Government Intervention

To Speed Economic Recovery, Release the Brakes

Government gets in the way of healthy economic activity.


By most accounts, the current economic recovery has been slower than a tortoise with a bad hangover. Experts disagree about why. One possible explanation could be found in the offices of Medarva Healthcare in Richmond.

Back in January of 2015, Medarva asked for the state's permission to move two operating rooms from their current location at the Stony Point Surgery Center to the West Creek Medical Park, about a half-hour's drive away. You might think that the decision about whether Medarva moves a couple of operating rooms ought to be up to Medarva, and you would be right about that—in theory.

In Virginia, however, such decisions require the state's approval, because the state maintains a Certificate of Public Need (COPN) law. Congress forced states to adopt such laws to address problems created by federal cost-plus reimbursement formulas; the idea was that government could prevent unnecessary duplication of services and thereby hold down health-care costs.

It didn't work. Eventually Washington wised up, changed the formulas and repealed the mandate. Several states ditched their COPN laws, but not Virginia.

It should have, for reasons that are overdetermined. Repeated analyses by the Justice Department and the Federal Trade Commission have found that COPN regulations hurt competition, "harm consumers," and not only fail to contain costs but "can actually lead to price increases." Yet efforts to repeal Virginia's COPN law have so far been blocked, thanks to large hospital chains that benefit from having the government stifle their competition.

And so this May, 16 months after Medarva asked permission to move two operating rooms, the commonwealth in its imperial majesty and wisdom said no.

In language that would have been familiar to a Soviet commissar, the state said the proposal was inconsistent with the State Medical Facilities Plan—and besides, "unused capacity exists and is accessible to the population of" Health Planning District 15, which is located in Health Planning Region IV. For this, Medarva has spent "north of $220,000" on legal assistance, says its CEO, Bruce Kupper—money that could have gone to "screening pre-K kids for vision problems," investments in new technology, or a host of other, better uses.

By itself, Medarva's proposal will not transform the American economy, or even Virginia's. But it is not an isolated case. In 36 states, medical providers have to waste many months and many tens—sometimes even hundreds—of thousands of dollars seeking… permission to spend their own money.

COPN laws are symptomatic of a much broader problem. "Permit Delays Choke Housing Supply," The Wall Street Journal reported the other day. According to a new study by real estate tracking company Trulia, home construction lags behind the 30-year average, and behind demand—"but the rate at which builders are bringing supply to the market as prices go up varies widely across the country. … The longer the average delay in getting building-permit approvals in a market, the less responsive the housing supply was during periods of increased demand."

The data back that up: In Jacksonville and San Antonio, permits take about four months; over the past decade the housing supply increased 43 percent and 46 percent, respectively, and housing prices increased 107 percent in each city. By contrast, permits in San Francisco and Oakland take more than 10 months, the supply has increased only 12 and 17 percent and housing prices increased by 278 percent and 220 percent.

Sixty-four percent of new jobs are created by small businesses (those with 500 or fewer employees), startups especially. But such businesses are increasingly incommoded by government rules that restrict what they can do or require government's permission to do it. And it is probably no coincidence that the rate of new-business creation has fallen behind the rate of business closures in recent years.

Half a century ago fewer than one worker out of 20 needed a government license to do his job. Now almost one in three does. The licensing regimes, frequently driven by industry incumbents, often make little sense: In Nevada, you need two years of training to become a travel guide, but only 26 days to become an emergency medical technician. If you want to shine shoes in the District of Columbia, you need four different licenses. Occupational licensing has grown so burdensome even the Obama White House has proposed reform.

If you want to drive for Uber in Austin, you can't—the companies pulled out after the city imposed punitive new regulations on ride-sharing companies. (Drunk driving arrests in Austin quickly jumped.) If, like Tesla, you want to sell cars directly to the public in Virginia, you can't do that either—it's against the law. The commonwealth is still undecided about the merits of Airbnb and other spot-rental activity. If you want to open a traditional bed-and-breakfast, be prepared for months' worth of costly permitting and renovations.

All of these regulations apply brakes to the economy—and all of them are imposed by state and local governments. We haven't even touched yet on the profound effects from federal regulations such as Sarbanes-Oxley (ask an accountant friend about that sometime) or Dodd-Frank. According to some reasearch, Dodd-Frank has made it much more difficult for startups and other small businesses to get the loans they need to invest and create new jobs.

Economic vitality requires economic action—but economic actors find themselves increasingly tied down by red tape at every turn. If we want to unleash economic growth, we're going to have to cut some of it. Virginia's COPN law would be a good place to start.

This column originally appeared in the Richmond Times-Dispatch.