Tag: bias

Are Venture Capitalists racists?

Shifting sovereignty from Kings to the people, was the beginning of human flourishing. In the United States, in its constitution the people returned only those powers to their government necessary to protect their wellbeing. The right to and protection of ones honestly acquired property is an essential aspect of this arrangement. This includes, of course, the right to invest our property anyway we choose.

Venture capitalists are those wealthy people who choose to take great risks in the prospect of large gains by investing in “startups” that have not yet established their profitability.  Put differently venture capitalists are prepared to finance an unproven idea/product/service that might gain public approval, i.e. might become profitable, though most of them fail.  As consumers we have benefited enormously from goods and services my parents never would have even imagined that a few wealthy investors took a chance on.

So the idea that the government might need to enact laws to insure that a venture capitalist’s investments do not reflect racial bias is shocking at several levels. “In the clubby world of venture capitalists, who spent $130 billion in the United States last year and helped anoint the world’s four most valuable companies and countless other successful start-ups, there is effectively no legal backstop that ensures people of color have an equal opportunity to share in its wealth creation.”   “Black-entrepreneurs-venture-capital”

First of all is the right of these investors to their property. They can give it all to their daughters if they want to.  Marxists and other egalitarians reject such a right but that would throw away the whole basis of the wealth our capitalist system has created that Marxists would like to redistribute.  But I want to focus on why capitalism minimizes the role of bias in our economic decisions.  This was explored long ago by Nobel Lauriat Gary Becker in his famous 1976 book on the Economics of Discrimination.

Becker’s basic point is that if your economic decision is influenced by racial or sexual or any other non-economic bias it will cost you money, i.e. you will make less than you otherwise would have.  If you hire a man when a woman was better qualified, he will contribute less to your company’s income than would have the woman, thus you pay a financial price for your bias. The same is true if you hire a white person when a black one was better qualified, etc.

The purpose of venture capitalist investments is to make a bundle by funding the next great idea. Most will fail but one or two turn into Facebook, or Amazon.  It may well be that a venture capitalist systematically under rates the potential of black entrepreneurs, i.e. that he suffers racial bias.  But in that case he will be less successful in his investments.  Capitalism will punish him for his prejudices and diminish his importance as a venture capitalist because it will diminish his wealth. None the less, an Irish venture capitalist may well bias her investments toward fellow Irishmen and a black venture capitalist may risk an extra break for a fellow black. But the profit motive of capitalism will discourage departures from objective evaluations of investment prospects.

The idea that a law should forbid or discourage racial or sexual bias when venture capitalists decide in what to invest is without merit.  Moreover, it is hard to imagine what such a law would look like and/or on what basis a government bureaucrat would overrule and direct the placement of a private investor’s chose of investments.

To peak briefly at the other–entrepreneurial–side of the equation, the unbiased opportunity provided by capitalism has attracted many foreigner entrepreneurs to our shores.  Steve Jobs (Apple, NeXT, Pixar), who was adopted at birth, was the son of Joanne Schieble who was Swiss-American and Abdulfattah “John” Jandali who was Syrian.  Steve Wozniak, Apple cofounder, was the son of Polish and Swiss-German parents.  Sergey Brin cofounder of Google/Alphabet escaped from the Soviet Union.  The famous architect, I.M. Pei, immigrated from China.  “How-12-immigrant-entrepreneurs-have-made-america-great”

The College Admissions Scandals

A few weeks ago, Ito and I went to “Admissions,” the very well performed and thought provoking play by Joshua Harmon about affirmative action, at Studio Theater. Several friends had independently attended the play and suggested that we get together for one of Ito’s superb dinners and discuss it.  So we enjoyed an evening discussing the pros and cons of “affirmative action,” the “temporary” suspension of nondiscrimination legislation meant to repair and make up for discrimination against blacks that made them less prepared for college. It is a complex issue without obvious solutions. The play did an excellent job of fairly presenting all perspectives on this issue.

My opinion is that suspending, even temporarily, equal treatment (merit-based college admissions) of applicants to universities and colleges, as is done with affirmative action, is not the best approach to achieving equal treatment of all. It attempts to treat the symptoms of racial discrimination rather than the disease. First of all, private universities (unlike state schools using tax payers’ money) should be free to establish whatever admission policy they want.  Any school I would want to attend will want to include an element of diversity in its student body as an important element of the education they offer and will build that into its admission policy in whatever way it considered sensible.

