The spectre of reservations in the private sector threatens to spark off yet another round of potentially polarizing and debilitating politics. There ought to be no disagreement on the proposition that marginalized groups should be given greater access to the jobs and equity available in the private sector. Indian capitalism will not be able, in the long term, to legitimize itself if numerically significant and oppressed social groups are excluded from its precincts. But is reservation in the private sector the most honest, effective and reliable way to ensure this access' And on what principles will these reservations be justified'
No matter what one’s views are on the justifiability of reservations in educational institutions and public sector jobs, different arguments are needed to justify extending reservations to the private sector. There is a greater prima facie case that institutions of the state that channel our collective resources should be as widely representative as possible. In a way, the legitimacy of these institutions depends upon them being representative and open to all. This still does not amount to a decisive case for the kind of quota system we adopted, but at least it is a plausible claim.
While it is desirable that private institutions be as diverse as possible, it is less plausible to suppose that they ought to fulfil representative purposes. Such a requirement would be incompatible with a due recognition of property rights that, with all their limitations, remain the cornerstone of an efficient economy. It would also be incompatible with the freedom private entrepreneurs need to make the decisions relevant to their firm or enterprise.
Of course, private enterprise has social responsibilities. But these are discharged through the mandatory taxation, and occasionally through voluntary philanthropy. To impose reservations on them is, in a sense, an extra form of taxation. And the question we need to ask is whether this form of taxation will be optimal both for private enterprise and for the marginalized groups we are trying to help.
The empirical arguments on this are meagre and cut both ways. Arguments based on the claim that reservations are incompatible with merit are, at best, only partially true for a number of reasons. In most jobs, merit is a more nebulous category than we suppose, and its contours become clear only when we want to exclude someone. Besides, merit-based arguments are often made in political bad faith: what is the point of arguing about merit in a context where a whole social structure inhibits the free development of merit'
Supporters of reservation can point to the fact that Malaysia ran a very ambitious quota programme for the private sector for almost thirty years. This programme was designed to dismantle Chinese monopoly and consisted of measures like reservations in educational institutions, preferential awarding of contracts to Bhumiputras, employment quotas in the private sector and even a provision that all newly listed companies must be at least 30 per cent owned by Bhumiputras. The result was that Bhumiputras owned 23 per cent of corporate shares in 2000 as opposed to only 2.3 per cent in 1970, and even during the Asian crisis, there were almost no anti-Chinese riots in Malaysia in comparison with other southeast Asian countries. Malaysia experienced impressive growth rates of 6 to 7 per cent during this period and while the counterfactual is difficult to imagine, most observers would not describe Malaysia as an economic failure.
But the Malaysian experience also points in the other direction. It is not insignificant that Malaysia in 2004 began to rollback affirmative action in educational institutions on the grounds that these policies were inimical to producing the kind of graduates a competitive economy needs. Most of the high-tech sector, foreign firms and globally competitive industries were exempt from the reservation requirement, as a kind of back-handed acknowledgment that reservations and global competitiveness were in tension. Reservations had a distorting impact on Chinese enterprise by forcing them to not enlarge their firms; many Chinese seceded from local institutions altogether. Many studies have suggested that the regulatory consequences of reservations were not as deleterious largely because the state was lax in enforcing many requirements that would have had adverse consequences. It is also difficult to disaggregate the effects of Malaysia’s generally good economic performance, its higher social investment rates on the wellbeing of Bhumiputras from the effects of reservations. And the social peace that reservation secured may have largely been a product of state repression.
It is also important to remember that Malaysia saw itself as a permanently racialized state of sorts. The goal of these policies was to curtail Chinese influence, not make the category of Chinese or Malay irrelevant. The justification for using ethnic classifications in a country like India can only be instrumental: allocation along ethnic lines is justified only to the extent that this is a route of empowerment that will, in future, allow us to transcend ethnic categories as axes of citizenship. The one proposition almost all studies of affirmative action agree upon is that the use of quotas and ethnic classification permanently enshrines categories of ethnic identification. The Malaysian state may have no qualms about this, but it would be a colossal tragedy if India were nothing more than an aggregate of caste identities.
In India, any policy of reservation in the private sector will run one of two risks: either it will add such imposing layers of regulation on private enterprise that it will extract real social costs, or it will be so mildly enforced so as to be practically meaningless. The experience in the United States of America is also a mixed guide in this matter. The US experience of affirmative action was borne out of the experience of discrimination. But in order to get redress, one has to prove that discrimination actually took place in a particular instance.
Barring any overt acts of hostility, this is much more difficult to prove than one supposes. Either one can use something of a quota test to prove that an employer discriminates. But this requirement would surely be too stringent. Short of that, any equal opportunity legislation actually has little effect. It is no small wonder that despite decades of state intervention and social movements, the ratio of black to white unemployment has risen rather than fallen in the US. It should be a reminder that affirmative action policies are not very successful in their objectives. Ironically, the only areas in which affirmative action policies are successful in the US are in college admissions, where they are largely voluntary.
We clearly need affirmative action to get Dalits and other marginalized groups access to the benefits of the markets. Companies should be pressured by civil society to undertake diversity measures. More investment in health and education will create conditions for greater market access; the state can create entrepreneurial funds, invest more in high-tech education for Dalits, even buy shares and equity and disburse them amongst the Dalits. We need to ask whether condemning Dalit students to second-rate public institutions has done more to harm their job prospects than any gains that might come from reservations. Reservations are unlikely to help the poorest 20 per cent who need state intervention the most.
To impose mandatory reservations in the private sector would be to jeopardize the economic future of the very class we are pretending to help. More regulation, given the character of the Indian state, only distorts the economy, imposes hidden costs on business and slow employment generation. Reservations will have little impact on the most marginalized of groups, but will have far more adverse social consequences. If we go through with reservations in the private sector, it will be a stark reminder that we enact policies not because they bring real benefits, but because they cover up our failures to be more imaginative and do the right thing.