Minnesota Ends Use of Anti-Competitive Test In Licensing of Commercial Vehicles

J. Justin Wilson
J. Justin Wilson · March 2, 2010

Minneapolis—It just got easier to open a new transportation company across Minnesota. Last night, Brainerd became the final Minnesota municipality to end its use of an anti-competitive regulation that limits the supply of commercial vehicles. By a vote of 6-0, Brainerd’s City Council repealed its Public Convenience and Necessity test from its taxi ordinance. In doing so, it closed the chapter on years of economic discrimination in which state law and municipal ordinances allowed existing companies to protect their markets by blocking license application from would-be competitors in the trucking, household goods moving and taxi industries.

“Today entrepreneurs across the state are free to start businesses without facing government-enforced roadblocks that have long-protected existing transportation companies from competition,” said Lee McGrath, executive director of the Institute for Justice Minnesota Chapter, a public interest law firm that has been instrumental in advancing economic liberty. “Consumers benefit when the government stops limiting competitors in local and statewide markets.”

The public convenience and necessity test has been used by state and federal governments for 140 years. States first used the test in 1870 to limit competition for the benefit of railroad barons. Railroads required large amounts of capital and state government provided regulatory protection to ensure investors’ return. The federal government first used the test in 1920 to attract private buyers of the railroads it nationalized in 1917.

In the 1940s, the City of Minneapolis adopted the public convenience and necessity test for taxis when then-Mayor, Hubert H. Humphrey, capped entry into the city’s taxi business. In 1957, the State of Minnesota enacted statutes that included the test to limit the number of common carriers including livestock carriers and household good movers.

More recently, the State of Minnesota and one municipality after another repealed their discriminatory regulation. In the 2006, the City of Minneapolis stopped allowing a cartel of taxi owners to block new competitors from entering the market when the city ended using the test and began a five year phase-out of its cap on taxi licenses. A year later, the State stopped using the test in its regulation of household goods movers. In September 2009, the City of Bloomington repealed the test from its taxi licenses. Last night the City of Brainerd ended the last use of the test in any transportation regulations in Minnesota.

“The consensus of transportation economists is that increasing the number of licenses results in good things for consumers including lower prices, more service, more innovation and higher quality,” said Professor Jeremiah Fruin of the University of Minnesota, Center for Transportation Studies. “Restricting the number of licenses by applying anti-competitive tests serves no legitimate public purpose.”

Founded in 1991, the Virginia-based Institute for Justice is a national public interest law firm that represents entrepreneurs nationwide who are fighting to defend their right to economic liberty.