An economic study that caused me to change my mind.
I have believed for a long time that racial segregation would have been a small problem if not for laws requiring it. One of the strong examples in favor of my belief was the street car story:
In Augusta, Savannah, Atlanta, Mobile, and Jacksonville, streetcar companies responded by refusing to enforce segregation laws for as long as fifteen years after their passage. The Memphis Street Railway “contested bitterly,” and the Houston Electric Railway petitioned the Houston City Council for repeal. A black attorney leading a court battle against the laws provided an ironic measure of the strength of the streetcar companies’ resistance by publicly denying that his group “was in cahoots with the railroad lines in Jacksonville.” As pressure from the government grew, however, the cost of defiance began to outweigh the market penalty on profits. One by one, the streetcar companies succumbed, and the United States stumbled further into the infamous morass of racial segregation.
From Jennifer Roback, “The Political Economy of Segregation: The Case of Segregated Streetcars.” Journal of Economic History 56, no. 4 (December 1986): 893-917, quoted in Linda Gorman, “Discrimination,” in David R. Henderson, ed., The Concise Encyclopedia of Economics.
I might have been badly wrong. I have little doubt about the streetcar story. But it turns out that, strong as that evidence is, one cannot generalize easily from that story.
I attended a seminar at the Naval Postgraduate School yesterday presented by Justin Marion, an economist at UC Santa Cruz. It was based on Ricard Gil and Justin Marion, “Customer versus firm discrimination: Evidence from desegregating movie theaters during Jim Crow.”
Here’s a short paragraph from their paper:
Prior to June 1953, segregation in Washington DC was widely practiced. To the best of our knowledge, there does [sic] not appear to exist any Jim Crow laws in the District mandating segregation. Despite the lack of legal requirement to do so, most movie theaters excluded customers of color, as did restaurants and other private businesses.
I would have thought that the profit motive would have caused the majority of movie theaters in a market that size to allow black people into their theaters. But no.
It turns out, according to Gil and Marion, that it was the profit motive that caused movie theater owners to exclude blacks. They have a clever event study showing that. In June 1953, the Supreme Court found that anti-segregation laws enacted by the D.C. city government in 1872 and 1873 did indeed need to be enforced. Since the ruling applied only to D.C., Gil and Marion can compare revenues at each movie theater before and after the decision with revenues at movie theaters in 25 other cities.
Their hypothesis was that if discriminatory tastes on the part of owners were the only factor responsible for discrimination, then owners’ profits should rise after the decision. This is the standard Gary Becker model of discrimination by firms: Firms that wish to discriminate give up profits to do so. So, once they can no longer legally discriminate, and the law is well-enforced, they will make more money but be worse off.
But what if the owners were not particularly racially biased but a large percent of their white customers were? Then, reason Gil and Marion, when the movie theaters are desegregated, you would expect the profits of previously white-only movie theaters to fall. And that’s what happened. Gil and Marion don’t have direct data on profits but they do have data on revenues. After the Supreme Court decision, revenue per week fell by 11 percent.
As one of my former colleagues at the seminar pointed out, what makes this all the more striking is that this was a result for movie theaters, where you aren’t even that aware of the color of people around you. So you would think that racists would be “less racist” about fellow movie-goers than about, say, fellow restaurant patrons.
Interesting tidbit: In their acknowledgements, the authors thank the Koch Foundation for financial support.
READER COMMENTS
Daniel Kuehn
May 11 2018 at 1:17pm
Another example of voluntary segregation (though not the same profit or revenue estimates you discuss) is private schools in Virginia after Brown. Until the mid-1960s private schools receiving state tuition grants could still be segregated, even though public shools couldn’t (though they still were, because of various foot-dragging efforts). Data from the Thomas Jefferson Center at UVA suggest segregation was widespread – the large majority of the schools enforced segregation even thought they didn’t have to.
Daniel Kuehn
May 11 2018 at 1:25pm
One more point – if you look at what people actually said about segregation at the time, things got heated only on specific types of segregation. Streetcar segregation happened earlier than schools, and graduate school integration was earlier and posed much fewer problems than undergraduate and primary and secondary schools. Once primary and secondary schools were integrated people argued forcefully about the preservation of segregation in school sports and dances. The reason was the underlying fear of interracial relationships. Once primary and secondary schools desegregated, people started suggesting sex segregated public schools instead. They didn’t mind their white sons being with black boys as much as they minded their white daughters being with them. Sexual relationships were never far beneath the surface in these discussions.
Given those concerns, it’s not surprising that streetcars cause less trouble than integrated movie theaters which would cause a lot of concerns about interracial dating.
