Last week, the Supreme Court heard oral arguments in the much-mooted case of Fisher v. University of Texas at Austin. At issue in the case was whether the University of Texas at Austin’s affirmative action program complied with the stringent legal test the Court set out in Grutter v. Bollinger (2003). Grutter held that the University of Michigan had a sufficiently “compelling state interest” in fostering a diverse student body that it could take race into account in the university admissions process, even if race-based decisions are widely unacceptable in other contexts.

In 2013, when the Supreme Court first considered UTA’s admissions program in Fisher v. University of Texas at Austin, it did not immediately deliver a judgment; rather, it ratcheted up the pressure on UTA by asking the school to come up with strong empirical support for its diversity plan. Little has been done since that time on remand, except to keep in place the admissions program now under attack. In the 2013 case, the Court imposed the strict scrutiny test on UTA, which generally requires an exacting review of the program to see if it falls within the narrow exception to the colorblind tests developed by the court in other cases.

The UTA program has two parts. The first part allows for 75 percent of an entering class at UTA to be composed of students who finish in the top-ten percent of their high-school class. The second part of the program allocates the other 25 percent of the slots to students on a “holistic basis,” in which race can be taken into account along with other non-academic factors.

If the Court is serious about applying the familiar strict scrutiny test, the entire admissions program should have been struck down. The only reason that UTA adopted a special rule for the top-ten percent was to increase the enrollment of minority students (since many high schools in Texas are majority-minority). The reliance on the top-ten percent qualifier also reduced the significance of standardized tests like the SAT and the ACT, which are in general reliable predictors of academic success in college.

It is an open secret that this rule was adopted to circumvent a color-blind admissions standard. Worse still, it introduces two significant distortions. The first is that many minority students in larger and more integrated schools have better qualifications than the top-ten percent qualifers at smaller, less integrated schools—but they are less likely to get in. Second, the rule makes it generally harder for students from urban backgrounds to get into UTA because of the stiffer competition in large urban schools.

It is worth noting that an honestly run quota system that reserved some fixed percentage of the class for minority groups, chosen by academic strength, would avoid both of these problems. But the dogmatic strict scrutiny test the Supreme Court applied precludes this candid solution. Race may be taken into account on the sly, but not in a forthright fashion.

The program had its intended effect because it prevented African-American enrollment at UTA from falling below four percent. But it could not boost enrollment beyond that level, which is where the holistic admissions slots came into play. Under any serious version of strict scrutiny, this program should also be struck down because it is used for one reason, and one reason only—to increase minority representation in the program. Normally, it is the strongest students that have the greatest non-academic strengths. Yet the test here subordinates a search for those independent qualities, as its sole purpose is to increase minority enrollments.

Nothing said in oral argument alters this grim analysis. But what did attract attention were some comments made by Justice Scalia. UTA’s lawyer, Gregory Garre—a former Republican Solicitor General in the George W. Bush administration—issued the dire warning that without some kind of affirmative assistance during the admissions process, the percentage of minority students in elite American universities would plummet. To which, Justice Scalia then interjected his pointed reply:

There are those who contend that it does not benefit African Americans to get them into the University of Texas, where they do not do well, as opposed to having them go to a less-advanced school, a slower-track school where they do well. One of the briefs pointed out that most of the black scientists in this country don’t come from schools like the University of Texas. They come from lesser schools where they do not feel that they’re being pushed ahead in classes that are too fast for them.

This passage generated intense irritation from the likes of Mother Jones, but Scalia’s point is perfectly fair. There is a good deal of empirical evidence to support the proposition that minority students do better in institutions where their academic credentials are on the same level as other students. When they are paired with students who are more academically advanced, their performance in college suffers relative to what it might otherwise have been—and that means, in part, that fewer of them will specialize in science and engineering. The evidence in support of these statements comes from a powerful brief filed by Gail Heriot and Peter Kirsanow, both members of the U.S. Commission on Civil Rights, which documents the harmful consequences that come when students are mismatched with their colleges. Tellingly, no evidence presented by UTA undermined their conclusions.

The hard question in this case is what should be done with that evidence. The Heriot/Kirsanow brief leaves only one option open under the current law: the holistic portion of the Texas program has to go, and the top-ten percent qualifiers rule should probably go with it.

