Mises Wire

The Trouble with “Public Accommodation”

Government regulation of property in the name of mandating “public accommodation” has become one of the easiest ways to expand state power into every enterprise, right down to the tiniest family business. 

These regulations — which dictate to private owners who can use their property and with whom owners are required to associate — are claimed to be necessary on the idea that if states to do not micromanage business owners in this respect, then people within disfavored groups (e.g., ethnic minority groups) will have no access to basic goods and services.

This idea has been so politically successful, in fact, that virtually no one running for public office is willing to oppose it, and even the most seemingly radical laissez-faire libertarian will often back down immediately when asked if property owners should be allowed to refuse service to certain groups of people. 

As with all regulations imposed on businesses, however, public accommodation regulations result in raising the cost of doing business and lead to fewer choices for consumers and laborers, while strengthening the monopoly power of large incumbent firms.If the real goal is to increase access to a variety of goods and service, the key to giving ethnic minority groups more access to goods and services is to reduce the monopoly power of established firms by paving the way for new entries into the market, and by lowering the costs of maintaining new businesses. Only this strategy can be shown to provide true choice over time while also contributing to the growth of entrepreneurial activity within the marginalized groups themselves. 

If policymakers think it important to combat the effects of discrimination by business owners, they should pursue the goal of more choice and diversity among business owners, while encouraging more entrepreneurs to open more businesses in more places. Public accommodation laws, in contrast, do the opposite. They drive up the cost of doing business, they raise barriers to entry for new firms, and they open up small businesses to government prosecution and harassment. Even worse, public accommodation laws function at odds with ethnic enclaves, which, as we shall see below, are a valuable factor in promoting economic and social success for ethnic minorities. 

To Combat the Effects of Discrimination, Expand Choice and Competition

Enthusiasts for public accommodation laws claim that without them, people will be excluded from participating in ordinary economic and social activities. 

What this position assumes, however, is that no entrepreneurs will step in to address these needs, and that existing firms will persist with either total or partial monopolies on the distribution of goods and services. In fact, we know from empirical observations that unless the state intervenes to raise barriers to founding and maintaining businesses, entrepreneurs will indeed step in to serve underserved populations — and many will flourish while doing so. 

To illustrate this reality, we can look at the experience of two ethnic groups that have historically been subject to widespread bias against them: Mexican-Americans and Japanese-Americans. 

In both of these cases, we find that in the face of both de jure and de facto discrimination against individuals in these groups, entrepreneurs responded by opening businesses to serve these communities.

The Mexican-American Experience

In her essay on Mexican-American business owners in 1940s Corpus Christi, Mary Ann Villarreal notes in An American Story: Mexican American Entrepreneurship and Wealth Creation how local residents responded to discrimination: 

[Latino-owned] [v]entures like the Tex-Mex News Stand, MGM Foods and Mirabal Printing found a customer base among a Texas Mexican population that had endured discrimination and segregation in cities like Corpus Christi and across much of rural south Texas. That prejudice, in many ways, limited the access that Texas Mexicans had to local businesses and services. For instance, it was not uncommon for restaurants, particularly in surrounding towns, to openly display signs proclaiming “No Mexicans or dogs.” Texas Mexicans, such as Orea Velez, responded in a variety of ways, including creating small business that accommodated their communities’ needs.... 

These circumstances, specifically those surrounding segregation, gave way to the growth of of new business opportunities for Texas Mexicans. Two other factors, print media and social and civic organizations contributed to the emergence of these establishments. Small business owners capitalized on the print media and these organizations both to serve their communities and to gain social status as entrepreneurs.”[Emphasis added.]

In the 1940s, it was not de rigeur for Mexican-Americans to beg for the “right” to hand over money to Anglo restaurateurs who saw them as scarce more than dogs. Instead, Mexican-American entrepreneurs responded by opening their own enterprises. It’s true that they were not as posh as many Anglo establishments. But, in the medium and long-term, these new entrepreneurial endeavors contributed to capital accumulation within the ethnic communities themselves. 

The Key Role of Ethnic Enclaves 

Thus, in addition to providing needed products and services to the Mexican-American population, these entrepreneurs also laid the ground work for an ethnic enclave economy that itself functioned as a business incubator of sorts. These local economies specific to certain ethnic groups also helped both owners and employees to develop skills and sources of capital necessary for expansion beyond one’s own local economy.