And now we are confronted with the revelation that some of the rich and famous paid bribes to get their underperforming children into top schools. As stated in the Washington Post: “the scope and sheer shamelessness of an elaborate scheme in which some of the country’s richest people allegedly paid bribes to get their children into top U.S. universities is truly mind-boggling.” https://www.washingtonpost.com/opinions/the-college-admissions-scandal-should-prompt-broader-soul-searching/2019/03/13/f67aa986-45b5-11e9-aaf8-4512a6fe3439_story.html

This is shocking and unacceptable for the same reason I oppose affirmative action. It violates the principle and standard of merit in hiring people or admitting them to college. Our country is one of the wealthiest and most respected in the world because firms and organizations allocate jobs, positions, and resources in general on their merits (i.e. qualifications for the job, etc.). In short, people and other resources are put to their most productive use.  Obviously, this is not always the case. But firms that fall short of this standard suffer lower profits than if they had adhered to it. In short, in the private sector there is an economic incentive to employ the resources (including people) that best fit the needs being filled. Companies that employ their under-qualified relatives suffer lower profits as a result. Hiring or admitting people on the basis of merit is also our standard of fairness that is widely admired throughout the world.

Affirmative action is a deliberate departure from this standard as are the recently revealed bribes and test score cheating for college admission. In the first case it is an effort to overcome the damage of earlier discrimination against a once enslaved people. In the second case it is an effort to overcome the deficiencies of intelligence or character in our own children. A world in which we acquiesce to standards other than merit will always favor the already well off. We will never fully achieve the high standards of merit based appointments we have set, but we should never stop trying. A powerful strength of the private sector in a competitive free market economy is that the economic incentives are in the right direction.

American universities may never achieve a perfect admissions system completely based on merit and devoid of personal bias, but we should encourage them aim for it. The world outside of the academic environment is unfair enough when it comes to race, gender, sexual orientation and religion to name a few. Let us try to instill in the younger generation the understanding that hard work and smarts are what gets you ahead– not money, influence and certainly not the color one’s skin. And let’s promote attitudes and policies that encourage and reward such a reality.

Balancing Religious Freedom and Civil Rights

The adoption last week of Indiana’s Religious Freedom Restoration Act (RFRA) has set off a loud public debate about religious freedom and civil rights. The debate is over the best balance between our cherished beliefs in both religious freedom and civil rights, which includes tolerance of those with religious beliefs different than ours. A standard formulation of the scope of individual freedom is that it is our right to live and do as we like as long as it does not infringe on the rights of others to do the same. How we should put meat on those bones is the essence of ongoing, serious public debate.

I have blogged on this challenging topic a number of times starting with the following in November 2008: https://wcoats.wordpress.com/2008/11/11/church-and-state-in-america/ and followed in April 2010 by: https://wcoats.wordpress.com/2010/04/18/when-values-clash/

and in August 2013: https://wcoats.wordpress.com/2013/08/30/liberty-and-the-overly-prescriptive-state/

and in December 2013: https://wcoats.wordpress.com/2013/12/20/more-on-the-balance-between-the-public-and-private-sectors/

and most recently in February 2014: https://wcoats.wordpress.com/2014/02/28/arizona-and-religious-and-person-liberty/

Indiana’s RFRA is similar but not identical to the law of the same name signed into law by President Clinton in 1993 with overwhelming bipartisan support. These laws and other efforts to balance religious and other individual freedoms against the expectation of tolerance are based on the First Amendment to the US Constitution reproduced below (the first item in the Bill of Rights) and the guarantee of equal protection under the law contained in the Fourteenth Amendment adopted after the Civil War, in part to remove discrimination against African Americans. Success in establishing a good balance is critical to a healthy, vibrant and free civil society and depends more on social attitudes than on laws. David Brooks provides an insightful and balanced discussion of this issue: http://www.nytimes.com/2015/03/31/opinion/david-brooks-religious-liberty-and-equality.html?_r=4

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First Amendment

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press, or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

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It is quite beyond my limited legal knowledge to tease out exactly what the Indiana law provided (it has already been amended to address the fears that it was an excuse for discrimination). Much has been written on the subject, some of it uninformative and/or inflammatory, others wise and insightful. I would like instead to outline the spirit and attitude of a proper balance between religious freedom and civil rights that makes sense to me.

Most of us assume that our freedom to believe what we choose and to express those beliefs publicly includes what some others might disagree with or consider “wrong” or obnoxious, such as racial prejudice. Freedom of speech means nothing if not the right to state what most of us consider wrong. The right to say stupid or repugnant things should never be confused with accepting or encouraging such views. Particular condemnation should be directed to those who use their freedom of speech purposely to offend rather than to defend their beliefs. The best defense against bigotry, whether racist or homophobic, is to use our freedom of speech to counter such views and to promote the virtues of respect, diversity, and tolerance of alternative beliefs (as long as they do not limit our own). In short, building broadly shared attitudes of respect toward the rights of our fellow men (and women) are necessary for the maintenance of a decent, free society.

