WITH a rapid scaling down of
our tiny public sector due to privatisation and increasing withdrawal
of the state under the impact of liberalisation, serious concern has been
expressed about the fate of the present public sector reservation policy.
Because of indirect and backdoor de-reservation, there is a growing demand
for some sort of affirmative action policy for the private sector which
so far has remained outside the purview of any kind of anti-discriminatory
measure and in which more than 90% of dalit and adivasi workforce is engaged.
The issue found a place in the election manifesto of political parties
and in the Common Minimum Programme of the present government. Drawing
from theoretical and empirical literature on the issue of economic discrimination,
I will try to provide reasons for a reservation policy for the private
sector as a remedy against discrimination in labour, capital and other
markets and indicate general guidelines for framing such a policy.
Discrimination on the basis of race, religion,
ethnicity, national or social origin exists in many nations under diverse
social, economic and political systems. In order to correct the imbalance
in terms of access to capital assets, employment, education, political
participation and other spheres, countries have turned to practices of
reservation, affirmative action, positive action or equal opportunity
policies for these discriminated sub-groups in addition to general
pro-poor policies. A great majority of these policies and programmes of
intervention operate in respect to sub-group populations identified by
ethnic, racial, religious or gender characteristics. The examples are not
only from the West (USA, UK, Northern Ireland and Yugoslavia) but also
from Latin American countries like Brazil, Bolivia, Peru; African
countries like Nigeria, Sudan, South Africa and countries like Malaysia,
Pakistan, China, Japan and India from Asia. It is surprising that while
the affirmative action policy in many of these countries was, to begin
with, used for both private and public sector, the India state never
thought of bringing the private sector under the purview of a reservation
policy – even though it is the fact of discrimination in the private
domain that led us to accept the reservation policy for the public sector.
Why are governments in developing and developed
countries concerned about exclusion and discrimination? Why do they
develop policies against such practices? Is discrimination only an issue
of equity or does it also involve economic costs to the society? Are the
costs it imposes on the society more social and political than economic?
The insights from mainstream economic theory indicate that economic,
particularly market, discrimination has multiple consequences; it hampers
economic growth, induces income inequality and creates potential for
inter-group conflict by denying equal opportunity to discriminated groups
(Birdsall and Sabot 1991). Therefore, remedies against discrimination –
legal, affirmative action or compensatory in nature are required both for
equity and economic growth. I will argue that we need a reservation policy
for private sector in India for reasons of equity as well as economic
growth.
L et
us first discuss the case for reservation from the point of view of economic
growth. All standard theories of economic discrimination predict adverse
consequences of market discrimination on economic growth through their
detrimental consequences on profits, wages and efficiency in the allocation
of labour. They suggest that economic discrimination will slow down growth
by reducing efficiency due to sub-optimal allocation of labour among firms
and economy, by reducing job commitment and effort of workers who perceive
themselves to be victims of discrimination and, by reducing the magnitude
of investment in human capital by discriminated groups, returns on this
investment. (Birdsall and Sabot 1991).
The consequences of discrimination on inequality are
far more evident and therefore justification for reservation/affirmative
action policy from equity consideration is clear. Denial of access to
resources, employment, education and common facilities that others have,
it impoverishes the lives of individuals from excluded groups and is a
clear denial of certain basic human rights. The concern about
discrimination thus is an issue not only for equity but also for economic
growth.
A mbedkar
pioneered the reservation policy as early as the 1920s, mainly on the
basis of widespread and ubiquitous discriminatory and exclusionary character
of Hindu society with devastating consequences, particularly for former
untouchables. The caste system’s characteristic feature of fixed and compulsory
occupation (or property rights) with concomitant fixed economic rights
for each caste, implies ‘exclusion’ of one caste from undertaking the
occupations of other castes. Exclusion and discrimination is in fact internal
to the economics and sociology of the caste system and its natural outcome.
In terms of consequences, the economic theories of the caste system clearly
predict negative outcomes of caste and untouchability based market discrimination
for economic growth and income distribution (Akerlof 1976, Scoville 1984,
Lal 1991, and Ambedkar 1987).
