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Presumptions for Preferences: The Small Business Administration's Decisions on Groups Entitled to Affirmative Action

Published online by Cambridge University Press:  14 October 2011

George R. LaNoue  and
John C. Sullivan
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Extract

Almost all affirmative-action plans cover women and minorities. Who are affirmative action's sanctioned minorities? According to the U.S. Bureau of the Census, there are at least 630 ethnic groups large enough to be counted. Indeed it is doubtful if there are any countries in the world that have not contributed at least one citizen to the United States. Language defines culture and status for many people, but no one knows how many tongues are spoken in America. Students in New York City School District 24 alone converse in some 83 different languages. For some persons, religion is the core of their identity. The Yearbook of American Churches lists 250 different religious groups. Finally, many Americans are most invested in their vocations or avocations and each of those activities is a minority of the total.

Type
Articles
Information
Journal of Policy History , Volume 6 , Issue 4 , October 1994 , pp. 439 - 467
Copyright
Copyright © The Pennsylvania State University, University Park, PA. 1994

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References

Notes

1. Walters, Laurel Shaper, “Immigrants Flood New York City Schools,” Christian Science Monitor, 18 May 1992, 1.Google Scholar

2. 438 U.S. 265, 292 (1978).

3. See, for example, Justice Douglas in DeFunis v. Odegaard, 416 U.S. 312, 337–40 (1974), Justice Powell in Bakke at 309 (1978), Justices Stewart and Stevens commenting separately in Fulliove v. Klutznick, 448 U.S. 448, 530, 535–36 (1980), Justice O'Connor in City of Richmond v. Croson, 486 U.S. 469, 506 (1989).

4. See, for example, Richard N. Goodwin's chapter, “Beyond Civil Rights,” in Remembering America (Boston, 1988), when discussing the preparation of Lyndon Johnson's Harvard Commencement address, where the rationale for affirmative action was first set out (342–49).

5. Hugh Davis Graham (New York, 1990) and Herman Belz (New Brunswick, 1991). Graham does discuss the Nixon administration's specific inclusion of Cuban-Americans in the Spanish-surnamed group. Cuban-Americans tended to be relatively conservative, affluent, and Republican (328).

6. The issue of which groups to include in federal minority business programs is mentioned only in passing in the standard histories of federal MBE programs. Hopkins, George Lee, “Contracting with the Disadvantaged Sec 8(a) and the Small Business Administration,” Public Contract Law Journal 7:2 (August 1975): 169–217Google Scholar. Mitchell, Parren J., “Federal Affirmative Action for MBE's: A Historical Analysis,” National Bar Association Law Journal 9 (1981–82): 1–22Google Scholar. Drabkin, Jess H., “Minority Enterprise Development and the Small Business Administration's Section 8(a) Program: Constitutional Basis and Regulatory Implementation,” Brooklyn Law Review 49 (1983): 433–77Google Scholar. The most definitive study of federal MBE programs mentions the specific SBA exclusion of Hasidic Jews but otherwise does not comment on the group inclusion/exclusion issue. Levinson, Daniel A., “A Study of Preferential Treatment: Evolution of Minority Business Enterprises Assistant Program,” George Washington Law Review 49 (1980): 1–99.Google Scholar

7. Hammerman, Herbert, “‘Affirmative-Action Stalemate’: A Second Perspective,” The Public Interest (Fall 1988): 130–34.Google Scholar

8. Ibid., 131.

9. That is one of the reasons that local minority business programs included the same list of eligible groups as those identified by the SBA. This imitation of the SBA list has begun to cause trouble. In City of Richmond v. Croson, the Supreme Court criticized the city for granting set-aside preferences to “Spanish-speaking, Oriental, Indian, Eskimo, or Aleut persons” without any evidence of past discrimination against those groups or even any indication that Richmond had an Eskimo or Aleut citizen. At 506.

10. 15U.S.C. 631(a) (1971).

11. U.S. Code Congressional and Administrative News, 3843.

12. 13 C.F.R. 124.8–(c) (1973).

