Politics & Policy

The Scourge of Domestic Protectionism

A doctor gestures to an MRI image at St. Joseph Mercy Ann Arbor hospital in Ypsilanti, Mich., in 2012. (Rebecca Cook/Reuters)
Laws that burden consumers for the benefit of entrenched economic interests are widespread.

Governments, seemingly eager to supply their critics with ammunition, constantly validate historian Robert Conquest: The behavior of any bureaucratic organization can best be understood by assuming that it is controlled by a secret cabal of its enemies. Consider North Carolina’s intervention in the medical-devices market.

Born in India, Dr. Gajendra Singh is an American citizen and a surgeon in Winston-Salem who wants to supply something useful for which there is a strong demand. North Carolina’s government is, however, an almost insuperable impediment to his doing so.

Singh runs a medical diagnostic-imaging center where patients can get X-rays, echo-cardiograms, ultrasounds, and CT (computed tomography) scans. It cannot, however, be a full-service center without an MRI (magnetic resonance imaging) machine, and local hospitals offering MRIs are averse to competition.

Americans with high-deductible insurance plans — which are increasingly prevalent — especially need low-cost diagnostic services. The median Winston-Salem household income is about $40,000. The average MRI scan at a North Carolina hospital costs $2,000. Singh charges $500-$700 for the MRIs he does using rental machines that the state’s harassing law requires to be moved once a week. Singh wants to buy an MRI machine. North Carolina, however, has a “certificate of need” (CON) law, requiring Singh to prove to the Soviet-style central planners in the state government that Singh’s area needs another machine.

Such state and local CON laws proliferated in the 1970s as the federal government began pouring money into health care, and government-funded hospitals tried to protect their revenue streams. Just for the privilege of submitting an application to buy an MRI, Singh would have to pay a nonrefundable $5,000 fee and be prepared to spend $400,000 (lawyers, consultants, economists) to surmount the opposition of determined competitors. The only two providers of fixed (not mobile rental) MRIs in Singh’s county are at two multibillion-dollar hospitals.

Fortunately, Singh has the support of the Institute for Justice’s litigators, who are wielding on his behalf four provisions of North Carolina’s constitution: First, “Perpetuities and monopolies are contrary to the genius of a free state and shall not be allowed.” Second, “No person . . . is entitled to exclusive or separate emoluments or privileges.” Third, “No person shall be denied the equal protection of the laws.” Fourth, Singh has a due-process right to participate in the health-care market without arbitrary, irrational impediments.

There are states where aspiring entrepreneurs must pay (application fees, lawyers) just to try to surmount the opposition of established businesses in order to get a CON entitling them to open a car dealership, operate a moving company, run a food truck, or enter other areas of enterprise. And the audacity of economic interests clamoring for government protection from domestic competition seems to be increasing as the Trump administration, with tariffs and import quotas, practices crony capitalism to protect favored industries and companies from foreign competition.

For example, this month a federal court — following the example of other courts that have swatted aside cases from Boston, Chicago, Philadelphia, and Georgia — unanimously rejected this preposterous argument from Miami-Dade County (Florida) taxi owners: The U.S Constitution says private property shall not be taken for “public use” without just compensation, so they should be compensated because the government has permitted ride-sharing services (e.g., Uber and Lyft) that have substantially reduced the value of the owners’ taxi medallions. Governments sell medallions and keep them scarce in order to keep prices high for the benefit of the government and past buyers.

Displaying heroic patience in the presence of meretriciousness, the court explained that the government had not given the medallion owners an entitlement to protection from competition. As a federal judge said in a similar case, “A license to operate a coffee shop doesn’t authorize the licensee to enjoin a tea shop from opening.”

There are three important lessons from North Carolina’s CON mischief. First, domestic protectionism that burdens consumers for the benefit of entrenched economic interests (e.g., occupational licensing that restricts entry to professions for no reason related to public health and safety) is even more prevalent and costly than are tariffs and import quotas that interfere with international trade. Second, the sprawling, intrusive, interventionist, administrative state — a.k.a. modern government — that recognizes no limits to its competence or jurisdiction is inevitably a defender of the entrenched, and hence a mechanism for transferring wealth upward. Third, only courts can arrest the marauding of the political class when, with unseemly motives, it pretends to know more than markets do about society’s needs.

 © 2018, Washington Post Writers Group

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