Private Businesses Are Not “Public Accommodations”

On Tuesday, April 5, Gov. Phil Bryant of Mississippi signed a bill passed by the state’s legislature shielding certain business owners, public employees and non-profit organizations from lawsuits charging them with unlawful discrimination for refusing to serve same-sex customers. Styled the “Protecting Freedom of Conscience from Government Discrimination Act,” the new law drew sharp criticism immediately from political activists as anti-gay and discriminatory on its face. Leading companies, such as PayPal, Disney, Hilton and Marriott, have threatened not to do business in states considering similar legislation.

Mississippi’s law is tailored narrowly to permit refusals to do business with LGBTs (lesbian, gay, bi-sexual and trans-gender people) if doing so conflicts with the service provider’s “sincerely held religious beliefs and moral convictions.” Gov. Bryant and state legislators thus grounded their support in the First Amendment to the U.S. Constitution, which says in part that “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof….”

Regardless of one’s own religious convictions, that justification is itself far too narrow. The issue should not, in fact, be one of religious freedom, but rather one of private property rights. Private business owners should be free to refuse to serve any customer for any reason (“No Shirt, No Shoes, No Service”).

The main economics-based argument underlying that conclusion was first articulated by Nobel Laureate Gary Becker in his doctoral dissertation, later published as a slim paperback titled The Economics of Discrimination (University of Chicago Press, 1957; second edition, 1971). The late Professor Becker there shows that, in a workably competitive marketplace, the owners of private, for-profit businesses must bear the costs of indulging their discriminatory preferences against racial, religious or other minority groups. To refuse to serve any such customers is to forego mutually beneficial exchanges and the revenue that those exchanges otherwise would produce.

Moreover, if trades of those sorts are bypassed because the owner thinks that losing profits is worth not having to do business with people one dislikes, other entrepreneurs who are less prejudiced against (or more tolerant of) differences in skin color, sexual preferences or religious beliefs will rush to serve those unserved customers and capture the profits from doing so.

Good reasons exist for prohibiting discrimination by the public sector since government agencies typically are monopolists not subject to the discipline of competitive market forces. Same-sex couples have one and only one local option for obtaining marriage licenses, but a city of even modest size contains multiple places at which wedding cakes can be purchased. If one bakery refuses to do business with LGBTs, those customers can go down the street or across town to find one who is willing to do so.

The owners of private business establishments know their own customers’ preferences far better than local, state and federal politicians or bureaucrats and, therefore, can cater to those preferences more effectively and efficiently than can a one-size-fits-all law or regulation.

The very idea that a privately owned hotel, bar, restaurant, lunch counter or bakery is a “public accommodation” demanding that government mandate open access to everyone is anathema to private property rights and a free and open society that promotes maximal human flourishing. Indeed, government sometimes enacts laws with clear racist intent. Jennifer Roback’s important work on the Jim Crow south indicates that privately owned streetcar companies in Memphis, TN, and elsewhere resisted city ordinances requiring segregation of black and white passengers because it hurt their businesses. They ignored such rules when they could get away with it (Journal of Economic History, December 1989).

By all means, prohibit discrimination by public sector institutions and a tightly defined set of “common carriers.” But don’t conflate banning discrimination by city hall or state and federal agencies with intrusion into the affairs of private business owners who shoulder the costs of any discriminatory practices directly and who thus can be expected to treat their paying customers better and more fairly than, say, the local drivers’ license bureau.