In her work on the economy of Cuban-Americans in Miami, Heike Alberts describes the role of the ethnic enclave in building capital:

Researchers believe that ethnic solidarity is crucial in the early stages of business development, as it allows entrepreneurs to raise capital through ethnic networks and gives them access to business information as well as a cheap and loyal ethnic labor force.

As has been demonstrated in Asian-American groups in California, as well as Mexican American groups in Western states, ethnic groups often respond to discrimination-based isolation by building up their own social and economic networks first, and then moving outward. As Alberts notes, since the 1980s, ethnic solidarity among Cubans has declined, and this may be due to the relative success of numerous Cuban-owned businesses which has opened up sources of capital and labor outside the enclave. Ethnic solidarity served its purpose and then went into decline. 

Mexican-Americans in Texas built similar networks. Moreover, the refusal of some “Anglos” (i.e., non-Hispanic whites) to serve these populations created a ready customer base for Latino-owned businesses that built up their own ethnic enclaves: “Texas Mexicans had to develop particular business strategies if they were to survive,” Villarreal writes. “At the same time, those same circumstances also enabled Texas Mexican business success.” [Emphasis added.]

Geraldo Cadava notes that this entrepreneurial response was nothing new for the Mexican-American community, although scholars have tended to over-emphasize laborers in academic work on Latinos:

The growth of Latino-owned enterprises, and of data collected by U.S. government agencies about them, has led to a wave of scholarship that has characterized Latino entrepreneurs as centrally important, though understudied, members of their communities. As a country, we have focused on the heated debates over Latin American labor migration, rather than the entrepreneurs who have created markets, played pivotal roles in the development of their communities, and emerged as political organizers and leaders.

Perhaps the largest modern boom in this type of entrepreneurship can be traced back to the post-World War II era in numerous American cities. Cadava writes: 

Small businesses remained the cornerstone of Latino entrepreneurial activity into the post-World War II period, and Latino consumers were still their targeted clients. During a period generally defined as an economic boom time, second or third generation Latinos–descendants of Latino families that had lived in the U.S. since the 19th century or the children of Latin American immigrants who had arrived during the early 20th century–started more businesses than any previous generation of Latinos.

Indeed, the grandfather of this author made a living supplying beer to Mexican restaurants during the post-war boom in Los Angeles. Not surprisingly, his employer, the Cuauhtémoc Moctezuma brewery, wished to take advantage of the expansion of Mexican-American business at the time. 

Image: My grandfather’s business card from the 1950s. Many other Mexican-Americans worked in similar fields during the post-war boom years in Latino economies. 

Large national enterprises expanded as well, with many of them specializing in catering to a Latino customer base, among others. Cadava continues: 

Latino-owned businesses during the mid-20th century increasingly found markets for their goods and services beyond the Latino community, both because Latinos began to move out of barrios after World War II, and because of the increasing commoditization of all things Latino, especially food and music. Goya Foods, for example, began in 1936 as a small, family-owned business that marketed its goods only within New York’s Latino communities. Into the postwar period, non-Latino-owned chains including Safeway refused to sell Goya products. But under the leadership of Joseph A. Unanue, the U.S.-born son of Puerto Rican immigrant and company founder Prudencio Unanue, Goya Foods became the largest Latino-owned food distributor in the U.S., and also shipped its goods around the World, particularly to Latin America, Spain, and other European countries. La Preferida, a Mexican-owned food company established in Chicago during the late 19th century, also started as a small enterprise that then expanded to market its products nationally and internationally.

It should be noted, however, that all of this was taking place against a backdrop of very real legal and informal bigotry. As both the Sleepy Lagoon show trials and the Zoot Suit Riots showed at the time, anti-Mexican-American sentiment was real. 

As with Villarreal, Cadava notes that the abandonment of the Latino customers by Anglo owners contributed to the growth of Latino-owned businesses: “...the segregation of Latino communities created business opportunities for aspiring Latino entrepreneurs.” [Emphasis added.]

Moreover, the very existence of enterprises like Goya foods and the myriad of private newspapers, restaurants, and even financial institutions among Mexican-Americans belies the claims that without public accommodation laws, ethnic minorities would be unable to obtain essential goods and services. After all, somebody was selling restaurant supplies, office furniture, printing presses, and other equipment and tools to these minority-owned businesses. Not all of them could possibly have obtained 100% of the goods and services they needed from others within their own ethnic groups. 

The Japanese-American Experience 

While anti-Latino bias clearly existed at the private level, it is fortunate that it manifested itself in public policy less and less over time after the Second World War. That is, laws curtailing Latino entrepreneurial activity began to fade by mid-century. 

