I don't think it's correct to say that Government created racism. But racists certainly used Government to promote their evil intentions.
Sowell's insight here is wonderful. We lose track of history and of the driving forces behind it when we listen only to the media. Both the state legislature and the courts were used to promote injustice. The saga continues in other areas today.
Socialists want the Government to run everything, with the idea that that is going to remove injustice. It will only empower injustice. Free market economic forces would have prevented the discrimination on the buses.