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Background

The issue of discriminating who you sell to in the United States seems to be premised on the fact that businesses are public accomodations according to this article:

Whether you post a sign or not, businesses never have the right to refuse or turn away customers because of their race, gender, age, nationality or religion. In addition to the Civil Rights Act of 1964, several states have their own civil rights legislation designed to prevent discrimination. The Americans with Disabilities Act also prohibits discrimination in public accommodations, making it illegal to refuse service to individuals who are disabled or handicapped.

Given that a Mixed Economy with a preference toward a free market is the economic system of the United States, from a free market point of view, this seems unnecessary to do. There will always be businesses and choice in the market. Businesses that discriminate will put themselves at a competitive disadvantage due to alienating a certain employer base at an extra cost to the business:

Businesses that discriminate based on a host of job-irrelevant characteristics, including race, ethnicity, gender, age, disability, and sexual orientation and gender identity put themselves at a competitive disadvantage compared to businesses that evaluate individuals based solely on their qualifications and capacity to contribute.

According to this Free Market point of view, using government enforcement seems to create a control where there does not need to be one.

Question

Why does the government need to institute a legal policy to prevent selling discrimination?

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    "Markets that discriminate will eventually fail due to alienating a certain customer base" [citation needed] – Rupert Morrish Aug 7 '19 at 21:17
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    @Rupert Morrish Good catch, citation added. – isakbob Aug 7 '19 at 21:22
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    @isakbob That "citation" is an opinion article, not a scientific study, and the author makes a much weaker point than the one you're trying to use it to back up: "Although Becker wasn't right when he claimed that competition would quickly drive all discrimination out of the market, he was right that bigotry represents an albatross around a company's neck". – divibisan Aug 7 '19 at 22:35
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    @divibisan After doing some more thorough research, my premise was off: that of alienating a customer base. I have found a less opinionated, more evidence driven source that asserts that businesses that discriminate will be put a competitive disadvantage due to alienating a certain employer base as opposed to a customer base. Very different from outright failure indeed, but still an incentive to not discriminate. – isakbob Aug 7 '19 at 23:39
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    @Mindwin It appears to be a think-tank with the mission to promote progressive political ideas, so you can expect that any publication from them has a progressive bias. – Philipp♦ Aug 8 '19 at 15:33

12 Answers 12

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TL;DR: You question rests in the supposition that, next to the business that refuses to sell to me, there will be another similar business that will be willing to sell to me. That supposition is, to put it mildly, optimistic, and you ignore historical examples of institutionalized/collective racism that disprove it.

You take the POV of an individual discriminatory business owner in an overall non-discriminatory environment without taking into account other competence limiting factors.

But maybe I live at a small town that is served by two pharmacies, and -since racism is often a social convention- both pharmacy owners forbid me from buying medicines. Maybe I have no car or other transport means1 to use it to access another town with pharmacies easily enough (in the case that those pharmacies are not owned by racists, too). And of course, being it an small town and my race being a minority2, the market would not be big enough to support a third pharmacy3 to compete with the already established ones.

1Or, we go back in time enough, simply there were no cars or other ways of transportation enough that would make travelling to the big city an easy activity.

2And probably not a rich minority.

3And that ignores possible barriers put forward by a racist mayor/council/public... again, do not think only of individual racism but of a racist community. If my race is 5% of the population and none of the remaining 95% will shop at a pharmacy that sells to me, it would be very difficult for such pharmacy to be profitable.

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    TL;DR for the TL;DR: natural market failures. – StackOverthrow Aug 8 '19 at 7:48
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    Comments deleted. Comments are supposed to make constructive suggestions how the answer could be improved. They are not for debating its subject matter. For more information on what comments should and should not be used for, please read the help article about the commenting privilege. – Philipp♦ Aug 8 '19 at 15:38
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    This answer is good, but could be extended with examples where the goods/services supplied by businesses are not perfect substitutes (which one could argue pharmacies [largely] are). Imagine a town with two pizza restaurants: one is high quality, but discriminates, and the other is low quality, but does not discriminate. The class discriminated against is disadvantaged, while competitive pressure is unlikely to drive the discriminating restaurant out of business. – asgallant Aug 8 '19 at 20:11
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    An example you might include would be utilities. If the owner of the power plant refused to connect service to a gay couple, there is little to no possibility of someone competing with the incumbent. The startup costs are exorbitant for the infrastructure and the incumbent would likely be able to lower prices to discourage switching. The OP asks essentially about the Libertarian model of open and free markets. Unfortunately, that free market model doesn't take into account these sorts of costs, nor the reality of humans' prejudices. – CramerTV Aug 9 '19 at 1:48
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    For a specific and notorious incident of a service not being available at any business in town, see the Trimmingham Letter. – Patricia Shanahan Aug 10 '19 at 13:30
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Other people already pointed out how restrictions in supply of goods will damage the targeted groups no matter what, but in addition to that, the supposition that discrimination is harmful to the supplier is also not necessarily correct.

