The Licensing Effect

The article below contains excerpts from L.K. Samuels’ new book, In Defense of Chaos: The Chaology of Politics, Economics and Human Action.

Column by L.K. Samuels.

Exclusive to STR

Good intentions rarely make good laws. Those who do evil almost always think they are doing good for goodness’ sake. Nobody sees himself as evil. As Will Smith, the American actor, once quipped, “Even Hitler didn’t wake up going, ‘let me do the most evil thing I can do today.’ I think he woke up in the morning and using a twisted, backwards logic, he set out to do what he thought was ‘good.’” Friedrich Hayek took this idea a step further, writing: “It is indeed probable that more harm and misery have been caused by men determined to use coercion to stamp out a moral evil than by men intent on doing evil.”¹

There is little to prevent do–gooders and their actions from unexpectedly metamorphosing into holocaustic bloodbaths, especially when considering the “licensing effect.” Under this effect, people can rationalize bad conduct, if they first do something good. Whether in dieting, consumer choice, or politicking, the licensing effect permits people to be wicked after they have performed something deemed good.

According to Dale Miller, a psychology professor at Stanford Business School, “With licensing, the first act doesn’t commit you, it liberates you.” This liberating euphoria permits the human psyche to do what it supposedly is against. Miller’s experiments uncovered business managers who publicly declared their lack of bias in hiring minorities, for instance, but in practice showed a strong prejudice against minorities. Since these managers had declared their support for minorities, they were now free to be extremely biased.²

A major study by a sociologist at the University of Arizona exposed the twisted dilemmas and unintended consequences of the licensing effect. The 2007 study provided clear analytical evidence of the ineffectiveness of involuntary diversity training in the workplace. It would be reasonable to presume that by the late 20^th Century, encouraging diversity within the workplace had become an easy sell. But after reviewing 31 years of data from 830 mid–sized and large corporations, sociologist Alexandra Kalev concluded that involuntary diversity training was “ineffective and counterproductive.”

How counterproductive? The figures are shocking. A comprehensive review of data revealed that those businesses’ mandated diversity training exercises for their managerial staff were followed by a “7.5 percent drop in the number of women in management.” For black female managers, the decrease was 10 percent, with a 12 percent drop for black men. “The effect was similar for Latinos and Asians.”³ So what is going on?

This study shows that mandatory enforcements routinely backfire, because they are set up with unrealistic and artificial expectations. Real change comes when people voluntarily modify their opinions. Any other way makes people feel that they have been imposed upon. Professor Kalev confirmed this reality by noting: “When attendance is voluntary, diversity training is followed by an increase in managerial diversity.”⁴

When companies with government contracts are put under the gun to teach diversity, managers get the impression that, having taken a course, they’ve performed their good–citizen duty. They’ve been trained by experts to be a lean, mean antidiscrimination machine. And yet, the sacrifice they made in taking the compulsory training shouts out for compensation. They have been put upon to do something good. They have spent long, boring hours in the classroom. They can now subconsciously overlook or avoid the hiring of minorities. In Kalev’s words, “Forcing people to go through training creates a backlash against diversity.”⁵

Many corporations also bring diversity training into the workplace for legal protection. In this case, the training becomes an exercise in public and legal relations, instead of reaching toward true, long–term change. After all, companies understand that their diversity training bestows some legal protection, if later they are hit by a discrimination lawsuit. In short, preventing lawsuits is more important than efficacious training. Bill Vaughn, cofounder of Diversity Training University International, confirms what the study foreshadowed. “If they are doing it for legal protection, they don’t care whether their training is successful.”⁶

The licensing effect affords us an explanation for a time–honored way to justify violating principles. For instance, if someone is always condemning greed, he is now entitled to a binge of overt self–indulgence. Having cleared his conscience of any avarice, he can waltz into a Mercedes–Benz showroom and splurge like a rapacious man of wealth. Further, he can brand others as greedy SOBs while taking comfort in the fact that the saintly blood of altruism flows through his own noble veins. For the virtuous, to act self–centered is impossible, as such behavior is unthinkable to the enlightened mind; therefore, narcissistic greed can run wild. Habitually, the greediest are blissfully unaware of their own selfish motives.

