It is not always understood how governments and the public sector are more inclined to bow to popular discriminatory bigotry than private businesses, because of the incentives of their respective actors. As Gary Becker argued, private businesses have to pay the cost of their discrimination. Only if their owners, or perhaps a large number of their customers, have a “taste for discrimination” will they engage in it—but competitors will then rush in, with higher prices if necessary, to satisfy the unfulfilled demand of the victims of discrimination.
Starting around 1880, Jim Crow laws prevented this discrimination in the South. Historian Leon Litwack writes:
Although blacks had previously experienced segregation in various forms, the thoroughness of Jim Crow laws made it strikingly different. What the white South did was to segregate the races by law and enforced custom in practically every conceivable situation in which whites and blacks might come into social contact. (Trouble in Mind: Black Southerners in the Age of Jim Crow, Alfred A. Knopf, 1998, p. 233)
Jim Crow laws established apartheid, that is, legally enforced segregation. Railroad companies provide an interesting historical example of business incentives. These private companies were often willing, against the political correctness of the times, to sell tickets to both blacks and whites and to not segregate their customers in different cars or compartments. Poor whites and poor blacks purchased second-class tickets, while rich whites and occasionally rich blacks rode in first-class cars. The situation was far from perfect, and violence sometimes erupted, but it was better than the segregationist state-enforced laws that followed.
A historian of populism observes:
More than any other institution, train cars and railroad stations exemplified the modern dilemma of the racial order. They were places where mobile, unsupervised, anonymous travelers met in close quarters. Making the situation more explosive, those whites, including most farmers, who could not afford a first-class ticket met blacks on equal terms. In contrast to the workplace where blacks served white employers, or in the supply store where blacks owed debts to white merchants, in a railroad car blacks and whites paid the same fare for the same right to a seat. Accordingly, whites made the railroads a primary target of the new segregation laws. Reform-minded southerners considered these laws a mark of modern and progressive race relations. (Charles Postel, The Populist Vision, Oxford University Press, 2007, p. 178)
The railroad companies resisted proposals for laws mandating segregation between or within cars, as explained by another historian:
The railroad companies did not want to be bothered with policing Southern race relations and considered the division of coaches into black and white compartments an irksome and unnecessary expense. Despite the railroad companies’ resistance, though, growing tensions about race and gender, anger at the railroads, and political maneuvering pushed toward the separation of the races. In the late 1880s and early 1890s, the railroads became the scenes of the first state-wide segregation laws throughout the South. (Edward Ayers, The Promise of the New South: Life after Reconstruction, Oxford University Press, 1992, pp. 17-18)
In the South, there was much “taste for discrimination” and thus private discrimination, but as businesses had to pay the cost of their discrimination in terms of lost customers and higher expenses, they were often reluctant to discriminate. It is virtually certain that laissez-faire would have gradually extinguished racism or at least much attenuated it. But the atmosphere was not one of laissez-faire and railroad companies were blamed for putting their profits ahead of the community values—“putting profits before people,” as we would confusedly say today. Ayers writes:
It was clear that white Southerners could not count on the railroads to take matters in hand. Some whites came to blame the railroads for the problem, for it seemed to them that the corporations as usual were putting profits ahead of the welfare of the region. (Ayers, p. 143)
Postel explains that ordinary white people, notably members of the populist Farmers’ Alliance, used the non-discriminatory or not-sufficiently-discriminatory behavior of the railroads as another argument for public control or even nationalization:
“When it comes to making a separate car for negroes to ride in,” explained a young Texas woman and member of the Farmers’ Alliance, the demand for public control of the railroads would ensure that white farmers “would have our own way” in segregating them. Starting in 1890, white farm reformers would have their way as Alliance-backed “farmers’ legislatures” in Georgia, Louisiana, and other states initiated “separate accommodation” laws on the railroads. (Postel, p. 178)
These railroads acted as if they had no social responsibility, as socialists and most intellectuals, as well as confused capitalists, would say today. (See my Econlog post on “The Political Firm.”)
Contrary to private businesses, public institutions had no restraints against discrimination because they did not have to pay a price in reduced profits. The taxpayer would pay, often unknowingly. Litwack writes:
It was not uncommon to find a sign at the entrance to a public park reading “Negroes and Dogs Not Allowed.” …
With few exceptions, municipal libraries were reserved for the exclusive use of whites. …
While some communities limited access of black motorists to the public streets, others placed restrictions on where they might park. …
In the town and cities, segregated residential patterns were now legally sanctioned, making it difficult for blacks of any class to move into a white block and accelerating the appearance or growth of a distinct district designated as “darktown” or “niggertown.” …
New Orleans went so far as to adopt an ordinance segregating black and white prostitutes. (pp. 234-236)
What is surprising is how many people still want governments to impose by force whatever value or emotion is in vogue—whether populism, wokeness, or corporate social responsibility, for example—not thinking that the mob will not always be on their side; and how many people think that economic freedom is bad because it often allows an escape from the tyranny of the majority. I suspect that many of today’s Social Justice Warriors would have been on the side of the mob at the time of Jim Crow.
READER COMMENTS
robc
Dec 18 2020 at 11:19am
Was that supposed to be 1890 or 1880? I doubt it was a Carter-era change.
Craig
Dec 18 2020 at 12:59pm
Think you caught that typo. As an aside I visited Orange, VA to visit the home of James Madison back in 2012. On the trip there as I approached the site I got turned around a little bit and found myself at what looked like a train station or bus depot. Unbeknownst to me it was actually a museum exhibit but when I looked up I saw two doors one labelled ‘White’ and the other labelled ‘Colored’ and I wasn’t aware of its status as an historical example of segregation as opposed to an active bus or train depot.
