“Prejudice is free but discrimination has costs”  Thomas Sowell

Two earlier HistoryHalf posts addressed the relationship between slavery and economic progress, or lack thereof, in the United States. One post makes the case that standard textbook portrayals of black slavery as an important underpinning of American economic growth are false. The other post describes the slave system as an economic liability that destined the South to lose the Civil War.

This week’s post is about the continued economic backwardness of the states of the old Confederacy during the Jim Crow era, and the explosion of productivity and profit that the Southern states have enjoyed since the Federal Government brought a forcible end to racial segregation.

State Mandated Segregation

From the end of post-Civil War Reconstruction, Southern states and cities passed laws discriminating against black citizens purely on the basis of race. In 1894 a black man named Homer Plessy sued to overturn a Louisiana law requiring railroads to carry white and black passengers in separate cars. His case, famous in the history books as the Plessy v. Ferguson case, went all the way to the US Supreme Court, which ruled against him. For the next several decades Southern governments were able to claim Supreme Court backing for the segregation policies they imposed on Southern businesses.

The freshman textbook America’s Promise offers a fairly standard portrayal of the importance of the Plessy v. Ferguson decision, saying that the decision cleared the way for “state-sanctioned segregation of public facilities.” But segregation policies like the one that prompted the Plessy v. Ferguson case were not just “sanctioned” by the states. It would be more accurate to describe the Jim Crow laws of that time as state mandated segregation. The laws were imposed by Southern governments, and for-profit businesses frequently resisted or ignored segregation laws, often for reasons that had nothing to do with a desire for racial equality or justice.

If all of the South’s business owners had been eager to segregate their employees and customers by race, there would have been no reason for white racists to resort to government power to force the issue. But businesses, unlike governments, have to earn a profit to survive. Most railroad managers would rather operate one passenger car, full; than operate one car half-full of black customers and another car half-full of white folks.

Chaffing at Segregation

Economist Thomas Sowell cites several examples of for-profit businesses resisting segregation laws in his book Preferential Policies, An International Perspective:

Segregation into smoking and non-smoking sections is significant because it was done on the initiative of streetcar companies themselves, while some of those same companies publicly opposed the imposition of racially segregated seating by law when such legislation was first proposed. Even after such Jim Crow laws were passed, the streetcar company in Mobile initially refused to comply, and in Montgomery it was reported in the early years that blacks simply continued to sit wherever they pleased. In Jacksonville, the streetcar company delayed enforcing the segregation seating law of 1901 until 1905. Georgia’s state law of 1891 segregating the races was ignored by the streetcar companies in Augusta until 1898, in Savannah until 1899, and in the latter city was not fully enforced until 1906. In Mobile, the streetcar company publicly refused to enforce the Jim Crow laws of 1902, until its streetcar conductors began to be arrested and fined for non-compliance with the law. In Tennessee, the streetcar company opposed the state legislation imposing Jim Crow seating in 1903, delayed enforcement after the law was passed, and eventually was able to get the state courts to declare it unconstitutional.¹

Being forced to provide separate facilities for black and white customers was not the only burden businesses faced in the Jim Crow South. Some Southern states banned blacks from holding certain kinds of jobs; others required segregated workplaces. Even when companies were theoretically permitted to hire blacks for high-paying jobs, finding qualified employees was made more difficult by government policies that blocked Southern blacks from getting a decent education in K-12, then barred even qualified black graduates from higher education.

Reaching the Fortune 500

A look at back issues of Fortune Magazine’s annual Fortune 500 issue offers an interesting insight into the difficulties that the Jim Crow laws imposed on Southern businesses, and the economic benefits Southern states have enjoyed since being forced to remove segregation laws from their books.

The eleven states of the old Confederacy² only boasted twenty-nine companies that had managed to grow their way onto the Fortune 500 by 1960.³ This was roughly six years after the Supreme Court’s famous Brown v. Board of Education decision declared segregated school systems unconstitutional, and before any educational advances facilitated by Brown v. Board had had much effect on the overall educational level of the Southern workforce.

The 1964 Civil Rights Act signed into law by President Johnson on July 2nd of that year gave teeth to the Brown v. Board decision. It also explicitly forbad segregation in the workplace and in “public accommodations;” including restaurants, hotels, and transportation systems. A few Senate Democrats conducted a filibuster to block the Civil Rights Act, but the filibuster was eventually broken. Eventually 64% of Congressional Democrats voted for the Act. Congressional Republicans, being members of a traditionally pro-business party, supported the 1964 Civil Rights Act by a much wider margin. Fully 80% of Republicans voted for the Act.

It took a few years, a few court battles, and a few ugly scenes to put the principles of Brown v. Board and the 1964 Civil Rights Act into actual practice throughout the Southern states, but by the end of the 1960’s the era of government mandated segregation had pretty much been brought to a close.

In 1970 the Fortune 500⁴ still only included twenty-nine companies with their headquarters in Dixie, but that would change soon. The elimination of the old government-mandated racial caste system would unleash an entrepreneurial spirit in the South that would make it, at long last, an economic force to be reckoned with. Southern businesses would soon be achieving growth rates that would allow many of them to displace well-entrenched Northern competitors.

The 1980 Fortune 500⁵ included fifty-one Southern based companies; still not a representative number for eleven states in a nation of fifty, but definite progress. The 1990 list⁶ included eighty-nine companies headquartered in these states. The most recent Fortune 500 issue offers a handy state-by-state breakdown, which shows that no fewer than 139 of the nation’s largest corporations call Dixie home.

Conclusion

Aside from the obvious moral issues, institutionalized racism was bad for business. The foundation of America’s economic greatness has always been free people making free choices in a free market system. Today, as some of the more-liberal Northern governments are piling new restrictions on businesses, the business climate in the old South looks more and more inviting to entrepreneurs and workers of all races. The recent rate of growth of Southern-based companies gives testament to the advantages of a true free enterprise system.

¹Thomas Sowell, Preferential Policies, An International Perspective , William Morrow and Company, 1990, pp.20-21
²Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Texas, and Virginia
³Fortune, July 1960, pp. 132-148
⁴Fortune, May 1970, pp. 184-198
⁵Fortune, May 5, 1980, pp. 276-294
⁶Fortune, April 23, 1990, pp. 346-364