Monday, March 9, 2015

Gender Quotas for Corporate Boardrooms - A Horrible Idea

On March 6th 2015, Germany passed a law that requires its large companies to allocate 30 percent of their seats on non-executive boards to women by the beginning of next year. Germany's lower house of parliament passed this law due to the fact that women are grossly under-represented in the top echelons of the corporate world (only 11.7 percent of executive posts were held by women).

Proponents of the law claim that the law is needed because women need to have a voice at the level where decisions on working conditions and pay are taken.

Germany has become the latest country to pass an affirmative action law for women. Norway became the first country to have legislated a gender quota in 2003. Other countries, including France, Malaysia, Belgium, Iceland, Italy, the Netherlands, and Spain followed suit.

Now that Germany, the largest European economy and the fourth largest economy in the world, has taken a stance on this issue, I believe that it is only a matter of time before the idea becomes accepted throughout the rest of the European Union. And in time, though who knows how long, it will become a goal that all politicians in the world will support as more and more people will rhetorically ask, “If it works in Europe, why can't it work here?”

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However, I remain firmly opposed to legislating a gender quota just as much as I have always opposed practically any other form of artificially mandated quotas.

Unintended Consequences

The stated goals of establishing a gender quota is to increase the number of women in corporate boardrooms. However, is that the end goal in and of itself? If the goal is merely to increase the number of women in corporate boardrooms, then that would be a silly goal indeed. However, if the ultimate goal is to improve working conditions and wages for women in general, then the goal might not be so straightforward.

One of the unintended consequences of Affirmative Action laws vis-à-vis African Americans is the tokenism that people feel. Whether or not the feeling is truly justifiable is secondary. What is important is that the feeling is real. It is more than likely that tokenism will be just as prevalent when it comes to legislating a gender quota as much as there has been for racial quotas.

When female hires, who might be brilliant, are painted as obligatory and unwanted diversity hires, that can set a negative tone at the top of any corporation. It will also send a damning message  that women cannot successfully compete in the workplace without government intervention.

It is up to private businesses – not the government – to incite change. Admittedly, forcing a gender quota would be one of the fastest paths to bring about change. But at what cost?

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Trickle-Down Economics for Progressives

Many progressives have criticized and challenged Trickle-Down Economics (see here, here, and here), often referring to it as “Voodoo Economics.”

The irony, however, is that Trickle-Down Economics does not actually exist. It is a lie. Trickle-Down Economics was a phrase that was devised in the United States in the 1980s when the Democratic Party needed a a catchy zinger to attack President Reagan's economic policy. The phrase was a remarkable political slogan as it painted Reagan and other advocates of tax reduction as sycophants who had all been bought and paid for by greedy billionaires at the expense of the poor and the middle class.

So, I will echo Thomas Sowell's challenge and dare anyone to “quote any economist outside of an insane asylum who had ever advocated this “trickle-down” theory.”

The thing is, contrary to popular opinion, no advocate of tax reduction actually endorses Trickle-Down Economics.

Ironically, again, there are plenty of progressives who do believe in their version of Trickle-Down Economics. One of the rationale behind establishing gender quotas is the belief that once there are more women in positions of “economic power,” they will make “the system” a bit more women-friendly, from top to bottom. If that does not sound like Trickle-Down Economics, I don't know what does.

But is there any evidence that suggests that forcing an increase in the number of women in corporate boardrooms have translated to better conditions for women at the lower rungs of the corporate ladder? There appears to be no such evidence. For instance, this study states that Norway's move “did not boost female enrollment in business schools, significantly reduce the pay gap or foster a more family-friendly culture in the workplace.”

Voodoo Economics, indeed.

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Political Force vs. Individual Liberty

Businesses exist to make money. Public companies are owned by shareholders who have risked their own capital in the hopes of making a return on their investments. Therefore, the business must be run primarily for the benefit of shareholders. To quote Milton Friedman, “there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

Therefore, any time a business decides to employ anyone, they do so with the aim of making as much money as possible. So, whether a business chooses to employ a man or a woman, it is typically because the person hired will likely result in greater profits for the business.