This is a key issue to note since government discrimination — unlike private-sector discrimination of course, is necessarily monopolistic. While a Mexican-American is often free to go out and found an enterprise to compete against a private-sector owner, no one can go out and create a competing criminal justice system when, as the Sleepy Lagoon case showed, existing government courts were fundamentally biased against Mexican-Americans.

This illustrates, yet again, that the key factor in increasing choice for minority groups is to maintain a legal regime that encourages and sustains entrepreneurial activity and the entry of new firms into the marketplace. 

One group of people that was not always so lucky in regard to government-imposed discrimination was the Japanese-Americans community.  Earlier in the 20th century, Japanese-Americans faced very real legal, state-imposed limitations on their ability to open and own businesses. In another article, I wrote on this phenomenon

In California during the late nineteenth and early twentieth centuries, anti-Japanese sentiment ran high, in spite of the fact that they never comprised more than 3 percent of the population. To discourage Japanese immigration to California and to curb the wealth of the immigrants themselves, a large number of major employers agreed among themselves to not hire any Japanese workers. At the same time, politicians at the state legislature passed laws prohibiting Japanese immigrants from working in various occupations. In response, both immigrant and native-born Japanese worked around these laws and employment bans by focusing on industries that were ignored by much of the population due to the hard work required and the slim profit margins involved. Japanese workers and entrepreneurs began to dominate the truck farming and flower and nursery industries. The Japanese, who developed more efficient ways of farming and getting crops to market soon began to put white farmers out of business. White Californians responded with alien land laws in 1913 and 1920 which banned the sale of land to foreign-born Japanese and also prohibited leasing land to the same for more than three years. The Japanese merely responded by putting the land deals in the names of their native-born children, and the cycle continued, until Roosevelt solved many of the whites’ problems by simply locking the Japanese in concentration camps. 

In this case, when informal private discrimination failed to put the Japanese-Americans out of business, the local whites reverted to the crude hand of state power — by outlawing property ownership among many Japanese-Americans. 

Japanese-American enclaves succeeded anyway, and Japanese-Americans were the first ethnic minority group to open a financial institution in modern California. In their work on ethnic banking in “How Ethnic Banks Matter“, Wei Li, et al write:

In 1899, immigrants founded the first ethnic-financial firm in California, Nichibei Kinyusha (the Japanese American Financial Company). In 1903, this company was chartered as a California state bank, the Nichbei Ginko (Japanese American Bank) and a Los Angeles branch was established. The Kinmon Ginko followed in 1905. Both banks were centered in the downtown portion of a Japanese community that totaled 1,200 in Los Angeles county in 1900.

As with the Mexican-Americans in California and Texas, the Japanese-Americans responded to discrimination by creating their own ethnic enclaves and networks devoted to fostering business growth and capital accumulation. They specifically favored other Japanese-Americans in their hiring and investment decisions, and moved outward once social, economic, and financial networks were established. 

Although not attaining the same level of financial sophistication as the early Asian-American banks discussed by Li, et al, Latino groups also worked to provide loans within their own communities for the purposes of building businesses and the local economy. Cadava explains how many loans were guided by considerations of co-ethnic preference:

Additionally, Latinos of particular ethnic backgrounds tended to loan money only to Latinos from similar backgrounds. When they opened their businesses, 18 percent of Latinos relied on “co-ethnic” sources of capital (i.e., Cuban, Mexican, or Nicaraguan), and only 6 percent benefited from “co-racial” capital (i.e., Latino). Likewise, Mexicans were more likely to shop at stores owned by other Mexicans, Cubans at stores owned by Cubans, and Puerto Ricans at stores owned by Puerto Ricans. 

Co-ethnic businesses (business designed to cater to a specific ethnic group) serve important social functions as well.   In ”Latino Busines Landscapes and the Hispanic Ethnic Economy,” Alex Oberle describes the importance of the carnicería (butcher’s shop) in providing a meeting place for local entrepreneurs, consumers, and other residents within Mexican-American communities. These institutions provided — and still provide — social support within ethnic enclaves, as well as connecting potential borrowers with sources for loans, information about a community’s needs, and way for new entrepreneurs to connect with potential customers. 

Public Accommodation Laws Do Not Bring Economic Success 

Our historical examples discussed here all took place before the Civil rights Act of 1964 and before the rise of public accommodation laws as a mandates on private businesses to provide goods and services to all customers regardless of ethnic origin. 

