Friday, September 5, 2014

Paul Larkin: Co-opting the criminal justice system for anti-competitive purposes

  Most people assume that legislatures pass criminal laws to benefit the public, and most of the time, they are right. Statutes outlawing murder, rape, robbery, and the like protect all of us against a small number of ruffians who would do us harm.

  But not every statute has that goal. Some protect favored sons and daughters at the expense of the public. When that happens, everyone — except certain cronies — loses.

  Businesses are not charitable enterprises. If left to their own devices, some would fix prices, lower output, and exclude rivals in order to maximize their profits. What stops them from doing so are the federal antitrust laws, which outlaw such naked efforts to restrain competition. The Justice Department and private parties can sue firms for their anti-competitive conduct, which protects the public in the process.

  Yet, legislators have favorites and oftentimes pass law to protect the chosen few. A recent article in The Hill quotes Stuart Shapiro, a former staffer at the White House’s Office of Information and Regulatory Affairs, as noting: “We can’t underestimate the role politics plays in regulatory decisions. It’s important to remember that at the heart of regulations are political decisions.”

  At the federal level, sugar price supports are a classic example of the government’s exercise of regulatory power to benefit the sugar cartel. A trade law that bans or caps importation of certain goods — cars, food, etc. — is another example of cronyism, this one favoring domestic industries. New environmental regulations may “grandfather” existing facilities, leaving only new entrants into an industry to bear the added costs. All such laws protect a small number of businesses against competition, which raises prices for consumers.

  What aggravates that problem is that legislators often use the criminal law to protect cronies against competition. Lawmakers try to protect their favored sons and daughters — or campaign contributors — by taking advantage of the public’s respect for the criminal justice system. Adding criminal statutes to a civil regulatory scheme allows legislators to cash in on the leverage that a criminal investigation enjoys with the public and the media.

  That practice also makes for great reality TV. Law enforcement officers radiate a unique nimbus, and FBI agents wearing “raid jackets” emblazoned with the Bureau’s logo will receive far more respect from the public than civil inspectors will. The prospect of being “raided” also will far more effectively scare off competition than the risk of any civil enforcement action ever could.

  Local licensing schemes are an especially pernicious example of using the criminal law to protect cronies. Local ordinances often restrict entry into certain lines of work unless a potential entrant satisfies one or more sometimes irrational requirements in order to be deemed qualified to offer a particular service.

  Consider these examples: legislation requiring a license to practice interior design, to become a barber or manicurist, or to style hair; a statute requiring a license to sell floral arrangements; or a law requiring that a company that manufactures caskets must also be a licensed funeral director in order to sell that product.

  It is reasonable to ensure that only qualified parties can diagnose disease, prescribe medication or perform surgery. But it is difficult to understand why someone needs “a minimum of 1,200 hours of training” as a barber before he or she may cut someone’s hair. Such restrictive laws ostensibly exist to protect the public welfare against quacks, but their true rationale is cronyism.

  Statutes prohibiting someone from working as a barber without first having undergone thousands of hours of education and training cannot be defended on the ground that, like surgeons, barbers must prove that they can handle a sharp implement. Parents have cut their children’s hair for centuries without needing any education or training at all. Protectionism is the only rationale for those laws.

  The bottom line is this: Not all crimes are alike. The public should be wary when the government uses the criminal law to regulate the economy. Legislators may simply be using the criminal law to protect their friends. Legislation like that is not only bad public policy; it is shamelessly dishonest.

  About the author: Paul J. Larkin Jr., is a senior legal research fellow in the Heritage Foundation’s Edwin Meese III Center for Legal and Judicial Studies.

  This article was published by The Heritage Foundation.

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