Wednesday, March 18, 2009

The power to license, the power to destroy

Instapundit notes a story about a bill in Congress that would apparently force anyone who produces food and then transports it to a different location for resale to register with a new federal entity called the Food Safety Administration. The obvious target for this are farmer's markets.

On the surface some people may be inclined to applaud such a move. After all, it is designed to promote food safety and who can argue with that?

The problem is that the true impact of licensing is to create a barrier to entry rather than promoting the public interest. As John Stossel explains in his book Give me a Break:
Today there are thousands of licensing boards. Some states even license astrologers. But as I kept doing consumer reports I began to notice that licensing didn't make life better. The richer, better-plugged-in businesses paid lawyers to file the paperwork and passed the cost on to consumers. The rest of the businesses weren't even aware of the law, or couldn't afford the lawyers to show them how to deal with it. They just ignored the law.

...We visited Cornrows & Company, a thriving African hair-braiding business in Washington, DC. A married couple, Taalib-Din Uqdah and Pamela Farrell, had done exactly what politicians say needs to be done in inner cities -- they built a business. They soon had 20,000 customers, employed 10 people, taking in half a million dollars a year. Women came from as far away as Connecticut, a six hour trip, to have their hair braided by Cornrow & Company.

I thought a story like this would thrill local politicians. Instead, the bureaucrats ordered Uqdah and Farrell to cease and desist or be "subject to criminal prosecution." Why? Because they didn't have a license. "It's a safety issue," said the regulators. The chemicals they use to perm or dye hair might hurt someone.

Hair dye is hardly a serious safety threat, but even if it were, Cornrows & Company didn't dye or perm hair. They only braided it. That didn't matter, said the cosmetology board -- they still had to get a license.

What would it take to get one? Uqdah and Farrell would have to pay about $5,000 to take more than a thousand hours at beauty school.

It's unclear what beauty school would have taught them. Beauty schools didn't even teach the service Cornrows & Company provided. They taught things like pin curls and gelatinized hairstyles that hadn't been popular for 40 years. One rule required students to spend 125 hours studying shampooing.

Uqdah thought he understood why the cosmetology board wanted to shut his salon. "Money -- other salons don't like the competition."
There is the possibility of something similar at work here, with the husband of a co-sponsor of the bill having performed work for food products giant Monsanto, which would stand to benefit through such regulatory obstacles being thrown up against its competitors. Furthermore, can any really argue that this benefits food safety? After all, don't many people seek out farmer's markets in order to obtain the freshest and healthiest foods?

This is just a microcosm of the problem, consider the impact on a far larger scale with the number of licenses and regulation multiplied many fold. India's system of licensing used to be so pervasive that it was known as the "License Raj":
Licence Raj refers to the elaborate licences, regulations and the accompanying red tape that were required to set up and run business in India between 1947 and 1990. Up to 80 government agencies had to be satisfied before private companies could produce something and, if granted, the government would regulate production. The Licence Raj was a result of India's decision to have a planned economy, where all aspects of the economy are controlled by the state and licences were given to a select few. License Raj established the "irresponsible, self-perpetruating bureaucracy that still exists throughout much of the country" and corruption flourished under this system. Eugene Makar describes License Raj as a sarcastic term for the socialist-inspired "overbearing, unfair, undemocratic system" that led to "spectacularly corrupt bureaucracy and incredibly inefficient macroeconomy" lasting for an entire generation from the 1950s until the 1980s.
It is no accident that India has increasingly prospered as much of the raj was reduced in scope. If we want to grow our economy we should be seeking to reduce barriers to starting businesses, not throwing up new ones.

1 comment:

vince_rules said...

this is not an instance of liberalism nanny-state-ish run amok; it's just that corporations wanna shut down farmers markets, and they'll do whatever it takes.

not here in berkeley, though!

live free or die.