All Commentary
Wednesday, July 1, 1992

Forbidden Grounds: The Case Against Employment Discrimination Laws

Contemporary political culture tolerates two positions on civil rights. The first position says approved minorities need expanded “rights,” which really mean privileges and quotas in hiring, mandated benefits, and high taxes to pay reparations for past injustices. This view is held by a wide spectrum of the political left. The second position challenges this by arguing that minority rights were necessary in the 1960s, but in recent years the quest for equality of economic opportunity has been transformed into equality of result, and this betrays the original vision of civil rights. This view—that modern civil rights laws are great but have been taken too far—is advanced by neo-conservatives in an unending parade of opinion columns and books.

Richard Epstein, in this new book, overthrows both perspectives. Breaking out of political orthodoxy, he argues: Anti-discrimination laws have not only gone too far, they should all be repealed as capricious, expensive, wasteful, and destructive of economic freedom. His radical thesis appears in what may be the most comprehensive and systematic treatment on various forms of discrimination yet to appear.

Epstein, a law professor at the University of Chicago, is one of the finest legal scholars of our time—and for his willingness to argue this view. he also becomes the most politically incorrect. If this book is treated justly, it will forever change the terms of debate on civil rights.

But can Epstein be right? Are modern civil rights laws fundamentally flawed? The heart of the Civil Rights Act of 1964 is Title VII, which prohibits discrimination on the grounds of race, color, religion, sex, or national origin. At the time of passage, Senator Hubert Humphrey said the act would strike a blow for merit and against prejudice. And he promised on the Senate floor that it wouldn’t lead to quotas, or he would “start eating the pages” of the bill. He was, of course, completely wrong, and opponents of the act were correct. The act ended up striking a blow against merit and for state-mandated hiring quotas.

The act not only covered hiring. That would have left too much room for evasion by businesses. Instead it created a new set of laws regulating private decisions that were once left to the market: promotion, wages, and even job assignment. The civil rights bureaucracy now controls even micro-details of labor market transactions that harm business and make economic relations less peaceful than they were before 1964.

But how was this engendered by Title VII, which simply prohibits certain criteria from being used to discriminate against minorities? Epstein’s argument is simple and profound. Title VII is actually a law against acting with certain motives in mind. Yet it is difficult to legally prove motivation. You need a smoking gun, as when an employer hangs a sign saying, “Blacks, Jews, and Women Need Not Apply” (or “Whites, Christians, and Men . . .”). The government could easily prosecute the employer who displayed such signs. But once the Civil Rights Act passed, no employer displayed obvious evidence of illegal discrimination. Employers began to claim all decisions were made on merit.

But how can regulators know for sure? The government and interested private parties then looked for other forms of objective evidence of discrimination. The easiest way was to look at the numbers: Why are there so few blacks and women in this firm? How many have been turned down recently? How come they are not being paid “enough” or advanced fast “enough”? Is the claim of merit just a pretext for discrimination? The government began to distrust the motives of every employer in the country.

The employer’s only protection against this game was to hire on the basis of race, sex, and national origin—the very thing prohibited in Title VII—as an effort to avert prosecution. The result of the Civil Rights Act is the plethora of minority privileges we know too well. Nowadays, if courts say a hiring test uses criteria not essential to the job, and effects a “disparate impact” on minorities, it is illegal. Even literacy tests have been deemed discriminatory, which means they must be “race-normed.” “Merit” is a fine criterion, so long as it is minority- friendly.

The net effect of Title VII on minorities in labor markets has been to increase the risks and costs of hiring them. Employers skim off the cream of the minority labor force, rewarding, for example, well-educated, high-skilled blacks at the expense of poorly educated and low-skilled blacks. And the non-minorities that are excluded or passed over for promotions are getting increasingly angry.

Such are the results of attempts to plan the private economy. The constitutional legitimacy of civil rights derives entirely from a New Deal tradition that views the commerce clause as an open invitation to any and all invasions. Once the premise is granted that the government can interfere with private market transactions, and reward some people at the expense of others, it follows that the same can be done with the freedom to contract in employment.

