Racial Impacts and Business Regulations

Intrusive business regulations have a disproportionately negative impact on the poor and members of minority groups, who lack the political influence that whereby wealthy corporations and politically well-connected people are able to obtain special government favors. Nobody has done better scholarship on this point than Volokh Conspiracy blogger David Bernstein. The historical examples of the abuse of licensing laws and other regulations to oppress racial minorities are legion, and depressing. But they aren’t surprising. The lesson of public choice theory is that when government can redistribute wealth or opportunities, that power will fall into the hands of politically well-connected groups, who use it to their own advantage at the expense of less favored groups.

The treatment of the Chinese in California is a distressing example. At the California Constitutional Convention of 1878 — organized by the anti-Chinese Workingmen’s Party — many delegates spoke of their readiness to exploit government’s regulatory powers to keep out the Chinese workers who competed with white labor. As one delegate said, the Chinese laborer was

a creature, whose muscles are as iron, whose sinews are like thongs, whose nerves are like steel wires, with a stomach case lined with brass; a creature who can toil sixteen hours of the twenty-four…. The white man cannot compete in the field of labor with such a being as that…. If the white man is to compete with the Chinaman he must adopt a cheaper style of dress, must inure himself to the cold, he must labor in the night; sleep shall not come to his pillow until the midnight bell…[and he must] arise at the first gray streaks of dawn.

Another announced that he was eager “hamper [the Chinese] in every way that human ingenuity could invent,” in particular by using “police, sanitary, criminal, or vagrant regulations, or refusing to license this class of aliens to carry on any trade or business whatever, if we can in any way, by statute or otherwise, prevent the same.”

Many of the burdensome and absurd business regulations that government used to exclude these disfavored immigrants are catalogued in Jean Pfaelzer’s very good book Driven Out. But the most famous of these was the San Francisco laundry ordinance, that gave city officials unbridled discretion to grant or withhold licenses for running laundry businesses. The city claimed (of course) that this was a health and safety measure, designed to prevent fires. But in Yick Wo v. Hopkins, the Supreme Court found this ordinance unconstitutional, because it made the Chinese “tenants at will” of “their means of living.” “[T]he very idea that one man may be compelled to hold his life, or the means of living, or any material right essential to the enjoyment of life at the mere will of another seems to be intolerable in any country where freedom prevails, as being the essence of slavery itself.”

Even where a licensing law lacks a hidden racist motive, as in [of the sort that the law in Yick Wo had], it often has a racially disproportionate effect. In 1996, a federal court in San Diego held it unconstitutional for the state of California to require African hair-braiders to obtain licenses as beauticians. The licensing requirement forced applicants to study many hairstyles that couldn’t even be performed on black customers! In fact, well over 90 percent of what applicants for licenses were required to learn was irrelevant to what African hairbraiders actually did.

There’s no denying that expensive and complicated licensing requirements for hair stylists and other entry-level professions have a profound and negative impact on racial minorities and often push minority-owned businesses into the underground economy. Licensing laws also give political elites leverage in political disputes for minorities; I recently blogged about how taxi licensing laws helped officials in Montgomery, Alabama, resist Martin Luther King’s famous bus boycott.

But the most interesting case I’ve found at the intersection of economic liberty and the rights of racial minorities comes from the Tennessee Supreme Court: City of Memphis v. Winfield, 27 Tenn. (8 Hum.) 707 (1848). A city ordinance set a 10 p.m. curfew for free blacks, and when Willie Winfield was fined for violating the ordinance, he appealed. In a decision by Justice William B. Turley, the court struck down the law: free black people were “not, it is true…citizen[s] of full privileges in our state,” but

[t]he lot of a free negro is hard enough at best, resulting from necessity arising out of the relation in which he stands to his brethren who are in servitude, and it is both cruel and useless to add to his troubles by unnecessary and painful restraints in the use of such liberty as is allowed him. He must live, and, in order to do so, he must work. Every one knows that in cities, very often, the most profitable employment is to be found in the night, loading and unloading steamboats and other craft, waiting about hotels, theaters, places of amusement, both public and private, wood-cutting, fire-making, shoe and boot-cleaning, not to mention the various handicraft employments, such as that of the barber, etc. All these things are sources, in large cities, of much profit to the free man of color, and you necessarily deprive him of them entirely if you compel him, like a wild beast, to hide his head in his den from ten o’clock till daylight, under the penalty of being pursued by watchman and constables for the purpose of being imprisoned and fined as if he had been committing a crime against society.

Justice Turley saw it as basic a common sense that a free person has the right to earn a living for himself and his family, and as long as he harms nobody else in doing so, nobody else should interfere. And he recognized that when the government can interfere with free enterprise willy-nilly, that power will be abused by political elites to the exclusion of their enemies.

P.S.: Some interesting historical notes about the Winfield case. Winfield was represented by attorney Edward M. Yerger, who was also a publisher (whose name might be familiar to Tennessee lawyers, as early Tennessee cases were reported in “Yerger”). Before the Civil War, Yerger moved to Mississippi, and became editor of the Jackson News. He got into an altercation with occupying union troops at the end of the war, and stabbed Col. Jasper Crane to death. Tried before a military tribunal, Yerger appealed to the U.S. Supreme Court, resulting in the famous case of Ex Parte Yerger, 75 U.S. (8 Wall.) 85 (1868). Justice Turley had an even more idiosyncratic future. Highly respected by his colleagues, Turley died at the age of 51 when he tripped on a sidewalk, and was impaled on the broken end of his walking stick.

Update: Edited to fix some unclear language.