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The Guild-ed Age
A Loss for Crony Capitalism in 2014

As 2015 gets started, one important story from 2014 we missed is a much-needed victory over crony capitalism in Kentucky. George Will recapitulates the facts of Bruner v. Zawacki, in which a district court judge struck down what is known as a “certificate of necessity” regulation. In this case, the CON regulation required new moving companies to earn a certificate to do business by showing that pre-existing moving firms are “inadequate” and the new company meets a real need. The process for applying for a certificate involved informing competitors about your application, and competitors then often create trouble for the world-be entrepreneurs by filing legal complaints against the proposed company. Will provides some history:

In 1932, the Supreme Court overturned an Oklahoma law requiring any new ice company to prove a “public need” for it, arguing that the law tended to “foster monopoly in the hands of existing establishments”: “The principle is imbedded in our constitutional system that there are certain essentials of liberty with which the state is not entitled to dispense,” including “the opportunity to apply one’s labor and skill in an ordinary occupation.” […]

Soon, however, judicial progressivism became deferential to the political class’s conceit that it could centrally plan the present and foresee the future […]

Writing in George Mason University’s Civil Rights Law Journal, [Timothy] Sandefur notes that, after World War I, states and cities used CON requirements to cripple taxis, thereby protecting private investments in trolley lines. Plus ça change, plus c’est la même chose.

We’re glad that a judge in Kentucky reached back into 1932 and borrowed from that year the Supreme Court’s common sense. But ridiculous anti-entrepreneurial requirements are pervasive, and there’s much work still to be done. Take, for instance, licensing rules even in professions like hair dressing and floristry. Barriers-to-entry enshrined in regulation are very damaging to young people who need opportunities to succeed on their own, and the sooner these restrictions fall, the better. Read Will’s whole column. We hope to see more victories of this sort in 2015.

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  • John B Gorentz

    The biggest problem with private capitalism is that the capitalists tend to become socialists.

    • Curious Mayhem

      Sir John Hicks, the British economist, said it well: the best of all monopoly profits is the quiet life.

      Since 2009, the business death rate has been larger than the birth rate. The last time that happened in a sustained way was in the 1930s. Since such businesses create virtually all new jobs (net), it’s not surprising we’re having a slow recovery. In flush times, like the 80s, 90s, and 2000s (before 2008), such regulatory burdens don’t seem like such a barrier. But when everything else (credit conditions, demographics) is a headwind, then the regulatory burden is a big problem.

  • Anthony

    Adam Smith asserted that the division of labor is limited by the size of the market, or that as markets expanded through increased trade in a commercial, industrial, and an information/service economy, new divisions of labor would arise. Capitalism produces demands for access by new actors and countervailing push back (CON methods , etc.) by established interests – tensions resolved in modern capitalism by rule of law and democratic accountability.

    • Curious Mayhem

      Smith also had some arch things to say about established players abusing the law to block competitors.

      What’s different in the last century is the rise of the “progressive” planning class with the conceit that such anti-competitive policies are a form “planning for the greater good.” That’s exactly what they aren’t.

      • Anthony

        That’s the “or” of Smith’s assertion above, Now, for the planning class progressive or reactive whose to say as I would proffer there’s much greater nuance than respective labels imply.

  • Corlyss

    Back in the dark ages when I worked at the post camp and station level, we annually let a trash pickup contract. There were only two bidders, and every year, one of the two would win, and the next year the other would. Collusion no doubt, and we reported our suspicions, but no one up the chain was interested enough to make the effort to investigate. The trash business was Mafia dominated, and new bidders were quickly persuaded by repeated acts of vandalism to stay out of the cozy arrangement. One year an ex-Marine (although I know there’s no such thing) Viet Nam vet came into our office enquiring what he needed to do to bid. He did and won the contract, to the wrath of the collusive companies. He would come in regularly to report how his trucks were run off the road, his stock vandalized, his employees threatened. And always the young man relished the fight, never whined. And still the trash got collected on schedule. Crony capitalism is either borderline criminal or outright criminal. It needs to be treated as corruption, not as excessive regulation.

    • Curious Mayhem

      This was in Chicago, right? I used to live there and see this sort of thing close up.

      Never mess with a Marine.

      • Corlyss

        Nope. The Washington DC area. I imagine the Mafia had a lock on the trash business in any city or region of sizeable population.

  • FriendlyGoat

    While both Republicans and Democrats may have been involved in these kinds of laws as the political actors in place, you have to ask yourself whether the motivation for such EVER came from individual citizens. The “business communities” of particular industries are the source. Who else could it be?

    • Anthony

      A related (if indirect) point: this morning as I watched the morning news shows (Fox, Meet the Press, Face the Nation, etc.), it dawned on me that these shows serve multiple purposes. I’ll comment only on my realization that they too are part of “diversion mechanism” to keep public eye off the real issues – point of note: the emphasis on Jan. 4, 2015 on expectant occupant of White House in 2017. Such early attention and public diversion towards Rep/Dem horse race brought to mind that these shows and ongoing political campaigns are money opportunities and career ladders for the crafty, ambitious, wily, and entrepreneurial types. That is, modern electoral politics (with probably over a million elective offices) has become quite an industry in the economic sense – giving employment/remuneration to many people (News Programs, etc.).

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