Fixed occupations essentially involve restrictions on
mobility of labour and capital across caste groups, leading to an
imperfect market situation and a fragmentation of economic activities.
Akerlof-Scoville-Lal’s theoretical model thus predicts that given the
segmented and imperfect character of the labour market, the economic
outcome of the caste economy is lower than posited in the model of
perfectly competitive markets.
Ambedkar added that efficiency and productivity of
labour is adversely affected by multiple disincentives involved in
customary rules of castes. The economic pursuit in a caste system is not
based on individual choice, sentiment and preference, in so far as it
involves an attempt to allocate a task to an individual in advance,
selected not on the basis of training or capacity but on the social status
of parents. The social and individual efficiency requires us to develop
the capacity of an individual to the point of competency to choose and
make one’s own career. This is missing in the overall scheme of the
caste system.
Further, some of these occupations are considered
polluting or impure and therefore socially degrading. The social stigma of
impurity and pollution reduces the social status of persons engaged in
them and thus lowers the economic incentives. ‘What efficiency can there
be in a system under which neither men’s hearts nor their minds are in
their work?’ (Ambedkar, 1936). As an economic organisation caste is
therefore a harmful institution, in as much as it involves the
subordination of man’s natural powers and inclination to the exigencies
of social rules.
T he
consequences are particularly pronounced in terms of income distribution,
employment and poverty experienced by the excluded/discriminated groups.
Since property rights under the caste system are assigned unequally across
castes, income distribution is generally skewed along caste lines. The
unequal and hierarchical assignment of occupation and property rights
among castes implies that although every caste, except those at the top
of the caste order, suffers to various degrees from an unequal division
of social and economic rights, the former untouchables, who are located
at the bottom of the caste hierarchy, suffer most as they face ‘exclusion
and discrimination’ from access to all economic rights, including right
to property, except manual labour or service to the castes above them.
B eside
the general negative impact on income distribution, labour immobility
across occupation also adversely impacts employment. Ambedkar (and Akerlof
in a different context, 1980) argued that by restricting mobility of labour
across caste occupation and thereby not permitting readjustment of employment,
caste becomes a direct cause of ‘voluntary unemployment’ among high caste
persons and ‘involuntary unemployment’ among the low caste persons. A
high caste Hindu would generally prefer to be voluntarily unemployed for
some time than to take up an occupation not assigned to his caste. On
the other hand, for low caste untouchables the restrictions to take other
caste’s occupation compels them to remain involuntarily unemployed.
Thus, judged by the standard criterion of economic
efficiency, the caste system as an economic organisation lacks all
elements required to fulfil the conditions for optimum economic outcome.
The caste and untouchability based economic discrimination have serious
consequences on economic development, income distribution, right to
individual development and equal right to employment, all of which
cumulatively have poverty-inducing consequences, particularly for the low
caste untouchable.
R educing
economic discrimination thus becomes essential because it is likely to
increase economic growth, provide equal access to discriminated groups,
reduce inequality between groups and minimise the potential for conflict
which inequality between groups may give rise to. What are the remedies
against market discrimination? Conclusions regarding the consequences
of market discrimination on economic growth and income distribution are
derived from mainstream economic theory. The same theory also predicts
that in highly competitive markets, discrimination will prove to be a
transitory phenomenon as there are costs associated with discrimination
to the firm/employer which result in lowering profits. Firms\employers
who discriminate, face the ultimate sanction imposed by the markets. This
theoretical perspective thus posits the resultant erosion of profits as
a self-correcting dimension of discrimination.
The free market solution is not, however, a practical
remedy as, discrimination might persist, particularly in the labour
market, over long periods with or without prevalence of a free market
situation. First, not all markets are highly competitive. The persistence
over decades of labour market discrimination in high income countries
attests to that. Indeed, in developing countries, employers have
significant monopoly power to discriminate at will. Second, even if
competition exists in all markets, is not a sufficient condition for the
elimination of discrimination if all employers are discriminators.
T hese
two theoretical viewpoints have obvious policy implications. Those who
believe that discrimination is indeed self-correcting argue for strengthening
competitive market mechanisms. But if discrimination continues to persist
despite competitive market process (which in reality is the case) or for
other reasons mentioned above, market interventionist policies will be
necessary.
