The practice of favoring minority-owned firms in government contracts, though it does not get the headlines of affirmative-action plans in schools or workplaces, may have an even bigger impact. (See “Welcome to the World of Minority Contracting,” Spring 2023.)
Federal, state, and local governments use “set asides” and no-bid deals to ensure that anywhere from 5 percent to 30 percent of their contracts go to minority businesses. Since nearly one-tenth of the American economy runs through government contracts, the consequences of these programs are significant. However, instead of righting historical wrongs, minority contracting has produced corruption and fraud, worsened racial tensions, and cost taxpayers billions of dollars.
We have lots of evidence that these programs encourage fraud. A 2016 Department of Transportation presentation stated that more than one-third of its contracting-fraud cases involved minority contracting. Whether it’s construction at Chicago O’Hare airport, snow-removal deals in Atlanta, or casino projects in New York, minority-owned front companies often take a small cut and pass the work on to a white contractor, making a mockery of attempts to help the truly disadvantaged.
The result is significantly higher costs for taxpayers. Economist Justin Marion examined contracts on California highway projects before and after state voters banned racial preferences. Costs on the California projects dropped 5.6 percent compared with federally funded projects in which racial preferences remained in place. Studies of minority contracting show little or no positive effects on minority entrepreneurship.
How are these programs justified? In two cases, the Supreme Court said that governments could use racial contracting preferences only to remedy actual government discrimination. Instead of restraining such efforts, however, these cases spawned an industry for bogus “disparity studies” that legitimate them.
The solution is simple: Congress should end minority-contracting programs and ban the consideration of race (or sex) in all business decisions. As government continues to grow, Americans of all races don’t want to spare ever more funds for ever worse service. They don’t want their infrastructure projects sabotaged by costly requirements about the race of their contractors. And they don’t want the government to enrich a small group of politically connected businesses that somehow get to claim the mantle of discrimination.
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