The MacNeil/Lehrer Report; Minority Set-Asides

ROBERT MacNEIL: Good evening. Yesterday the U.S. Supreme Court agreed to decide whether it is constitutional to set aside a fixed percentage of government construction funds for minority-run companies. At stake are hundreds of millions of dollars and the future of a score of other programs known as minority set-asides. Minority set-aside programs are an attempt to use the huge purchasing power of the federal government to stimulate businesses run by blacks, Hispanics and Indians. Last year federal purchases totaled $90 billion. In theory, that buying power should carry great leverage. But the federal efforts to use some of it to benefit minority business have had problems. Last year Congress investigated, and found it all riddled with mismanagement, even fraud. In March new regulations were issued to make government procurement officers obey the law. Tonight we examine why minority set-asides haven`t worked, and whether they ever can. Jim?

JIM LEHRER: Robin, the idea of using federal money and muscle to foster minority-owned business was born in the Nixon administration; it grew out of its black capitalism program, aimed at giving minorities a bigger slice of the pie, to use Mr. Nixon`s phrase. Part of the program was the set- aside concept, mandating that a certain portion of all federal contracts go to minority-owned businesses. Through the years the goal, informal in some cases, required by law in others, was to set aside fifteen percent of the federal government`s purchases of goods and services for minority companies. It hasn`t worked. After ten years and a lot of problems, the report card is short and sour. Last year minority business got a mere one percent of the federal contract dollar, and there is no group more aware of this sour result than minority businessmen themselves. Ron Lewis is vice president of the National Association of Black Manufacturers, an organization of some 800 black-owned firms.

Mr. Lewis, does this dismal record mean that the whole idea of minority set-asides just isn`t workable?

RONALD LEWIS: Oh, certainly not. It merely means that not enough emphasis has been put on the program. There have been success stories, and there have been examples of successful efforts; and given the proper emphasis, the proper direction, the proper funding, the program should work, and that`s what the idea of the new law is.

LEHRER: If you had to isolate one particular reason that it has not worked up till now, what would you say it is?

LEWIS: It`s a lack of commitment, a lack of commitment to the program and a lack of commitment to making it work.

LEHRER: Commitment on the part of whom?

LEWIS: All those who take part in the procurement process.

LEHRER: It`s been suggested that one of the crucial set of villains in this are the purchasing officers, the people who actually buy goods and services for the federal government. Do you agree with that?

LEWIS: Well, I wouldn`t isolate them totally and point a finger at them. I think certainly they`re under direction and they`re put in there to do a job, so there are situations where they don`t adhere to the program or aren`t properly committed. But on the other hand, they must report to someone else, and they must report to someone else. So if the program were properly directed and the reporting guidelines set up, then it would show up that the job is not being done. So it isn`t fair just to hold them responsible; they`re merely doing their job.

LEHRER: Who is it fair to hold responsible?

LEWIS: Well, I think you must go to the agency heads; as in any bureaucratic situation, the buck stops somewhere.

LEHRER: Why can`t minority-owned businesses compete in the open marketplace with everyone else?

LEWIS: Well, they can compete in the open marketplace as anyone else. They can`t compete fairly or successfully due to certain institutional things, problems within our system which prevent them and limit their access to capital, limit their access to manpower.

LEHRER: Limited because they are minority-owned?

LEWIS: Well, because they`re minorities, yes.

LEHRER: What would you say are the major obstacles that a minority business has that are unique to minority businesses, not problems that, say, all small business has or all medium-sized business has, and so on? What are the unique problems that minority business people have?

LEWIS: Well, if it were my business, the uniqueness would be that I`m black, because most businesses do not have black minority owners. That is the uniqueness of the problem, that is the problem in this country with being a minority. Certainly the limited access in the business world has been found in other avenues of opportunity in this country.

LEHRER: And this is just a manifestation of it. In other words, the fact that a company is owned by a minority person, and in your case black, that means that people don`t do business with you like they will if a comparable business in fact were owned by a white?

LEWIS: Well, it`s more than just not doing business, it`s the opportunity to do business. That refers, again, to the access to capital, the access to credit, the access to management; and in the final end, the access to sales, yes.

LEHRER: All right, thank you. Robin?

