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Could The Free Market Have Ended Racism?

By Roger on 07/17/2010 – 7:00 am PDTLeave a Comment

There was a bit of a shuffle over the comments of Rand Paul (Republican candidate for Senate in Kentucky) and John Stossel (media commentator, now on Fox) regarding the Civil Rights Act.  Rand Paul came out in favor of allowing private businesses to discriminate on the basis of race (only private businesses; he favored continuing to require government to behave in a non-discriminatory manner).  John Stossel then came to Paul’s defense in the this particular case, arguing that ‘The free market, as usual, will address the problem.  It punishes racists.  A business that doesn’t hire blacks will lose customers and good employees.  It will atrophy while its more inclusive competitors thrive.’

Stossel raises an interesting point: could the free market have ended discrimination without government intervention?  Or were the government actions like the Civil Rights Act and its prohibitions on employment discrimination a needed remedy to the segregation era?

(As an aside, Paul has said that he supports nine of the ten total titles in the Civil Rights Act while opposing one of them.  A perusal of the titles of said act seems to indicate that the one that gives him trouble is Title II, which prohibits ‘discrimination in hotels, motels, restaurants, theaters, and all other public accommodations engaged in interstate commerce’; being the only title in the act that affects privately owned businesses, that would seem to be the part of the bill in question.)

The Free Market Alternative

First, a few words to defend Mssrs. Paul and Stossel: they do raise a decent point.  Assuming all other things being equal, businesses that voluntarily restrict their clientele will find themselves at a disadvantage economically.  In business, the only color that really matters is green (money, that is), and refusing to accept the money of a certain group on the basis of skin color is a poor business decision, putting you at a disadvantage to your competitors.

Let’s have an example.  We have two diners in a particular town, White’s and Gray’s.  White’s only serves Caucasians, while Gray’s serves any race.  Let’s say further that the area where these two competing diners are located has a population that is 90% white and 10% black.  White’s, by voluntarily restricting the type of people they allow to be served there, should receive less money than Gray’s, which will get all of the black diner patrons as well as a sizable portion of the white patrons.  (To say nothing of ALL the white diner patrons who, like Paul and Stossel, personally oppose discrimination and would not support a restaurant that discriminates against other races.)  All other things being equal, Gray’s will get more business, take in more money, and prosper, while White’s will sputter along, and eventually fade away.  The free market has done its job again.

The Reality of the World

In the real world, things aren’t quite that simple; there are many ways that White’s (or any businesses that opt to discriminate) could prove successful, even without black (or other minority) patrons.  For example, let’s suppose that a sizable portion of the population opposes integration (certainly reasonable in some areas of the country, even now; back when the Civil Rights Act was passed, that was rule, not the exception, in large parts of the country)

Related Articles:

  1. Hallmark Greeting Card Gets Accused of Corporate Racism
  2. Interracial Marriage: Who Is More Likely to Wed Outside Their Race?
  3. Why Black Unemployment is a Human Rights Abuse
  4. 3 Reasons Employers Choose a Safe Harbor 401k
  5. Why Repegging the Yuan and Other Non-Free-Market Solutions to Trade Imbalances With China Will Fail

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