Minority Contract Set Aside Scandal

A recent article in Craine's Chicago Business and NPR detailed the shortcomings of Chicago's minority owned firm set aside program, which seeks to maximize the number of minority owner firms that receive city contracts. Often, firms employ a minority front to gain the contract, when in fact the real owners are white males. The focus of this piece was the lucrative construction contract of the west side Walmart by Broadway Consolidation, whose CEO, Margaret Garner is an African-American single mother. Both the city and Walmart widely publicized their choice as proof of their "commitment to diversity" and "investing in the community." The investigators found that 17 out of the 19 subcontractors that she employed were white males, which was a violation of the spirit and possibly the letter of the law. Sadly, the construction costs overshot the $17.8 million bid by nearly $10 million and each of the unapid subcontractors placed liens against her firm, which ultimately led to the bankruptcy of Broadway Consolidation. There are several lessons that we can draw from this incident:

Unlike the city, minority entrepreneurs are economically rational. Whereas city government heavily relies on political criteria (race, sex & nepotism) on their choice of contractors, Ms. Garner presumably chose the firms that offered the best service and lowest costs, regardless of the race or gender of their owners.

When the city places political considerations above economic ones, the cost and quality of work will suffer. I am betting that Mayor Daley would not have let political or ideological considerations guide business decisions  that involved his own money. But hey, who cares? It's only the tax payers money!

While contract set asides may benefit politically connected minority entrepreneurs, they do little to help the residents of Chicago's poorest residents. If anything, widespread city inteference dissuades businesses from investing in the city.

More than anything, this demonstrates one key problem with affirmative actions, most often seen in educational institutions; it is rarely in the interest of competent individuals or firm to be promoted beyond their ability. For example, an African-American student who would have excelled in a good school that corresponded to their ability (like Northwestern), will run a much higher risk of failing out of a top tier school (like Harvard) that recruited them largely on racial criteria. While Ms. Garner's firm was successful, it's yearly revenues amounted to $5 million, which leads me to believe that the $17 million dollar Walmart Contract was out of her league. Perhaps if Ms. Garner had resided over a project that matched her experience and expertise, her company would be growing, rather thank bankrupt. So, while such policies may satisfy the liberal conscience of university or city administrators, they do little to benefit the minorities that they are designed to help. This may be less noxious than the traditional Chicago practice of granting city contracts solely on the basis of family or political connections, but it most definitely is not in the interest of the people of our great city.