Chris Rufo and Austen Hufford have a great piece on California’s Gay Legalization Program. Yes, you read that right.
In 1986, Governor George Deukmejian signed Assembly Bill 3678, which required certain utilities regulated by the CPUC to submit annual “plans” to purchase goods and services from women- and minority-owned businesses. Two years later, the CPUC established its “Supplier Diversity Initiative,” which would enforce the law and set “terms” for large utility contracts.
Under a series of Democratic governors, the program was expanded to include gay-owned businesses. In September 2014, former Governor Jerry Brown signed legislation that required the CPUC to recognize “LGBT-owned businesses” as eligible for supplier diversity benefits. Five years later, Governor Gavin Newsom expanded the program, “encouraging” other companies involved in the energy sector to award contracts to gay-owned firms.
…This plan raises an obvious question: How does a business qualify as gay legally? Papers. The Supplier Clearinghouse, the group that accredits firms through the CPUC program, has a list of qualifications linked on its website. Applicants can obtain a certificate by providing a letter from an “LGBT organization” attesting to their sexual preferences; proof that the newspaper identified them as “LGBT”; or three letters from “personal contacts” on “company letterhead” attesting to their homosexuality. Business executives who “misrepresent” their business as gay face up to a year in county jail.
So there you have it. Under the concept of ever-increasing rights for anyone but white men we now have to confirm whether a person is gay or not.
This is an economics blog, however, so let’s break away from the culture war and ask, following Luke Froeb at Manejala Economics, what this marginalization is costing the taxpayer:
Margins move the price through two different channels, and they push in the same direction.
- First, it reduces the number of bids, so the second-lowest cost is higher (or the second-highest price is lower).
- Second, set aside bids themselves can be priced higher or lower than those they replace.
Both stations submit rates to the state….Study applies to California. Fewer, weaker tenders mean a bad deal for the government.
Brannman and Froeb estimate that excluding small businesses reduces wood auction revenue by 15%, a significant amount.
Addendum: It is important to note that fair auction theory tells us that it can sometimes be in the seller’s interest to handicap a strong bidder in order to make him raise his bids. So, in theory, an “affirmation” (not set-aside) system that took a bid from a smaller company say 5% higher (so that a minority bid at 100 beats a non-minority bid at 104) would increase revenue. Note, however, that this fair auction story only works when the small company loses the bid! In fact, even these types of programs lose money to taxpayers.