Hazel Meade
May 11 2018 at 2:33pm
This is a point I’ve been making for a while. The same thing can also apply to employee hiring decisions. If most of your customers are a little racist, you might be dissuaded from hiring a black person in a position where he has to deal with them. Or even if the other employees are a little racist, and you’re worried about conflicts in the workplace.
This is what I mean by the system being stuck in a local optima. The global pareto optima might be no racism and everyone hires the best candidate, but the optima is the optima over everyone in society, not just the employer. If most people in society are pretty racist, then the local optima might be white people not having to interact with any black people. That’s optimal from the neutral standpoint of economics – because the racist preferences of the white customers are equally weighted. So the process of getting to the global optima must involve changing customers preferences, and that might take a long time.
Thaomas
May 11 2018 at 2:37pm
I’ve always assumed (based on a childhood in the segregated South) that the reason for the public accommodations act was to prevent businesses from catering to their white patrons’ desire for segregated facilities rather than (or much more than) a racist motive of business owners.
I’m pretty sure that the segregated drinking fountains in my hometown were not mandated by law; they were for the convenience of racist customers.
Alan Goldhammer
May 11 2018 at 3:36pm
@Daniel Kuehn – Let’s not forget that Virginia launched a massive resistance to the desegregation order at the behest of Senator Byrd. Some counties shut down their public school systems for as long as five years in protest of the order. The rise of the private schools was a direct outgrowth of this as it was through out many other southern states.
Floccina
May 11 2018 at 3:47pm
In the schools that I went to it seemed after about the 6th grade the students pretty much self segregated. My son told me that it was still that way in the Community College he went to for his senior year in high school. The cafeteria was mostly segregated by race. In the Christan school he went to from 3rd – 11th grade students did not segregate by race. He also said that the table he would sit at in the Community College was made up of Christian kids who knew each other from school and church and was integrated.
I am curious school cafeterias in integrated Government schools are still segregated.
Edward
May 11 2018 at 4:08pm
Main reason why I can’t get with the explanation that the FHA is to blame for housing segregation. The FHA was merely enshrining into its underwriting criteria what had been happening on the ground for years, when blacks moved in whites moved out.
A business in America can thrive without ever taking a dollar from a black hand. Blacks only make up 12% of the population with low median incomes and wealth. If anti-segregation laws weren’t enforced today you’d see a return to explicit discriminatory rules by business within a week of the termination of such laws.
robc
May 11 2018 at 4:12pm
In 3rd grade (1977-78), I was bused from a predominantly white (but not entirely) school to a school that would have been completely black (or very close to it) without busing. However, fun weird fact: My 3rd grade class was entirely white. Every single kid in it was a white kid being bused in. Because every 8 year old black kid in that neighborhood was being bused out.
There would have been more blacks in my class if busing hadn’t existed.
I am not sure how this relates, other than forced desegregation can be done in stupid ways or smart ways, and that one was stupid.
john hare
May 11 2018 at 9:05pm
@Edward,
A business may be able to make it without dealing with black people. It will cost them white business though. When a restaurant plays games with my people, I tend to take my green elsewhere. There is one in Avon park that lost my business a dozen years back by rudeness to one of my Hispanic people. It would have been perhaps five to ten times a year that they certainly wouldn’t notice, unless it is multiplied by the number of times they did it.
When I had a black crew in the 90s, it happened in several locations around town. And that was minor stuff of rudeness and poor service. Put up a sign, and I think thrive just may not happen.
I’m basically just a redneck business owner with a business relationship with quite a number of non-white people.
Plato’s Revenge
May 12 2018 at 4:46am
@Hazel Meade: always appreciate your comments, but could you please NOT use the plural of “optimum†when you actually mean the singular? Sorry 😉
Mark Z
May 12 2018 at 2:48pm
Hazel,
How is that not a global optimum? If black people prefer integrated theaters to segregated theaters by a wide enough margin, they would bid up the prices at the former until the gain in revenue from black customers would supersede the loss of white customers who favor segregated theaters. Given customers’ preferences, segregated theaters may indeed have been the global optimum. It’s that changing people’s preferences changes what the global optimum is. You might argue some preferences confer greater utility than others, but that would abandon the subjective theory of value.
Mark Z
May 12 2018 at 2:53pm
Edward,
“If anti-segregation laws weren’t enforced today you’d see a return to explicit discriminatory rules by business within a week of the termination of such laws.”