What might this mean in practice? In my private life I should never have to associate with people I don’t like. I should not have to invite them into my home or my club. It was absolutely right that the Boy Scouts of America were allowed to exclude gays and that we were allowed verbally to attack them for such misguided behavior. They are gradually coming around to a more enlightened policy with better long run results than if forced by law to open up to members they did not want. Churches are quite rightly not forced to accept members that do not embrace their beliefs or otherwise satisfy whatever their membership requirements are.

The above examples are obvious. The difficulties begin to arise when we move outside our homes and private groups. Aside from the obvious question of why two lesbians in Texas insisted on the services of a photographer for their wedding who refused to accept their request (were they looking for a fight or the best photographer), I think any service provider should be free to choose their customers just as customers are free to choose where to shop. While mafia dons and other murderers and bad people have a right to legal representation, why should a particular objecting lawyer be required to provide it?

Should a Christian bookstore be required to sell the bible or whatever to atheists or Jews? For starters it would be quite contrary to their goals and evangelical nature to refuse to do so, but should they have the choice? Should Muslims be required to touch and serve pork or should Mormons be required to tend the cocktail and coffee bars of their employers? Once again it is hard to see why this is raised to the level of public policy. If a Mormon doesn’t want to serve alcohol (though it wasn’t a problem for the Mormon owned Marriot Hotel to do so), she doesn’t have to and shouldn’t work for a bar. For larger operations, such as restaurants with a bar, it is not that difficult for the manager to assign employees to tasks that respect their religious or ethical beliefs. The free market, profit motive would lead employers to do just that.

For many, the pace of progress against discrimination in the more public sphere of commerce and certainly in government bodies was not fast enough leading to the adoption of the 1964 Civil Rights Act, which outlawed discrimination based on race, color, religion or national origin in hotels, motels, restaurants, theaters, and all other public accommodations engaged in interstate commerce; but exempted private clubs and the renting of the bed room in my basement. If you are open for business to the general public you are not allowed to discriminate on the above bases. The LGBT community has been working to add sexual orientation to the above list, something that was missing in the original Indiana RFRA law.

The recent Hobby Lobby decision of the Supreme Court (Burwell v. Hobby Lobby) concerned the mandate in Obama Care for employers to provide government specified contraceptives as part of the employee health plans. The Christian family owners objected to the mandatory inclusion in the list of what is often called the morning after pill. Raising wages sufficient to compensate employees for the cost of buying their own insurance would sacrifice the tax exception (i.e., subsidy) of employee provided health insurance. The Court ruled to allow closely held for-profit corporations to be exempt from a law its owners religiously object to if there is a less restrictive means of furthering the law’s interest. Such exemptions are allowed for churches and directly religious organizations but this was the first time that the Court has recognized a for-profit corporation’s claim of religious belief.

This whole situation has more objectionable parts than I can count. First, it is bad policy to give a tax break for employer offered health insurance. For one thing, tying heath insurance to ones employer makes it more difficult for employees to change jobs and increases the cost to them of losing a job. Second, it is outrageous that the federal government is dictating the list of contraceptives that an insurance policy must provide and that everyone must have such policies. This is before we get to the issue of which, if any, private companies should be exempt from such requirements and for what reasons. Such micro management of our lives by the government has gone way too far and makes the balancing of rights I have been discussing much more complicated and difficult. A tradition of polite accommodation of differences generally trumps efforts to spell it all out in law.

Marriage equality, i.e., extending the same right to marry enjoyed by heterosexual couples, takes away no rights from traditional couples other than perhaps to be spared the anger/horror/sadness over something someone else is doing. Get over it. Having to serve LGBT couples commercially does not imply agreeing or disagreeing with their status. Fortunately society is moving rapidly to accept the virtue of extending the institution of marriage to LGBT couples. If marriage is a good thing for loving committed couples, it should be available to all such couples. Those people and religious groups that continue to disapprove are free to as long as they do not deprive others of their freedoms and rights.

Arizona and Religious and Personal Liberty

A successful society balances the interests of individuals and society. In the area of personal liberty and public tolerance, all low hanging fruits (all win – win policies) have been picked. Thus remaining discussions of the best boundary between the sphere of private belief and behavior and social behavior involve trade offs that are more difficult to evaluate. This is illustrated by the recent controversy in Arizona over the bill just vetoed by Arizona Governor Jan Brewer that would have allowed businesses to deny service to gay and lesbian customers on religious grounds.

