The free market does not guarantee freedom for all

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Does the free market guarantee freedom? There is a general perception that this is the case – that if a company discriminates against people of a certain race or sexual orientation, for example, it will punish itself in the form of higher spending and fewer customers. Competitors benefit from covering unsatisfied demand.

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

Imagine traveling to a big city and realizing you can’t stay in a hotel, or you have to take toilet paper on a car trip because you can’t use the toilet at any gas station. Such discrimination was the norm for black Americans before the Civil Rights Act of 1964 outlawed racial discrimination in public accommodation. Historian Mia Bay notes that more than 90% of US hotels refused to serve blacks in the 1950s. From the bus boycott in Montgomery, Alabama, to the lunchtime sit-ins of the early 1960s, black protests focused on how businesses and public services denied them equal access.

In recent years, historians have employed novel methods to better understand this neglected part of America’s past. A valuable resource: the “Green Book” guidebooks, edited from 1936 to 1966 by Victor Green, postal worker in Harlem, listing hotels, shops, restaurants, and other businesses that served black customers. These and other guides were used by millions of Black Americans who knew that 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, which had some antidiscrimination laws in place in the 1950s, black patrons could not take services for granted. Measured against all companies, the thousands of companies listed were relatively small. It was all the more important to know where they were.

Such discrimination was an affront to free market principles in America. For decades, conservative economists believed that government intervention was unnecessary: ​​the market would put zealots out of business – just as it would punish an employer who rejected black workers and allow competitors to underpay black workers . However, their logic ignored what happens when consumers value discrimination. That was the concern of companies during the years of lunch breaks and other protests: if you decided to serve black customers, your mostly white customers would go to the competition. In North Carolina, for example, business owners feared that by serving all races equally they would “lose a sufficient percentage of their current patronage” to go from profit to loss.

In other words, the market punishes fairness. As a result, many companies supported (some reluctantly) non-discrimination regulations, including the Civil Rights Act of 1964: such mandates compelled them and their competitors to treat all customers equally and eliminated the ability to profit from racial discrimination. This helps explain why nondiscrimination is enforced under the Constitution’s Commerce Clause rather than equal protection under the 14th Amendment. It is also relevant today in deciding 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.

Access to business is a crucial part of economic citizenship. When the free market cannot provide that freedom, government must step in. If policymakers get the story right, they can learn to put the market and liberty in the right places.

More from this and other authors at Bloomberg Opinion:

• Slavery Was Never an American Economic Engine: Trevon Logan

• The California Boomtown Racism Destroyed: Dean and Logan

• Do you have a labor shortage? Make Work Easier: Kathryn Edwards

This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.

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

For more stories like this, visit bloomberg.com/opinion

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