Regulations show courts have duty to protect economic liberty

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If you thought that all it took to open a business in Wisconsin was a good idea, some seed capital and a location, think again.

Milwaukee, for example, ensnares prospective businesses in a complex web of red tape, and may prevent many from getting off the ground altogether. At the same time, the city is fleecing existing businesses to pay for its multimillion dollar economic development projects, which are really just corporate welfare that benefit politically connected businesses and the politicians who love them.

Those are among the findings of my new study, “Unhappy Days for Milwaukee Entrepreneurs.” The study chronicles the ways in which the city of Milwaukee and the state of Wisconsin make life difficult for small businesses and, as a result, threaten both entrepreneurship and the American Dream. Among other things, Milwaukee:

• Abuses the custom of aldermanic privilege to destroy promising businesses by denying them the licenses and permits they need when an alderman does not like the business or would prefer a different one.
• Rigidly restricts the ability of entrepreneurs to operate businesses from their homes. Milwaukee’s rules force everyone from candle makers to photographers to operate illegally from their home or move out of town.
• Imposes restrictions on food-related businesses that make it almost impossible for small entrepreneurs to start or expand their businesses. These are regulations that go well beyond any legitimate concern for public health and safety.
• Needlessly prevents would-be taxi drivers from owning their own cab and instead protects existing cabs from honest competition.
• Effectively prohibits most street vending entirely by requiring those who are allowed to vend to obtain at least five separate licenses.

Milwaukee not only makes it difficult to go into business, it makes it difficult to go out of business. The city requires a costly and burdensome license to tell the public your business is closing. Milwaukee kicks businesses when they are down by requiring them to complete an avalanche of paperwork (certified by a CPA) about their inventory, and then pay a sliding scale fee based on the duration of the sale, plus $2 for every $1,000 worth of inventory they seek to sell. This “failure tax” serves no public good other than providing a revenue stream for the city.

Many people today are complaining about out-of-control government regulation. They hear about the laws I’ve mentioned above, and many others, and are wondering how we got into a situation where the arm of the state extends into practically every aspect of life even though we have constitutions that are supposed to protect us from such governmental tyranny.

The source of the problem is obvious: Judges are refusing to judge. Courts – following the lead of the U.S. Supreme Court – have abdicated their constitutional responsibility of enforcing meaningful limits on government power; it is the role of judges to judge and strike down those laws and executive actions that go beyond their rightful authority. Unfortunately for small businesses across Wisconsin and the rest of the nation, judges have abandoned the field and instead now reflexively rubberstamp laws as long as government officials come up with any hypothetical reason for them. This lack of genuine judicial scrutiny puts a thumb on the scale in favor of the government when enforcing even the most ridiculous and unconstitutional limits on our economic liberty.

By way of comparison, in State v. Withrow (1938), the Wisconsin Supreme Court declared that “any person is at liberty to pursue any lawful calling, and to do so in his own way, not encroaching on the rights of others,” and that it was “beyond the police power” to suppress or prohibit “a business or occupation that is innocent in itself and has no effect necessarily injurious on the public welfare.”

In other words, it’s one thing to protect the public from trades or businesses that actually endanger the public. But government has no business putting layer after layer of unnecessary regulations, licenses, and fees on the backs of businesses, most of which are at best a way to protect consumers from themselves and at worst a revenue stream or governmental suppression of competition in certain trades.

My study of Milwaukee’s regulatory landscape perfectly illustrates the fallout from the judicial abdication of the responsibility to protect economic liberty. When local officials know they can get away with practically any form of regulation and it is unchallengeable in court, they will in fact ignore any principled or prudent limitations on their power, and we get a code book full of insane laws. The result of complying with these laws is that small businesses – both the backbone of the economy and the least able to handle the high costs of compliance – struggle to stay afloat, cut jobs, or go out of business altogether.

Legislatures have a role in policing themselves and correcting their own abuses, and the people should throw them out when they don’t. But courts in Wisconsin and around America need to rediscover their responsibility to engage in meaningful judicial review of government activity and ensure that it actually serves the public. They should apply a “presumption of liberty” and ensure that all regulations are enacted in accord with a legitimate purpose of government and are designed to achieve that purpose.

If courts once again take up this task, they will chasten local governments from enacting laws that violate our rights, and thus free the can-do spirit of Wisconsin’s citizen entrepreneurs to create jobs for themselves and their communities.

People today are clamoring for limited government and economic opportunity. Removing barriers to entry and needless red tape are the surest paths to achieve both.

The full report is available here (PDF).

Jason Adkins is a staff attorney at the Institute for Justice Minnesota Chapter. The Institute for Justice litigates in the areas of economic liberty, private property rights, education choice and freedom of speech.