Stop Waiting for Capitalism to Cure Inequality

Stop Waiting for Capitalism to Cure Inequality

In 2017, Denise Young Smith summed up the modern approach to Diversity and Inclusion while speaking at a conference in Bogotá, Colombia. “There can be 12 white, blue-eyed, blond men in a room and they’re going to be diverse, too,” Apple Inc.’s vice president of D&I at the time said. “They’re going to bring a different life experience and life perspective to the conversation.” She apologized for the remarks a few days later and left her post not long after that, but her comments were revealing. Diversity initiatives had drifted far from their original mission to get more women and minorities up and down the corporate ladder.

Stop Waiting for Capitalism to Cure Inequality

At the heart of Smith’s thinking was a mantra that had been driving human resources departments for the previous decades: the business case for diversity of thought. After the civil rights movement, affirmative action—laws and practices that give special consideration in hiring to groups that experience discrimination—had been the driving force behind workplace equality initiatives. But in an influential 1990 Harvard Business Review article, a former organizational behavior professor named R. Roosevelt Thomas Jr. introduced corporate leaders to a new approach that, frankly, they found more palatable.

Thomas argued that policies forcing companies to remedy centuries of slavery and racism by hiring more Black people had done their job, and it was time to move on. White men no longer entirely make up the U.S. business mainstream, he wrote, and widespread prejudice no longer kept minorities out of jobs. “The realities facing us are no longer the realities that affirmative action was designed to fix,” he said.

Instead, he urged leaders to learn to manage their increasingly diverse workforces so people of all races, genders, and ethnicities could flourish. And why should organizations do this? Because it’s in their financial interest. “I believe only business reasons will supply the necessary long-term motivation,” he wrote.

The theory is simple: Capitalism can solve workplace inequality all by itself. Employers that discriminate based on race, gender, or anything else are losing out on productive workers, and therefore potential profits. But, it’s not only that. Diverse teams comprised of individuals from a range of backgrounds and experiences perform better than those driven by groupthink, giving companies an incentive to diversify their ranks. It would be stupid to pass up the competitive advantage, and shareholders shouldn’t let them.

It’s hard to overstate this essay’s influence. After Thomas’s death in 2013, obituaries referred to him as the “founding father” and “pioneer” of the modern D&I movement. His words spawned a multibillion-dollar industry that’s driven policies at hundreds of companies. Diversity of thought, not inequality, became the focus of corporate human resource departments, and over time that grew to include things like ideological, geographic, and socioeconomic differences. “It became about everything except racial injustice,” says Pamela Newkirk, author of Diversity, Inc.: The Failed Promise of a Billion-Dollar Business. “That’s why we haven’t seen much progress.”

Indeed, capitalism’s invisible hand hasn’t made the market more efficient when it comes to eliminating racial barriers. Anyone who’d been paying attention was well aware that progress over the past few decades had been scant. White men still dominated the top jobs and made the most money, and Black workers in particular had been left behind. Still, the D&I machine kept chugging along. Then, the police killing of George Floyd and worldwide protests sent a sudden jolt to businesses. Companies had to answer for why their workforces remained so White at the top and why they weren’t doing more to address systemic racism. “It certainly changed the rhetoric around diversity,” Newkirk says. “We’re beginning to return to a sense of reality around race and how we have not solved that problem.”

Stop Waiting for Capitalism to Cure Inequality

What we’re seeing now isn’t exactly a return to affirmative action but rather a swing back in that direction. First, companies are admitting that racism persists and needs its own set of specific solutions. “Recent events in America are a sobering reminder of our country’s long and troubled history of racial inequality and injustice,” Capital One Financial Corp. said in one of many statements like it released by the biggest U.S. businesses in the weeks following Floyd’s killing. In other words, Thomas was too hasty: The realities facing us are still those affirmative action was designed to fix.

That mindset shift has already led to different approaches. In years past, companies might have set hiring targets where they would aim to increase the percentage of new Black or Latinx hires—a strategy that, at best, would change overall workforce composition incredibly slowly. Anything more aggressive than that was too close to a quota, an unpopular and, in some cases, illegal policy. Private employers in the U.S. have a little more legal leeway than universities, though, and are allowed to have temporary targets to eliminate conspicuous racial imbalances in segregated job categories. In the last few months, at least half a dozen of the biggest U.S. companies have done just that, adopting concrete targets for adding more Black people to top jobs. Ralph Lauren Corp. aims to have Black, Asian, and Latinx workers make up 20% of its global leaders; Delta Air Lines Inc. said it will double, to 14%, the percentage of Black directors and officers by 2025. BlackRock, PepsiCo, and Wells Fargo all have similar plans.