MacNEIL: Procurement has become a profession in this country with its own trade group, the National Association of Purchasing Management. Its president is Frank Winters, who represents some 23,000 purchasing officials or managers in government and private businesses. Mr. Winters, how do you respond to what Mr. Lewis says about the failures in minority set-asides so far, from your perspective in the purchasing management business?

FRANK WINTERS: Our thrust mainly is with the private sector, but we think there are many things we are doing in the private sector that the government sector or the public sector could look at. For instance, the first thing that was said was the commitment, and this is so important; it`s got to be a commitment right from the top. In the public sector, from the agency head; in the private sector, from the chief executive officer.

MacNEIL: Are you saying there is more commitment in the private sector than has been demonstrated in government?

WINTERS: Well, the private sector is a voluntary effort, and maybe in carrying out our voluntary effort we`re more dedicated to getting the commitment and getting the commitment spelled out. I think this is another area that we have found necessary in making a successful minority supplier program, that the commitment has to be spelled out in detail, giving the authority and the responsibility for the individual, most of the time the purchasing director or a company coordinator, giving them that authority and responsibility to implement that program.

MacNEIL: Top management has got to have the commitment and insist that it`s carried out, in other words.

WINTERS: And spell it out, spell out that commitment.

MacNEIL: In your profession -- and you represent a lot of government purchasing officials as well as private purchasing managers -- how does the typical government purchasing officer think of minority set-asides, to your knowledge?

WINTERS: He`s working under a mandatory program; and it`s not unlike what we`re going through in our wage and price controls. We`ve got a voluntary effort here, and we saw with a mandatory effort. But seriously, he has a definite program that he has to follow as far as the law is concerned in set-asides. Now, very often he finds it difficult to find a minority supplier who could be a competitive supplier in that particular program. In the private sector, we`re also committed to developing minority suppliers. And when we do that, we have to put certain parameters in as far as the money limits, the human resources, the physical resources, and so forth.

MacNEIL: Isn`t it true that in some parts of the minority set-aside program, particularly in areas of high unemployment, it isn`t necessary to find someone competitive, it`s only necessary to find a minority supplier?

WINTERS: This is not really true. If we`re going to fulfill the objectives of a minority program -- in other words, to offer the opportunity, as it was said earlier -- which I think we have a moral obligation to do, to offer the opportunity to minorities to come on stream as a competitive organization, then I don`t think it has to be a giveaway program. You`re certainly making them second-class citizens if you`re going to relegate your program to a giveaway.

MacNEIL: Isn`t it in part a giveaway program now?

WINTERS: No, I think it`s been interpreted to that because of the fact that we recognize in order to get a minority supplier on stream, yes, there may have to be some commitments of funds; but many of our large corporations, for instance, will set a time period when a buyer or a procurement director or a corporate coordinator has to get a minority on stream and in a competitive situation.

MacNEIL: I see. As a purchasing manager yourself -- that`s your profession and you`re not a maker of social policy -- is this a sensible program, from your professional point of view?

WINTERS: Yes, we think it is. The heart of good purchasing is good buyer- seller relationships. This was shown in the 1973-74 period when we had the double-digit inflation, the energy crunch, the critical material shortages; purchasing really made a name for themselves in keeping production lines going in that very difficult period. And one of the reasons they were able to do that was because of good buyer-seller relationships. And if you develop a good minority supplier, you`re going to have a very loyal supplier who`s going to stay with you in thick and thin. And we feel that this makes good sense and makes good business.

MacNEIL: Well, thank you. The recent congressional overhaul of minority set-asides came out of the House Small Business Subcommittee on Minority Enterprise. Its then-chairman and sponsor of the bill was Democratic Congressman Joseph Addabbo of New York. Congressman, your committee has recently been holding hearings on this subject. Have you found that government purchasing officials are dragging their feet in implementing minority set-asides?

Rep. JOSEPH ADDABBO: They have over the years. I chaired the committee for several years and have been a member of the subcommittee for nigh on eight or ten years, and every year we`ve heard the same arguments by the government agencies that they are working diligently looking for small business, minority small business in particular, but they can`t find them; they`re doing everything possible.

MacNEIL: Are they?

ADDABBO: They never have. And even to this date the law was passed and signed into being last October, November, and it took the agencies almost seven months, only till the last week or two, to start formulating the regs which should have been formulated ninety days ago.

MacNEIL: Is the record better in some agencies than in others?

