Regulatory Robber Barrons

Regulatory Robber Barrons

Carney Book Excerpt in AFF Brainwash
July 10, 2006

The following is an excerpt of Tim Carney's new book The Big Ripoff: How Big Business and Big Government Steal Your Money, now available now from John Wiley & Sons.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

 

Allen Iverson and Donovan McNabb are the two superstars of Philadelphia sports. Iverson is the point-guard on the Philadelphia 76ers, while McNabb quarterbacks the Eagles. McNabb, newer to Philly than Iverson, has recently adopted Iverson's hairstyle—cornrows, or tightly wound braids across the scalp. As evidenced by McNabb's gold tooth and diamond earrings, and Iverson's $2.4 million mansion, the two can afford to pay top dollar for their hairdos—which is a good thing, considering Pennsylvania state law that keeps prices high for hair-braiding. Hair braiders must take a 1,250 hour training course in "cosmetology" before they can legally braid hair in Philadelphia or anywhere else in the state. As a point of comparison, federal law requires pilots to log 40 hours of flight time before getting a license.

 

While the reason for the braiding regulation is hard to imagine, the harmful effects are clear. Hair braiding could be the ideal job for a black woman—either a mother re-entering the work force, or someone looking for a second job. In cities where the practice is fairly unregulated, such as Washington, D.C., the field provides exactly this opportunity. In Philly, the state has made it much harder to pursue this line of work. Of course, keeping the number of hair braiders low drives up the price for consumers—which is good news only for those who had the time and the resources to get their license. Once again, government has created a cartel, not only in Pennsylvania, but also in seventeen other states that require hair braiders to obtain training and licenses.

 

Nearly everyone agrees that doctors should have medical licenses before they can practice medicine, and pilots, too, ought to be certified. But hair braiders?

 

The story is not a unique one, and the significance is this: government regulation very often has the effect and even the intention of preserving the success of the incumbent businesses by crowding out smaller companies and erecting barriers to entry.

 

In Louisiana, for example, florists can run afoul of the law if they practice floristry without a license. The state requires any would-be florist to pass a licensing exam. Who are the judges? They are currently practicing florists. The result: a majority of applicants fail. In short, the state has given current florists the power to keep potential competition out of the market. Only with the help of big government could the existing businesses maintain such an oligopoly. Such pro-incumbent-business regulations abound.

 

In Oklahoma and Tennessee, casket sellers have a similar cartel. In Florida, currently practicing athlete's agents comprise the athlete's agents licensing board, which gets to decide who can or can't represent an athlete. All of these "pro-consumer" license requirements not only hurt would-be florists, casket sellers, and agents, but the consumers, too, who pay higher prices in the squeezed market.

 

If you have weeds on your property in Arizona, you should probably study the state code before trying to remove them. Paying your neighbor's son to spray them with Weed-B-Gone or any standard over-the-counter weed-killer, probably violates the law. It's illegal to do it yourself if you are a renter, but it's also illegal for your landlord to spray. Maybe you know a gardener whom you could hire to do it? You'd better check that he has 3,000 hours worth of experience spraying weeds, otherwise the Arizona Structural Pest Control Commission (SPCC) may come after you both.

 

Gary Rissmiller found this out the hard way, when the SPCC hit him with a $500 fine when one of his workers was found spraying weed-killer on a client's lawn. Only after his guy got busted on February 4, 2004 did Gary learn the law: nobody in Arizona may spray weeds without an operator's license. Rismiller thought he would go get license by passing the test the SPCC administered. But then Rismiller learned about the other requirement: he would need to document that he had spent 3,000 hours spraying weeds in the past five years. That would be more than 10 hours per week. In dry Arizona, though, weeds only really grow twice a year—after the December rainy season and the July monsoon season. There is no way anyone but a full-time weed-sprayer could accumulate those hours—especially not an all-purpose landscaper such as Rismiller.

 

Rismiller had to cease and desist spraying weeds, and so he hired a weed specialist—at a price. "Some of the prices that he shot at me," Rismiller told me in a phone interview, "I could do it for half that—even less." But Rismiller was in no position to negotiate. His other options were worse. He could just stop providing his customers with weed control, tell them they were on their own when it came to weeds, and risk losing them as customers. Or he could just start picking the weeds by hand—with huge costs in added labor and decreased morale. Finally, he could try to get licensed himself. But that would take suspending his business and going to work for some licensed spraying company until he racks up 3,000 hours, which, at 40 hours per week would take 18 months. "All my customers would leave me if I was gone for a year and a half," Rismiller says.

 

Rismiller's customers pay higher prices now than they used to. Rismiller estimates he is losing as much as $20,000 per year by having to contract out the weed spraying. But the regulation is good news for some folks. One day, Rismiller got a call from a major pest-control company, and the caller said he understood Rismiller was unlicensed to spray, but this corporation could handle it for him. "This guy opens up the phone book and calls all the landscapers, knowing that the law put them in this situation. He's gotta love it."

 

Imagine that: a big business loving big government. . . .