Tuesday, June 30, 2009

Affirmative Action

Does affirmative action work ? Especially in an economic setting ? News on this theme, from two corners of the world caught my attention yesterday.

In Malaysia, they have eased the minimum Bhumiputra limit on investment in listed companies from 30% to 12.5 %. Bhumiputras are ethnic Malays. They are by far the majority ethnic group in that country although the ethnic Chinese are economically more prosperous. Ethnic Indians also constitute a significant minority. Laws in Malaysia , on virtually every aspect of life, are heavily tilted in favour of Bhumiputras and resented by the ethnic Chinese and ethnic Indians. In the economic sphere, this requirement of Bhumiputra ownership has brought little economic value.

From the US, of all places, I read yesterday of the incredible legal fight in the New Haven firefighters case. The New Haven fire department conducted a written test as a means of deciding who to promote. The test was mostly passed by whites ; black and Hispanic candidates failed. New Haven was terrified of a legal suit of race discrimination. So they decided not to promote anybody. Now the white firefighters brought a suit alleging discrimination. It went all the way to the US Supreme Court who decided 5-4 yesterday and upheld the white firefighters’ case. It’s a classic situation of damned if you do and damned if you don’t.

India , of course has a long history of affirmative action which is caste based. Various politicians stoke this at convenient points in time. In South Africa, Black Economic Empowerment is another race based affirmative action, similar to the Bhumiputra model.

I raise this subject, because China seems to follow a different model, at least on the economic side. While China is overwhelmingly Han, there are 55 recognised ethnic minorities. In economic matters, China seems to favour development of the inputs to the ethnic minorities rather than reserve or favour on the output side. They build infrastructure in the ethnic minority regions. They invest heavily in education in these regions (ethnic minority students get extra points in entrance exams but there is no reservation, I think). They force teachers from other regions to go to these regions as a means of developing education. They provide incentives for companies starting economic activity there. But at the “output” end – in terms of jobs, or promotion or shareholdings, there is equality. No discrimination for or against. Whatever we may say about the cultural or religious situation of China’s ethnic minorities, on the economic side this seems to have worked.

I am no expert on this subject, but China’s approach of heavily providing “inputs” and having no affirmative action on the “output” seems to appeal. Sure, it doesn’t win minority votes, but economically, it seems to be a better model.