ADDABBO: Yes: EEOC, which would naturally have it; HUD has a very fairly good record; NASA has had a fairly good record as far as ...

MacNEIL: Which are the worst ones?

ADDABBO: (Laughing.) The worst one is the one I chair now, the Defense Appropriations Committee.

MacNEIL: Who spend most of that $90 billion.

ADDABBO: They spend most, they spend almost -- oh, I would say fifty percent; over $50 billion comes out of the DOD.

MacNEIL: And why are they the worst?

ADDABBO: We have been trying to get the answer to that over the years

My feeling is that they have continued to do business as in the past, they have never designated an official within the department with the full authority to look at the major contracts to see what could possibly be set- asides. It`s easy to say, well, we`re going to build a ship, and that`s it. But within that you can give out one contract to a shipbuilder, but then the Small Business Person who`s supposed to be following that through to make sure that the law is being complied with, to make sure that in the breakout of that major contract that you seek out small business, that you seek out minority business, this has slipped by the way.

MacNEIL: You mean that although a minority business presumably couldn`t build a battleship, they could supply small parts that go into that battleship.

ADDABBO: Many of the small parts could be supplied, and the most important thing about the minority program is this -- and why I have been very seriously pushing it: the more suppliers you have, the greater com petition. The greater the competition, the cheaper the cost. So the more suppliers you can bring on board, the more producers you can bring on board to produce a given item, you no longer have to negotiate; you don`t have to pay twenty cents or a dollar for a given screw which can be produced at five cents or which you can buy for five cents.

MacNEIL: You say you`ve followed this over a number of years now. In the government, is it lack of will, or is it genuinely the difficulty of making it work?

ADDABBO: In my opinion, it`s the lack of will. It`s, again, the -- a man has to go through, if he`s in the military, he has three years to serve in a given segment of the military and his purchasing of; after that he`s going to move on so he`s not going to make waves, so he`s going to continue to do business as usual. They had nine contractors they have been dealing with; they`re going to continue to deal with those nine contractors; they`re going to look for something, but not look too hard.

MacNEIL: How will your bill make these government purchasing officials and -- as Mr. Lewis pointed out -- the people they are responsible to, the heads of the agencies, obey it?

ADDABBO: Well, obeying will be one thing. The bill requires that when a government contract is given out part of the contract will have a stipulated agreement as to what steps will be definitely taken to en sure that they will seek out small business and minority business. Each agency must have a dedicated officer to this function. He must report back to the chief of the agency. Now, right now I have an on running battle with Secretary of Defense Brown. Our law says he must have a designated officer, which means that you must have one man who is going to oversee this. He has given me a name, or he has named someone, who again has not properly administered the program in the past and in my guess will give it the same lip service he has in the past; and I`ve written several letters and had several discussions with Mr. Brown and have now contacted the OMB, Office of Management and Budget, for an interpretation. His statement is that he does not need a full-time officer, and OMB has come back and said that they do, that the law requires it. We will continue monitoring, we will continue to spotlight it. The administration has come up with a goal hoping to set aside for minority small business at least three billion dollars. They`ve been at one billion; they haven`t ever been able to reach that amount, but if they have any hope of reaching the three billion, it shows they really are committed to this program, to making sure that minorities become part of the mainstream, they`re going to have to get into this battle with the agency that, as we have spotlighted them via legislative hearings...

MacNEIL: It`s up to the administration to enforce...

ADDABBO: That`s right. And in a way they have been a little more alert than in the past. We just had a recent case where the multilateral trade agreement was going to almost wipe out the minority businesses because it would permit foreign corporations to now bid on U.S. federal contracts. It sounds great, because then the other side of the coin was that the U.S. businesses could bid on foreign (unintelligible). We know it`s ridiculous, because their wage scale and our wage scale are utterly different; our OSHA rules and all the other regulations -- we could never be competitive, so all it means -- and in order for them to bid on these federal contracts, it meant the elimination of the set-aside program, the buy American program. So when I received the first briefing on the multi-trade agreement and I saw this, I immediately wrote to Ambassador Strauss, and he said we were wrong because it would mean more business and everything else, and...

MacNEIL: But, just if I could shorten -- you did get it changed, did you? You got them to go back and renegotiate it, and you got it changed.

