Group targets obstacle to entrepreneurship: unnecessary licensing

There are regulations that protect the public, like the kind that say you can’t store cleaning solutions next to raw chicken in a restaurant kitchen. Then there are those that create overly onerous barriers for entrepreneurs looking to enter a particular profession, according to the Institute for Justice, a law firm with a libertarian bent.

Lee McGrath, executive director of the Institute’s Minnesota branch, refers to the latter category of regulation as “fencing,” since it often serves to protect existing businesses and may not benefit public safety.

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“This is just deadly for entrepreneurs,” McGrath said. “You see this all over the place, because existing companies find it easier to beat competition at the state capitol or city council than in the marketplace. Regulation is often introduced and enacted under the pretext of health and safety, but it has enormous anti-competitive components to it.”

As part of our “One Job at a Time” project, Ground Level has spent the past week looking at entrepreneurism in Minnesota, including obstacles like access to startup capital and, for new immigrants, language and cultural barriers. Regulations can also get in the way. We’ve seen how the recent loosening of state and local laws has led to an explosion of local food carts and microbreweries.

In the past, the Institute for Justice has represented local taxi drivers and succeeded in lifting a cap on the number of cabs in Minneapolis, which resulted in a proliferation of both new companies and cabs, said McGrath. The group also represented sign hangers, horse teeth “floaters” or sanders and monks who make caskets. They’ve won some and lost some. “We focus on that first rung of economic liberty,” said McGrath. “This is how you climb out of poverty and realize the American dream.”

He holds up hair braiders as a prime example. The institute sued the state of Minnesota in 2005 on behalf of three hair braiders, two from Africa and one from North Minneapolis. The women wished to open a salon, but the state said they had to get extensive cosmetology training, costing thousands of dollars and having little if anything to do with hair braiding.

“The state threw in the towel in 2006,” McGrath said. “The hair braiders were free. The cosmetology board in a spiteful move came back the following year and imposed a licensing requirement of 30 hours. We chose not to challenge that.”

McGrath’s arguments contain an unusual mix of free market ideology and concern for social justice. “What happens is, regulations reward those with wealth and political connections,” he said, and wind up costing thousands of jobs in Minnesota and driving up consumer prices due to a lack of competition. He thinks the market, rather than licensing, is best at ferreting out frauds and incompetents. “Denny Hecker was a licensed auto dealer,” he said.

Currently, the institute represents a St. Paul funeral home owner who wants to open a second location, but is being required by the state to build an embalming room, even though that service can be legally outsourced.

“There is a vibrant trade of third party embalmers,” said McGrath, who notes that the funeral home provides low cost, no frills funeral services and spending “$30,000 to $50,000 to build the embalming room with all the piping and air and filtration” would be difficult. He thinks the case could go to trial in a year and is optimistic the funeral home will prevail. “We do feel very good about it. We have a terrific client.”

The institute also is working on a bipartisan bill in the state Legislature that would make it harder for the state to impose new licensing requirements. “The idea is that when the Legislature is considering new occupational regulations, they must define real harm,” said McGrath. “Not the hypothetical type. Second, once you have identified real harm, you must choose the least restrictive type of regulation to address the harm.”

The legislation, McGrath said, “could have a big effect because it will create almost as many jobs as Governor Dayton is talking about when he talks about the bonding bill or creating a new stadium. This could be tremendous economic stimulus.”

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