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TESTIMONY OF THE COMPETITIVE ENTERPRISE INSTITUTE

BEFORE THE FAIRFAX COUNTY PLANNING COMMISSION

REGARDING A PROPOSED ZONING ORDINANCE AMENDMENT

ON DRY CLEANERS AND LAUNDRIES

May 31, 2001

The Competitive Enterprise Institute (CEI) appreciates this opportunity to testify before this Commission on its proposed zoning amendment regarding drycleaning and laundry establishments.

CEI is a nonprofit public interest organization, headquartered in Washington, D.C., dedicated to analyzing the effects of government overregulation.  Since its founding in 1984, CEI has been involved in a number of regulatory issues such as energy policy, internet privacy, property rights, and health and safety regulation.  CEI’s activities range from publishing monographs and op-eds to conducting conferences, testifying at legislative and administrative hearings, and instituting litigation.  Many of our activities are described on our website, www.cei.org.

Government Regulations Are Often Susceptible To Misuse

By Businesses Seeking To Restrict Competition

While CEI is involved in a range of regulatory issues, one unifying characteristic of regulations has become clear to us:  even though regulations may be based on public interest considerations, they are frequently susceptible to abuse by businesses interested in promoting their own specific interests.  Such companies often accomplish this by using regulations to restrict competition, and especially to restrict new competitors.  In the area of food and drug regulation, for example, some companies may advocate rules that they can satisfy more easily than their competitors can.  In telecommunications, broadcasters have engaged in regulatory battles against satellite and low-power radio.  In automobile regulation, rules concerning fuel economy have been used as international trade weapons by car manufacturers against each other.

In economic terms, businesses misuse regulations to create what are known as “competitive barriers” or “barriers to entry”.  This phenomenon is so well-established that it is frequently treated in introductory economics courses.  In the words of one economics textbook,

“Regulation introduces another possibility [for profit].  Sellers can gain if competition in their market is restricted. … Regulation opens up an additional avenue whereby those most capable of bending the political process to their advantage can increase their wealth.”  J.D. Gwartney & R. Stroup, Economics (3d ed. 1982), p. 481.  (See also, for example, C.R. McConnell, Economics (10th ed. 1987), p. 711:  “While private cartels tend to be unstable and subject to breakdown …, the special attraction of a government-sponsored cartel under the guise of regulation is that it tends to be enduring.”)

Zoning Rules Are Especially Likely To Be Used To Restrict Competition

Zoning is far from immune to this abuse.  One of this country’s foremost experts on zoning, Dartmouth Professor William A. Fischel, has described how land use proceedings can be used by existing businesses to restrict the entry of new competitors:

“The chief opponents of development in such proceedings are often commercial competitors of the proposed development, whose protectionist motives are only thinly disguised by references to conservation and the environment.”  W.A. Fischel, The Economics of Zoning Laws, p. 225-26 (1985). 

Professor Fischel describes one case where a budget motel chain tried to open a motel in a commercial area at an interstate junction.  Id. at 226.  Its plans were opposed by an association of small motels in the area.  Even though there were already two large motels at that location, the association raised a barrage of claims regarding soil suitability and erosion.  The end result was that the discount chain gave up.  The real losers, of course, were the public. 

The danger of zoning being put to anti-competitive uses is reflected in the fact the control of competition is invariably viewed as an illegitimate goal of zoning.  In the words of one analyst, this is a

“’black-letter’ zoning principle.  Zoning enabling acts do not authorize the use of zoning ordinances to control competition as a direct purpose or goal of a zoning ordinance.”  S.L. Deutsch, “Antitrust Challenges To Local Zoning And Other Land Use Controls,” 60 Chicago-Kent L. Rev. 63, 71 (1984).  (See also 1 Anderson’s American Law of Zoning § 7.28 (4th ed., 1996): “Where courts have concluded that the main purpose of a zoning ordinance or decision is to regulate or restrict business competition, they have disapproved.  Such regulation is said not to be a proper purpose of zoning.”) 

The main victims of anti-competitive restrictions are consumers.  Consumers, unfortunately, are rarely in a position to actively oppose such restrictions.  They benefit from the stores that they patronize, but their interest in any one particular store is rarely strong enough to drive them to political action on its behalf.  For this reason, political disputes between established businesses and a new competitor are often one-sided affairs, with the scales tipped in favor of the former.

In the case of a new business, which may not yet have many customers or which may not even have opened for business, the likelihood of consumer support is even slimmer.  The fact that Dryclean Depot has attracted such support at this hearing demonstrates how much its customers value it, and how much they and others would lose if it were forced to stop operating.

The Major Impact Of The Proposed Amendment Would Be To Benefit The Public

The proposed amendment involves only a moderate change to the current zoning definition of personal service establishments.   As the Staff Comment notes, at issue are “retail oriented operations” in a profession where some new stores have grown larger in order to “provide services at a lower cost to customers.”  Staff Comment, p. 2.  Whether this trend will continue is an open question.  What is clear is that, regardless of what ultimately happens in the drycleaning business, consumers stand to benefit from this proposed amendment.

Respectfully submitted,

Sam Kazman

General Counsel

Competitive Enterprise Institute