'Discrimination Is Bad for Business:' Why Companies Are Preaching To a New Audience

Market size matters. So does scale. It's not personal, it's business. JL

John Gapper reports in the Financial Times:

Younger consumers with liberal attitudes are a bigger market than religious conservatives.
By stepping into the furore over Indiana’s religious freedom law, in defence of gay rights, Tim Cook boldly took Apple where companies have been wary about going before. But he is not the only US business leader advocating for a deeply-held personal belief — so have Marc Benioff of Salesforce.com on the same issue, and Howard Schultz of Starbucks on racial discrimination and violence.In addition to chief executives speaking out about social matters on which they might have remained silent a few years ago, they are adopting liberal stances that often clash with political and religious conservatives. On gay marriage in particular, companies are ignoring the traditional advice that they should stick to maximising profits within what Milton Friedman, the economist, called “the rules of the game”.
“Discrimination, in all its forms, is bad for business,” Mr Cook declared in an article in the Washington Post this week. Having nodded to the shareholder value caucus, he then made very clear where his heart lies. “It isn’t a religious issue. This is about how we treat each other as human beings,” wrote Mr Cook, who is himself gay, in his effort to change the rules in Indiana and conservative states such as Arkansas.On a narrow view of corporate self-interest, Mr Cook is misguided to criticise Mike Pence, Indiana’s Republican governor. If employers with conservative religious views do not employ gay people, or refuse to serve them, that merely weakens the competition for Apple and others. Prejudice drives up his rivals’ wage costs and reduces the size of their addressable market.
On a broader view, including how Apple and Starbucks project their brands, these leaders are talking sense. There would be a far bigger tension between shareholder value and the chief executive’s beliefs had Mr Schultz argued for racial discrimination rather than launching Starbucks’ “Race Together” campaign, which started awkwardly with baristas trying to engage customers in conversation on the topic.
Friedman was essentially right in his book Capitalism and Freedom that the discrimination tends to be curbed by the market because it is irrational — it introduces unnecessary costs, giving a company that is colour or gender-blind an edge. “Those of us who regard colour of skin as irrelevant can buy some things more cheaply,” Friedman wrote, with his customary detachment.

He drew on The Economics of Discrimination, the 1957 book by the Nobel-winning economist Gary Becker. As Catherine Rampell noted in the Washington Post, Becker found that prejudice imposes costs on discriminators as well as those discriminated against. Prejudice tends to linger in closed institutions such as churches, while being driven out by competition.

All things being equal, companies take a liberal view of, for example, immigration because they want to gain access to skilled labour. That is evident in US companies’ support for immigrant visas and UK companies’ backing for free labour movement within the EU. Employers do not mind where a worker was born if he or she is productive, adaptable and hard-working.

It does not always work as it should, of course. Whatever their theoretical self-interest, employers are often prejudiced. One study, for example, found that young people applying for internships at German companies were 14 per cent more likely to be called back if they had German, rather than Turkish, names. Smaller companies discriminated most — the national name premium was 24 per cent.

Plenty also depends on customer attitudes. Wage discrimination has fallen over time in US professional basketball, where most players are black — white players were heavily overpaid in the 1980s, adjusted for skill, but they now tend not to be. This may be because fans have become less prejudiced and will no longer pay more to see white players, another study suggests.

This is the key. Employers can argue narrowly that prejudice is an administrative problem. Some 379 companies including Apple, Amazon, eBay, PepsiCo and Starbucks, have signed a brief to the Supreme Court on a forthcoming gay marriage case. They claim that having different state laws “breeds unnecessary confusion, tension and diminished morale” internally and raises employers’ costs by $1bn a year.

But these chief executives are not taking a public stand because of a fine operational calculation. They are doing it because they believe in what they say, and they think that their customers do too. Younger consumers with liberal social attitudes are a bigger target market than religious conservatives, and companies are quickly reorienting themselves to millennials.
Aaron Chatterji, associate professor at Duke University, argues that such companies want to “reach younger, more diverse, more progressive customers and potential employees”. Mr Cook’s pledge that “Apple is open. Open to everyone, regardless of where they come from, what they look like, how they worship or who they love,” could equally serve as a marketing slogan.

The US is not the only country where religion and anti-discrimination laws clash. Churches in Germany have historically resisted equal rights for employees who are gay or divorced. The Catholic church is now thinking of reforming its ecclesiastical labour rules. It clearly feels in a minority.