‘The analytical stance of the mainstream neoclassical
economists is characterized as methodological individualism and it
presumes that economic institutions are structured such that society-wide
outcomes result from an aggregation of individual behaviours. It presumed
that if individuals act on the basis of pecuniary self-interest then
market dynamics dictate equal treatment for equal individuals regardless
of inscriptive characteristics such as race. Consequently, observed group
inequality is attributed to familial, educational, or other background
differences among individuals who are unevenly distributed between social
groups. The causes of a dissimilar distribution of individuals between
social groups may be genetic, cultural, historical, or some combination
thereof. The differences in cultural attributes include the value families
and neighbourhoods place on education, attitudes, and work habits. The
historical refers primarily to the impact of past discrimination on
current inequality.
‘In contrast, economists who may be classified as
methodological structuralists do not accept this interpretation.
Structuralism as an analytical method holds that aggregate outcomes are
not the result of a simple summation of individual behaviours, but rather
arise from the constraints and incentives imposed by organizational and
social hierarchies. In this view, individual behaviour achieves its
importance within the context of group formation, cooperation, and
conflict. Economic and political outcomes are thus a function of the
hegemony exercised by dominant groups, the resistance offered by
subordinate groups, and the institutions that mediate their relationship.
Discrimination, in this view, is an inherent feature of the economic
system. Competition is either not powerful enough to offset the group
dynamics of identity and interest, or it actually operates so as to
sustain discriminatory behaviour. Discrimination is due to the dynamics of
group identification, competition, and conflict rather than irrational,
individual attitudes. Market mechanisms, far from being relied upon to
eliminate discrimination of their own accord, must be scrutinized and
pressured to further the goal of equality of opportunity’ (Shulmen and
Darily 1989).
The policy implications of this view on persistence of
discrimination are obvious. Since the markets will continue to operate in
an imperfect manner, discrimination will persist. It will also persist
even if market forces are competitive in nature under certain conditions
mentioned above as a normal phenomena; it therefore calls for intervention
in the form of an affirmative action policy and other measures as
safeguards against discrimination.
T he
customary regulatory framework of the institution of the caste system
and untouchability, on which mainstream theoretical formulations are based,
has now undergone significant change. After the adoption of the Constitution
in 1950, in theory at least caste-based customary rules and norms governing
occupation, property rights, employment and wages, and education were
formally replaced by an egalitarian legal framework of property rights
under which the ‘low castes’ now have equal access to all occupations,
education and other spheres. However, despite these provisions and the
impact of other factors, the caste system continues to function in the
private domain of economy in modified and changing forms and therefore
safeguards are required against market and non-market discrimination.
T he
corporate sector, however, has by and large opposed affirmative action
of any sort on grounds that it does not discriminate in hiring practices.
It has further argued that a reservation policy of the type used in the
public sector in India will reduce competitiveness and efficiency. It
is clear from the earlier discussion that this argument is neither based
on economic theory nor on empirical evidence about the working of labour
and other markets. While the corporate sector advances the agenda of liberalisation
based on support from mainstream economic theories, it refuses to accept
lessons from the economic theory of discrimination. In particular it refuses
to recognize the need for market intervention in the form of affirmative
action to overcome market imperfections caused by caste based discrimination
and to induce market competitiveness.
Empirical studies on the working of labour and other
markets, and social needs like education, housing and health services,
provide evidence of the persistence of market discrimination, particularly
of former untouchables, and its end result in the form of lack of access
to fixed capital assets, employment, human development and culmination in
high poverty and deprivation among them. (Action Aid study 2005, Thorat
1999, reports of the SC/ST Commission). The studies also bring out the
exclusionary and discriminatory working of private industrial labour
markets (Papola 2004).
So the claim of the corporate sector that it follows
fair and competitive hiring practices is not borne out by facts. More than
60% of recruitment in organised industrial sector is through informal
modes of recruitment which are exclusionary in their outcome. Affirmative
action is thus necessary for promoting competitiveness and economic
growth, if not for the goal of equal opportunity. An efficiency conscious
corporate sector cannot avoid the lessons from the theories which they use
as justification for pushing the liberalisation agenda.