In a society that is highly discriminatory to certain minorities, a business that bans those minorities might gain much more patronage by the bigoted majority than they would gain from accepting the patronage of that minority.

For example, I'm sure that during Jim Crow businesses that served blacks didn't ban whites, that certainly didn't result in them out competing white only businesses to dominate the market though, bigoted whites self segregated and discriminatory businesses managed to thrive.

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    Comments deleted. Comments are supposed to make constructive suggestions how the answer could be improved. They are not for debating its subject matter. For more information on what comments should and should not be used for, please read the help article about the commenting privilege. – Philipp♦ Aug 9 '19 at 8:37
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Simply, because discrimination does not necessarily cause companies to go out of business.

Other answers have dealt with the problem of preventing concrete harm to customers who are being broadly discriminated against, which would remain a plausible justification for such laws even if any such business would inevitably fail, since new discriminatory businesses might continue popping up, and have also pointed out how in certain circumstances discrimination may be economically beneficial. However, another point is that even economically harmful discrimination will not necessarily force a business out of the market!

Discrimination is indeed often a poor business decision. It represents forgoing potential income, and most economic analyses suggest that a discriminatory business will be less successful than a non-discriminatory one. However, being less profitable only will lead to failure in a situation of perfect competition, where no differentiation between products is possible. In this case, the non-discriminatory business will spend less money on the same quality on labor, while also having more positive publicity and being able to take advantage of economies of scale. In an ideal situation, this would drive the discriminatory company out of business. And it is probably true that, in the modern United States, less-discriminatory businesses will be more successful.

The thing is, effectively, discriminatory businesses are not only taking on additional costs to meet the prejudice of their owners or managers, but also offering a differentiated product. Let's consider a much less harmful form of discrimination: exclusive clubs. Groups like Mensa charge money to belong to their organizations based on characteristics like scores on IQ tests. They offer some small benefits, yet they aren't outcompeted by a group that offers those same benefits to the general public. Why? Because the exclusivity is part of what they're selling. A group that offered a T-shirt with their name on it or access to their clubhouse to the entire population wouldn't be Mensa. No group offering the same services regardless of IQ scores can price Mensa out of the market, because they're not selling the same thing.

As a more direct example, a golf club that charges a significant membership fee and won't accept Jews or black people, or a neighborhood that limits homeowners to a certain religion (and yes, both these still exist) are selling an environment in which people can be surrounded by others who look and think like them. In a similar fashion, discriminatory businesses are actually effectively selling their exclusivity along with their physical products. A bakery that won't sell cakes to gay customers may well be responding to the owner's beliefs, but from the perspective of the market they're also selling a place where customers don't need to worry about seeing two people of the same sex holding hands. This is compounded by there being correlations between different things that a company can sell: for instance, Chik-Fil-A isn't just selling an environment hospitable to people who oppose same-sex marriage and inhospitable to LBGTQ people, but rather a conservative Christian environment generally, this last one more explicitly.

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  • Comments deleted. Comments are supposed to make constructive suggestions how the answer could be improved. They are not for debating its subject matter. For more information on what comments should and should not be used for, please read the help article about the commenting privilege. – Philipp♦ Aug 8 '19 at 15:40
  • "they're also selling a place where customers don't need to worry about seeing two people of the same sex holding hands" That's not quite reflective of the actual cases. In the Masterpiece case, the bakery refused to provide the cake based on it being used to celebrate a same-sex wedding. The bakery doesn't discriminate against customers based on whether they hold hands in the store. – Acccumulation Sep 6 '20 at 23:00
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The government has a responsibility to all of its citizens to ensure their rights and liberties are not infringed upon.

It doesn't matter if a business would, theoretically, flourish, fail, or be unaffected by discrimination, the act of discrimination, itself, is something that a government has an active interest in dealing with on a more immediate basis.