Pierre Lemieux
Dec 18 2020 at 1:36pm
Thanks, @robc. It was my transcription typo, not Postel’s. I just corrected it.
Philo
Dec 18 2020 at 5:39pm
Statists want the government to enforce their behavioral preferences–assumed to be right–on everyone. They do not appreciate that that is a dangerous attitude–that the government might just as well enforce behavior of which they disapprove.
MarkW
Dec 19 2020 at 7:27am
They do not appreciate that that is a dangerous attitude–that the government might just as well enforce behavior of which they disapprove.
Not even when they have obvious recent examples — in the federal government taking actions against same-sex marriage and against drug legalization (actions take by those in the statists’ own party) — smacking them square in the face.
Phil H
Dec 19 2020 at 4:38am
I think in general economic activity does tend to push against prejudice, and I’m all in favour of it. But this kind of post seems to be under-informed by history. Business in general has never had anything like the amount of power wielded by states, so it’s hard to make judgments from history. But there is one kind of non-state organization that has had comparable levels of power and influence, and that’s religion.
So the question for me would be: does religion, the most powerful non-state institution, show very different characteristics from states? Is it obviously less racist? If the answer is yes, then that would constitute strong reason to think that other non-state actors, like businesses, will be less prejudiced than states.
But the answer looks to me like it’s negative. Religions seem to love fomenting racial tension and conflict just as much as states do. So I’m going to reserve judgment on business. There are now a few big businesses that might have enough influence to make a real impact in terms of race and prejudice. I’m not yet confident that they will be, on balance, a positive force.
Jon Murphy
Dec 19 2020 at 9:42am
Why? I don’t follow your reasoning here
Phil H
Dec 20 2020 at 3:57am
The claim is that business, a non-state form of organization, will be less institutionally prejudiced than states. Therefore I look at other non-state institutions to see if they are.
Jon Murphy
Dec 20 2020 at 10:21am
Not quite. Read the linked Gary Becker piece to see why this isn’t quite a correct interpretation.
Pierre Lemieux
Dec 20 2020 at 3:44pm
@Phil H: I don’t think this comparison is useful. Like states, organized religions don’t have a profit motive, which is the key factor. Some members in the hierarchy may very well have a profit motive, but there is no clearly identified residual claimant. A state with a dictator may be thought of as having a residual claimant instead of a residual claimant group or class; but a democratic or partly democratic state does not have any that does not clearly raise a collective action problem.
Spencer
Dec 19 2020 at 4:58pm
The railroads did more than oppose the passage of segregation laws.
Plessy v Ferguson, 163 U.S. 537, was a connivance among the East Louisiana Railroad, the Comité des Citoyens (an anti-segregation group) and Mr Plessy to get the segregation law declared unconstitutional. They went so far as to hire a private detective to ensure that Mr Plessy was arrested for violating the segregation law, and not for vagrancy.
Famously, they lost.
Pierre Lemieux
Dec 20 2020 at 3:48pm
@Spencer: You’re totally right about this case. I understand, though, that there was some variation among railroad companies. My claim is that competition would have eliminated these variations towards less discrimination—even with the local monopoly of railroads.
Mark Brady
Dec 20 2020 at 6:57pm
Does anyone know whether there were any laws preventing railroads from price discriminating between whites and blacks? Under the Raj, railroads in India price-discriminated between Europeans and Indians since the skin color of the passenger made it easy to separate the two markets on the basis of willingness to pay.
Pierre Lemieux
Dec 21 2020 at 10:30am
@Mark: It would be very surprising if there were anti-price-discrimination laws in the South. My guess is that the presence of poor whites (which, I assume, were nearly as poor as poor blacks) made price discrimination on the sole basis of color not profitable. A second class killed two (as poor) birds with the same stone. (In India, I suppose that poor Europeans, by contrast, could easily pay the higher price.) What’s your hypothesis?
Stefano
Dec 21 2020 at 7:52am
Perhaps the fact that the railroads had some monopoly power counts.
Imagine a shop in 1930 Germany, before the rise of Hitler to power. Suppose that 20% of your customers are Nazi sympathizers, which threaten to boycott your shop unless you stop serving Jews, and that Jews are only 10% of your market. The rest of people don’t care either way.
The more profitable move is then to discriminate.
robc
Dec 21 2020 at 8:51am
But how many shops are there?
Lets say there are 10 equivalent shops, and the Nazi sympathizers threaten to boycott all of them that don’t ban jews. 9 of the 10 follow the boycott. The 10th, loses 2% of the population as customers (1/10th of 20%) but gains 9% (9/10ths of 10%).
They would go from serving 10% to serving 17th. With the additional profit they could lower prices and draw even more of the 70% to them. Either a new equilibrium eventually settles in, or the discriminating stores are slow to adjust, the non-discriminating store becomes a market dominating player.
Jon Murphy
Dec 21 2020 at 11:12am
Perhaps (and that’s a big perhaps). But then there is also incentive for someone else to serve the need of the Jews. If the Jews go to this new guy, then the boycott is ineffective.
Stefano
Dec 23 2020 at 9:04am
That reminds me of the Jim Crow era “Green Book” that listed the few places where it was safe for a Black traveller to stop for buying things or find accommodation.
I wouldn’t call it ineffective in inconveniencing the undesirables and showing them they are not welcome.
A small, determined minority can leverage the market and have an effect much larger than their number would allow. That’s why almost any food these days is “gluten-free”, despite people actually allergic to gluten being a small percentage.
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