The point I want to make here (yet again) is that our society functions best when it favors persuasion over coercion (voluntary action over legal compulsion). Should a professional photographer who objects to same sex marriage be required by law to accept business from a same sex couple to photo graph their wedding? My first reaction to this question was why in the world would the couple at issue want to give their business to a bigot. Examples of my earlier discussions of such issues are: https://wcoats.wordpress.com/2013/08/30/liberty-and-the-overly-prescriptive-state/  https://wcoats.wordpress.com/2010/04/18/when-values-clash/

I abhor prejudice of any sort both on moral and on economic efficiency grounds. People should be judged on the basis of factors relevant to the situation. A job applicant should be judged on the basis of whether she has the best qualifications for that particular job, rather than whether she is Irish, Ghanaian, Muslim, Christian or Korean (though if the job is to wait on tables in a Korean restaurant, being Korean might be relevant). I strongly believe that it is more effective to persuade people of this view than to legislate it (just as I think persuading teenagers and others of the dangers of some drugs would be more effective than has been our very costly and damaging War on Drugs). For one thing businesses that express their prejudices in the market place pay a price in the form of less qualified, more expensive employees and/or fewer customers.

I am obviously a bit out of the mainstream on this as I shared Senator Barry Goldwater’s reservations about the 1964 Civil Rights Act’s restrictions on the right of “public” business to choose their customers (especially Title II on public accommodations). I prefer, both for philosophical and pragmatic reasons, the legal approach taken with regard to the Boy Scouts of American. As a “private” organization they are entitled to whatever membership criteria they want. Public discussion and evolving attitudes is gradually leading them to amend their membership requirements, which now allow gay boys to join. This is a better way to bring about that result in my view in our very heterogeneous society.

That said, if we must have laws against discrimination, gays and lesbians surely must be given equal protection under those laws.  E. J. Dionne makes some good points in today’s Post: “Arizona’s anti-gay bill hurts religious people” Washington Post /2014/02/26/

The Trayvon Martin Tragedy

The shooting death of an unarmed black boy, Trayvon Martin, in the Florida town of Sanford, by a white Hispanic neighborhood watch volunteer, George Zimmerman, has raised many questions and issues. The positive side of this tragedy for me is that almost everyone wants to know the truth of what happened and to proceed from there. Moreover, our system of justice has procedures and mechanisms that maximize the prospects of uncovering and sorting out the truth from what is still a very confused mix of partial facts and assertions by interested parties (the friends and parents of Trayvon and of George).

When Trayvon’s death first rose to national attention, everyone’s initial reaction was colored by his or her personal biases (“priors”). If you are black, you initially and immediately accepted the outrage of Trayvon’s parents at the failure of the police to arrest the shooter of their unarmed son. If you are one of George’s friends you immediately accepted George’s claim of self-defense (the somewhat later revealed claim that he had been attached and beaten by Trayvon and fired in self-defense).

For most of the rest of us, the fact that Trayvon’s pictures depict him as a handsome, smiling, friendly youth (looking, as President Obama ill advisedly claimed, much like his own son would if he had one), while Zimmerman’s pictures depict him as, well, more or less the opposite, activated a bias toward beauty.  Because Russian President Putin (and even more so outgoing President Medvedev) is handsome and fit, we assume he must be a better guy than fat and ugly Nikita Khrushchev (I just reviewed Khrushchev’s picture for the first time in many years and he actually isn’t THAT ugly). Because Israel’s Prime Minister, Benjamin Netanyahu, is handsome and speaks excellent American English, we assume that he must be right and good for Israel (despite all the evident to the contrary).

These are natural biases. We shouldn’t pretend that they don’t exist. What is important is that we can move beyond them when faced with contrary evidence. As allegations from each side of the Stanford tragedy (everyone agrees that it was a tragedy) along with bits of actual evidence accumulate, what seemed clear in the beginning to each of us (depending on where we started – i.e., our biases) becomes less clear. Trayvon’s past is not spotless. Did Zimmerman have blood on his cloths from being beaten by Trayvon as he claims (a surveillance video when he was taken into custody suggests not)? Whose voice was it shouting on the 911 recording (not Zimmerman’s according to two unofficial expert analyses)? ETC. ETC. With the passage of time and the collection of and vetting of more facts, the truth should clarify and emerge.

The positive side of the sad story is that virtually everyone outside of the immediate families genuinely wants to know the truth of what really happened. Hometown power figures have always been more able to bend our rules and procedures of justice to their interests than others but not without limit. Those limits in many ways have grown tighter. In this case, a southern town is bending over backward (after a slow start) to be and to appear to be fair. I suspect it would have been different fifty or a hundred years ago. Public opinion (i.e., our priors –biases), an important foundation of our conception of justice, has changed for the better.

I have no doubt that we will eventually know the truth of that night as fully as it is possible to know it.