Note that I used the word “business.” In reality, however, business is not a living entity. Only people can choose to employ other people. So, when a government legislates a gender quota or a race quota, that means that the government is denying people the freedom to associate or contract with whomever they choose.

Though I understand why progressives and feminists would support a gender quota, once again, we have to ask “at what cost?”

Also, we have to ask whether the involvement of the government in establishing gender quotas will actually help to combat sexism. My position has always been that equality is better achieved by treating everyone as equally as possible than by relying on the legal use of force, which will more likely breed resentment than anything else.

There is more than one way to measure costs!
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The Market Does Not Solve All Problems!

This is the typical response that I often hear when I say that government interference will not solve a problem, and that the market provides better solutions.

In case I hear it again, I would like to nip it in the bud right away. No, the market does not solve all problems. In fact, I do not know anyone who has ever subscribed to such a caricature of an idea, least of all myself. The free market is merely the function of the free exchanges of goods and services entered into by individuals. Therefore, the market cannot “solve” anything other than the immediate needs of the sellers and the buyers to sell or buy goods.

Case in point, absent external social engineering, such as education or economic sanctions or outright war, if a society's traditional attitudes, mores, and values differ from what is considered mainstream views (à la Pakistan's tribal areas) economics alone will not lead to social changes.

It is certainly true that there are some business owners who simply hate women or ethnic minorities. Yes, they will practice discrimination in its ugliest form. However, what is also true is that market forces are stacked against them. Though neither racism nor sexism is entirely gone, and I doubt that it will ever be completely gone, both have become more and more unpopular attitudes to hold in the modern world.

Also, competition between businesses ensures that bigoted business owners will think twice before refusing to hire competent prospective employees lest a less bigoted competitor employs them.

In the modern world, the punishment for sexism and racism can be swift and terrible. Case in point, it did not take long for Sweet Cakes by Melissa (check the comments section here), a bakery in Oregon that refused to make a wedding cake for a lesbian couple, to go out of business.

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Why Corporate Boardrooms?

Does anyone really know why women are under-represented in corporate boardrooms? If anyone can actually answer that question, I think several Nobel prizes might be in order. I do not have a definitive answer to that question. I doubt that anyone actually does.

But here is what we do know. We know that women are equally represented in certain occupations such as journalism, medicine, and the law. We also know that women are over-represented in other professions such as social work, nursing, and teaching. Finally, we also know that women are under-represented in other professions such as engineering, IT, the police, and the military.

Therefore, it seems that lifestyle and career choices seem to determine which occupations women choose. Granted, the majority of people face social engineering based on their genders from a very young age, but that seems more of a societal problem rather than an economic one.

So why have progressives, feminists, and governments focused on establishing gender quotas for corporate boardrooms and not others? After all, corporate elites live very different lives from the rest of us. They attended the most exclusive universities, and they live and work in economic strata that is out of most people's reach.

Therefore, whether those chosen to belong to corporate boardrooms are men or women, there seems to be very little evidence that suggests that they have an effect on those on the lower rungs of the corporate ladder. For instance, an upper middle-class Korean woman who has a senior position in Samsung probably has more in common with a Japanese woman of her class who works at Sony than the former does with a working-class Korean woman who works at the same company.

Focusing solely on corporate boardrooms is akin to treating a symptom rather than the cause of a disease.

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Attempting to force a gender quota or a race quota or any other kind of quota on private businesses is both immoral and ineffective. It sounds good on paper. It sounds like the fair and just thing to do. It is not. It is feel-good politics. And it ought to be questioned and challenged every step of the way.

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  1. "Trickle-down economics for progressives"

    Brilliant point, John. Voodoo socio-economics is little more than politically correct wishful thinking. Nice to hear someone come out and say it.

    1. Thank you much. That being said, I cannot take credit for it. It was a brilliant point that was originally made by Professor Thomas Sowell many years ago.