State "Competitors's Veto" Laws and the Right to Earn a Living: Some Paths to Federal Reform
Originally published in Harvard Journal of Law and Public Policy
Occupational licensing is a major burden on economic liberty. It raises prices, restricts consumer choice, and deprives countless Americans of their right to earn a living for themselves and their families—often for no better reason than to enrich existing, politically influential firms. Among the worst of such abuses is the certificate of public convenience and necessity law, which does not even purport to protect the consumer against dangerous business practices or against incompetent or dishonest practitioners, but is explicitly designed to prevent economic competition.
The certificate of public convenience and necessity (CPCN) is a type of licensing requirement devised in the nineteenth century that today applies to a wide variety of industries. Unlike other types of licensing laws, CPCN requirements do not impose educational or training criteria on persons seeking to enter an industry. Instead, CPCN laws block any new firms from operating unless they can prove to the licensing agency that new competition is in “the public interest,” or some similar criterion. Although originally devised for the railroad industry,1 CPCN requirements today regulate taxicabs, limousines, moving companies, ambulances, and even hospitals and nursing schools.2
When first devised, the economic theory behind these laws was that under certain circumstances economic competition could be “inefficient” or “destructive,” and therefore government should prevent “excess entry” into the market. But CPCN requirements are now employed to restrict entry into ordinary, competitive markets that lack the characteristics of markets theoretically at risk for “excess entry.” Given that CPCN laws do not restrict, or even purport to restrict, dangerous or dishonest business practices—which are addressed by different laws—CPCNs in these ordinary markets cannot be explained as regulation in the public interest. Instead, they are better explained by public choice theory: CPCN laws are tools by which incumbent firms bar competition for self-interested reasons. These laws enrich existing businesses by restricting the supply of services, raising prices for consumers, and—worst of all— depriving would-be entrepreneurs of their constitutional right to earn a living without unreasonable government interference. In the 1980s, the federal government rolled back many CPCN requirements at the national level, with a resulting boost to economic productivity and decrease in prices.3 Other countries report similar benefits from deregulation.4 But CPCN laws remain on the books in many states and municipalities and they are rarely called to account for their economic consequences or for their constitutional legitimacy.
Until recently it has been difficult to demonstrate the precise effects of CPCN laws because while they have been the subject of extensive theoretical literature, there has been little empirical research on the effects of these laws in ordinary competitive markets.5 But in February 2014, the United States District Court for the Eastern District of Kentucky held that the state’s CPCN law for moving companies violated the Fourteenth Amendment because it deprived entrepreneurs of the right to engage in the moving trade without being in any way related to protecting public health, safety, or welfare.6 The evidence uncovered during that litigation—like evidence revealed in a similar case in Missouri in 20127—shows how CPCN laws actually operate and demonstrates the need for reform that will not only improve living standards by reducing unnecessary barriers to entry, but also better secure the vital constitutional right to economic liberty.
This article begins by discussing the historical and legal framework of that right and the constitutional doctrine that today governs the states’ authority to restrict economic liberty. It then examines the effects of CPCN laws on moving companies in Kentucky and other states, and how deregulation in the 1980s helped curtail similar abuses at the federal level. The article concludes with a brief sketch of possible reforms and potential federalism-based objections to those reforms.