State shouldn’t limit the number of licenses
IMAGINE A land where there are no restaurants. Someone comes up with the bright idea of allowing folks to sell meals to others and, after much debate, the government says it might permit this to happen. Before it does, though, it tasks some bureaucrats with the job of deciding who should be allowed to operate these new places. The officials put together a complicated set of requirements, hundreds bid and, after many months, the government announces it has picked 20.
That’s 20 restaurants in a land of 6.6 million.
The winners are delighted, the losers — sore, of course — complain about political favoritism. The restaurants are hugely popular, with long lines and such high demand that they can charge almost any price they want. And, of course, with a stranglehold on this new-fangled restaurant business, the lucky 20 are vigilant in making sure no new restaurants are allowed to open. Consumers need to be protected, they say, although some suspect that the real reason is they don’t want new competition to threaten their sky-high profits.
Fanciful? Hardly. This happens all the time, be it with taxicabs, alcohol licenses, casinos, or, most recently, medical marijuana treatment centers. Massachusetts’ 2012 medical marijuana law allows just 35 such dispensaries in the state (after a year, the government has the discretion to permit more; don’t count on that happening). Out of 159 applications, the Department of Public Health recently selected 20 operators and, predictably, cries of cronyism and unfairness have erupted. At the center of the objections is former congressman and Norfolk district attorney Bill Delahunt. Delahunt’s name appeared on three applications, and he and the members of his team had multiple close relationships with regulators granting the licenses. And, lo and behold, all three applications were approved.
Much of this may be smoke, but it sure is unseemly, especially since it turns out that Delahunt won’t be running the dispensaries. That honor goes to a relative unknown from California, leaving the impression that Delahunt was just window dressing. My guess, too, is that we’ll hear a lot more allegations of misdeeds. It’s the nature of the beast.
And the beast, in this case, is not the appearance or actuality of corruption, but the licensing system itself. There’s a simple principle at play: The government should not be limiting the number of people who can participate in a market. If you want to start a business and as long as you comply with basic regulations affecting health, safety, and fair business practices, you should be allowed to do so.
We see this all the time with any manner of common businesses, be they restaurants, retailers, manufacturers, or service providers. There’s no limit on the number of clothing stores in a city or town, for example. There can be one or hundreds, spread out or next to each other. As long as the clothing stores comply with the rules — pay minimum wage, for instance, or post prices clearly — then no one else gets involved. That’s the way free enterprise works.
But there are numerous exceptions. Most municipalities put strict controls on the number of taxicabs they permit (so strict that they’ve given rise to new businesses such as Lyft and Uber). Boston is only allowed 650 restaurant liquor licenses, far fewer than demand, which is why the licenses trade for about $400,000. Massachusetts’ hesitant experiment with casinos will permit exactly three — spaced carefully around the state. And the marijuana dispensaries face similar restrictions on numbers and geography — no matter how much the demand.
None of these rules make sense. Because they limit competition, they create oligopolies, driving up costs to consumers even as they reduce supply. The pot shops rules are exceptionally restrictive. They have to be nonprofit, for example. And they can only sell pot.
A better approach would have been to allow anyone — for profit or not — to sell cannabis. Indeed, the most logical medical marijuana retailers would be local pharmacies — CVS, Walgreens, and numerous independents. They manage supply chains, know how to securely handle all manner of medications, and monitor patients’ drug intakes. It’s their business. Bill Delahunt? I’m pretty sure he’s never filled a prescription.
This column originally appeared in The Boston Sunday Globe on February 16, 2014.