And, to the point, a business absolutely IS a public accommodation, and only has the right to exist and operate within the bounds and definitions created the local, state and US laws.

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  • I won't +1 because of the last paragraph about the business' right to exist, but I want to show support nonetheless. The main point of the answer is good. – Aaron Aug 8 '19 at 16:49
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    Businesses (at least in the US, but probably most places) can only operate legally with permission from the government in the form of a license to conduct their operations, and can be revoked for any number of reasons. See e.g. how Virginia handles it. This is how I am interpreting that last paragraph, so +1. – Jeff Lambert Aug 8 '19 at 17:53
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    The problem with the last paragraph is that the question isn't about whether we can regulate businesses, but whether discrimination should be part of those regulations. – Barmar Aug 9 '19 at 16:30
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    @Barmar - the last paragraph is there because the OP specifically talks about the concept of a business in the USA being a public accommodation as if it was a questionable premise. It's pretty well established. Again, I'm talking about how it is, not how it might be in one person or another's Utopia. In that context, and with my edit to make sure I'm referring to that context, is it still a problem that I clarify that this is the legal status, currently, in the USA? – PoloHoleSet Aug 9 '19 at 16:33
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    I'm concerned with your opening statement. You're suggesting that everyone has an inherent right to shop at any store they please. While this is laudable and certainly the type of society that many aspire to live in, I would argue with codifying it as a right. At least, I do not believe that we could consider 'freedom of store choice' to be a natural right. – Brian R Aug 9 '19 at 18:44
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According to this Free Market point of view, using government enforcement seems to create a control where there does not need to be one.

The federal government action was to counter-act the state government action of having police enforce southern apartheid, and courts refuse to punish the extra-judicial violence that supported it.

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    I'm now saying duh to my self: a federal check on state government intervention. That said, could you include some sources? Common sense to me and you might not actually be common elsewhere. – isakbob Aug 7 '19 at 21:24
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    The thing is, yes, it's definitely the government's job to ensure things like people being equal before law. No public agency should ever treat people differently based on race, gender, whatever, and this is still a huge problem in the US, both in agencies like the police departments, and in law making; the only thing that really seemed to have changed is that the laws persecute e.g. blacks through some correlated activity, rather than directly saying e.g. "blacks can't buy guns". But how does that translate to not allowing business owners to choose who they want to serve? – Luaan Aug 8 '19 at 8:46
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    @isakbob Jump back to the historical context. Consider List of Jim Crow law examples by state. In Alabama, the law was "It shall be unlawful to conduct a restaurant or other place for the serving of food in the city, at which white and colored people are served in the same room..." This was state-enforced segregation, and surely wasn't the free market: a business couldn't legally be integrated even if they wanted to. To remediate that, it wouldn't have been enough to just abolish the law; restaurants needed to be forced. – Zach Lipton Aug 11 '19 at 1:48
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    @ZachLipton That's a very good reason at the time, though it seems to me it isn't a good reason to continue forcing restaurants in the present day? Once the damage has been reversed, prohibiting the states from passing another such discriminatory law should be sufficient. – Brilliand Aug 12 '19 at 22:08
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If let's say your local supermarket had a sign "***** not welcome", you are just looking at the "free market" problem.

You are ignoring the real problem: That ***** cannot buy their food and what else they need from that supermarket, forcing them to walk or drive further to do their shopping, possibly paying higher prices, possibly splitting up families (where for example dad is **** but mom is not).

The government should and likely will have laws to prevent people from being hurt by discrimination.

