by Eric Shierman
HB3409 stands out as the best piece of legislation that will come out of the 2013 Oregon legislative session. By exempting work as an African American hair stylist specializing in what is called “Natural Hair Care” from the ridiculous barriers to entry currently being imposed such as requiring these workers who are already skilled in the knowledge of how to manage people of African descent’s hair without the use of chemicals or scissors by continuous braiding to undergo 1,700 hours of expensive cosmetology instruction that they don’t need. This bill does not create jobs in one sector of the economy by transferring resources away from other sectors. HB3409 allows true net economic growth to take hold by removing government imposed friction on entrepreneurial activity.
Better yet this bill is the epitome of bipartisanship. Sponsored by both Alissa Keny-Guyer D-Portland and Kim Thatcher R-Keizer, its origins come from a joint effort of the Cascade Policy Institute and the Urban League of Portland. The Oregonian has called it an “unlikely alliance” but a better understanding about what it is that Cascade actually does makes this kind of collaborative work more likely than you would think.
Our state’s free market think tank is actually pro-market not pro-business. There is a difference. Actual business leaders do not naturally embrace the creative destruction of the marketplace. Indeed behind nearly every needless regulation stands a business interest using the coercive power of the state as an anticompetitive tool for its own profit.
Labor market deregulation looms large as the most effective means of achieving growth in the developed world today. As a global sovereign debt crisis lingers, a false dichotomy has emerged between the pursuit of fiscal discipline or growth. Since government spending merely transfers existing wealth from one area of an economy to another, limiting it to the necessities does not necessarily stave off growth.
Organic growth comes from new production, new entrepreneurship. When we lack aggregate demand in an economy, let’s not forget that demand is not just the desire to buy; it’s also the ability to buy. Supply comes first; demand comes second. We must first create things that people want to buy from us before we have the ability to buy from them. Supply creates its own demand. At the aggregate level of the macroeconomy, to increase demand we need to be freeing up the ability of people to create for themselves the means to buy.
So as the sovereign debt bubble continues to implode, Europe is ahead of us and Greece is ahead of the rest of Europe. Greece leads in terms of its debt to GDP ratio, but it also leads in terms of labor market rigidity. Anyone who follows the crisis in Europe closely knows that labor market deregulation is right up there at the forefront of the structural reforms being taken by countries that have been effectively dealing with this crisis. Greece of course has not been one of them.
A great example of this, which has lingered in my mind, comes from probably the best analyst of the Greek economy that I have been following over the years, Meagan Greene:
While the political elite and public in Greece remain dedicated—for now—to the common currency, it is difficult to see how Greece will manage to restructure its economy and return to growth before either the troika or the Greeks themselves run out of patience. A number of contacts described their experiences trying to open a business or buy property, which involved high fees, several trips to different tax offices and months of navigating bureaucracy. This gets at the very heart of how Greece landed up in its current condition and why rapid change is unlikely. Entire professions such as notaries, lawyers, tax men, architects and inspectors have for years had automatic income in that they have formed the layers of bureaucracy involved in doing business in Greece. At least half of the MPs in Greek parliament hail from these industries, and consequently are incentivized to perpetuate the bureaucracy that impedes opening up, running or finding investment for businesses.
This is best encapsulated in an anecdote from my visit to Athens. A friend and I met up at a new bookstore and café in the centre of town, which has only been open for a month. The establishment is in the center of an area filled with bars, and the owner decided the neighborhood could use a place for people to convene and talk without having to drink alcohol and listen to loud music. After we sat down, we asked the waitress for a coffee. She thanked us for our order and immediately turned and walked out the front door. My friend explained that the owner of the bookstore/café couldn’t get a license to provide coffee. She had tried to just buy a coffee machine and give the coffee away for free, thinking that lingering patrons would boost book sales. However, giving away coffee was illegal as well. Instead, the owner had to strike a deal with a bar across the street, whereby they make the coffee and the waitress spends all day shuttling between the bar and the bookstore/café. My friend also explained to me that books could not be purchased at the bookstore, as it was after 18h and it is illegal to sell books in Greece beyond that hour. I was in a bookstore/café that could neither sell books nor make coffee.
Things aren’t that bad here, but it’s very important to remember that government spending is not all of Greece’s problems. Erecting barriers to entrepreneurial activity builds an economic structure that squelches growth, presenting as serious a problem as budgets and tax policy.
We all know we don’t want to ever find ourselves in Greece’s fiscal shoes, but we need to be more wary of wearing its regulatory shoes as well. At both the national level and here in Oregon a commitment to fiscal discipline is starting to gel. Obama has now offered the first serious budget of his presidential career and Oregon Democrats seem to understand we face real fiscal trade-offs, though our Governor grasps this better than House Democrats do. Yet in terms of growth, more bills were passed to extend red tape in our state’s labor market than cut it.
HB3409 stands as a very small reform for a very small market, but it’s also good news. I am always looking for good news to write about. It carried on the House floor last Tuesday with a unanimous vote and is now advancing in the Senate with broad bipartisan backing that does not have to be an unlikely alliance. A consistent and principled liberty agenda in general will likely continue to broaden the Republicans’ coalition of support long term, but a new focus on occupational licensing in particular shows promise to yield good results very quickly.