13. 42 U.S.C. 6705 (f)(2). In June 1980, the Supreme Court upheld the validity of these set-asides in Fullilove.

14. Owners are supposed to have a net worth of less than $250,000.

15. 13 C.F.R. 124.105(d)(2)(i–iii).

16. H.R. Rep. No. 949, 95th Cong. 2d sess., 1978, reprinted in Legislative History of the Small Business Act and Small Business Investment Act of 1958, Amendment, vol. 1, Committee Print at 56.

17. Legislative History, P.L. 95–507, 3882

18. Revised 1 May 1980.

19. Parren Mitchell, the principal policymaker for MBE programs, said the omission of Asian-Americans was “inadvertent.” Native Americans were not included until added in the Conference Committee report.

20. “Application of Opportunity Development Association and others for Designation of Hasidic Jews as a Socially and Economically Disadvantaged Group Pursuant to 13 C. F. R. Sec. 124.1–1(3)(iii),” 27 December 1979, 4–5.

21. Ibid., 43.

22. Ibid., 10.

23. Ibid., 20.

24. Ibid., 28.

25. Letter, 22 February 1980.

26. Letter from Frederick E. Jordan to William Clement, associate administrator, Minority Small Business and Capital Ownership Program, 3 March 1980, 1.

27. Letter from Carlos A. Young to William Clement, 3 March 1980, 1.

28. Memo from Harry Schwartz and Bob Malson to Stu Eizenstat, “Application of Hasidic Jews for Designation as a Socially Disadvantaged Group Entitled to Minority Procurement Set-Aside and Minority Subcontractor Benefits,” 21 February 1980, 2. These White House papers come from the Carter Library, and I am indebted to Hugh D. Graham, Holland N. McTyeire Professor of History, Vanderbilt University, for unearthing them.

29. Memo from Edward W. Norton to Harry K. Schwartz, “Hasidic Application for Designation as a Socially Disadvantaged Group,” 4.

30. Ibid., 8.

31. Schwartz-Malson memo (see note 28).

32. SBA Decision, 8 April 1980, 6.

33. SBA Decision, 8 April 1980, 12.

34. Ibid., 25. There had been no such First Amendment concerns six years earlier, when the Hasidic Jews received minority status from the Office of Minority Business Development in the Department of Commerce. This inconsistency within the federal government cannot be logically reconciled.

35. 45 FR 79415 (1 December 1980).

36. “Petition of National Association of Americans of Asian Indian Descent (NAAAID) for Inclusion of Asian Indians as a Majority Group Eligible for Participation in SBA's Section 8(a) Program in Parity with Asian Pacific Americans and Other Recognized Minorities,” 30 June 1981, 9.

37. Ibid., 56–57.

38. Ibid., 6.

39. Takaki, Ronald, Strangers from a Different Shore: A History of Asian Americans (Boston, 1989), 420.Google Scholar

40. “Civil Rights Issues Facing Asian Americans in the 1990's,” U.S. Civil Rights Commission, Washington D.C., February 1992, 12–13.

41. Letter from Michael Carenas to K. G. Jan Pillai, Esquire, 24 September 1981.

42. Asian Indian Petition, 33.

43. Letter from Robert L. Wright Jr., associate administrator for Minority Small Business to Jan Pillai, 26 February 1982.

44. SBA memorandum by Robert Wright, 19 July 1982.

45. SBA Notice by Robert Wright and James C. Saunders, 16 August 1982.

46. Asian Indian Petition, 40.

47. Letter from attorney Joseph A. Bosco to Michael Cardenas, 24 December 1981, 6.

48. Office of the White House Press Secretary, 25 October 1978.

49. Letter from Joseph Bosco to Michael Cardenas, 24 December 1981, 8.

50. Letter of 11 May 1982 from James C. Saunders to Joseph A. Bosco. This is consistent with the position the SBA was taking in denying the application of individual women-owned businesses for 8(a) status. For example, on 30 May 1980, Margaret Shaffer of Paradigm, Inc., received the following denial letter from William A. Clement Jr., associate administrator for Minority Small Businesses: “Sexual discrimination is not included as one of the elements which may lead to determination of social disadvantage, and neither does the Small Business Administration equate sexual discrimination to cultural bias.”