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    All right, but how is this different from e.g. a random Ethiopian not having access to your supermarket? Or, for a lesser extreme, if all the supermarkets are built in the rich white neighbourhoods, leaving all the ***** people without a nearby supermarket? How could the government ever protect you from something like that without outright declaring how many supermarkets each neighbourhood needs to have (essentially eliminating competition in the process, which is often the point of thse quotas and limits)? – Luaan Aug 8 '19 at 8:57
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    @Luaan because the location of the supermarket inconveniences a random Ethiopian equally regardless of their skin color, sexual orientation or which end of their eggs they break. – HAEM Aug 8 '19 at 9:13
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    @Luaan Also it's in general impossible to have perfect protection from anything and undesirable to try to have it anyway. It's always a cost/benefit compromise. Banning this kind of discrimination happens to have a positive cost/benefit ratio (in the opinion of ...). Requiring a specific density of supermarkets would have a much worse cost/benefit ratio, so it's not done. – Nobody Aug 8 '19 at 9:37
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    @Luaan It places a significantly larger burden on the part of the business owner to move their market to somewhere else than it does for them to just not discriminate based on race. In fact, the only reason why not discriminating might place a burden on them is because it might drive away pro-discrimination customers. Anti-discrimination actually alleviates this burden because the business owner has a scapegoat(the government), and the customers won't have the option to go to a store that discriminates. – Sam I am says Reinstate Monica Aug 9 '19 at 0:23
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    @immibis Sure, but only if you assume that there will be no supermarkets in the non-white neighbourhoods; one of the things you can follow since the anti-discriminatory laws is that a lot of businesses in the non-white neighbourhoods ended up closing, because they couldn't maintain a profit anymore (especially under the pressure of the racist authorities who didn't really change much). That does show the previous situation was not the most economical (if you take discrimination out), so it was a net economic gain; but also that people fill those gaps (though imperfectly, of course). – Luaan Aug 9 '19 at 5:31
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Lets take an example.

A minority family is traveling across the country. They start to run out of gas near a small town. Neither of the gas stations in town will sell them gas. The local hotel wont service them. They are forced to sleep in their car. In the night, the family is dragged out of the car and lynched by a group of drunken racists. Everyone in town knows that this is likely to happen. Everyone lets it happen.

Who murdered them?

The problem with discrimination isnt one random business owner. The free market is only "anti-racism" if everyone other than that business owner is "anti-racism". The free market does not have ethics. It is simply a conduit for the impulses of humanity. Slavery is acceptable to the free market. It is only illegal because we have collectively chosen to put a restriction on the free market.

If even a sizable minority of people are in favor of discrimination, the free market does not punish discrimination. People are not spread evenly across the country. On average, they are distributed in geographic clumps of similar individuals with similar views.

Discrimination is a systemic issue. The free market didnt force southerners to let black kids go to school. That required federal troops to be deployed as an armed escort.

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I believe the answer is a lot simpler than the assumptions. Laws are created by persons that are sensitive to how the majority of people feel about things. This might be supported by economic theory or by ideology -- but not necessarily. So in this case, I believe the lawmakers simply did what they thought was good, not really caring about reasoning and theory.

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I agree with the answers that emphasize the relatively low risk of market failures if discrimination is taking place in a supportive locally racist community.

However, it's also instructive to look at it from the overall POV of a free market/capitalistic economy and the somewhat implicit assumption in the question that businesses are usually free to operate as they wish. Thus the imposition on non-discrimination clauses can be framed as exceptional, intrusive, restrictions.

That is most assuredly not so. Businesses operate under business licenses, granted by either local or higher level government. There is a already a covenant between the authorities between business owners as to the conditions under which they operate:

  • business permits
  • regulation on labor, ranging from necessary (doctors, architects) to frivolous (hairdressers)
  • zoning restrictions
  • paid for licenses (my pet bugbears are the $500K+ licenses for taxis in big cities)
  • provisions for access to handicapped people.
  • etc...

Very few people expect businesses to operate totally unregulated so the principle of government oversight is well-established.

Let's take a closer look at handicap access regulations.

Any given business would save substantial money not having to provide wheelchair access ramps or special bathroom accommodations. As in the racial discrimination case, its risk of going out of business would be low, unless it got caught up in some form of social media outrage.

Yet, government mandates on businesses providing handicap access is not generally much disputed.

Part of that is positive human empathy towards others. Another part is that we all realize that perhaps, due to bad luck, it is us who could be in a wheelchair some day.

But there is another, utilitarian, dimension to it too: if handicapped people are largely confined home they will have an even harder time finding jobs, will require more state support and pay less taxes. So there is an economic incentive for the society as a whole to push laws protecting their rights.

Likewise, it is to a society's best interest that members of minorities can blossom to the best of their abilities, be happy, hold good jobs and pay taxes.

A society which allowed individual business owners to discriminate in the public sphere (rather than "just" in their private dealings) would cause serious harm to both the well-being of those minorities and their economic output. Coordinated at a local level, sustained denial of service from vital businesses (ex: gas stations, grocery stores) could drive out citizens from whole swathes of their own country.

Unlike the handicap access however, the actual cost of compliances to businesses is nil and perhaps even negative if one takes into account foregone business activity.

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The answer is that the conclusion is wrong because one major assumption is wrong.

