In the Jim Crow South, racist laws forced rural black families into sharecropping. This brutal arrangement required them to work someone else's land for low pay, leaving these families unable to buy anything without credit.
Local stores would often deny credit for items deemed “too white” such as luxury items. Or stores would simply ban black customers from their stores entirely. How could southern black families possibly skirt racist laws and get access to the items they needed to run their lives?
It turns out, racism was costing brick and mortar stores money. Store owners were artificially suppressing their own sales when they turned away black customers. As the famed economist Thomas Sowell explained, “their bigotry came at a cost.”
Jim Crow laws and practices created a huge, underserved customer base, unintentionally generating an enormous market opportunity. Black Americans were earning money and they wanted to spend it on high quality goods.
Enter Richard Sears, the Jeff Bezos of his day. Before Amazon or Walmart, Sears was the biggest name in American retail. Richard Sears actually came up with an ingenious solution for skirting racist laws: the Sears mail order catalog.
Popularized in the 1900s, the catalog gave black families a way to buy high quality goods on credit without ever encountering racist laws or store owners. Hundreds of pages, free rural delivery and special credit lines were available specifically for black patrons.
The impact of the catalog was particularly noticeable on the development of black music. In 1908, the catalog started selling steel string guitars for less than two dollars. Sales of those guitars were crucial to the development of the Delta blues. Blues legend B. B. King learned how to play on strings on a guitar he bought from Sears.
The catalog quickly became the main way black customers accessed high end goods and it evolved as local racist politicians and companies tried to crack down, going so far as to burn the catalogs in the streets. Sears even gave customers instructions on how to get around racist post office staffers who refused to sell buyers the stamps they needed to mail their orders.
With every purchase, Sears was reinforcing the notion that even if someone doesn't look like you, they're still worth serving, still worth helping.
Discrimination excludes customers. This creates a strong incentive for entrepreneurs to serve the new market created by racist laws or practices. It is a dynamic at work all the time in the open market.
In the landmark Supreme Court case, Plessy v. Ferguson, profit hungry railroads joined forces with civil rights groups to legally challenge segregation laws because the artificial seat vacancies were costing them money.
Or look at present-day ride share apps like Uber. Uber made discrimination impossible, fueling the app's explosion.
Racism still exists, and in fact, it is government and special interest groups that are still leading the charge.
This example is front and center in America’s public schooling system. School bureaucrats, politicians and union bosses stick up for a system that sends minority children to failing schools, many in inner cities. They reject opportunities for school choice even though minority students and families are the ones who would benefit most. These opponents of the improved educational outcomes of minority children know full-well that the research is clear.
You needn’t look further than Stanford University’s CREDO study. It analyzed charter school outcomes across 27 states and found negative effects for some white students, with positive effects for black and Hispanic students in poverty. Black students who attended charter schools gained 36 days of math and 29 days of reading. Hispanic students gained 43 additional days of reading and 50 days of math.
|Black Non Poverty||Similar||Similar|
|Hispanic Non Poverty||Negative||Negative|
|Hispanic ELL (English Language Learners)||Positive||Positive|
|Hispanic Non ELL (English Language Learners)||Positive||Similar|
|Students in Poverty||Positive||Positive|
|English Language Learners||Positive||Positive|
It was even more clear in urban areas – Black students gained 59 days of math and 44 days of reading. Jim Crow laws might be gone but there are plenty in positions of power who stand against the educational advancements of minority children.
Free market capitalism provides information and opportunity that creates incentives for us to serve each other – regardless of how we look or what we believe. In other words, free markets destroy racism.