These goals are self-imposed, so businesses won’t face consequences or sanctions from the government or any official body for failing to fulfill their promises. But there are other sources of pressure that could keep the heat on them to live up to their new, and very public, commitments: consumers, investors, employees, and public opinion. “It’s not cute to be racist anymore,” says Anna Gifty Opoku-Agyeman, co-founder of the Sadie Collective, a nonprofit working to get more Black women in economics. “If anybody catches any wind of you being anti-Black racist, they will lay you out. You don’t want to be the next organization trending on Twitter.”

Still, it’s questionable if even that’s enough to motivate change, says Victor Ray, a sociologist of race at the University of Iowa. “I wonder what companies think will be different this time if it’s all voluntary,” he says. “I’m not saying these things won’t necessarily work, but it’s not clear what the consequences are.” Some of the most successful diversity initiatives have penalties for those who fail to comply. After passage of a state law in 2018 that would impose a $100,000 fine on California-based companies with all-male boards, female representation shot up. The program was so successful, the state expanded the mandate this summer, passing a bill requiring every board to have at least one person of color on it by 2022. “I would adopt that rule more broadly,” says Lisa Cook, an economist at Michigan State University, who’s studied segregation in patenting and the innovation economy.

That’s not likely to happen anytime soon. Government-mandated affirmative action policies tend to invite backlash. “Not everyone is going to be happy with this,” says Ray, the sociologist. “Pushing for greater racial equality is going to lead to real pushback and real anger.” It already has. The Academy of Motion Picture Arts & Sciences announced a new rule this month requiring that films competing for its best picture award starting in 2024 have to have more diverse casts and crews. (Yes, another quota.) Cheers alum Kirstie Alley called it “dictatorial” and actor James Woods said the rule was “madness.” But many people of color in Hollywood are hopeful the industry is serious about becoming more welcoming.

Among the many criticisms of affirmative action is that it’s just another kind of discrimination that unfairly penalizes White people. Even when that’s not true, people feel that way. Zachary Bleemer, a researcher at the University of California at Berkeley, received a monsoon of hate mail from people who thought he had done “something evil,” he says, by publishing a paper on the labor market effects of California’s 1998 ban on affirmative action in public university admissions. Bleemer’s research found that affirmative action provided greater benefit to the Black and Hispanic students than it cost White and Asian students whose place they took. Once the ban went into effect, Black and Hispanic students overall saw their post-graduate income drop around 5%. The newly admitted White and Asian students to the University of California’s most selective school didn’t see an earnings bump. People who dislike affirmative action didn’t like the findings. “For a lot of people, it’s not empirical,” he says. “It’s a question about fairness and the role of government.”

Moreover, there’s still plenty of resistance from many in corporate America to even basic diversity initiatives. Most companies still won’t publicly share workforce demographics, making it difficult to track progress. Even some of those who made public statements in support of Black Lives Matter or gave money to social justice causes have no plans to change their hiring practices. Others pointed to their existing diversity efforts as proof of their dedication to overcoming systemic racism.

Another issue with quotas in particular is that they’re a blunt, imperfect tool. Getting people in the door is just step one, Opoku-Agyeman says. “This conversation that we should just hire a Black person and, poof, we’re done—it’s not enough.” In June she wrote an open letter to economic institutions, such as the Federal Reserve banks and the American Economic Association, with nine demands for how the profession should tackle racism. The list included funding undergraduate programs that target Black admissions to improve the pipeline, recruiting and hiring from historically Black colleges and universities, and establishing inclusive work environments by offering subsidized mental health care and professional development for Black workers. Elsewhere, particularly in the media industry, leaders who didn’t properly address racism in their workplaces have been pressured to step down.

That’s a new demand on businesses and the executives who run them—one that many aren’t eager to assume. Nonetheless, they’ll likely be pulled into the fray as protests continue in the streets and once-controversial actions like trumpeting Black Lives Matter or actively implementing programs to lessen income inequality become mainstream. “It’s more so about how do we dissect these systems that have been built on the foundation of White supremacy and break them down and then rebuild something better,” Opoku-Agyeman says. “What I’m saying is: Change is not going to happen overnight.”

©2020 Bloomberg L.P.