"Businesses that discriminate will put themselves at a competitive disadvantage"

is not only not always true, it completely ignores that certain customers may decide to avoid a business that does not discriminate, because they'd rather not encounter green people while shopping. Thus there are situations where we must assume

"Businesses that DON'T discriminate will put themselves at a competitive disadvantage"

Now let's consider that competitive advantages aren't simply about more or less profit, they are about a business being viable or not. If there are places where businesses that serve green people are not viable, there will be significantly fewer businesses that serve green people there, significantly fewer green people will live there, which leads to businesses serving green people being even less viable in these places. Which leads to even fewee green people living there. Which ultimately leads to segregation.

So government needs to prevent selling discrimination if government wants to avoid segregation.

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There is no economic or social need or motivation for these types of laws, it is purely a need on the political "market". The politicians think they will gain voters by introducing this kind of legislation. Basic public choice.

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    No social need or motivation for anti-discrimination laws? Learn some history. – BradC Aug 8 '19 at 21:09
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    The social need is due to human nature. We are not logical beings and never will be until we truly understand the brain and how it works. We are dealing with some of the exact same problems people were grappling with two thousand years ago. The rise of hate crimes against specific groups in the last two years is solid proof that those conditions actually do exist right now and are only being prevented from being enforced due to anti-discrimination laws. – CramerTV Aug 9 '19 at 1:55
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    "Racial issues in 2019 aren't quite as bad as 1963" hardly means we'd be fine rolling back the Civil Rights Act. – BradC Aug 9 '19 at 2:33
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    @CramerTV Yes, these conditions still exist. Anti-discrimination laws definitely have direct positive benefits. They also have their costs, often hidden. They sometimes increase resentment towards the protected groups. Don't get me wrong, there's definitely massive improvement throughout the 20th century. I do think it works out better on average. It would work even better if people were better informed about the issues, including the costs. Pretending like there's no disadvantages is dishonest - just stand up straight and say "yes, it hurts some people; but we did it, because it's right" :) – Luaan Aug 9 '19 at 5:38
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    @Dan04 That explains why several states who were subject to Voting Rights Act restrictions immediately filed massively discriminatory voting restrictions the moment the ban was lifted because the conservative SCOTUS said "Oh, racism is over" – Shadur Aug 9 '19 at 8:51
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Because a store that serves all is more useful to society.

Having a mixed economy is accepting as fact that a totally free economy likely would deteriorate into cartels and monopolies. Thus, regulation - to ensure equal access to markets for both vendors and buyers. You apply the regulation in the interests of the common, and that is usually where unreasonable discrimination is caught by the web of law. Unreasonable being against common interest. Against common interest would be discrimination for no other reason than preference. Examples of discrimination that would be according to common interest are for instance against vendors who sell dangerous products. Un-earthed appliances labeled safe to use in a pool or maybe hand grenades. Or discriminate on age, common interest dictates that 6-year olds shouldn't buy guns and alcohol.

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    Cartels and monopolies happens because the government introduces thresholds and other obstacles to enter a market. C.f. all the regulations of the financial sector: you need to be a massive company to be able to handle all these rules which makes it difficult for small companies with discruptive ideas to enter the market. – d-b Aug 10 '19 at 17:01
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    @d-b No, I disagree. Cartels and monopolies are natural end points of free reign capitalism. Consider it, for a second. Would not a market participant capable of skewing the market in his/her favor do so? If you laissez faire - odds are that someone is going to find a way to break the status quo. If you believe in free markets, you believe in rational actors. Rational actors would try to skew the market - because for them, a monopoly would be beneficial. The same goes for groups of actors, aka cartels. A true free market needs protection. But I sense that we disagree on this point ;-) – Stian Yttervik Aug 10 '19 at 19:03
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    Of course it would, but it doesn't matter. Microsoft tried this in the 90s and was overrun by the development of technology. How many new big banks have appeared in the last decade or two? Compare that to big tech. Then compare the obstacles to create a new bank and a new tech company. – d-b Aug 11 '19 at 2:30
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    @d-b actually Microsoft faced issues due to anti-monopoly laws, they were using the approach that you appear supportive of e.g. "We shall decide what can operate on our systems" and the US Federal Court ruled against Microsoft. IF Microsoft had won that battle, technology would have stagnated considerably. – Aaron Aug 11 '19 at 3:45
  • Common sense suggests that 6-year-olds shouldn't buy much of anything. – user253751 Oct 13 '20 at 15:50

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