Why Crony Capitalism Doesn’t Work

September 24, 2012

In 2002, the Seattle city government changed its code to ban small companies from transporting construction waste and the like. In making the change, Seattle contended that the market had to be closed to competition from nonunion businesses so it could ensure that the public health and safety were protected. With a stroke of a pen, the government insulated all but two large corporations from competition and made illegal all other businesses that had been successfully operating in the market. With the help of the Institute for Justice Washington Chapter, two small business owners sued, arguing that Seattle’s actions constituted economic favoritism in violation of the Privileges or Immunities Clause of the Washington Constitution. But their challenge fell on deaf ears and a majority of the Washington Supreme Court decided that hauling waste is a “government service” and that constitutional protections do not apply to government-provided services. The dissenting justices warned that the court’s decision advanced an “unholy alliance between the government and big business, which ultimately not only disserves the excluded businesses but also the public in general.”

How right they were.

Examples of this “unholy alliance” abound. Take the case of Institute for Justice client Hector Ricketts, who wished to operate a commuter van in New York City. At the behest of the public transportation union, the New York City Council vetoed virtually all new commuter van licenses. And for the lucky few with licenses, arbitrary regulations forbade vans from providing timely and convenient service. When faced, however, with a massive public transit strike in the early 1980s and then with a taxicab strike in the late 1990s, commuter vans like Hector’s mobilized to rescue the city’s transportation system from grinding to a halt. Thanks to IJ litigation, Hector and other operators at last had their day in court and vindicated their right to earn an honest living. But other similar arbitrary, government-imposed-and-enforced monopolies remain to this day to the detriment of would-be entrepreneurs and consumers alike.

When courts fail to enforce constitutional limits on government power, we are left to rely on the self-restraint of public officials. But experience has shown that this is no restraint at all and it leads to the inevitable loss of freedom and the proliferation of laws that protect the politically connected.

In Seattle, as waste haulers walked out on strike and all other service providers were banned, the public was right to question how this system of crony capitalism advances anyone’s health or safety. Something definitely stinks—and this time it’s not just the garbage.

Jeanette Petersen is an IJ Washington Chapter attorney.

Subscribe to get Liberty & Law magazine direct to your mailbox!

Sign up to receive IJ's bimonthly magazine, Liberty & Law, along with breaking news updates about the Institute for Justice's fight to protect the rights of all Americans.