An optimistic small-business owner in New York, Henry Kaiser’s life changed when he asked his girlfriend’s father for permission to marry her. Kaiser’s future father-in-law said he’d permit no wedding until Kaiser had saved enough money and built a house for his bride. He left Kaiser with one piece of advice: Move west. Kaiser did just that. His company built roads in the Pacific Northwest, created dams in California, and played a key role in the construction of the Oakland-San Francisco Bay Bridge. Construction is a hard business, but to Henry Kaiser, problems were “only opportunities in work clothes.”
Entrepreneurs continue to play a key role in building America today. General contractors deal directly with the government to build schools, highways and other public works. But general contractors don’t do it all. Instead, they delegate portions of each assignment to subcontractors who have honed their area of specialization — paving, fencing, trucking, or some other niche.
These subcontractors often face racial discrimination when competing for jobs. Government policies (federal, state and local) today require general contractors to devote a percentage of their subcontracts, commonly called “set-asides,” to companies owned by racial minorities. They create an unconstitutional barrier to opportunity.
These set-aside requirements force general contractors to discriminate against subcontractors who are not certified as minority-owned. This can lead non-minority-owned subcontractors in some specialties to be shut out of public jobs altogether. For example, Alameda County has a pair of programs that call for 15 percent of each project to go to minority-owned businesses. A general contractor may do some work and divvy the rest among various subcontractors. Suppose that general contractor routinely employs the same minority-owned subcontractor in trucking to meet a portion of the goal. In that case, non-minority-owned subcontractors in the same field will be prevented from working on the project time and again.
These programs do a poor job of helping even the minority-owned businesses they are designed to favor. Many set-asides have been in place (in one form or another) for over 30 years. If they have not successfully redressed the problems posited by the government, there is no reason to think that they will now.
Even more, these programs are demeaning. One minority-owned contractor reports getting calls for jobs that the general contractor knows he cannot work on — just so that the general contractor can state that he has made good-faith efforts to subcontract to minority-owned businesses.
Racial set-asides in public contracting are not only unjust but also unconstitutional. The Supreme Court of the United States and the California Supreme Court both have struck down similar programs — the Supreme Court, on the grounds that it violated the Equal Protection Clause of the Fourteenth Amendment, and the California Supreme Court, on the grounds that it violated the California Constitution’s prohibition on racial discrimination, in public employment, public education, and public contracting.
On Monday, a nonprofit organization and two Alameda County residents challenged Alameda County’s racial set-asides in state court. They challenge the set-asides as violations of the state and federal constitutions (Disclosure: My firm, Pacific Legal Foundation, represents the plaintiffs in this case). The plaintiffs include Chinese immigrants who see shades of the collectivistic mindset that they have worked so hard to flee in today’s renewed calls for equity. Another plaintiff is a woman with decades of experience in the trucking company who has seen first-hand how connected companies take advantage of these programs at the expense of disfavored subcontractors.
For these entrepreneurs, the set-asides may be just one of many barriers to their flourishing. But it’s important for them to tear down these barriers — one at a time.
Wen Fa is a senior attorney at Pacific Legal Foundation, a nonprofit legal organization that defends Americans’ liberties when threatened by government overreach and abuse. Follow him on Twitter @wenfa1.