I’m entirely certain you wouldn’t. Businesses have had legal opportunities to discriminate against smaller customer bases and not done so before (in many states, against gay or transgender people, for example; yet virtually all businesses choose not to do so). A business that caters to 100% of the population has a competitive advantage over one that caters to 88%; economies of scale will allow it to charge lower prices, and even the other 88% will shop at the integrated stores for lower prices.
gruff
May 12 2018 at 6:34pm
Voluntary segregation is already happening, and would increase in some business areas if the legal restrictions were removed. The fundamental issue is that blacks and whites, as cultures, prefer to be around their own kind and do not normally like being around the others.
asdf
May 13 2018 at 2:37pm
Maybe they don’t like the ways blacks behave are movie theaters. Talking, texting, coming and going throughout the movie, littering, causing other disturbances in and around the theater. You don’t need to see them, you can hear them.
It never crosses your mind that discrimination might have a logical cause, that people don’t just randomly hate others because of their skin color?
Even today the greatest anti-racists live in mostly segregated communities, send their kinds of mostly segregated schools, etc. They pay lots of money to do so, wile punching down at poorer whites that can’t afford to do the same things.
Discrimination laws were about allowing non-rich whites to discriminate against undesirables in the same way rich whites do, its just that rich whites can afford to pay to do their segregation indirectly whereas the less well off need public goods more.
Jeff
May 14 2018 at 10:47am
@Alan Goldhammer,
Robert Byrd was from West Virginia, not Virginia.
David R Henderson
May 14 2018 at 11:10am
Jeff,
True. But Alan Goldhammer is referring to Harry Byrd who was, indeed, from Virginia.
Hazel Meade
May 14 2018 at 11:52am
@Plato,
Hmm. It seems you are correct. For some reason I thought optima was singular.
@MarkZ, I’m including the current preferences of customers as part of the state space, so the optimum (given certain customer preferences) could change over time as customers preferences shifted. The “global” then is the global of the total state, assuming customer preferences can change. If you assume customers preferences are fixed then a situation where most white customers are racist could result in a state where theaters are all segregated, because there are many more racist whites than there are blacks. Not every town has a large enough market (and blacks may not be wealthy enough) for blacks to be able to bid up the price of movie tickets to the point that an integrated theater would be viable. My point is that free markets are entirely non-judgemental about customers peferences. They don’t make any value judgements about the preferences for segregation of whites, or weight their preferences any different than blacks. And that can still result in an unjust system for blacks. If society is mostly racist, in the “optimal” state (given current consumer preferences) black people are going to be discriminated against. The market may slowly converge to a non-racist state (i.e. incentivize changes in consumer preferences), but it can take a very long time, many generations to allow time for tribal prejudice to be overcome.
Hazel Meade
May 14 2018 at 11:57am
@MarkZ
As john hare points out, it does happen, in spite of existing anti-discrimination laws.
IMO, all this eludicates the continuing need for even stronger social norms against racism among white people. It might not be widespread or immediate, but IMO Edward is right that we would see open discrimination against blacks (and Hispanics) return in some parts of the country if those laws were repealed today.
Ben Pitre
May 14 2018 at 3:30pm
There are other reasons for this situation to have occurred. White patrons may have felt unsafe in an integrated setting especially a dark and sometimes empty one. There may have been a good reason for this or it was merely a misperception. It would be interesting to know if there were any crimes in the papers in that time relating to crimes in integrated theatres.
And it is also possible that the movies changed to reflect the now mixed audiences.
Mark Z
May 15 2018 at 2:48am
Hazel,
Once we start discussing the justice or injustice of preferences, we’ve left the realm of economics and entered the realm of moral philosophy. In any case, other people’s preferences effect one’s own in countless ways. Other people’s preferences for food containing ingredients to which I am allergic by birth leads to a lack of foods I can eat available in public space. other people’s preferences may render me marginalized (hypothetically; I don’t actually have any food allergies). Do I have a moral claim against them? How far should we invite the government into ‘correcting’ people’s preferences? And why limit its corrective actions to economic choices?
“IMO, all this eludicates the continuing need for even stronger social norms against racism among white people. It might not be widespread or immediate, but IMO Edward is right that we would see open discrimination against blacks (and Hispanics) return in some parts of the country if those laws were repealed today.”
I disagree on both counts. I think, inasmuch as such discrimination would occur, it’d be negligible. Most major corporations (meaning most employers) bend over backwards to appear friendly to ethnic minorities today, and risk mass-protests or boycotts should anyone perceive them as racist (see Starbucks).
And plenty of people already live and work in environments where there are extremely strong ‘social norms’ against (white people) being racist, college campuses being good examples. The purging of putative racism has, I think, likely been counterproductive in net.
CJColucci
May 15 2018 at 2:15pm
All of this has been painfully obvious forever. It’s basic economics, for God’s sake. It is childishly easy to create realistic models of profit-maximizing discrimination based on customer preference. How has this escaped people for so long?
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