Business Licensing Makes It Too Easy for Politicians To Punish People They Don't Like

Making a living is a right, not a privilege, and should be respected as such.

Incensed by scenes of people celebrating the end (official or otherwise) of coronavirus lockdowns, New York Gov. Andrew Cuomo recently threatened to strip bars and restaurants of their licenses if they don't enforce social-distancing rules. There was no hint of due process in his message, just the prospect of establishments that allegedly break rules losing government-issued permission to do business—and another stark reminder that requiring people to get licenses turns making a living from a right into a privilege and puts people under the thumb of the state.

The governor's threat to deprive people of permission to make a living was explicit. "Now we're getting reports from all across the state that there are large gatherings, social distancing is being violated, people are not wearing masks. We have gotten 25,000 complaints to the State of businesses that are in violation of the reopening plan—25,000 complaints," Cuomo snarled earlier this week. "A bar or restaurant that is violating these rules can lose their liquor license. State Liquor Authority inspectors are out. We have a task force of State investigators who are out. You can lose your liquor license and that is a big deal for a bar or restaurant."

In what was a typical Cuomo tantrum, the governor also threatened people drinking in public and unmasked protesters with fines "for open container and social distancing violations." In those cases, though, he has to settle for using the criminal justice system and its (admittedly limited) safeguards to impose defined penalties on people whose identities the authorities may never learn. But loss of a liquor license, as he admits, "is a big deal for a bar or restaurant"—it's an arbitrarily imposed death sentence that can end the existence of any establishment that offends a thin-skinned state official.

That ability to extort compliance from business owners with a minimum of muss and fuss was the whole idea of licensing from the beginning, and especially of liquor licensing. After Prohibition, with the country still divided between wets and dries, governments turned the selling of alcohol into a privilege that could be revoked by the powers-that-be.

"When repeal comes, the 21st amendment gives states the authority to control alcoholic sales and consumption. Each state is issuing licenses," Daniel Okrent, the author of Last Call: the Rise and Fall of Prohibition, noted in an interview with Bloomberg. After that, states started instituting rules like "you have to be 21, and you can't serve this, you can't serve something over such-and-such proof, and you can't do it on a Sunday. You have to close it at midnight. The bar owners now had licenses that they could lose, and to protect themselves and their business they had to abide by these rules."

As you might expect, the arm-twisting character of licensing lends itself to unofficial abuse.

"Clark County Business License registers businesses to ensure public health and safety while generating essential revenue," boasts an interesting online history of local business licensing published by Clark County, Nevada. The history then notes that Business License Department Director "Tex Gates was suspended from his duties by newly elected Sheriff John McCarthy and eventually resigned from his post on January 5, 1979, as a result of federal grand jury indictments related to the extortion of business license fees." Obviously, Gates was very enthusiastic about "generating essential revenue," and—who knows?—maybe he enhanced his own health and safety in the process.

But the arm-twisting character of licensing also lends itself to official abuse.

"1961: January, women banned from bartending by Liquor and Gaming Licensing Board, the ban was repealed in 1965," adds the Clark County licensing history. "1998: April, applicants for new business licenses required to comply with Child Support laws."

What does a person's sex or compliance with child-support obligations have to do with the ability to mix drinks and operate private enterprises? Nothing at all, of course. In fact, being forbidden to open a business may make it impossible to meet any financial obligations.

But denial of government permission to make a living is a powerful way to enforce officeholders' prejudices, even those that fade away and become embarrassing in short order. Such arguments have been raised—frequently – with regard to occupational licensing. They apply just as readily to the broader realm of business licensing.

Licensing, then, is about power and control. It can be used to extort compliance with the whims of government officials, whether that amounts to private gain, public purposes of the moment, or—as with the governor of New York—satisfying the petulance of an officeholder who can't abide being contradicted or defied.

And for those who submit to the humiliation of asking government for permission to operate, staying in compliance is always a moving target, subject to the likelihood that there's something you missed. The licensing page for Washington state's Department of Revenue, for example, includes a host of sections and subsections regarding basic licensing, endorsements from different jurisdictions, trade names, hiring employees, specific activities, and more.

There's a reason why license requirements are included among the factors that researchers say drive people to work off the books. It can be much easier and cheaper to ignore the rules and paperwork. That's exactly what I did when I ran a house-painting and home-repair business in Boston, many years ago, and realized what a hassle it would be to do things legally.

And why should government officials be able to exercise such power and control? If they believe people are violating rules (whether wise rules or the ever-expanding web of stupid ones), let them prove their point in front of courts that might or might not uphold the charges. Does that sound more difficult? Good.

It should never be easy to deprive people of their liberty or their means of making a living.

But government officials want to be able to punish people without jumping through hoops or risking push-back. They like a permission society, in which offending the powerful can result in the revocation of grants of privilege without formality or delay. A system of privileges rather than rights puts everybody at risk of officials' pleasures, if it doesn't drive them underground.

That's good enough reason to get rid of licensing requirements. We should strip Cuomo and other politicians of their ability to deprive people who offend them of the means to make a living, and make officials enforce any rules they impose the hard way: with due process and the potential for losing.