51. Letter from Karen Olsen to Herberto Herrera, Deputy Administrator, 23 February 1983.

52. The history of Mormons' missionary activity to the Tongans is recounted in Britsch, R. Lanier, Unto the Islands of the Sea (Salt Lake City, 1986).Google Scholar

53. Letter from Senator Jake Garn to Wilfredo Gonzalez, associate administrator, Minority Small Business and Capital Ownership Development, 3 November 1986.

54. Letter from an unknown author to Wilfredo Gonzalez, 3 November 1986.

55. Response from Gonzalez to unknown petitioner, 23 April 1987.

56. Actually, in March 1989, three years after the Tongan petition, when the SBA added eight places to the Asian Pacific group, Tonga was not one of them. In August of that year the explanation for Tongan exclusion was revealed in the Federal Register (54 FR 34696). The SBA admitted “that it inadvertently omitted” Tonga from its listing of countries whose people are regarded as Asian Pacific American. The agency's cavalier treatment of the Tongans was also inflicted on the Laotians in 1989, when they were inadvertently dropped from the same group and then later restored.

57. Letter from John Lopez to George Bush. According to the Statistical Abstract of the United States, in 1988 there were 2,199,000 veterans receiving compensation for injuries sustained in the service (10 August 1987).

58. Letter from Wilfredo S. Gonzalez to John Lopez, 16 December 1987, 2.

59. Ibid.

60. 29 U.S.C. 793–94.

61. SBA 1 August 1972, 72–56 Press Release, 3.

62. 16 December 1987 response, 3.

63. Ibid.

64. Memorandum from Robert Bluebber, general counsel to Francisco Marrero, 24 February 1988, 4.

65. “Petition for Designation of Iranian Americans as a Socially Disadvantaged Minority Group (Pursuant to Public Law 95–507 and 13 C.P.A. 124.105) Before the Small Business Administration,” 1. For example, Iranian petition, “A favorable petition by the SBA will ipso facto allow Iranian Americans to become eligible to participate in other Federal, state, and local programs” (9).

66. This represents an unverifiable estimate because the general census does not maintain statistics on Iranians as a discrete ethnic group.

67. Ibid., 28–29.

68. 10 December 1979, 35.

69. Ibid., 33.

70. Ibid., 19.

71. Letter from Wilfredo Gonzalez to Gary Gasper, attorney, Sidley & Austin, 23 November 1987, 2.

72. Keesing, Felix M., Cultural Anthropology (New York, 1966), 372Google Scholar, and Pearson, Roger, Anthropological Glossary (Malabar, Fla., 1985), 126–27.Google Scholar

73. Later the agency asked if the logic of the Iranian petition would not lead to minority status for Syrians as well. Letter from Joseph O. Montes, associate administrator, Minority Small Business and Capital Ownership Development, to Gary J. Gasper, 6 January 1989, 2.

74. Letter from Gary Gasper to Wilfredo Gonzalez, 31 January 1988, 8.

75. Memorandum from David A. Kohler to Francisco Marrero, director, Office of 8(a) Program Eligibility, 31 January 1988.

76. Letter from Joseph O. Montes to Gary J. Gasper, 6 January 1989, 3.

77. Ibid., 3–4. The rejection letter carries this point to a bizarre conclusion. It chastises the Iranians for comparing themselves to Vietnamese Americans and for arguing that since the Vietnamese were included that the Iranians should be. The letter states that “Vietnamese Americans have not been designated as a minority group by SBA. SBA's regulations have designated Asian Pacific Americans, of which Vietnamese Americans are a small part, as socially disadvantaged group…. Thus any comparison between Iranian Americans and Vietnamese Americans for the purpose of supporting a petition by Iranian Americans is misplaced.” Actually the Iranians never made comparisons with the Vietnamese, who were the poorest of the Asian group, but compared themselves with Asian Indians, who were the wealthiest. If the unpublished census data on which the Iranians relied are accurate, the median household income for them in 1979 was less than that for any other group in the Asian Pacific cluster. The SBA's argument, in addition to being factually incorrect, seems to suggest that it is better to determine economic and social disadvantage by large geographic areas than by smaller groups that do have distinctive cultures and histories of discrimination. The only thing people in the far-flung Asian Pacific category really have in common is that they are nonwhite.

