Tuesday, December 14, 2010

When Government Kills Commerce

Two examples from New Orleans.

In one case, we have planned government subsidization of a single private development actually keeping all economic development out of New Orleans East.

In another case, we have the byzantine maze of city permits and contracts stifling a burgeoning and dynamic homegrown industry.

In the first case, city government wants to help direct development to an underserved community. They promise tax breaks and public investment in a private enterprise. A successful deal would bring jobs and businesses to a specific area, but an incredible return on investment will be seen by the primary developers. Those developers will be insulated from market factors by the city and state governments' subsidization. Those developers' competition will have a weaker hand, and are less likely to invest in that area, because they do not have the same insulation from market disadvantages.

(Though I'm sure they qualify for continuation of the Bush tax cuts, as they existentially "create jobs"....)

Knowing the government will be willing to offer more robust insulation the longer the citizens of the area go unserved, the developer is free to postpone and renegotiate deals for the property for as long as they choose. It is only natural to get the most out of a deal as possible, and there is no reason to factor in the needs or desires of others. The developer owns the most valuable property - the property where the government would like development to happen - so they set the terms of the negotiation. Competition will wait on this deal before moving.

In this instance, government behavior stifles competition, freezes out economic development, and subsidizes one private enterprise with tax dollars collected from citizens who may not patronize this private enterprise AND this private enterprise's competitors. That is not the way a free-market behaves.

The second case is how well intentioned government regulation can stifle economic dynamism and the creation of new industries. Part of this is unintended consequences and part of this is a cover charge for access.

Food trucks make sense in New Orleans. You have an all-night city with a lack of all-night eateries, high cost of property, high walkability, a high number of ad hoc neighborhood festivals and events, a high number of spontaneous events, and a local population with intricate palates. Food trucks are the very definition of the "movable feast" that means so much to New Orleanians. They create commerce and jobs and sales tax with a kind of flexibility necessary to maximize return on investment in a economically and geographically risky city with a dynamic event calendar.

They are nothing short of a win-win-win scenario, but city ordinances are set up and enforced to keep this industry from developing. While operators are free to pay the city for the required permits to operate, they recieve hassle on the enforcement end.

Now, I understand the need for health codes and parking ordinances as much as the next guy - I just wonder why the rules aren't clearly stated when you apply for a mobile food vendor permit. I wonder why enforcement personnel are able to ticket and shut down operations at whim, even if permits have been acquired. I wonder how much of this enforcement originates with fixed-location restaurants unhappy with mobile "competition" (even though they are usually not competing for the same clientele). I wonder how a 1972 law can remain on the books keeping food vendors from our two most high-density neighborhoods.

(Full disclosure - I had an unhappy run-in with "carnival season food vendor inspectors" one year. Despite all three appropriate permits -and- despite setting up on the property where the fixed restaurant is located, the place recieved three or four seperate visits by varied and nebulous enforcement personnel and constabulary authorities who obviously wanted to shut the place down. On the final visit, they were able to cite a yet unheard of fourth permit requirement to justify shutting down the sale of food. I leant a hand as my friends who worked at the place moved the operation inside the physical building of the restaurant - a whole 20 feet away.)

In the second instance, government behavior stifles innovation, adds uncertainty and risk to new enterprises, thus slowing economic development, artificially limits commerce and does not get maximum utility out of civic and cultural infrastructure. That is also NOT how a free market behaves.

We hear a lot about how the Federal government limits our nation's economic liberty or is 'usurping power' or whatever. But the point I make, again and again, is that the governments that control most of your life and taxes - and are the ones you can exert the most control over - are the ones much closer to you than the government in Washington, D.C.

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