER GuEss. Mr. Chairman, Ms; Luck has agreed with you. Do you agree with her? CHAIRMAN PENDLETON. I think there are some things I agree with. I'm not so sure it's a matter of agreement. I think what we're doing now is what they're doing at church-you testify a little bit. As you were saying, Mr. Braddock, Bishop McCollough has a $21.5 million housing project going on in the middle of the community, and he hasn't asked for anything, but the people decided to put their money up. And I guess my concern is that one has to look at whether the government brings you together ·or does it do things, like you're saying, Mr. Braddock, that divide you? And it's a little bit of something over here and a little bit of something over there. I think it doesn't do something for you; it does something to you. And I think a lot of these preferences are a result of doing things to people, IJ.Ot really helping people to get along, like they should be able to get along, and have_ the kind of freedom to do what they want to do.That's kind of fibertarian, but I think it's a very fair position to take from where. my head is. \ Jerry, I started with you, and we got off on ~estifying, but maybe you have something to. say. MR. DAVIS. I don't really have anything to say. I agree with what my fellow panel members have kaid. There's one thing I wanted to say about this ~ntegration issue that you brought up and about all the so-called thriving businesses here in Washington, D.C. There might have been a few, but by and large I ~hey were mom and pop, and I'd like to see us get beyond that. CHAIRMAN PENDLETON. So would I. MR. DAVIS. The next thing I would like to say is that condition-and I was in Washington at the time-was not nationwide. You know, you could go to the Dunbar Hotel here and sleep, but when I was I on my way home to Louisiana and passing through Mississippi, there were no black hotels or motels, so I was relegated to sleeping in the car with my wife and two kids. So I, think integration had to be. And we had to move downtown, and I'm all for that. I think we ought .to have these set-aside programs and create some viable black businesses so we can do some of the things we want to do, realize our aspirations. CHAIRMAN PENDLETON. Bob. COMMISSIONER DESTRO. I would just like to make one comment for the record, and I think it goes to the comment that everybody has made here. On the topic of testifying and saying what you really think, rightly or wrongly, sometimes I am perceived on the Commission as being a representative of the ethnic community. And when I go to some of the communities that are not defined as being minority communities, like the Italian community-the Asian community is, but when I listen to representatives of the Asian community what I hear is the frustration about being defined as a minority. They say, "Look, we don't need to be defined as a minority tb succeed. What we want is the opportunity to do some testifying." And in my recollections of negotiations, most of negotiation is both sides testifying until they cut a deal. What I've heard Mr. Blunt say so far this afternoon is not a whole lot different from what I heard the other contractors say about how contractors do business and what contractors need to do business and to succeed. I wish that more and more people who are involved in business would get down to talking about, in public, in places like this and everywhere else, what it is they need to do business and what it is they don't need. But more and more I've heard here is that there are sometimes very good-intentioned programs that get in the way of progress. And I think we need everybody's help and everybody's support in