As many of you may be aware by now, bureaucrats across the country have been running around with weapons, arresting people who dare to sell lemonade on public property without begging permission from bureaucratic enforcers to do so first. In response to this insanity, The Atlantic has written a puff piece that purports to show “both sides” of the licensing argument.
In the article, The Atlantic provides us a litany of responses from public health officials, all of them claiming that unlicensed food vendors are a public health risk. To quote the article:
“Coralville City Administrator Kelly Hayworth said the city was simply trying to regulate health codes on vendors like Krutsinger, and that they can’t pick and choose when to enforce those rules. Jon Kawaguchi, environmental health supervisor for Multnomah County’s health department cited similar reasons in shutting down Murphy. ‘I understand the reason behind what they’re doing and it’s a neighborhood event, and they’re trying to generate revenue,’ said Kawaguchi to The Oregonian. ‘But we still need to put the public’s health first.'”
So let us begin by refuting these ridiculous and preposterous statements with some simple common sense and a few examples.
The first question I have is, how does a vending license ensure food quality? In the case of our DC lemonade vendors, let us suppose that they had acquired the appropriate permission slips from the nanny state tyrants. The process of obtaining one of these slips does involve an initial inspection; however, the license is good for two years. The quality of food and the sanitary conditions of any given vendor’s work environment can change over the course of a single day, so how does an inspection provide any assurance of quality and safety beyond the day of inspection?
To demonstrate just how ineffective licensing laws are at stopping bad food from hitting the markets, one simply needs to look at food poisoning statistics. The CDC estimates that foodborne diseases cause approximately 76 million illnesses, 325,000 hospitalizations, and 5,000 deaths in the United States each year. Given those statistics, I think its safe to say that licensing laws are completely ineffective at preventing food poisoning.
Further, let us consider what we observe in damn near every episode of Ramsay’s Kitchen Nightmares. In the show, professional chef Gordon Ramsay goes to various failing restaurants and tries to breathe new life into them by cleaning them up and altering their menus. In nearly every show, Ramsay finds massive quality control and sanitation issues with the restaurants he works with; yet all of the restaurants that Ramsay visits are fully in compliance with all local licensing laws.
This state of affairs obviously begs the question, how could those restaurants be in a total state of squalor when Ramsay comes to visit them if they have been issued licenses by bureaucrats certifying that their quality and sanitation is up to snuff? Could it be that some restaurants only clean up their act for inspection day? Could it be that licensing laws are nothing more than a scam by existing businesses to reduce the amount of competition they face? Could it be that bureaucrats see licensing laws as nothing more than a source of revenue and that they really don’t give a flying crap about protecting the public’s health?
It is interesting to note that every restaurant Ramsay visits is on the verge of bankruptcy. In fact, the entire premise of the show revolves around Ramsay demonstrating how high quality food and service can make any restaurant profitable.
We can empirically demonstrate a few facts from this show:
1. Unsanitary conditions that lead to people getting sick cause a restaurant to lose repeat business.
2. Low quality food that is not prepared fresh causes a restaurant to lose business.
3. Poor service and unattractive / dirty dining areas cause a restaurant to lose business.
4. Government licensing laws do not prevent unsanitary or low quality restaurants from operating.
5. The market rapidly runs unsanitary and low quality restaurants out of business.
Of course, I don’t need Ramsay’s show to prove these facts, since they are obviously self-evident to any rational person, but his show just happens to provide an excellent demonstration of these market forces in action. Given these facts, I think we can say with total certainty that licensing laws are ineffective at accomplishing their stated goal. And we can demonstrate that the market is highly effective at punishing bad behavior by restaurant proprietors. However, I contend that not only are licensing laws ineffective and unnecessary, they are downright DANGEROUS.
If we look at the banking industry as an example, we can see that the government is excellent at creating moral hazards. Moral hazards can arise when people falsely believe they are insulated from risk. In the case of food quality, we can empirically demonstrate that licensing laws are totally ineffective at preventing the sale of contaminated food, yet the public falsely believes that licensed products are in fact safe to eat.