In an interesting article in Psychological Science, two researchers argued that people who feel morally virtuous have a tendency to engage in the “licensing (of) selfish and morally questionable behavior,” also known as “moral balancing” or “compensatory ethics.” The researchers, Canadian psychologists Nina Mazar and Chen–Bo Zhong, revealed that when people try to save the planet or do noble deeds, they become less kind to others and more likely to cheat and steal. They wrote: “Virtuous acts can license subsequent asocial and unethical behavior.”⁷

The licensing effect is also found among public employee unions who act as if they still represent government employees receiving little compensation for their work. For over 150 years, that was true of American civil servants, but no longer. According to economist Chris Edwards, “As of 2008, the average federal salary was $119,982, compared with $59,909 for the average private sector employee. In other words, the average federal bureaucrat makes twice as much as the average working taxpayer.”⁸ Despite this disparity in pay between the public and private sectors, the political and bureaucratic classes routinely accuse opponents of greed. They condemn tax–averse corporations and taxpayers as selfish pigs obsessed with money. And yet, as columnist Steven Greenhut observed: “there are few things as greedy as running up debt and lobbying for more taxes from the peons so that an elite class can keep retiring earlier with ever–greater pension and other benefits.”⁹

But this greedy disposition is just the tip of a bloating iceberg. Many government and union–operated retirement programs have no qualms about taking big risks in the stock market. Why? Because the political class always holds the winning hand. Applying a Las Vegas metaphor, Greenhut asked: How would you bet if you could keep all your gains at the casino, but dump your losses on someone else? But this is exactly how many of these public retirement systems operate. If a Public Employees’ Retirement System (PERS) fails to make a profit, the taxpaying public is often responsible for making up the deficiencies. So, who are the real greedy profiteers here?

In the electoral politics realm, the licensing effect grants politicos the prerogative to flip–flop their principles. When President Richard Nixon, fervently anticommunist, visited Red China in the 1970s, political pundits came up with a proverbial apothegm: “Only Nixon could go to China.” Fluent in altruistic doublespeak, those in control of command–based systems rely on the fulcrum of well–respected virtues. Since they are public servants—supposedly hired to serve up healthy scoops of community goodwill—they find themselves confronted with a license to act contrary to stated purposes. This situation supplies a politico the license to sabotage principles of good governance by becoming a player in society, instead of a referee.

After becoming a player, the governing team no longer needs to be tethered to impartiality. Without the restraints of a rules-bound referee, government officials are free to take sides and play favorites. Like professional football teams, bureaucrats, politicians and technocrats often wage strategic campaigns against those perceived to be the opposition. Taxpayers are no longer seen as cooperative partners, but as antagonistic contestants in a never–ending struggle for turf and money. In the final analysis, political systems based on compulsion must remain at perpetual war against their own plebeian kinsmen. The war causes a general breakdown of social order, and predisposition toward a government incapable of operating on a level playing field.

A first–rate example of the licensing effect occurred when in 2009, three of President Obama’s key cabinet nominees were caught practicing an embarrassing double standard. The nominees, all well–respected Democrats known for their fondness for higher taxes and harsher punishment for tax cheats, were discovered to have failed to pay their taxes.

One nominee, former U.S. Senator Tom Daschle, once said, “Make no mistake, tax cheaters cheat all of us, and the IRS should enforce our laws to the letter.”¹⁰ And yet, during his confirmation hearings for Health and Human Services Secretary, Daschle admitted he had failed to pay over $128,000 in taxes in the previous three years. Another nominee, Timothy Geithner, who was confirmed as the Secretary of the Treasury, an office that oversees the IRS, had failed to pay $34,000 in taxes for the previous four years.¹¹ Another nominee, Nancy Killefer, failed to pay unemployment compensation taxes for her family’s nanny. A fourth one, Congresswoman Hilda Solis, ran into trouble when it was revealed that her husband had failed to pay 15 outstanding state and county tax liens since 1993.

A year later, in 2010, another such tax–cheating scandal burst on the political scene. U.S. Congressman Charles Rangel, chairman of the Committee on Ways and Means—the key tax–writing committee—had to step down from his post for a spate of ethical violations. One charge was that he “failed to disclose properly $500,000 in assets on his annual financial–disclosure forms.” In another charge, investigators were reviewing whether he had failed to pay taxes on an offshore rental property. It appeared that Rangel might have hidden the rental income from the IRS.¹² The Committee on Ways and Means has jurisdiction over all taxation, tariffs, and other tax–raising measures.

During the hearings, Congressman Rangel, who had failed to pay the full extent of his tax liabilities for 17 years, continuously insisted that he was “not corrupt.” On December 2, 2010, Congress censured him for having committed eleven counts of ethical misconduct. Although anyone else would have gone to jail, Rangel’s punishment was limited to standing before Congress while being rebuked by the House Speaker. He kept his U.S. Congressional seat. Evidently, most politicians feel entitled to different rules from those which govern their citizens.

This is not simply a case of outright hypocrisy. Lawmakers see no inconsistency in advocating inconsistent stances. They can easily hold two opposing opinions simultaneously without noticing the pungent odor of hypocrisy. They are above their own laws, because, as they see it, they have made great sacrifices in order to enact those laws. They did good, so, in their minds, it is perfectly legitimate to now be bad. Violating particular laws is their reward for having made society better. This being a double standard never seems to invade their frame of mind—until they get caught. None of these political bigwigs offered to pay their taxes until they were offered a cabinet job. It is easy for those crafting the laws to advocate tax increases, when they do not intend to pay them.

Interestingly, there were so many tax gaffes during Obama’s cabinet nominations that pundits joked that most politicians must be violating tax laws, since what are the odds, otherwise, that the President would only nominate tax cheats.

An argument can also be made for an “inverse licensing effect.” If people think they have done something bad, they are more inclined to compensate by doing something good to ease their conscience. In the realm of economics, even successful businessmen and investors have confessed to pangs of guilt after having made great gains in the marketplace. Perhaps that is why some of those flush with money feel an impulse to contribute hard–earned cash to worthy charities.

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^ Friedrich von Hayek, The Constitution of Liberty, Chicago: University of Chicago Press, 1960.
² Iris Kuo, “‘Licensing Effect’ seen in Dieting, Charity, Hiring,” San Jose Mercury News, January 30, 2006.
³ Shankar Vedantam, “Most Diversity Training Ineffective, Study Finds,” Washington Post, Jan. 20, 2008.
⁴ Ibid., Vedantam.
⁵ Ibid., Vedantam.
⁶ Ibid., Vedantam.
⁷ Kate Connolly, “How going green may make you mean: Ethical consumers less likely to be kind and more likely to steal, study finds,” Guardian, March 15, 2010. Original source: Psychological Science, “Do Green Products Make Us Better People?” Nina Mazar and Chen-Bo Zhong at the University of Toronto, published online, March 5, 2010.
⁸ Chris Edwards, “Public Sector Unions and the Rising Costs of Employee Compensation,” Cato Journal, Vol. 30, No. 1 (Winter 2010).
⁹ Steven Greenhut, “Pension crater much deeper,” Orange County Register, April 11, 2010. For 2009, the average federal civil servant’s pay and benefits rose to $123,049. For private workers, the figure rose to $61,051, according to the Bureau of Economic Analysis. Dennis Cauchon, “Federal workers earning double their private counterparts,” USA Today, Aug. 8, 2010.Greenhut is a director of the Pacific Research Institute’s Journalism Center.
¹⁰ Sen. Tom Daschle, Congressional Record, May 7, 1998, p. S4507.
¹¹ Chris Cillizza, “How Killefer Hurt Daschle, The Washington Post, Feb. 3, 2009.
¹² Brody Mullins, “Eventual Return to Powerful Post Is Unlikely,” Wall Street Journal, March 4, 2010.