defining what the problems are and what the solutions are. I really do thank you for sharing your impressions with us. CHAIRMAN PENDLETON. Well, these proceedings have come to, I think, a good end. Mr. Braddock, I hope you still play basketball when you have a chance. Mr. Braddock was quite a ballplayer in one of the colored high schools around here. COMMISSIONER GUESS. Mr. Chairman, do you think he could have been admitted to Georgetown at that time? [Laughter.] CHAIRMAN PENDLETON. He could have been. I'd like to thank Michael McGoings from the staff who, like in our consultation on comparable worth, put all this together with the witnesses. He had some staff help, but it was Mike being the anchor point and making all this happen. And on behalf of the Commissioners, Mr. McGoings, I want to thank you. I want to thank our recorder for bearing with us under trying circumstances. I would also like to note for the record that after taking into account the absences due to illnesses and emergencies and other things, 37 of 42 slots at this 2day event were filled. Even some of the groups which pulled out had already submitted written testimony-that includes all of those people. It is not true that all civil rights advocacy groups declined to appear. Among those groups that appeared were the Anti-Defamation League, the American Jewish Committee, the American Federation of Teachers, and a great number of people who represented minority and women's businesses. In short, the effort to prevent the Commission from hearing a wide range of views, in my estimation, failed. And I thank goodness that everybody came to let us know how they feel about this kind of program. Thank you very much for coming. The results will be out as soon as the transcript is completed. Thank you very much. INDEX A Aceves Construction, Norfolk, Va., 88 Addabbo, U.S. Rep. Joseph, 33 Affirmative action, 9, II, 108, 112, 116-117, 125, 126. See also Employment. Aims,4, 15-16,19,22-23 Enforcement, 10--11, 17, 18-19,20,25,29, 70, 106, 107, 109-110, 112-113, 114-115, 121 Inclusion basis, 28-29, 47, 55-56, 58-59, 68, 73, Ill, 115-116 Productivity and; 8, iS, 107, 118, 127-128 Quotas, goals, timetables, 11-12, 19, 25, 26,28,29,65-66,69-70,72,73, 74, 75-76, 77-78, 79, 80--81, 83-85, 106, 108, 112, 120, 121 Recommendations, 108, 109, Ill, 112-113, 120, 121, 122 Regulations, 2-3, 4, 12-13, 14, 17 Reverse discrimination, 15, 38, 45-46, 47, 72, 80--81, 106-107, 117, 124, 126-127 Statistical analysis, evidence, 3, 4, 5, 7-8, 17, 19-20,29,51, lOS Underutilization and underrepresentation, 2-5, 10, 12-13, 17-18, 19, 71-72, 73, 74, 86, 113 ARi1111ative Discrimination, 115 Albuquerque, N.Mex., 143 Algood, U.S. Rep., 22 . American Coalition for Traditional Values, 73 American Indians, 39, 51-52, 139, 143, 151 Arizona, 151 Asian Americans, 6, 7, 2S-29, 30, 39, 47, 49, 51,55-56,62,111 Asian Indians, 39 Associated General Contractors, 56-57, 87, 173 Associated Specialty Contractors Association, 89 Availability, 3-5, 13-14 B 11aJuke,25,47,55,59,66,67, 164,176 Barriers, 51, 70, 93, 101, Ill, 120, 157-158, 159, 161, 168-169, 170--173 Bell Telephone Co., II Bell, Travis, 64 Bonding,47,64, 133,143,146,151-152,167, 171 11rown v.11oard ofEducation, 6, 25, 65 Business development, 35-36, 52, 58, 96, 168, 173. See also Education, Set-asides. Bonding,47,64, 146,151-152,171,173 Capitalization, 35, 43, 48-49, 50, 52, 62, 153, 166-167 Discrimination, 70, 93, 168-169, 171, 172 Fair share, 52-53, 55-56, 58, 69, 70, Ill, 161-162, 164-165 Joint ventures, 47, 100, 160, 170, 173 Old boy network, 50--51, 134, 135, 137, 143, 144-145, 147, 149, 157-158, 159, 168-169, 170--171 Other barriers, 93,158,169,171 