In my view, the Supreme Court should acknowledge that it set the law off in the wrong direction by insisting on a strict scrutiny test. Just as the civil rights laws are wrong in prohibiting discrimination on the basis of race in private institutions, so too is the strict scrutiny test inappropriate to apply to state-run institutions of higher education, which are in direct competition with private institutions. If private institutions think that they perform better with some diversity program, why bar their public competitors from adopting the same ones?

The first point in the revised analysis is that the principle of freedom of association, not the anti-discrimination laws, should dominate in all competitive markets, including those in education. The way in which to discipline schools is not through the heavy hand of the state but through the market: students, teachers, and donors can choose to attend a school with a diverse student body if that’s what they want, or they can choose to go to a school where students are admitted solely on the basis of academic merits. There is no reason to think that this trade-off should be made the same way in all universities and colleges across the land. It is in fact a situation where decentralized decision-making in the Hayekian tradition promises the best results. Right now it is exceedingly difficult to get that response because the heavy-hand of the civil rights laws denies private universities the right to choose as they see fit. But I have little doubt that in most institutions these affirmative action or diversity programs would survive, albeit in quite different form, if such laws were repealed tomorrow.

What should happen in the private area offers some sensible guidance on how public colleges and universities should be governed on this issue. First, efforts should be made to insulate them from legislative pressures, which is hard, but not impossible. One good step in this direction is to prevent state legislatures from tying explicit diversity requirements to their budget appropriations. Second, public colleges should be allowed to adopt the same kind of programs, involving the same kind of trade-offs, as their direct private competitors. On that score, it could well be that they are prepared to take greater steps in that direction than Heriot/Kirsanow, or even I, might like. But so long as there is voluntary sorting, there is no one right answer.

The only way, however, in which this can be done is to revamp today’s strict scrutiny jurisprudence to reflect a key distinction between two types of government activities that are widely ignored today. Sometimes, the government acts as a regulator of private conduct. Sometimes, it acts as the manager of a complex business, often times in areas like education, which I would much prefer to leave in the hands of the competitive private sector.

But for these purposes, the basic rules of private law carry over. Corporate directors cannot invoke “the business judgment rule” as a shield from judicial scrutiny, when their activities cause harm to strangers. The willingness to give corporate directors the benefit of the doubt in arranging corporate affairs does not justify bodily harm or property damage to neighbors, and so the firm should have to answer for its wrong under standards of strict liability. The same should be true of the government when it wants to coerce private parties to behave as it sees fit, whether through regulation or criminal sanctions. It is not acceptable to have a race-based criminal law; nor is it permissible for the state, acting either through legislative enactment or court rules, to use its permit power to tell any law school, public or private, that it must run an affirmative action program in order for its graduates to be admitted to the bar. The only standards that should survive, if any, are those that relate to the competence of its graduates to practice law.

The reason for this needed flexibility is that private firms and academic institutions may well think that the color-blind principle misses too much of what is important to them, and so long as they make their business judgments in good faith in light of the competing considerations, they should be immune from attack by the state, which is why the civil rights laws turn out to be so intrusive today. No longer do these laws protect against exploitation of minority members stranded in segregated societies. Now they block affirmative action and diversity programs that might, after arduous consideration, meet the approval of all constituencies in a private firm or private university. No one sitting on the Supreme Court, whether liberal or conservative, should be able to dictate these decisions for other institutions.

If the good faith judgment rule were substituted for strict scrutiny, I doubt very much that UTA would adopt its current program with its evident downsides. My hope is that UTA would at least consider some kind of quota system that could remove the discretionary politics from these decisions. But quota systems have been badly misused for invidious purposes in the past, so it may well be that the political blowback of a quota would be so strong that UTA would prefer to adopt some less transparent system that could achieve its stated end but still survive external pressures.

Today this is no small obstacle, because, as is the case on so many issues, parties on both extremes are too confident of their own views and too intolerant of the views of others. In this overheated environment, messy but durable compromises cannot thrive, so that no matter which way Fisher comes out, we shall have to brace ourselves for another round of pitched debate in which moderates in the middle will find no place to hide.

© 2015 by the Board of Trustees of Leland Stanford Junior University