Is Protectionism A Legitimate State Interest?

Thank you to Prof. Volokh for the opportunity to discuss my book The Right To Earn A Living. One of the major themes of my book is that under today’s legal standards, courts refuse to participate in one of the mist crucial tasks of a free government: to prevent the exploitation if government’s coercive powers by self-interested lobbying groups. As originally understood, the “due process of law” clause barred the government from using its powers in fundamentally arbitrary ways — meaning, in ways that only promoted the interests of powerful factions, without a serious connection to the true public welfare.

In The Federalist, Madison makes it clear that while the first task of government is to protect the people, equally important is to “oblige [the government] to control itself” — that is, to prevent the “mischiefs of faction,” which means, the tendency of private interest groups to wield government power to advance their private interests, instead of “the permanent and aggregate interest of the community.” Courts have an important role to play in preventing thus evil, but thanks to the “rational basis test” that courts use today when addressing cases about private property rights and the freedom of economic choice, that role is going unfilled. Instead, courts simply look the other way, or cooperate in abuses by rationalizing unjust restrictions on economic freedom.

Consider for example, the case of Michael Munie. Munie is a businessman in St. Louis, Missouri, where he runs ABC Quality Moving. Running a moving company in Missouri ought to be a simple matter of owning a truck and painting “Moving Company” on the side of it. But in Missouri, if you want to run a moving business, you first have to get permission from all the existing moving companies.

When you file an application for the legally required moving company license, the stare Department of Transportation notifies all the existing moving companies, and they enjoy the exclusive privilege of filing objections to your license. When that happens, you’re required to prove to a group of bureaucrats that there needs to be a new moving company. How do you prove such a thing? Nobody knows. There are no real standards, and even if there were, it’s not really possible to prove there “needs” to be a new business in just about any trade. Could you have proven, before Starbucks got big, that there “needed” to be a new coffee shop?

Such laws do not protect consumers — they protect established companies against fair competition. This is a prime example of what public choice economics calls “rent seeking,” and what Madison called “faction.” It’s inherently arbitrary — it restricts liberty for no other reason than that the legislature chose to do it — and it’s contrary to centuries of Anglo-American common law precedent, that, since at least The Case of Monopolies, has barred government from dividing up the market to give economic advantages to preferred businesses. Last month, I filed a civil rights case challenging the constitutionality of the Missouri law.

Sadly, the “rational basis” test that courts apply to laws restricting economic liberty places the burden of proof on Munie to show that the law has no reasonable connection to a legitimate state interest. That means he must prove a negative, something that’s impossible if taken literally. And what exactly is a “legitimate state interest”? Nobody actually knows. In Nollan v. California Coastal Commission in 1987, the Supreme Court admitted, “Our cases have not elaborated on the standards for determining what constitutes a ‘legitimate state interest.’” But if we don’t know what a legitimate state interest is, how can we tell whether something is “rationally related” to it? You can’t judge the propriety of means without knowing what ends you’re pursuing.

In a case like Munie’s, the question becomes, “is protecting established businesses against competition a legitimate state interest?” And on that issue, there’s a split between the circuits.

In 2002, the Sixth Circuit Court of Appeals held that government may not use occupational licensing laws for the some purpose of protecting established companies from competition. That case, Craigmiles v. Giles, struck down Tennessee’s law that prohibited anyone except licensed funeral directors from selling coffins — in other words, it required people to spend two years in training, learning how to embalm bodies and whatnot, simply to sell a box.

But in a virtually identical case in Oklahoma, the Tenth Circuit Court of Appeals held the opposite. In Powers v. Harris, the court said that “intrastate economic protectionism constitutes a legitimate state interest.”

Then in 2007, the Ninth Circuit agreed with the Sixth, barring states from using licensing laws simply to protect established companies from competition. In that case (which I litigated) the court held that states may use licensing laws only to protect the public in some way — not for the arbitrary purpose of promoting the economic interests of a politically powerful constituency.

That last rule is just what we mean when we say “due process of law.” The due process principle requires government to act only in a lawful, and not in an arbitrary way — that is, only in the furtherance of genuinely public ends, and not for the private benefit of a particular group or for the mere ipse dixit whim of the lawmaking authority. Courts already accept this principle when it comes to other rights — such as freedom of speech or religion. Yet because of the look-the-other-way attitude embodied in the “rational basis” test — because courts systematically ignore the freedom to make economic choices — legislatures have almost unlimited power to violate that freedom, not in the service of the public good, but simply to reward politically successful groups.

For more, see my article, “Is Economic Exclusion A Legitimate State Interest?”

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