I like Friedman, but this is one of his more hand-wavey arguments. It ignores the fact that discrimination might be a positive marketing characteristic for a business. If the customers are themselves racist, a business might lose a lot more revenue by serving minority customers than it gains from those customers. Indeed, even if all the business owners are not racist, as long as most of the customers are, they face a collective action problem. The first business to serve minority customers would quickly lose most of its customers to the competing businesses. And that seems to be precisely what was happening in the U.S. until Congress broke the cycle by making such discrimination illegal.