If we were rational logical people living in a neo-classical world there would be no discrimination. People would only be judged according to their productivity and nothing else. All races would receive equal pay and job opportunities. In fact Milton Friedman even developed a theory in which racist firms would be driven out of business by inclusive firms. Yet discrimination does exist. For generations many businesses would only hire white people. Even today ethnic minorities are paid less than white people and suffered from higher unemployment. The perfect neo-classical utopia does not exist. Social norms determine action just as much as pure economics. We need government to right the wrongs of the free market.
Neo-classical economics claims that all workers are paid according to their productivity, therefore no one is every under paid or exploited. There are numerous problems with this (such as where does profit come from). A simple look at history will easily debunk this theory. No one will deny that for generations blacks, Hispanics and women were underpaid despite doing the same work as white men. According to neo-classical economics this could not happen and if it did it could not last. But it lasted in America (particularly in the South) for generations without the free market solving the problem. In fact it was the government that ended most of the discrimination (though even today minorities and women earn less than white men).
Milton Friedman and Gary Becker (both Nobel Prize winners) have both absurdly argued that there is no discrimination in the free market and for some strange reason this is what is taught in textbooks (though it requires you to completely ignore history). Essentially they argue that racism is inefficient and therefore competition will drive it out of the market. If a firm hires only white workers then it will have to ignore well qualified minorities and accept whites even if they are not as well qualified. A business that hires its workers based solely on their skill will therefore be more efficient and drive the racist business out of the market. This means there will be no discriminatory firms in the market. However this theory is at a loss to explain the fact that discrimination has persisted. They cannot explain the “No Irish/Blacks/Mexicans etc Need Apply” signs that many employers attached to job notices. They cannot explain how having a “white” name significantly increases your chances of getting a job interview.
The theory does not address another common form of discrimination, namely the refusal of businesses to serve certain ethnic groups. Under Jim Crow many shops refused to serve blacks either officially or unofficially. Nowadays in Ireland many hotels and pubs refuse to serve Travellers. In theory this reduces their profit but it was still widespread. It was government intervention sparked by the lunch counter protests that ended this discrimination, not the invisible hand of the free market. As minorities are poorer they have less to spend in businesses so the expected loss may not occur.
Discrimination can persist if customers are discriminatory, for example imagine if customers of a restaurant wanted only white people to serve them. In this case the market would reward discrimination instead of punishing it. Likewise if the staff do not want to work alongside different ethnic groups then it is more profitable to discriminate.
Becker and Friedman assume that all races have equal opportunities. They ignore the fact that minorities suffered from poorer education facilities. They act as though the systemic discrimination in all walks of life has no effect. That living in poor housing and slums doesn’t hold anyone back.
Friedman and Becker don’t describe the real world, rather they describe their ideal utopia where the market runs wild and we all bask in harmony and prosperity. All this requires is an ignorance of history and to ignore Jim Crow. Pretend it was all the government, but you are only deluding yourself.