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June 24th, 2017

Insight

A strike against rent-seeking

George Will

By George Will

Published Jan. 1, 2015

A strike against rent-seeking

Mighty oaks from little acorns grow, so last year's most encouraging development in governance might have occurred in February in a U.S. district court in Frankfort, Ky. There, a judge did something no federal judge has done since 1932. By striking down a "certificate of necessity" (CON) regulation, he struck a blow for liberty and against crony capitalism.

Although Raleigh Bruner's Wildcat Moving company in Lexington is named in celebration of the local religion — University of Kentucky basketball — this did not immunize him from the opposition of companies with which he wished to compete. In 2012, he formed the company, hoping to operate statewide.

Kentucky, however, like some other states, requires movers to obtain a CON. Kentucky's statute says such certificates shall be issued if the applicant is "fit, willing and able properly to perform" moving services — and if he can demonstrate that existing moving services are "inadequate," and that the proposed service "is or will be required by the present or future public convenience and necessity."

Applicants must notify their prospective competitors, who can and often do file protests. This frequently requires applicants to hire lawyers for the hearings. There they bear the burden of proving current inadequacies and future necessities. And they usually lose. From 2007 to 2012, 39 Kentucky applications for CONs drew 114 protests — none from the general public, all from moving companies. Only three of the 39 persevered through the hearing gantlet; all three were denied CONs.

Bruner sued, arguing three things: that the CON process violates the Constitution's equal protection clause because it is a "competitors' veto" that favors existing companies over prospective rivals; that the statute's requirements ("inadequate," "convenience," "necessity") are unconstitutionally vague; and that the process violates the 14th Amendment's protections of Americans' "privileges or immunities," including the right to earn a living.

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. Timothy Sandefur of the Pacific Legal Foundation notes that this involves what Friedrich Hayek called socialism's knowledge problem: For government to supplant markets in the efficient allocation of wealth and opportunity, governments must have infinite information to make them clairvoyant.

Writing in George Mason University's Civil Rights Law Journal, 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. In many cities today, Uber and other ride-sharing businesses are challenging the mutually remunerative alliances between elected officials and taxi cartels. The result is a riot of rent-seeking as entrenched interests construe judicial passivity as permission to stifle competition.

Since 1938, courts have — without justification from the Constitution's text or structure — distinguished between rights deemed "fundamental" and others pertaining to economic life. Courts have permitted any limitations on the latter that could be said to have a "rational basis," even if courts had to imagine a rationale that legislatures had neglected to enunciate.

This led, unsurprisingly, to cynicism, as when, in 2004, the 10th U.S. Circuit Court of Appeals upheld an Oklahoma law forcing online casket retailers to have funeral director's licenses, which involve expensive, time-consuming requirements. The court did not even feign interest in finding a reasonable basis. Instead, it breezily asserted that although this law obviously was protectionism for funeral directors, "dishing out special economic benefits" — and, the court neglected to mention, inflicting injuries on aspiring entrepreneurs and on consumers — "is the favored pastime" of, and a prerogative of, state and local governments.

Judicial tolerance of CON laws is a result of judges embracing the "rational basis" excuse for retreating from judging. Such judges are either confessing that they cannot fathom basic political processes or they are saying that they cannot trust themselves to recognize brazen, unapologetic rent-seeking when they see it. It is, however, possible to hope that what happened in Kentucky is a harbinger of judges returning to judging, thereby doing something rare in government — rethinking a wrong turn.

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