Why Economics Should Not Be Used To Justify Diversity - or what Dr. J, Larry Bird, Michael Jordan and old school basketball can teach us about diversity

About six years ago I started to hear a new argument when it comes to diversity and it is an argument I am hearing more and more often now.

The argument is a simple one: Companies should increase diversity because it is good for business. In the last few years study after study has been published that argues that if companies increase their diversity they will also increase their profits. According to a McKinsey report the most gender diverse companies outperform their competitors by 15%. For ethnic diversity the figures are even bigger with the most ethnically diverse companies outperforming their competitors by 35%.

When it comes to film and television recent studies seem to come to the same conclusion that productions which are more diverse both in front and behind the camera bring in larger audiences and are more profitable.

Now most people know that I love economics. I studied economics at university and I am married to one of the leading economists on China-Africa relations. And so when they hear about these studies they often assume that I support the argument that companies should increase diversity because it is in their financial interests.

But you may be surprised to hear that I do not support this argument and that is because of my other love – Basketball.

In 1988 two economists, Lawrence Kahn and Peter D Sherer, looked at the contracts of different NBA basketball players depending on their race.

They discovered that black players were paid significantly less than their white counterparts who were equally skilled (same shooting stats, turnovers, assists etc). And black players with the same skill level were less likely to receive a contract from a team. For those of you who love basketball like me this is roughly the time when Dr. J and Larry Bird where having their epic battles. 

And now here is the surprising thing – the racism made complete economic sense. In fact the team managers would have been going against their own financial interests to have paid the black and white players equally and here’s why:

The fact of the matter is that basketball is a business and even though as spectators we think the business of teams is to win games it is actually to increase their profits.

The two economists found that replacing one black player on a team with an “identical” white player raised home attendance by 8,000 to 13,000 fans per season.

Or to put it another way; if the Boston Celtics employed just one black player that would be the equivalent of playing one game a year to a completely empty stadium.

It made economic sense for basketball teams not to value ethnic diversity.

Now remember this is the 1980’s and the way most teams made their money was through ticket sales. But in the 1990’s something started to happen across all major sports.

Sports teams started to make their money from television revenue – ticket revenue started to become less important. No longer was it important to pack out a stadium with richer white spectators, attracting large numbers of fans who were willing to watch the games on TV -  irrespective of skin colour – so broadcasters could sell more advertising was suddenly a priority.

Or to put it in a way some basketball fans can understand more easily - this was the era of Michael Jordan - and it didn't matter any more if Jordan could pack out the United Centre in Chicago what mattered was whether people across the whole world would tune in to watch him play.

The economic model had changed. And the profitability of diversity had also suddenly changed. All of a sudden black players started to earn a lot more money.

It is precisely because I am basketball fan that I am very weary of people using profits as a justification for diversity. The NBA is a prime example of how things can change. And change in ways no one can predict.

Now let us take the example of the television industry.

The economics of television are currently undergoing a revolution as the major players in the industry switch from an advertising source of revenue to subscription based revenue.

Who is willing to pay the subscription? How can broadcasters attract new subscribers? And how can you retain the subscribers they have?

How these questions are answered will effect how profitable diversity is to broadcasters.

I actually suspect that in an effort to reach niche subscribers the subscription model may actually increase the financial imperative to increase diversity. But in ten years’ time there might be a new economic model that means diversity is not profitable just like in the bad old days of the NBA in the 1980’s. It is impossible to predict.

By using economics as a justification for diversity and arguing that we should increase diversity because it is good for the bottom line we are implicitly saying that we should not increase diversity if it is bad for the bottom line. That the NBA in the 1980’s was correct to discriminate against black players.

I believe diversity is morally the right thing to do.

Paying women, BAME (Black Asian and Minority Ethnic), disabled, LGBTQ+ and any other groups of people the same wage based on their skills should be the aim. Ensuring that everyone has equal access to have their voices and stories heard creates a better society.

Broadcasters should not do the “right thing” in increasing diversity because it makes them more money today because who knows doing the “wrong thing” might be equally profitable tomorrow.

It sticks in my throat to say but diversity might be even more important than my first two loves: basketball and economics.