Certificate of Necessity Laws Hamper Economic Growth

July 6, 2011

When a St. Louis businessman decided to expand his moving business to operate throughout the state of Missouri, he thought it would be a simple matter of paperwork.  After all, he already held a federal license allowing him to move goods across state lines.  But when he filed his application, he discovered that, under a 70-year-old state law, officials in Missouri's Department of Transportation were required to notify all of the state's existing moving companies and allow them the opportunity to object to his application, says Timothy Sandefur, a principal attorney at the Pacific Legal Foundation.

  • When four of them did file objections, department officials offered the choice of withdrawing his application or appearing at a public hearing where he would be required to prove that there was a "public need" for his moving business.
  • The law is not clear on how exactly he would do this -- "public need" is not defined, nor are there any rules of evidence or procedure in the statute.
  • And even if he managed to prove a "public need," the department would take anywhere from six months to a year to make a final decision

Bizarre as this law might seem, it is only one of dozens of such requirements, generally called "certificate of necessity" (CON) laws, that exist across the country, governing a variety of industries, from moving companies and taxicabs to hospitals and car lots.  A legacy of the early 20th century, CON laws restrict economic opportunity and raise costs for products and services that consumers need.  Unlike traditional occupational licensing rules, they are not intended to protect the public by requiring business owners to demonstrate professional expertise or education.

CON restrictions unfairly favor entrenched private interests, increase the cost of living for consumers, destroy economic opportunity for the most vulnerable entrepreneurs, and in the case of hospitals, threaten Americans' very lives, says Sandefur.

Source: Timothy Sandefur, "CON Job," Cato Institute, Summer 2011.

For text:

http://www.cato.org/pubs/regulation/regv34n2/regv34n2-1.pdf

 

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