H ow
and in what forms we need to extend the existing public sector reservation
policy for discriminated groups in the private sector is, however, as
crucial. There is the huge experience of our own public sector reservation
policy. The Indian state could also learn from the measures used against
discrimination in private sector of other countries in the world. Drawing
on both Indian and international experience, I wish to spell out the possible
elements of reservation or affirmative action policy for the private sector
in India.
In designing remedies against discrimination we need to
clearly distinguish between legal, equal access and other positive
measures. These aspects relate to (a) the type of economic sector
or market for which the legal and affirmative action measures are
developed and (b) the type of method or procedures used in their
application for the private and public sector.
First, with respect to the economic spheres or markets,
countries such as USA, Northern Ireland, South Africa and Malaysia have
mainly developed policies for religious, racial and ethnic minority
groups. Broadly speaking, in these countries multiple economic and social
spheres are covered under the orbit of legal and affirmative action
measures which include labour, agricultural land, capital, product and
consumer goods markets and also the transactions in supply of social
goods, such as education, housing and the transactions undertaken by the
government with private minority businesses. The specific economic spheres
covered vary from country to country.
I n
countries like USA and Northern Ireland, where the non-agriculture sector
constitutes more than 90% of the workforce, the focus is mainly on affirmative
action policies for the labour market, both in public and private sectors.
In some countries like USA, besides the labour market, legal and affirmative
action measures also cover education, housing, and government contracts
for construction and purchase of goods from minority businesses. In developing
countries like Malaysia and South Africa where a substantial portion of
population is engaged in the agriculture sector, and minority groups suffer
from poor access to land and capital in addition to the labour market,
the affirmative action measures are also extended to agriculture land
and capital market in addition to affirmative action policies for basic
social needs like education and housing.
A second aspect relates to methods and procedures used
to operationalise the safeguards against discrimination. Countries have
used at least three kinds of procedures or methods. First is the legal
protection against discrimination in the form of Equal Employment
Opportunity Laws (EEOL).
T hese
laws prohibit any private or public employers from discriminating against
workers or persons based on group identities like religion, gender, colour,
ethnicity, national and social origin and provide legal safeguards to
discriminated groups in the event of discrimination in employment and
other spheres of economic activities. Article VII of the Civil Act which
established Equal Employment Opportunity as law (EEOL) (Executive Order
11246) in USA, and Fair Employment Act in Northern Ireland, are some examples.
A second strategy relates to affirmative and positive
actions of various type. In principle, affirmative action can be
distinguished from other anti-discrimination measures requiring proactive
steps to ensure fair participation of discriminated groups (in employment
and other spheres like education, housing, government contracts etc), in
contrast to laws that only prevent employers from taking steps that
disadvantage minorities in the labour market and other spheres. Given the
limitations of EEOL in ensuring fair participation of discriminated
groups, they are supplemented by affirmation action and positive measures,
which attempt to ensure a fair share to discriminated groups.
The principles (and methods) applied to judge ‘fair
or just participation’ in employment, educational admission, political
participation or government contract and other spheres vary among the
countries. Generally speaking, the population share of minority groups
constitutes the basis to judge fair participation or access. In some cases
just participation is viewed in term of fixed quotas (similar to India),
in other cases it is expressed in term of racial/religious minority
(population or labour force) balance, and ‘appropriate candidate pool’
with numerical goals and timetables without quotas. Further, these fixed
goals or targets are made legally mandatory or compulsory in some cases
while in others they are pursued with an element of voluntary action on
the part of firms. In both cases, however, some sort of enforcement
machinery is designated to monitor goals and targets. The office of
Federal Contact Compliance in USA and FAIR Employment Agency in Northern
Ireland are some examples.
A third strategy is ‘reparation or compensation’.
Reparations and compensation are defined as payment for an acknowledged
grievous social injustice to a group (Darity 1997). It is necessary to
recognize that different affirmative action policies are generally
deployed as a measure and safeguard against ‘present discrimination’.
This has its limitations in overcoming the effects of discrimination and
exclusion suffered by a community in the past for long periods of time.