Consider what additional steps the public would take to ensure food quality on their own if there were no government licensing of restaurants; do you think the public might be more cautious when dining at unfamiliar restaurants? If your answer to that question is yes, then you just confirmed that licensing laws create moral hazard.
The public likes licensing laws because most people are intellectually lazy. Rather than having to deal with the personal responsibility of ensuring the restaurant they are dining at has high quality standards, the public wants someone else to do this dirty work for them. It is a simple matter for a potential customer to request to see the food preparation area of a restaurant and conduct their own inspection, yet this is almost unheard of today. Could it be that no one bothers to do this because people think the government has done this for them?
A business could refuse such an inspection request, but obviously a refusal would lead to them losing that customer’s business and potential bad press if that customer happened to be a food critic or operate a restaurant review publication. In a world without government licenses, I can assure you that some people would bother to demand those inspections, and potentially make a business out of doing so in the vein of The Michelin Guide.
One additional benefit of having private citizens take on the responsibility for assuring the quality of food in restaurants is that there is no conflict with the 4th Amendment of the Constitution. Consider that a government inspector that enters a property without the consent of the proprietor, and without a warrant issued by a judge, is violating that proprietor’s Constitutional property rights. Currently most licensing laws say that inspectors have the authority to conduct an inspection without a warrant, which clearly violates the proprietor’s 4th Amendment property rights.
If the public relied on private third party reviews, businesses would have to voluntarily participate and allow the private inspectors entry or face a potential loss of business and bad press. Further, if a reviewer says a restaurant is good, when in fact it is bad, that reviewer faces a loss of customers subscribing to his publication. This provides a large market incentive for the reviewer to conduct through inspections on a regular basis. Consider that people would stop reading The Michelin Guide if it continually listed crumby restaurants as being excellent.
Let us review what various groups stand to gain from the licensing of food vendors:
1. Existing business owners enjoy protection from competition if they can get zoning and licensing boards to restrict the number of licenses granted in a given area. Further, they gain by creating a barrier to market entry for new competitors. If a new competitor faces a barrage of bureaucratic red tape and fees when opening a new restaurant, they might be more inclined to not open a new restaurant in the first place.
2. Bureaucrats gain because a massive pile of new bureaucratic positions must be created to enforce the licensing laws. Bureaucrats also gain because licenses are often accompanied by fees which generate revenue for the State. It should be noted that all of these jobs create no new wealth for consumers. Licensing bureaucrats are not engaged in the production of goods and services that uplift the condition of humanity, unlike the businesses they are inspecting. Further, the cost of those bureaucratic positions is borne entirely by the people who are engaged in productive business.
Let us review various groups that stand to lose:
1. New competitors face a barrage of red tape, fees and property rights violations before they have even served a single customer. Further, their application may be rejected for arbitrary reasons, such as a bureaucrat deciding that “too many” restaurants are already in given area.
2. The public falsely believes it gains protection from low quality food and services; even though the statistics and empirical evidence make it abundantly clear that licensing laws don’t prevent bad food from reaching the market, which leads to a moral hazard of relying on ineffective government inspectors to ensure food quality. The public also loses if new businesses are prevented from opening through the loss of choice and competitive pricing that arises in the market place.
By now it should be clear that only bureaucrats and existing businesses gain from licensing laws, while the public and entrepreneurs end up being the losers. Further, It is morally reprehensible that agents of the State should initiate violence against people who have harmed no one. Consider that the State could simply allow anyone to open and operate a business without any licenses, yet still punish those proprietors who harm consumers. Licenses are not necessary for the State to punish bad behavior.
The Atlantic should stop being a mouthpiece for bureaucrats and start being a responsible news organization that actually applies at least some grade school logic to its analysis of issues.
Watch John Stossel explode the myth of government licensing: