The free market does not guarantee freedom for everyone

Does the free market ensure freedom? There is a common perception that this is the case – that if, for example, a business discriminates against people of a certain race or sexual orientation, it will punish itself in the form of higher expenses and fewer customers. Competitors will profit by meeting unmet demand.

Unfortunately, the history of black Americans demonstrates that the market does not always deliver the freedom it promises – a finding that has implications for combating discrimination today.

Imagine traveling to a big city and finding that no hotel will allow you to stay overnight, or needing to bring toilet paper on a road trip because no gas station will allow you to use the toilet. Such discrimination was the norm for black Americans before the Civil Rights Act of 1964 banned racial discrimination in public places. Historian Mia Bay finds that over 90% of American hotels in the 1950s refused to serve black people. From the bus boycott in Montgomery, Alabama, to sit-ins at the lunch counter in the early 1960s, protests by black people focused on how businesses and public services denied them equal access.

In recent years, historians have used new methods to better understand this overlooked part of America’s past. A valuable resource: the “Green Book” travel guides published from 1936 to 1966 by Harlem postman Victor Green, listing hotels, shops, restaurants and other businesses that served black customers. These and other guides were used by millions of black Americans, who knew being in the wrong place could have dire consequences.

In new research using the Green Books, economists Lisa Cook, Maggie Jones, David Rosé and I found that even in the Northeast, where some anti-discrimination laws were in place in the 1950s, black customers could not not take service for granted. As a proportion of all businesses, the thousands of establishments listed were relatively small. This made knowing where they were all the more important.

Such discrimination was an affront to American free market principles. For decades, conservative economists argued that government intervention was unnecessary: ​​The market would drive bigots out of business – just as it would punish an employer who rejected black workers, allowing competitors to underpay black labor. Yet their logic ignored what happens when consumers value discrimination. This was the concern of businesses during the years of counter sit-ins and other protests: if one decided to serve black customers, one’s predominantly white customers would go to the competition. In North Carolina, for example, business owners feared that if they served all races equally, they would “lose a sufficient percentage of their current customer base” to go from profit to loss.

In other words, the market penalized equity. As a result, many companies (some reluctantly) supported non-discrimination ordinances, including the Civil Rights Act of 1964: these mandates required them and their competitors to treat all customers the same. manner, thus eliminating the ability of anyone to profit from racial discrimination. This helps explain why non-discrimination is enforced under the Commerce Clause of the Constitution, not equal protections under the 14th Amendment. It is also relevant today to decide how to protect the rights of lesbian, gay, bisexual, transgender and queer people, who often face discrimination but do not enjoy the same federal protections.

The ability to access businesses is an essential element of economic citizenship. When the free market cannot provide such freedom, government must intervene. If policy makers understand history well, they can learn to put the market and freedom in their place.

More from this and other writers at Bloomberg Opinion:

• Slavery was never an American economic engine: Trevon Logan

• The California boomtown that racism destroyed: Dean and Logan

• Do you have a labor shortage? Make your job easier: Kathryn Edwards

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Trevon Logan is a professor of economics at The Ohio State University and a research associate at the National Bureau of Economic Research.

More stories like this are available at bloomberg.com/opinion

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