ADDABBO: We got it changed because we spotlighted it, we went to the White House, the White House looked at it and said, go back, renegotiate it, and it was changed.

MacNEIL: Thank you, Congressman. Jim?

LEHRER: The Commerce Department just released a report on this overall program called "A Strategy for Minority Enterprise Development." It was done by the management consulting firm James Lowry Associates, and the firm`s president is James Lowry. Mr. Lowry, before we go to strategies for the future, let me ask you first to look back for a moment. What`s your opinion on why the minority set-asides program has not worked up till now?

JAMES LOWRY: I think there are many reasons for it. I think one of the obvious reasons that`s been elucidated already is the lack of will, commitment in part, both at the very top and in the rank and file of bureaucracies and also in private sectors to make it work. There is not a commitment to try and help minorities, and females, I might add, to get a larger share of that pie. I think another problem that we have to be very realistic in dealing with is that minority firms at this point in time are not of the size to service the needs of major corporations, and also the federal government, especially in the areas such as defense. The average -- the last census was taken in 1972, but at that point in time the average receipts of a minority firm was only $41,000 on an annual basis. In manufacturing the average was only $135,000.So we`re not talking about, in most cases, large firms with very sophisticated operations. So sometimes we try and put a round hole in a square peg, or vice-versa.

LEHRER: You mean there are minority enterprises that are manufacturing goods for which the federal government has no need, or, to reverse it, the federal government, if they wanted to buy from minority enterprise there`s no minority enterprise that could provide the goods, is that...

LOWRY: That`s right, and what we advocated in that report in terms of the market -- and I will say that we just didn`t deal with the market side, we also dealt with the capital formation side and the management side of the problems -- but in terms of the market, we`re saying why can`t the federal government announce to the world, especially to the minority business community, what are they buying. What is Defense buying, what is NASA buying, what is Commerce buying? No one knows. We tried to get those figures in terms of SIC codes -- or Standard Industrial Codes -- in terms of what has the government been buying over the last five years. No one could give it to us. It would seem like a logical thing to identify the growth trends in terms of purchasing, and then try and fit minorities and help existing minority firms get the capacities so that they could service that need and fill the gap; and no one`s doing that.

LEHRER: Squaring away the procurement program alone, in other words, isn`t going to cut it, right?

LOWRY: No; no. There are many facets to this problem, and what we`re talking about is a long-term objective. Everyone loses sight of that fact, that we`re talking about trying to get minorities into the economic mainstream of America. It`s not going to happen overnight. And one mentions 1968; now we`re in 1979, and it seems like a long time when President Nixon came up with black enterprise -- I mean, black capitalism. That`s not a long time, that`s only a decade. And what we`re trying to do is rectify something that started (unintelligible).

LEHRER: Give me some specifics in terms of your strategy. What do you think should be done?

LOWRY: I think the overall mission of the new strategy should be to develop a new cadre of minority businesses.

LEHRER: Yes, but I mean, that sounds good, but how do you do it?

LOWRY: Well, the first thing they ought to do is designate one agency to have overall responsibility for minority business. Right now it`s split between SBA because it`s...

LEHRER: Small Business Administration.

LOWRY: Yeah, because the majority of the minority firms are small, so therefore SBA fills a commitment. But Commerce has the official executive mandate, so there`s confusion there; so we`re saying it should be fixed.

The other thing we recommend very strongly is there should be a three tier strategy, a developmental strategy, and let the Small Business Administration, which they`ve been doing very well, we feel, focus on the small business -- the Ma-and-Pa or slightly larger firm. Let Commerce, who historically has been dealing with that clientele or that constituency -- we`re talking about a million or ten million or twenty million in sales -- deal with that clientele. They`ve been doing it, they do it well, they know the rules, they know the regulations, they have the support to try and bring about accelerated growth. Right now there are two different groups doing the same thing.

LEHRER: Do you agree with what was said earlier, that private business has done a better job on this than the government?

LOWRY: No. No; I mean, when you look at the market, okay, let`s assume a $72 billion market in the federal government. That is relatively small compared to the trillion dollar market in the private sec tor. There is something called the National Purchasing Council, which it privately oriented, and last year they had a goal of one billion dollars for minority purchases. What`s one billion dollars compared to the goods and services purchased by the Fortune 500 companies alone? It`s just a trickle. And once again, if you had the commitment -- and you do have the brain power, and you do have the clout and the money -I`m sure we could come up with some innovative programs. Right now what they`re doing, private and public, unfortunately, is saying, okay, we have X number of dollars; existing firms out there, come and take advantage of it. That`s too simplistic.