The Equal Opportunity Act and affirmative action programmes of various
kinds which intend to provide legal protection and ensure just
participation in the present are inadequate to compensate for wrongs done
in the past, resulting in complicit resourcelessness. Therefore, some
countries have used selective compensation as a method to pay and empower
excluded and discriminated groups as a one time settlement.
A n
overview of the strategies against economic and social discrimination
used by different countries indicates three remedies – namely equal (employment)
opportunity laws, reservation/affirmative action measures and reparation
and compensation, either together or in combination. Adoption of some
or all of these remedies against discrimination inflicted on low caste
untouchables and other groups in the private sector in India will be conditioned
by the nature of economic and social discrimination.
I n
my view the reservation policy for the private sector, namely agriculture,
private industry and service sector, and cooperative sector where more
then 90% of SC and ST are engaged should by guided by three principles.
It should be applicable to multiple spheres, fixed quotas with some kind
of monitoring mechanism and, depending on the nature of discrimination,
using all three instruments – legal, fair access and compensation – in
combination.
It is necessary that the government enact an equal
opportunity law to provide legal safeguards against discrimination for
various markets, namely capital, agriculture land, employment, product and
consumer goods, education, housing, health and others. The legal
safeguards should then be supplemented by more positive and
reservation/affirmative actions to improve their effective access to
private employment, agricultural land, capital, production and consumer
goods, and private education.
Since these reservation/affirmative action policies
address the issue of present discrimination, they do not generally help to
compensate for historical exclusion. This can be addressed within the
framework of reparation or compensation measures. The former untouchables
are a potential case for reparation or compensation due to denial of
property rights and other rights and injustice for long periods in
history, which is reflected in their overwhelming presence as wage labour,
insignificant share in business and low literacy and educational levels.
References
George
Akerlof (1976), ‘The Economic of Caste and of Rat Race and Other Woeful
Tales’, Quarterly Journal of Economics, XC.4, November 1976.
George Akerlof
(1980), ‘The Theory of Social Customs, of Which Unemployment May Be One
Consequence’, Quarterly Journal of Economics, XCIV.4, June 1980.
B.R. Ambedkar
(first published 1987), ‘Philosophy of Hinduism’, ‘The Hindu Social Order
– Its Essential Features’, The Hindu Social Order – Its Unique Features’,
Vasant Moon (ed.) Dr. Babasaheb Ambedkar Writings and Speeches,
Vol.3, pp. 1-94.
Biswjit Banerjee
and J.B. Knight (1985), ‘Caste Discrimination in the Indian Urban Labour
Market’, Journal of Developing Economics, ?????.
Faridah Jamaluding,
‘A Study of the Malaysian Economy: The New Economic Policy (1971-2000)
and National Development Policy (1991-2000)’, Journal of Social Science
and History, Fall 1988.
Deepak Lal (1984),
Hindu Equilibrium: Cultural Stability and Economic Stagnation,
Vol. I, Clarendon Press, Oxford.
Nancy Birdsall
and Richard Sabot (1991), ‘Unfair Advantage – Labour Market Discrimination
in Developing Countries’, World Bank Studies, ???????.
T.S. Papola
( 2004), ‘Social Exclusion and Hiring Practices by Private Industrial
Sector’, Paper presented a Seminar on Remedies Against Discrimination
in the Context of Reservation in the Private Sector, IIDS, Delhi, August
2004.
James G.L. Scoville
(1996), ‘Labour Market Underpinnings of a Caste Economy – Failing the
Caste Theorem’, The American Journal of Economics and Sociology
55(4), October 1996.
Amartya Sen
(2000), ‘Social Exclusion: Concept, Application, and Scrutiny’, ADB Working
Paper.
S.K. Thorat
(1999), ‘Caste and Labour Market Discrimination’ (with R.S. Deshpande),
Indian Journal of Labour Economics, Conference Issue, November.
S.K. Thorat
(1996), ‘Ambedkar on Economics of Hindu Social Order: Understanding Its
Orthodoxy and Legacy’ in Walter Fernandes (ed.), The Emerging Dalit
Identity, Indian Social Institute, Delhi.
William Darity
Jr. and Steven Shulman (1989), Question of Discrimination – Racial
Inequality in the U.S. Labour Market, Wesleyan University Press, Middletown,
Connecticut. |