Types,49-51,62-63,92, 153 11usiness Week, 92 c California, 96 California Achievement Test (CAT), 8, 31 Capitalization, 35, 43, 48-49, 50, 61, 64, 153, 167,171-172,173 Cardozo, Justice Benjamin, 66 "Casey" study, 157 Catholics, lOS Census, U.S. Bureau ofthe, 5 Chicago, 43, 44, 57 Chicago Tribune, 42 Chronicle ofHigher Education, 110 Civil Rights Acts, 108, 109 sees. 1981 and 1983, 48 Title VI, 67 Title VII, 48, 107, 114, 117 Colorado, 101 Commission on Civil Rights, U.S., I, 9, 14-15,21,29-30,33,34 Recommended actions, S-9, 77-78, 84-S5, 96, 120 Commission on Excellence in Education, -President's National, S Constitution, U.S., 6, 40, 4S, 65-66, 9S Construction contracting, See Set-asides D Dade County, Fla., 46 Davis-Bacon Act, 9, 22, 23, 57,60 DBEs, See Business development, Set-asides DBEDirectory, 135 Defense, U.S. Dept. of, 36, 157, 162, 167 DeFunis v. Odegaard, 67 Department of Labor, U.S., See Office of Federal Contract Compliance Programs Discrimination, 2, 3, 6-7, 16-17, 18, 22-23, 27,31,43-44,50-51,69-70,75,93,98, 106-107, 108-109, 121-122, 125-126, 135 Durham, N.C., 136 E Earnings, See Employment Economic development, See Business development Economic Opportunity Loan program, 61 Education, 82-83, 112-113, 116, 122 Business and professional, 6, 49-50 Quality of, 7, 8, 9, 23, 30, 31-32, 42, 49, lll, 112 Training, 12, 47, 50, 64, 78, 83, 89, 91, 94, 100, 133-134, 145, 153 Vouchers and tax credits, 23, 123-124 Ellison, Ralph, 72 Employment. See also Affirmative action At MBEs and WBEs, 57-58, 92, 103 Discrimination in, 9-10, 17, 18, 22-23, 72, 74, 108-109, 120, 125-126, 128-129 Earnings, 8, 23-24, 30, 48-49, 51, l13-114, 115, 123 Effects of affirmative action and Title VII on, 14, 24, 75, 84-85, 106-107, Ill, ll2, 114-115, 117, 118, 123, 126-127 Underclass, lll, l19, 122, 123 Energy, U.S. Dept. of, 37 Engineering News, 101 Equal Employment Opportunity Commission, U.S., 5, 108, 114, 121 Executive Order 11246, 59 Executive Order 11625,156 F Farm subsidies, 40, 41, 148, 149, 161, 172, 174, 175-176 Federal Aid Highway Program, sec. 59(1), 39-40. See also Set-asides Federal Government, See Government contracting, Set-asides, Affirmative action Florida, 82-83 Frances Construction, 88 Fullilove v. Klutznick, 46, 47, 53-55, 66, 67 G Gardner, Ed (businessman), 61 General contractors, 39, 50-51, 136. See also Set-asides General Services Administration, U.S., 36-37 George Mason University, 32 German Americans, 8, 31 Goals, See Affirmative action, Set-asides Government contracting, 36, 46, 50, 57, 59-60, 63, 87-88, 93, 96, 159-160. See also Affirmative action, Business development, Set-asides, State and local government Agency performance, 36-37, 52 Bid system, 38-39, 43, 143, 157, 158, 170 Graduate Record Exam (GRE), 6-7, 31 H Heckman, Prof. James, 125 Hishon, 124 Hispanic Americans, 7, 39, 47, 49, 51-52, 85, 96 I International Personnel Management Association, 129 Invisible Man, The, 72 Irish Americans, 31, 68, 72, 108 Italian Americans, 72, 108, 177 J Japanese Americans, 7, 8, 68, Ill Jencks, Christopher (author), 108 Jews, 6, 8, 68, 72, 108 Jointventures,47,160,170,173 K Kansas, 147, 153 Kansas Dept. ofTransportation, 146-147 L Latin American Manufacturers Association, 94 Law School Admission Test (LSAT), 8 M Macy Foundation, 83 Manufacturing, 50 Marshall, U.S. Justice Thurgood, 6, 25, 55, 59 MBEs, See Business development, Set-asides Me ican Americans, 6, 8 Minimum wage, 9, 12 Minority Business Development · Commission, 52 "Minority Business in the Eighties," 44 Mitchell, U.S. Rep. Parren, 155 Montana, 135 N NAACP,22 National Association of Manufacturers, 86 National Association of Minority Contractors, 87, 89 National Association of Women