LEHRER: Thank you. Robin?

MacNEIL: First of all, Congressman, what do you think of the idea we`ve just heard from Mr. Lowry, that it should all be put into one agency so they could really follow up and police this?

ADDABBO: Well, if it has to be one agency, I would say keep it out of Commerce and keep it into the Small Business Administration. There has been a constant move by Commerce to take over the Small Business Ad ministration and its activities, which would completely wipe out the program, because, as was just stated, Commerce is oriented to big business, one million and over, and small business ideas and the funding of the programs would be completely wiped out. So as far as the concentration of the minority office in one I think is good, but I believe it should be, if it`s going to be anyplace.

MacNEIL: Would you agree with that, Mr. Lowry, it should be in the Small Business Administration?

LOWRY: Well, basically -- I`m begging the issue, but what I`m saying is that there are two different functions; one is for a larger sized firm, which I think should be in Commerce, and that should be minority-oriented.

I think you should have a similar type of responsibility within SBA. I`m not saying that -- but I think that there should be one agency that takes the overall advocacy leadership role, and I think that that should be in Commerce.

MacNEIL: Mr. Lewis, are the provisions of the Congressman`s bill and the sort of new follow-up in OMB that he was discussing and so on, is that going to solve your problems, do you think?

LEWIS: Well, I think it`ll go a long ways toward assisting some of the problems. As Mr. Lowry said, it`s just not a matter of procurement, there are a lot of support systems needed. But the legislation does al low for some of the support systems placing these persons in the agency, which will make sure that the procurement function is followed through. Also it has some effect on private procurement, subcontracting, and it also deals with financing, there is some capital development in it.

MacNEIL: So it makes you slightly more hopeful, does it?

LEWIS: Uh, yes.

MacNEIL: Mr. Lowry didn`t agree with you that private business has a sterling record as compared with the government.

WINTERS: I don`t disagree with what he`s saying, because we`re still talking about one percent, but the government is still our largest purchaser. I say that in the current education and philosophy of the private sector, that is, to increase their goal each year -- and incidentally, this year they`re doing a $1.8 billion; it`s still merely a drop in the bucket -- but they too have accepted the three billion goal that the President has set, accepted that on a voluntary basis for the private sector. And what we`re trying to do -- and this is where our particular organization, the National Association of Purchasing Management, working with the Minority Purchasing Council, can be helpful because the purchasing people are on the leading edge of this thing. And if we can provide the educational background as to how they can seek out and work with minority suppliers, which hasn`t been done on a large scale in the past. Now, I just put on implementation of a minority supplier program in Atlanta three weeks ago for 165 leading purchasing people, and we`re going to do more of this as we go along. And I think that`s going to make a major contribution to the amount of dollars that are going toward minority business.

MacNEIL: Congressman, how do you get around the point that Mr. Lowry raised just now and others have raised, that so few minority businesses are in the business of making the things that government really wants to buy -- in the whole defense area, for example?

ADDABBO: Well, I would have to look at the statistics to really find out whether or not that`s a fact, because as Mr. Lowry said, and truthfully so, the minority businessman out there doesn`t really know and hasn`t really known what contracts are available to him because, again, most of the defense contracts have gone out as a package, and then the package or the private industry is the one who starts to deal with the subs and et cetera. And he has built up a pattern of dealing with this sub and that sub, and then...

MacNEIL: So disclosure of all the things that are required in these contracts would help a lot in this area.

ADDABBO: Yes. And one of the main key features of my bill is to have this dedicated officer who would look at the major contract and see what part of that major contract can be broken out. He would have the first look-see to see what can be broken out. And then once he has that, then that can be advertised to the list of all those minority and small business people who are on the list in these various categories; and there are computer categories.

MacNEIL: Well, thank you very much. We have to leave it there for tonight. Thank you, Mr. Lowry and Mr. Lewis in Washington. Good night, Jim.

LEHRER: Good night, Robin.

MacNEIL: Congressman, and Mr. Winters.That`s all for tonight. We`ll be back tomorrow night. I`m Robert MacNeil. Good night.