Texaco's Uncompensated Victims
Suppose the management of a
large corporation (call it Texaco) discriminates against blacks in hiring and
promotion. Who are the victims of that discrimination? The most obvious
candidates are the black workers who are denied suitable positions. But there's
a second class of potential victims: the corporate stockholders, who are denied
the services of those black workers.
You might
guess that when there is discrimination, stockholders suffer less than the
black workers do. In fact, it's more likely to be the other way around, for
reasons I will explain as I go along. In that light, boycotting Texaco products
would be cruelly ironic. Boycotts lower corporate profits, which punishes not
the discriminatory management but the innocent stockholders--that is, not the
sinners, but their victims. There is even greater irony in the reports that
management will atone for its sins with a $176 million payment to black
employees--all of which will come directly from the pockets of those now doubly
victimized stockholders.
To see why the stockholders bear many of the costs of
discrimination, let's think through a few alternative scenarios.
Scenario 1: Suppose
that jobs at Texaco are pretty much interchangeable with jobs at, say, Exxon,
Mobil, and other competing companies; suppose also that discrimination is a
problem only at Texaco. Then it's easy for Texaco's black employees to escape
discrimination by taking jobs elsewhere. The positions vacated by Texaco's
blacks will be filled by whites, presumably of about equal competence. (Because
we've assumed that Texaco jobs are interchangeable with Exxon and Mobil jobs,
there's a large pool of workers at those firms for Texaco to draw on.) In this
scenario, Texaco ends up with an all-white work force, but no harm is done to
anybody: Blacks who would have worked at Texaco end up in equally desirable
jobs at Exxon; Texaco stockholders who would have profited from the wisdom of
black executives end up profiting from the equal wisdom of white
executives.
Scenario 2: Suppose
again that jobs at Texaco are interchangeable with jobs at Exxon and Mobil, but
suppose this time that discrimination is rampant throughout the industry. Then
Texaco can treat its own black employees badly, but no worse than the industry
standard; if conditions at Texaco get worse than conditions at Exxon and Mobil,
all Texaco's black employees will move to Exxon or Mobil. (Similarly, if there
are comparable jobs available in other industries, the oil industry as a whole
cannot treat its black employees any worse than the standard set by those other
industries.) So, in this scenario, blacks can be harmed by discrimination in
general--but they do not suffer any additional harm from Texaco's
policies in particular.
In this
second scenario, it's the stockholders who suffer for the sins of the
management. To see why, consider this example: Suppose that throughout the oil
industry, white executives earn $100,000 while otherwise identical black
executives earn $60,000 because of discrimination. Then Texaco could slash its
payroll by firing all its white executives and hiring blacks to replace them
at, say, $65,000 each. If the management is too blinded by discrimination to
pursue that option, then the stockholders end up paying an unnecessary $35,000
per executive per year.
You might want to argue that paying blacks
$65,000 to do a $100,000 job is itself a form of discrimination. I'd want to
argue otherwise, because in the case I'm envisioning, the wage differential is
driven not by racial preferences at Texaco but by profit opportunities created
elsewhere in the market. But that is just a matter of definition, and we can at
least agree on this: No matter how you define discrimination, hiring
blacks at $65,000 is surely less discriminatory than refusing to hire
blacks at $65,000. And, again, no matter how you define discrimination, the
bottom line is this: If Texaco discriminates less than everyone else, it ends
up with lots of black executives and a tidy profit for the stockholders; but if
Texaco discriminates as much as, or more than, everyone else, that profit
opportunity is thrown away. So when Texaco's management is highly
discriminatory, Texaco's stockholders are the big losers.
Scenario 3: Suppose that, contrary to the first and second scenarios,
it's not true that a job at Exxon or Mobil is pretty much the same as a job at
Texaco. Suppose, instead, that each job requires skills so specific that there
is a single best person for each job and a single best job for each person. In
this scenario, discrimination at Texaco is indeed costly to those black
employees who are thereby excluded from their ideal jobs or forced to accept
lower wages in order to remain in those jobs. But in this scenario,
discrimination becomes even costlier to stockholders, who now own shares in a
company that does not make the best possible use of its black talent--and even
drives some of it away.
To summarize: In Scenario 1, there are no victims; in
Scenario 2, the stockholders are the only victims; and in Scenario 3, the black
workers and the stockholders are victims. The truth is probably some
combination of these three stylized scenarios. So, if Texaco has indeed
discriminated against blacks (and it's worth noting that the evidence for that
proposition is shaky, but I'll accept it for the sake of argument), it's quite
likely that Texaco's stockholders have borne most of the cost.
If Texaco executives had
indulged their personal tastes for Van Gogh oil paintings at a
multimillion-dollar cost to the stockholders, it would be self-evident that the
stockholders had been plundered. If Texaco executives indulged their personal
tastes for racial discrimination at a multimillion dollar cost to the
stockholders, the same conclusion should be equally obvious.
If there was enough
discrimination at Texaco to merit a $176 million settlement with the employees,
then there was enough discrimination to merit a commensurate payment to Texaco
stockholders--not from corporate coffers, but from the personal assets of the
corporate executives who bilked their investors by failing to hire the best
bargains in the labor market.