Business Owners, 91, 92 National Construction Industry Council, 97 National Journal, 41 New Mexico, 147-148, 151 New Republic, 42 "New Strategy for Minority Business, A" 44 New York, 119, 132 New York State Dept. of Transportation, 132, 133, 141 North Carolina, 141 0 Occupations, See Employment Office of Federal Contract Compliance Programs, U.S., 4, 11, 13, 112, 113, 114 Old boy network, See Business development Oregon, 144, 151, 153-154 p Plessy v. Ferguson, 68 Polish Americans, 6, 31, 59 Powell, Justice Lewis F., Jr., 66, 67 Productivity, 8, 18, 107, 118, 127-128 Professional and Administrative Gareers Examination (PACE), 7 "Program Under Attack, A" (SBA), 155 Prospect Associates, Ltd., 91 Public Law 85-536, 87 Public Law 95-507, See Small Business Act Public Law 97-424, 87 Public Works Employment Act of 1977, 46, 51,59 Puerto Ricans, 6 Q Quotas, See Affirmative action R R&E Electronics, 96 Reagan, Pres. Ronald, 156 Rehnquist, Justice William H, 55 Remedies, 9, 29, 47-48, 54-55, 69, 100, 121 Roselm Industries, 96 s Samuelson, Paul, 92 Samuelson, Robert]., 109 Sanders, James (SBA Administrator), 96 San Diego County and Local Development Corporation, 173 Scandinavian Americans, 108 Scholastic Aptitude Test (SAT), 6, 8, 30-31, 32,42 Senatorial Trust, 155, 156 Set-asides, 35, 39, 57-58, 69-70, 87, 95, 101, 144, 156, 172. See also Business development, Government contracting Aims, 35, 37, 42-43, 61, 93, 161-162, 167 Beneficial, 51, 102-103, 155, 166-168 Case histories, 90, 95-96, 154, 155, 157, 165-168 Cost, 43, 51, 90, 97, 98, 99, 100-101, 143, 145, 148, 157, 162-163, 169, 170 Good-faith efforts, 98, 113, 133, 138, 144, 145, 146, 147 Graduation, 90, 91, 100, 141, 147, 159, 162, 167-168 Inclusion in, 28-29, 39, 46-47, 51-52, 53-54, 55-56, 60-61, 98, 100, 116, 150, !62 Need for, 48-49, 53, 87-88, 93, 156-157, 160-161, 171 Harm from, 40, 132, 134-135, 135-137, 143, 144, 145-147, 153-154 Negative, 38, 39, 40,45-47,61, 138, 141 Recommendations, 37-38, 44, 48, 64, 88-89, 91, 93-94, 96, 97, 98-99, 100, 133, 138, 143-144, 145, 147, 152-153, 157, 159-160, 161, 162, 169-170, 172, 173 Shells, 133, 135, 143, 144, 145, 151 Small business, 87, 94, 101 Women and, 93, 94, 158-159, 163-164 Slavery,47, 75-76,81 Small Business Act, sec. 8(a), 43, 61, 88, 90-91, 93, 95-96, 101, 155, 156, 157, 159-160, 161-162, 163, 165-168, 171-172. See also Business development, Set-asides Small Business Administration, U.S., 41, 49, 52,61,63,90,91,96, 157,159,168 Spokane, Wash., 135, 139, 140 Sports, 8, 20, 21, 31, 72, 82 State Against Blacks, The, 5, 8, 22 State and local government, 43, 44, 59-60, I 0 I. See also Government contracting, Set-asides Compliance, 133-134, 141, 144, 146, 147-148 Fullilove, 53, 66 Requirements, 38-39, 40, 97, 132, 133, 134, 139, 147-148, 151 Set-asides, 39, 40, 46, 104, 136 StateofSmaU Business, The, 92 Stevens, Justice John Paul, 46, 53-54, 58 Stewart, Justice Potter, 55 Stotts, 29, 66, 67, 121, 125 Subcabinet Group on Civil Rights, 76-77 Supreme Court, U.S., 6, 29, 46, 47, 48, 66, 66-69, 112 Surface Transportation Assistance Act, 43, 135 T Taylor, Charlotte (author), 92 Technical assistance, 64, 89, 94 Tennessee, 60 Tennessee Valley Authority, 52 Tests, 6-7, 8, 18, 30-31, 32, 42, 75, 82-83, 111, 119 Texas, 101-102 u Univox ofCalifornia, 158 v Veterans Administration, U.S. 36, 52,90 w Wa//Streetlouma/,110 Washington, D.C., 55-56 Washington, George (President), 72-73 Washington, Harold (mayor), 61 Washington State, 134, 140, 141 WBEs, See Business development, Set-asides Weber, 66, 125 Wedtech, 95-96 West Indian Americans, 7, 108-109 Wholesaling, 50 Women in the Business Game, 92 *U.S. GOVERNMENT PRINTING OFFICE: 1986-620-610:40708 181