Today, courts and government agencies use standards that are so complex as to be incomprehensible to average businessmen. Epstein’s extended discussion of the evolution of antidiscrimination rules brings to mind the pricing methods of Soviet bureaucrats. Indeed, he argues that civil rights are a form of central planning which accepts all the assumptions of the more extreme variety practiced by the Soviet Union.

In short, the critics of the Civil Rights Act of 1964—often derided as bigots and racists—were really prophets who pointed to what the act would eventually mean for the freedom of contract. “The fears of the diehard opponents of the statute,” writes Epstein, “have proved correct.” He drives home the lesson that government invites social trouble when it uses motivation (“forbidden grounds”) as the dominant test of legality.

Epstein presents a challenge to free-market advocates. They have usually argued that the market discourages discrimination by making bigots and sexists pay a premium for favored workers, even as competitors clean up on employees passed over. But Epstein finds this argument weak. In consumer markets, one person’s money is as good as another’s. But in labor markets, a contract implies a long-term commitment to the culture of the firm. The employer must use proxies to forecast the long-term compatibility of new employees. Moreover, a homogeneous work force can often increase the efficiency of the firm by making a uniform ambience easy to achieve.

Epstein says we should face the cultural and sociological fact that people’s preferences—and thus the actions of economic agents—will tend to sort themselves into groups defined by common characteristics. One example is language. A restaurant exclusively serving Chinese-speaking customers will not do well with Spanish-speaking waiters. There are reasons for culturally homogeneous workplaces: “the music played in the work place, the food that is brought in for lunch, the holidays on which the business is closed down, the banter around the coffeepot, the places chosen for firm outings, and a thousand other small details that contribute to the efficiency of the firm.”

Is this tendency toward intra-firm homogeneity unfair? Does it violate anyone’s civil rights? No, says Epstein. Discrimination is a part of the division of labor, and there is no need to impose one model of fairness on the entire economy. “The partition of the market into specialized and well-defined niches should increase the satisfaction of all consumers. Any anti-discrimination law cuts against that commendable objective.” Which is not to say diversity doesn’t have its advantages. But the proper mix of homogeneity and diversity in the work force cannot be known before experience. Epstein asks us to give up egalitarian assumptions and let the market distribute labor resources as it sees fit.

Civil rights advocates have oversimplified the world, he says. They assume that millions of employers have “some fundamental psychological block to their own visions” which makes them act irrationally. In fact, private parties know better than government what is socially peaceful. “Unless and until the contract in question poses the threat of harm to third parties . . . or is procured by fraud or sharp practice, then each person is his or her own best judge both of the private costs incurred by contracting and of the private benefits obtained from the contract. Individuals have the best knowledge of their own preferences and have the strongest possible motivation to make the best deal for themselves.”

The point is to move away from collective decisions to private ones. As Epstein puts it, “the way to resolve the fundamental social disagreement is not to have a knock-down, drag-out moral fight”; it is “to allow people to go their separate ways.”

This would not end affirmative action and quotas, which, he argues, are only destructive when mandated by the government. If the Civil Rights Act of 1964 and all subsequent legislation were repealed, companies could and would practice a wide variety of race and sex privileges. “The level of affirmative action or the extent of quotas should be regarded as an internal affair of the firm, and never as the affair of the public at large or the state,” he writes. Economic efficiency and public attitudes would keep firms in check.

Here is a case in point. A friend of mine owns a business in Richmond, Virginia, and he is paralyzed by the threat of civil rights suits. Being liberally minded, he wants to practice private affirmative action, hiring blacks over more qualified whites. But he can’t do it because if he also fires blacks, he takes the risk of expensive lawsuits. Repeal civil rights laws, and, if he so chooses, he could hire an all-black work force.

Forbidden Grounds also covers sex discrimination, even delving into sociobiology to show why substantial work-related differences between men and women always will be with us. And it refutes the need for anti-discrimination laws for recently approved victims: the aging and the disabled. His case persuades.

Epstein’s astonishing, tightly argued, 530-page legal and economic treatise is a call to rethink the most explosive issues in American political culture. Let the debate begin.

Jeffrey Tucker is a fellow of the Ludwig von Mises Institute.