Battling Racism Through the Marketplace
By Will Tippens - July 01, 2015

After a psychotic man murdered nine people in a black South Carolina church last week, much of the nation has turned its attention to whether the Confederate flag should be removed from all public forums. Although this reaction itself speaks volumes about the current racial climate in America and the media, there is another important lesson to be gleaned: Racism is absolutely toxic in the marketplace.

Regardless of whether you think the Confederate flag is racist, the symbol of the Confederate battle flag still flies from the state capitals of Mississippi and South Carolina. However, the outcry against this symbol has already sparked real action in the marketplace. Retail juggernauts Walmart, Amazon, eBay, Sears and others have already made the decision to stop selling any merchandise featuring the flag. Apple has even decided to pull all of its Civil War apps from its App Store.

While this may seem like oversensitive overkill to some, it should be looked at from an economic perspective. Every business has a right and reason to disassociate itself from whomever or whatever it finds to be harmful to its image – just as consumers have the right to refuse to support any business they dislike. This is the vital market function of reputation. Because consumers always have imperfect information about the world around them, they come to value the reputation of certain brands, from electronics to restaurants.

A reputation is where the company tires meet the consumer road in a market: what it does, how it does it and how well it does it – and how the public perceives each of these things. This ranges from word of mouth to Internet reviews to community ties to media depictions of the company. For a business, there is no shortcut to this "social capital"; it must be grown and maintained naturally, or else it becomes a deadly poison to profits.

All businesses (outside of those supported by the state) are sustained solely through voluntary exchanges with customers. Due to the consensual nature of this relationship, a business must maintain a good relationship with its customers if it wants to even exist. Therefore, through this 'natural selection' of public relations, businesses will seek to minimize any associations and actions the public finds offensive. And that includes guilt by association, even if it means selling Confederate flag t-shirts.

As CEO of Walmart Doug McMillon put it, "We want everybody to feel comfortable shopping at Walmart." Whether he personally believes the Confederate flag is a symbol of racial hatred is beside the point. Because many individuals become uncomfortable at the first sniff of racism, Walmart calculated that keeping Confederate flags on the shelves will cost the company more than it will benefit it. Walmart, the largest retailer on Earth, will no longer sell items deemed potentially racist, because it does not want to alienate its potential future customers. This is an example of how far businesses will go out of their way to make sure customers are happy.

On the other hand, it will be a long, arduous path before the Confederate design is taken out of the Mississippi and South Carolina state flags, chock-full of political agendas and distractions. This is the beauty of the market – it is ever adapting and ever accommodating, responding to public opinion far more quickly and better tailored than any state legislature could.

For example, when 'sweatshops' became a controversial mainstream issue, GAP and several other clothing brands drastically changed their manufacturing methods, either by closing their factories altogether or offering higher wages and healthcare. When the pseudo-documentary "Super Size Me" came out, every fast food chain immediately began offering healthier menus and prominently displaying nutritional facts. McDonald's even got rid of its 'supersize' option altogether, and yet has still been losing market shares because of consumers' constantly changing demands.

Unlike the rigid bureaucracy of the state, the market allows people to choose who they want to give their money to, and for what end. For those who realize the economic necessity of 'sweatshops' in developing areas and enjoy the occasional 3,000-calorie burger, you can still find both products at different businesses, probably right down the street.

Look no further than gay marriage as a prime example of the difference between the state and the market. It took almost 50 years for the United States to finally legalize gay marriage. But if the government had not long ago hijacked the religious contract of marriage, it would have been incredibly easy to find someone to conduct a gay marriage virtually anywhere. Without special privileges and arbitrary restrictions the market quickly adapts to fill niche demands or punish those who violate standards of decency, without any ridiculous red tape or voting referendums. In the market, people choose. But when the state forces its way into anything, you can be sure that individual choice will be sacrificed on the altar of bureaucracy, whether it means your ability to marry or what flag flies over the public buildings in your town.

The market not only encourages social cohesion and cooperation, but it ostracizes those who violate acceptable norms. If a restaurant openly advertises that it will not serve black people, the immense social pressure of individuals will naturally punish it by expelling it from the marketplace. Businesses need widespread approval or they stop existing. So, in order to keep people coming back, a business has to sell you not only on its goods but its good character. And racism, thankfully, does not sell.

Will Tippens is a recent graduate of the University of Memphis Cecil C. Humphreys School of Law. He plans to take the Tennessee Bar in July 2015 and enter general private practice. A passionate student of libertarianism and Austrian economics, Will has worked as a research associate with the Nashville based Beacon Center of Tennessee, volunteered for the Ron Paul 2012 campaign and was the president of the Memphis chapter of Young Americans for Liberty from 2012-2013. Follow him on Twitter @willtippens

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