Insiders, Outsiders and the American Dream: How Certificates of Necessity Harm Our Society’s Values

46 Pages Posted: 31 Aug 2011 Last revised: 18 May 2012

Date Written: August 31, 2011

Abstract

Unlike traditional occupational licenses, Certificate of Necessity (CON) laws are not meant to protect consumers or the general public by requiring practitioners of a trade to demonstrate expertise or education. Instead, their purpose is to restrict competition and boost prices established companies can charge. This cartel system prevails in most states and in a variety of industries, from moving companies to taxicabs to hospitals and car lots.

CON laws restrict economic opportunity for entrepreneurs, and raise costs for products and services that consumers need, simply to protect existing businesses against legitimate economic competition. They have accordingly been subject to powerful economic critiques. In particular, although originally devised to regulate markets that were considered public utilities or natural monopolies, CON laws quickly spread to encompass industries where healthy competition was the norm, with perverse economic consequences. In this paper, however, I want to address a broader question: in addition to their economic havoc, I want to discuss the deleterious effects that CON restrictions have on citizenship values and social philosophy. I will address the moving industry in particular – a trade that differs from some of the other industries subjected to CON restrictions, because it has none of the features often taken as indicative of natural monopolies: it has relatively low start-up costs (a truck, insurance), and low overhead, and it offers entry-level opportunities to unskilled laborers. But a similar critique could apply to any of the many industries subject to CON requirements. Whatever their justification when applied to alleged monopoly markets or public utilities, the use of CON laws in these competitive, entry-level industries imposes major social and moral costs – infringing the individual liberty of, and denying economic opportunity to, precisely those people who most need meaningful constitutional protection. Thus after a brief summary of the history of CON regulation in Part I, I explain in Part II why they violate critical social values of equality, publicness, and individual liberty. In Part III, I contend that CON restrictions are unconstitutional under the Fourteenth Amendment because they serve well-connected private interests, and are thus “naked preferences” that violate the due process and equal protection clauses.

Keywords: occupational licensing, certificate of necessity, certificate of need, public convenience and necessity, public choice, entrepreneurialism, bourgeois values, economic liberty, Lochner, New State Ice v. Liebmann

Suggested Citation

Sandefur, Timothy, Insiders, Outsiders and the American Dream: How Certificates of Necessity Harm Our Society’s Values (August 31, 2011). Notre Dame Journal of Law, Ethics and Public Policy, Vol. 26, pp. 381-426 (2012).. Available at SSRN: https://ssrn.com/abstract=1920551

Timothy Sandefur (Contact Author)

Goldwater Institute ( email )

500 E. Coronado Rd.
Phoenix, AZ 85004
United States
(602) 462-5000 (Phone)
(602) 256-7045 (Fax)

HOME PAGE: http://www.goldwaterinstitute.org

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