Two Kinds of Discrimination With a Solution

There have been a lot of discrimination stories in the news.  Of course, last summer began the stories of Ferguson, MO.  But recently, Elaine Pao filed a discrimination lawsuit against her former firm, Kleiner Perkins.  Indiana passed a law on religious freedom and the backlash was quick.

I don’t have a government mandated answer to discrimination.  Virtually all the ones we have tried haven’t worked very well over time.  Discrimination still exists everywhere.  As a white male, in certain situations even I have felt the sting of discrimination.  It’s not constant, but I got a flavor of it and it doesn’t taste good.

I agree with some government legislation that ensures equal treatment under the law.  But, it seems like to me that every time someone feels disenfranchised, they are running to court.  Or, they are trying to create issues where they aren’t.  If every issue boils down to discrimination, then it’s hard to root out real discrimination.

Sometimes, people go through life with a chip on their shoulder looking and sniffing around for discrimination.  If you go through life with that attitude, you will find it everywhere.  At the same time, we can’t be naive and say it doesn’t exist.  There is a balance, and I would prefer the balance to tip slightly in favor of the assumption that the American society doesn’t discriminate.  If you think about life that way it’s easier to see when it does.

I don’t deny that networks matter. Sometimes it is hard to break into a network.  Sometimes it is not race/gender based but belief based.  Try being an out of the closet Republican in Chicago!  It’s up to the leaders of those networks to create the opportunities for people to break in.  At least if the way in is transparent, people can decide whether it’s worth it to try and break in.

If we agree that discrimination can’t be cured by government edict, then how does the problem get solved?

Markets.  Markets are the greatest merit based allocators of all resources known to mankind.  Economist Gary Becker published a thesis on discrimination in 1957.  It was ground breaking.  After he passed away, Professor Kevin Murphy published a nice read on the thesis.  Becker was no stranger to discrimination himself.  He was denied acceptance at Ivy League schools because he was Jewish.  It’s one of the reasons he wound up at the University of Chicago.

The entire book, and Professor Murphy’s succinct analysis of it are worth reading.  Here is an excerpt of it and will give you a clue as to how Becker thought about the problem,

Employing this approach, Becker made a central observation: discrimination has consequences for people being discriminated against, as well as for the people engaged in it. If discrimination depresses the wages of black workers relative to those of similarly qualified whites, a discriminator who, say, does not want to hire black staff will have to pay more to hire white employees. This creates two costs: the black worker is paid less, and the discriminating employer incurs greater expense to obtain the same productivity.

Becker predicted that over time black workers would be pushed out of places where discrimination was prevalent and disproportionately work where discrimination was least evident. This, in turn, would reduce the impact on black workers relative to a world where they were allocated randomly across employers. Becker’s economic model reduced a charged social issue to an economic fundamental, supply and demand.

In the mad rush for talent at tech companies, and in any other highly skilled job, it’s advantageous NOT to discriminate.  My assumption is that in Silicon Valley and other tech centers, every company can use more engineering talent.  Color, gender, sexual orientation are the least of their worries.  All they want is people that can execute and get along with the rest of the team.  Companies that don’t discriminate should do better in the long run that companies who do.  The same applies for venture capitalists, law firms, and any other company we are thinking about.

I don’t look at anything other than merit when I write a check to a company.  If I were to discriminate on the basis of some artificial standard, it would cost me money.  It’s stupid.  In Chicago, I am seeing more women and non-white entrepreneurs.  Hopefully they feel accepted by the community.  At least the people I know in the community aren’t giving them the cold shoulder because of things that don’t matter.  The people I know in Chicago worry about a couple of things; can you execute and is your business worth getting involved in? Also, does your business fit my personal investment profile?