Recession is no time to restrict competition and jobs

It's great when common sense prevails. Take for example Minneapolis' repeal of anti-competitive laws that blocked employment opportunities -- something in short supply today -- and caused consumers to pay higher prices for services.

That common-sense effort just received endorsement by a unanimous judicial ruling. The Eighth Circuit U.S. Court of Appeals this week upheld the constitutionality of Minneapolis' effort to open its taxi industry to competition.

Starting in 2006, the city began allowing for more competition and more jobs by lifting the cap on the number of taxis that can serve the public. Minneapolis' action followed similar efforts by the Metropolitan Airports Commission, St. Paul and Duluth in the past few years.

In opening its market to competition, Minneapolis freed entrepreneurs who for years had been shut out by regulations that capped the number of regular licensed taxis at 343 -- an arbitrary figure imposed by the city. Immediately after the reforms became official in 2007, the established taxicab companies -- which benefited from the cap -- filed a lawsuit to maintain their hold on the market.

Those companies contended that allowing new companies to compete was an unconstitutional "taking" because it removed a government-granted monopoly, and eliminated the value of the licenses they had purchased in a secondary market created in response to the cap.

They had withstood such challenges before. As far back as 1984, efforts had been made to end the anticompetitive and collusive market for transportation services in Minneapolis. Those efforts included a lawsuit by the Federal Trade Commission, and successive legislative pushes for reform during the 1990s.

Yet as late as 2006, the city continued to enforce the arbitrary 343 taxi cap, keeping out new competition. Compared to cities like Boston and St. Louis, that have approximately one cab for every 300 residents, the Minneapolis market was closer to one cab per 1,000 residents.

Finally, in 2006, the City Council broke the industry's grip and acted to correct this injustice. Mayor R.T. Rybak signed into law reforms that opened the market to entrepreneurs who are fit, willing and able to serve the public. The reforms were finalized in 2007.

In this week's opinion, the U.S. Court of Appeals unanimously ruled that taxi licenses do not "provide an unalterable monopoly over the Minneapolis taxi market," and that governments can deregulate free from constitutional concerns.

More specifically, in rejecting the existing cab companies' "takings" argument, the court further held that the "property interest that the taxicab-license holders may possess does not extend to the market value of the taxicab licenses derived through the closed nature of the city's taxicab market."

This is an important ruling, because it empowers the state and local governments to deregulate occupations that have long benefited from rules that block entry into occupations under the guise of protecting health and safety.

Research by Prof. Morris Kleiner at the University of Minnesota reveals that approximately 35 percent of workers are subjected to occupational licensing regulations -- nearly three times the 12 percent of workers who belong to unions. In Minnesota, occupational regulations affect service providers from lawyers to plasterers to those who transport frogs.

These requirements shrink the supply of jobs by restricting entry into professions. That reduction in supply is estimated to cost Minnesota consumers an extra $3 billion a year in higher prices.

Minneapolis deserves credit for deregulating its taxi industry. If the state and other municipalities follow Minneapolis' lead, the benefits of opening markets will only grow.

In any economic climate, the proper role of government is to protect our rights, not merely to look after the monopoly profits of a chosen few. Now is the time to expand that lesson, reinforced by this week's opinion, and create openings for entrepreneurs in other occupations who seek no government bailout, but merely the opportunity to compete.

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Lee McGrath is the executive director of the Minnesota Chapter of the Institute for Justice, which describes itself as the nation's only libertarian public interest law firm. The organization joined with the city of Minneapolis to defend opening the taxi market.

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