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.