More importantly, there is little reason to believe that public accommodation has done much to actually make ethnic groups wealthier. Looking back at the 1940s, Villarreal notes that “ the end of ethnic segregation did not greatly affect the poverty that poorer Mexican-Americans and Mexican immigrants experienced.” 

And why should it have? The problem of poverty is not solved by waving a magic anti-discrimination wand that will somehow make marginalized ethnic groups wealthier. Moreover, poor populations are no more likely to secure bank loans if they remain poor, and it has always remained legal to refuse service to customers who cannot afford to buy any of one’s products or services. 

On the contrary, there are compelling reasons to believe that real economic growth and real capital accumulation within ethnic groups is pursued best by a fostering of entrepreneurial activity at the local level and expanding outward, which result in true increases in incomes and standards of living. Additionally, growth in entrepreneurial activity ensures that consumers within those ethnic groups will have more choices when it comes to seeking loans, services, and a variety of products from owners within that community — all without imposing mandates on businesses and attempting to punish business owners based on speculation about one’s allegedly bigoted motivations. 

Does anyone seriously believe that Japanese-Americans attained higher levels of income and social-economic status than whites because Congress mandated that private businesses seat them at lunch counters? A far more believable explanation is that the roots of success of Japanese-American entrepreneurs existed long before the 1960s. This was all done, by the way, in spite of widespread government restrictions on these activities. Private discrimination was hardly the largest problem facing Japanese-Americans in the 20th century. 

Similarly, with Latino groups, poverty alleviation was accelerated not by mandates that shopkeepers serve coffee to Mexican-Americans. Far more likely is the fact that, impelled by refusals to provide services by some Anglos, Mexican-American entrepreneurs built up their own social and economic institutions which — like Goya Foods — grew beyond the bounds of their own ethnic groups over time. 

Benefits vs. Costs of Public Accommodation Laws for Ethnic Minorities

Many defend public accommodation laws on the grounds that it at least helps members of minority groups with purchasing “essential” (variously defined) goods and services. It is no doubt true that one can point to cases where public accommodation laws have increased convenience for consumers in various times and places. But what about what is unseen? If ethnic enclaves and ethnic solidarity serve an important economic and social role in increasing wealth for marginalized groups — as we have seen above — what is the effect of essentially outlawing said solidarity for ethnic groups like Mexican-Americans? Let’s remember that public accommodation laws are necessarily opposed to many of the activities mentioned by scholars here, including co-ethnic preferences for lending and hiring, such as the “co-ethnic” loans described by Cadava. Just as public accommodation laws (and “equal opportunity” laws) prohibit non-Hispanic whites from showing each other preference, they equally outlaw Mexican-Americans and Japanese-Americans (for example) from showing preference to others within their own ethnic groups. Fortunately, for political reasons, these laws are not enforced as strenuously within non-Anglo ethnic enclaves and it’s this (deliberate) oversight on the part of the state that allows these ethnic enclaves to continue (in reduced form) to serve their essential role in promoting entrepreneurial activity within the group. 

Equality and brotherhood across all ethnic groups sounds nice on paper, but in actual experience, the essential role of ethnically-based capital accumulation and entrepreneurship — reinforced by co-ethnic favoritism — cannot be discounted. 

Seek to Lower the Costs of Entrepreneurial Activity 

If elected officials are so concerned about increasing access to goods and services for ethnic minorities, they should seek to remove restrictions on private-sector activities and lower barriers to entry in the marketplace. 

After all, the public accommodation edifice is largely built on the idea that firms headed by bigots will be able to establish partial or total monopolies that can dictate to consumers who can buy what. 

In a reasonably free economy, however, this cannot be possible since an absence of legal barriers to entry reduces the odds of being able to set up a sustainable monopoly to near-zero levels. 

It is assumed by advocates of public accommodation laws that ethnic minorities would be reduced to abject poverty in a state of apartheid were it not for state mandates on public accommodations. In the case of Japanese-Americans and Latinos, at least, this has never been demonstrated or even hinted at in actual experience. 

What has been demonstrated is that the key factor in lessening the effects of discrimination is the rise of entrepreneurial activity and capital accumulation within these communities. Naturally, the state must also get out of the way for this to happen. 

If we really want to see ethnic minority groups flourish, the answer is to allow these groups (and all groups) free association, and to slash government regulations in which minority-owned businesses are themselves caught up. These regulations include minimum wages, public accommodation laws, zoning laws, restrictions on housing, restrictions on food production, and a myriad of other restrictions that make it far more difficult to escape poverty.

Image Source: "La Princesse Québécoise" www.flickr.com/photos/bonjourchrissy/
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