Racial Impacts and Business Regulations
14th October 2010
The lesson of public choice theory is that when government can redistribute wealth or opportunities, that power will fall into the hands of politically well-connected groups, who use it to their own advantage at the expense of less favored groups.
Even where a licensing law lacks a hidden racist motive, of the sort that the law in Yick Wo had, it often has a racially disproportionate effect. In 1996, a federal court in San Diego held it unconstitutional for the state of California to require African hair-braiders to obtain licenses as beauticians. The licensing requirement forced applicants to study many hairstyles that couldn’t even be performed on black customers! In fact, well over 90 percent of what applicants for licenses were required to learn was irrelevant to what African hairbraiders actually did.
There’s no denying that expensive and complicated licensing requirements for hair stylists and other entry-level professions have a profound and negative impact on racial minorities and often push minority-owned businesses into the underground economy. Licensing laws also give political elites leverage in political disputes for minorities; I recently blogged about how taxi licensing laws helped officials in Montgomery, Alabama, resist Martin Luther King’s famous bus boycott.