78. Ibid., 5.

79. Letter from unknown person to Larry Parkinson, 25 July 1988.

80. “Civil Rights Issues Facing Asian Americans in the 1990s” (see note 40).

81. Ibid., 3.

82. Much of the section detailing examples of discrimination against Iranians was deleted by the SBA when it responded to the FOIA request. The agency made similar deletions in the sections of anti-Semitism and the Holocaust in the Hasidic Jewish petition. It is not clear what rationale under FOIA law the SBA used to make these deletions from the petitions it received. We have been successful in acquiring some deleted material by finding followup petitions with the SBA or contacting those who filed the original petition.

83. Letter from Wilfredo Gonzalez to unknown recipient, 23 April 1987, 2.

84. The most comprehensive assessment of the relative status of Asian-Americans can be found in “Civil Rights Issues Facing Americans in the 1990's” (see note 40). While this report documents some evidence of continuing discrimination against Asian Americans, it also shows that on average they are better educated, more likely to be managers or professionals, have less unemployment and a higher median income than the American population in general (11–12).

Timothy Bates, after conducting a careful economic analysis of minority businesses, concluded: “From a policy standpoint, an essential factor stands out. Self-employed Asians are not a disadvantaged group: their eligibility for government minority business set-asides and preferential procurement programs, financial assistance, subsidized technical assistance, and so forth is completely inappropriate. Their status as a “disadvantaged minority group” is history and it is time to adjust public policy to reflect this new reality.” “The Changing Nature of Minority Business: A Comparative Analysis of Asian, Non-Minority, and Black-Owned Business,” Review of Black Political Economy 18 (Fall 1989): 26.Google Scholar

There are some major differences among Asian groups in business participation. Japanese, Chinese, and Koreans are substantially above the national average, while Filipinos are much lower. Fratoe, Frank A. and Meeks, Ronald L., “Business Participation Rates of the 50 Largest U.S. Ancestry Groups: Preliminary Report,” (Washington, D.C., 1985).Google Scholar

85. Diane Wong, executive director, Commission on Asian American Affairs, letter to Lester Fettig, administrator, Office of Federal Procurement Policy, 16 April 1979.

86. Asian Indian Petition, 33.

87. Procedures Relating to Eligibility Determinations of Disadvantaged Businesses: “In determining whether small business concerns are socially or economically disadvantaged, reliance should not be placed upon a single factor, but on a composite of such factors as the social or economic background of the principal owners, controlling individuals and managers of the concern, along with the general pattern of their life, opportunities and education which have prevented them from obtaining financial or other assistance available to the average entrepreneur in the economic mainstream. Such persons may often include, but are not limited to Negroes, Indians, Eskimos, Aleuts, and persons of Mexican, Puerto Rican, Cuban, Filipino, or Oriental extraction.”

88. Bureau of the Census, 1982 Characteristics of Business Owners, Table 3B, p. 12, and Table 4C, p. 22.

89. Croson, at 506.

90. Office of Minority Small Business and Capital Ownership Development, 10 April 1992.

91. In FY 91, blacks received 41 percent of the SBA contract dollars, but Asians received 18 percent and Hispanics 30 percent. Letter from Janelle Booker, Program Liaison, Office of Minority Small Business and Capital Ownership Development, 10 April 1992.

92. Letter from Francisco Marrero, director, Office of Program Eligibility, to Rabbi Zvi Kesterbaum, executive director, ODA, illegible date.

93. Telephone interview, Amy Mertz, attorney for the SBA, 23 April 1992.